UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
  FORM 10-Q
  (Mark
One)
  x
              Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the quarterly period ended September 30,
      2008oro
              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: 333-141453
  BELVEDERE
SOCAL
 (Exact
name of registrant as specified in its charter)
  California
              20-8356735(State
      of incorporation)
              (I.R.S.
      Employer Identification No.)
  One
      Maritime Plaza, Suite 825 San Francisco, CA
              94111(Address
      of principal executive offices)
              (Zip
      Code)
  (415)
434 - 1236
 (Registrant’s
telephone number, including area code)
  Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
 Yes
       x
              
              No
       o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
  Large
      accelerated filer o
              Accelerated
      filer oNon-accelerated
      filer   o (Do not
      check if a smaller reporting company)
              Smaller
      reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
 Yes
       o
              
              No 
      x
  Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
  As
of  November 14, 2008 there were 3,331,859 shares of common
stock, no par value, outstanding.
 
 
 
  BELVEDERE
SoCAL
 TABLE
OF CONTENTS
 
 PagePART I
      – FINANCIAL INFORMATIONITEM 1.
              FINANCIAL
      STATEMENTS
              F-1ITEM 2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
              3ITEM 3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              15ITEM 4.
              CONTROLS
      AND PROCEDURES
              16PART
      II – OTHER INFORMATIONITEM 1.
              LEGAL
      PROCEEDINGS
              17ITEM 1A.
              RISK
      FACTORS
              17ITEM 2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              17ITEM 3.
              DEFAULTS
      UPON SENIOR SECURITIES
              17ITEM 4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
              17ITEM
      5.
              OTHER
      INFORMATION
              17ITEM 6.
              EXHIBITS
              18SIGNATURES
              19CERTIFICATIONS
  2
  
 PART
I – FINANCIAL INFORMATION
  Item
1.  Financial Statements
  BELVEDERE
SoCAL AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS (UNAUDITED)
  September
      30,2008
              
              
              December
      31, 2007Cash
      and due from banks
              
              $
              9,871,092
              
              
              $
              4,401,632Federal
      Funds sold
              
              
              5,955,000
              
              
              
              9,130,000Total
      cash and cash equivalents
              
              
              15,826,092
              
              
              
              13,531,632Interest-bearing
      deposits in other financial institutions
              
              
              524,000
              
              
              
              100,000Investment
      securities available for sale, amortized cost of $9,875,715 at September
      30, 2008 and $8,769,293 at December 31, 2007
              
              
              9,207,715
              
              
              
              8,786,293Investment
      securities held-to-maturity, fair market value of $21,530,122 at
      September 30, 2008
              
              
              21,112,800
              
              
              
              -Loans,
      net of allowance for loan losses of $5,622,080 at September 30, 2008 and
      $4,077,213 at December 31, 2007
              
              
              303,374,209
              
              
              
              210,257,162Premises
      and equipment, net
              
              
              5,282,896
              
              
              
              461,760Goodwill
              
              
              23,990,432
              
              
              
              29,459,783Other
      intangible assets, net
              
              
              2,717,842
              
              
              
              2,368,172Federal
      Home Loan Bank stock, at cost
              
              
              1,101,500
              
              
              
              916,300Other
      real estate owned
              
              
              1,217,905
              
              
              
              -Accrued
      interest and other assets
              
              
              10,613,718
              
              
              
              4,198,740Total
      assets
              
              $
              394,969,109
              
              
              $
              270,079,842DepositsNoninterest
      bearing demand
              
              $
              97,268,173
              
              
              $
              73,358,729NOW,
      savings and money market accounts
              
              
              87,394,799
              
              
              
              49,514,411Time
      deposits under $100,000
              
              
              86,742,434
              
              
              
              45,460,646Time
      deposits over $100,000
              
              
              49,687,318
              
              
              
              25,715,811Total
      deposits
              
              
              321,092,724
              
              
              
              194,049,597Federal
      Home Loan Bank advances
              
              
              6,000,000
              
              
              
              18,000,000Note
      payable, net of fees
              
              
              7,959,123
              
              
              
              -Junior
      subordinated debentures, net of issuance costs
              
              
              15,425,867
              
              
              
              -Accrued
      interest and other liabilities
              
              
              2,677,679
              
              
              
              3,044,416Total
      liabilities
              
              
              353,155,393
              
              
              
              215,094,013Commitments
      and Contingencies (Note 3)Shareholders’
      equity:Preferred
      Stock - non-cumulative, perpetual, no par value;authorized
      20,000,000 shares; 900,860 and 806,666 shares issuedand
      outstanding at September 30, 2008 and December 31, 2007,
      respectively
              
              
              22,121,500
              
              
              
              19,766,650Common
      Stock - no par value; authorized 20,000,000 shares;3,331,776
      and 2,011,343 shares issued and outstanding atSeptember
      30, 2008 and December 31, 2007, respectively
              
              
              57,990,030
              
              
              
              35,749,587Accumulated
      deficit
              
              
              (37,903,814
              )
              
              
              (540,408
              )Accumulated
      other comprehensive (loss) income, net of taxes
              
              
              (394,000
              )
              
              
              10,000Total
      shareholders’ equity
              
              
              41,813,716
              
              
              
              54,985,829Total
      liabilities and shareholders' equity
              
              $
              394,969,109
              
              
              $
              270,079,842
   See notes
to unaudited consolidated financial statements
  F-1
  BELVEDERE
SoCAL AND SUBSIDIARIES
 AND
ITS PREDECESSOR BUSINESS PROFESSIONAL BUSINESS BANK
 CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
  Three-month
      periods ended
                  September
      30,
                
                
                Nine-month
      periods ended
                  September
      30,Belvedere
                    SoCal
      and Subsidiaries
                
                
                ProfessionalBusiness
      Bank
                
                
                Belvedere
                  SoCal
      and Subsidiaries
                
                
                ProfessionalBusiness
      Bank2008
                
                
                2007
                
                
                2008
                
                
                2007Interest
      income:Interest
      and fees on loans
                
                $
                5,395,535
                
                
                $
                4,105,521
                
                
                $
                16,211,804
                
                
                $
                10,878,506Interest
      on investment securities
                
                
                316,502
                
                
                
                161,060
                
                
                
                1,002,164
                
                
                
                636,232Other
      interest income
                
                
                55,790
                
                
                
                42,199
                
                
                
                329,437
                
                
                
                346,548Total
      interest income
                
                
                5,767,827
                
                
                
                4,308,780
                
                
                
                17,543,405
                
                
                
                11,861,286Interest
      expense:Deposits
                
                
                1,456,625
                
                
                
                1,055,753
                
                
                
                4,500,370
                
                
                
                3,389,416Junior
      subordinated debentures
                
                
                387,466
                
                
                
                -
                
                
                
                1,031,800
                
                
                
                -Other
      borrowings
                
                
                129,787
                
                
                
                194,704
                
                
                
                570,937
                
                
                
                270,379Total
      interest expense
                
                
                1,973,878
                
                
                
                1,250,457
                
                
                
                6,103,107
                
                
                
                3,659,795Net
      interest income before provision for loan losses
                
                
                3,793,949
                
                
                
                3,058,323
                
                
                
                11,440,298
                
                
                
                8,201,491Provision
      for loan losses
                
                
                255,765
                
                
                
                983,000
                
                
                
                2,316,295
                
                
                
                1,520,000Net
      interest income after provision for loan losses
                
                
                3,538,184
                
                
                
                2,075,323
                
                
                
                9,124,003
                
                
                
                6,681,491Non-interest
      income:Service
      charges and fees
                
                
                226,964
                
                
                
                100,436
                
                
                
                773,781
                
                
                
                291,810Loss
      on sales of available-for-sale investment securities
                
                
                (116,431
                )
                
                
                -
                
                
                
                (116,431
                )
                
                
                -Other
      income
                
                
                65,159
                
                
                
                (17,076
                )
                
                
                208,440
                
                
                
                27,997Total
      non-interest income
                
                
                175,692
                
                
                
                83,360
                
                
                
                865,790
                
                
                
                319,807Non-interest
      expense:Salaries
      and employee benefits
                
                
                2,161,301
                
                
                
                1,316,074
                
                
                
                6,782,574
                
                
                
                4,167,056Occupancy
      and equipment
                
                
                369,910
                
                
                
                176,762
                
                
                
                1,084,985
                
                
                
                496,718Professional
      fees
                
                
                743,872
                
                
                
                298,962
                
                
                
                1,845,512
                
                
                
                924,943Data
      processing
                
                
                342,686
                
                
                
                124,316
                
                
                
                1,000,316
                
                
                
                421,296Marketing
      and business promotion
                
                
                35,715
                
                
                
                38,490
                
                
                
                149,010
                
                
                
                102,834Office
      and administrative expenses
                
                
                241,645
                
                
                
                194,415
                
                
                
                734,605
                
                
                
                579,758Goodwill
      impairment
                
                
                33,301,000
                
                
                
                -
                
                
                
                33,301,000
                
                
                
                -Other
      expenses
                
                
                623,598
                
                
                
                175,128
                
                
                
                1,452,607
                
                
                
                506,798Total
      non-interest expense
                
                
                37,819,727
                
                
                
                2,324,147
                
                
                
                46,350,609
                
                
                
                7,199,403Loss
      before income taxes
                
                
                (34,105,852
                )
                
                
                (165,464
                )
                
                
                (36,360,816
                )
                
                
                (198,105
                )Provision
      for income tax (benefit) expense
                
                
                (353,626
                )
                
                
                (15,375
                )
                
                
                (1,352,260
                )
                
                
                105,362Net
      loss
                
                $
                (33,752,226
                )
                
                $
                (150,089
                )
                
                $
                (35,008,556
                )
                
                $
                (303,467
                )Net
      loss per share:Basic
      and diluted
                
                $
                (10.38
                )
                
                $
                (0.08
                )
                
                $
                (11.75
                )
                
                $
                (0.15
                )
   See notes
to unaudited consolidated financial statements
  F-2
  BELVEDERE
SoCAL AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
 FOR
THE PERIOD FROM JANUARY 17, 2007 (INCEPTION) TO SEPTEMBER 30, 2008
  Preferred
      Stock
              
              
              Common
      Stock
              
              
              
              
              
              
              
              
              Accumulated
                OtherNumber
                of
      Shares
              
              
              Amount
              
              
              Number
                of
      Shares
              
              
              Amount
              
              
              Comprehensive
      Loss
              
              
              Accumulated
                Deficit
              
              
              Comprehensive
      (Loss) IncomeCommon
      stock issued
              
              
              
              
              
              
              
              
              1,125,539
              
              
              $
              11,500,000Series
      A non-cumulative perpetual preferred stock issued,
      net of issuance costs
              
              
              800,000
              
              
              $
              19,600,000Common
      stock issued for acquisition
      of Professional Business Bank, net of issuance costs
              
              
              
              
              
              
              
              
              
              
              885,804
              
              
              
              24,249,587Comprehensive
      loss:Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (373,758
              )
              
              $
              (373,758
              )Unrealized
      gain on available-for-sale securities, net of tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,000
              
              
              
              
              
              
              $
              10,000Total
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (363,758
              )Series
      A preferred stock dividend declared
              
              
              6,666
              
              
              
              166,650
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (166,650
              )Balance
      December 31, 2007
              
              
              806,666
              
              
              
              19,766,650
              
              
              
              2,011,343
              
              
              
              35,749,587
              
              
              
              
              
              
              
              (540,408)
              
              
              
              10,000Warrants
      exercised
              
              
              
              
              
              
              
              
              
              
              7,001
              
              
              
              70Stock-based
      compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              240,424Common
      stock issued
              
              
              
              
              
              
              
              
              
              
              1,313,432
              
              
              
              22,000,000Cash
      payments for fractionalshares
              
              
              
              
              
              
              
              
              
              
              
              (51
              )Comprehensive
      loss:Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (35,008,556
              )
              
              
              (35,008,556
              )Change
      in unrealized gain (loss) on available-for-sale securities, net
      of tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (404,000
              )
              
              
              
              
              
              
              (404,000
              )Total
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (35,412,556
              )Series
      A preferred stock dividends declared
              
              
              94,194
              
              
              
              2,354,850
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,354,850
              )Balance
      September 30, 2008
              
              
              900,860
              
              
              $
              22,121,500
              
              
              
              3,331,776
              
              
              $
              57,990,030
              
              
              
              
              
              
              $
              (37,903,814
              )
              
              $
              (394,000
              )
   See notes
to unaudited consolidated financial statements
  F-3
  BELVEDERE
SoCAL AND SUBSIDIARIES
 AND
ITS PREDECESSOR BUSINESS PROFESSIONAL BUSINESS BANK
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
 NINE-MONTH
PERIODS ENDED SEPTEMBER 30, 2008 AND 2007
  Belvedere
                SoCal
      and Subsidiaries
              
              
              Professional
                Business
                Bank2008
              
              
              2007Operating
      activities:Net
      loss
              
              $
              (35,008,556
              )
              
              $
              (303,467)Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activities:Depreciation
      and amortization expense
              
              
              373,734
              
              
              
              121,044Net
      loss on sales of available-for-sale investment
    securities
              
              
              116,431
              
              
              
              -Provision
      for loan losses
              
              
              2,316,295
              
              
              
              1,520,000Stock-based
      compensation
              
              
              240,424
              
              
              
              162,014Loss
      on sale of other real estate owned
              
              
              69,716
              
              
              
              -Write
      down of other real estate owned to market value
              
              
              57,000
              
              
              
              -Goodwill
      impairment
              
              
              33,301,000
              
              
              
              -Net
      decrease (increase) in accrued interest and other assets
              
              
              2,900,905
              
              
              
              (855,716
              )Net
      (decrease) increase in accrued interest and other
    liabilities
              
              
              (9,351,326
              )
              
              
              227,573Net
      cash (used in) provided by operating activities
              
              
              (4,984,377
              )
              
              
              871,448Investing
      activities:Proceeds
      from maturities and principal paydowns of available-for-sale investment
      securities
              
              
              22,493,982
              
              
              
              2,797,848PrProceeds
      from sales of available-for-sale investment securities
              
              
              18,343,387
              
              
              
              -Proceeds
      from issuance of junior subordinated debentures
              
              
              464,000
              
              
              
              -Purchases
      of held-to-maturity investment securities
              
              
              (21,105,527
              )
              
              
              -Net
      decrease in interest-bearing deposits in other financial
      institutions
              
              
              2,184,000
              
              
              
              4,799,000Increase
      in loans, net
              
              
              (18,051,529
              )
              
              
              (50,403,304
              )Purchases
      of premises and equipment
              
              
              (228,904
              )
              
              
              (217,935
              )Purchase
      of FHLB stock
              
              
              (185,200
              )
              
              
              (710,800
              )Proceeds
      from sale of other real estate owned
              
              
              712,184
              
              
              
              -Cash
      received in connection with the acquisition of Spectrum Bank, net of cash
      paid
              
              
              127,811
              
              
              
              -Net
      cash provided by (used in) investing activities
              
              
              4,754,204
              
              
              
              (43,735,191
              )Financing
      activities:Net
      (decrease) increase in deposits
              
              
              (14,967,386
              )
              
              
              38,254,290Net
      (decrease) increase in Federal Home Loan Bank
advances
              
              
              (12,000,000
              )
              
              
              2,000,000Proceeds
      from note payable
              
              
              7,956,000
              
              
              
              -Investment
      in Belvedere Statutory Trust I
              
              
              (464,000
              )
              
              
              -Proceeds
      from exercise of stock options
              
              
              -
              
              
              
              253,859Proceeds
      from sale of stock
              
              
              22,000,000
              
              
              
              -Cash
      payments for fractional shares
              
              
              (51
              )
              
              
              -Proceeds
      from exercise of warrants
              
              
              70
              
              
              
              -Net
      cash provided by financing activities
              
              
              2,524,633
              
              
              
              40,508,149Increase
      (decrease) in cash and cash equivalents
              
              
              2,294,460
              
              
              
              (2,355,594)Cash
      and cash equivalents, beginning of period
              
              
              13,531,632
              
              
              
              9,683,852Cash
      and cash equivalents, end of period
              
              $
              15,826,092
              
              
              $
              7,328,258Noncash
      financing activitiesLoans
      transferred to other real estate owned
              
              $
              2,056,905
              
              
              $
              -Preferred
      stock dividends declared
              
              $
              2,354,850
              
              
              $
              -Supplemental
      cash flow informationInterest
      paid
              
              $
              6,167,433
              
              
              $
              1,153,388Taxes
      paid
              
              $
              2,400
              
              
              $
              268,000
   See notes
to unaudited consolidated financial statements
  F-4
  BELVEDERE
SoCAL AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (Unaudited)
  1.
              Nature
      of Business and Basis of
Presentation
  Belvedere
SoCal ("SoCal"), a bank holding company incorporated in 2007 in the state
of California, was formed by its majority shareholder, Belvedere Capital
Fund II L.P. (the “Fund”), a Delaware limited partnership formed in
2002.  SoCal was formed specifically to acquire Professional
Business Bank (“PBB"), which occurred on November 23, 2007, and to be the
platform for acquiring other banks in southern California.  SoCal
closed the acquisition of Spectrum Bank (“Spectrum”) on January 31, 2008,
further expanding its market presence. Effective
July 3, 2008, SoCal completed the merger of  Spectrum Bank into
Professional Business Bank.  The merger was accounted for as a
transfer of assets and liabilities between entities under common control and,
accordingly, the assets and liabilities of Spectrum were transferred at their
carrying amounts, similar to a pooling of interests.  However, the
existing Spectrum branches and certain customer-related activities will continue
to be conducted using the Spectrum brand. SoCal
issued an additional 1,313,432 shares of common stock to the Fund for proceeds
of $22 million to fund the Spectrum acquisition. After sale of the shares, the
Fund now owns approximately 73% of SoCal's common stock. Collectively, PBB and
Spectrum are referred to as the "Subsidiary Bank."
  Prior to
November 23, 2007 SoCal had no significant operations. The consolidated balance
sheet at September 30, 2008 and the results of operations for the three-month
and nine-month periods ended September 30, 2008 include the operations of
Spectrum subsequent to January 31, 2008. The results of operations for the
three-month and nine-month periods ended September 30, 2007 are for Professional
Business Bank only. Securities and Exchange Commission rules require the
presentation of certain prior period comparative financial statements of the
acquired business when the acquiring company succeeds to substantially all of
the business and the registrant’s own operations prior to the acquisition appear
insignificant relative to the business acquired.
  The
September 30, 2008 unaudited consolidated financial statements include the
accounts of SoCal and its Subsidiary Bank.  SoCal has one other
wholly-owned subsidiary, Belvedere SoCal Statutory Trust I (the “Trust”), which
was formed in 2008, to issue trust preferred securities. FIN 46R does not allow
the consolidation of the Trust into SoCal's consolidated financial
statements. As a result, the accompanying consolidated balance
sheets include the investment in the Trust of $464 thousand in other
assets.
  The
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation, in all material respects, of the
financial position and operating results for the interim
periods.   The results of operations for the
nine-month period ended September 30, 2008 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, 2008.  The
balance sheet data at December 31, 2007 was derived from the audited financial
statements.
  This
information should be read in conjunction with the audited financial statements
and notes thereto included in SoCal's Form 10-KSB for the fiscal year ended
December 31, 2007.
 
 2.
              Recent
      Accounting Pronouncements
  In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007), Business Combinations(“SFAS
No. 141(R)”). SFAS No. 141(R), among other things, establishes
principles and requirements for how the acquirer in a business combination
(i) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquired business, (ii) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase, and
(iii) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. SoCal is required to adopt SFAS No. 141(R) for all
business combinations for which the acquisition date is on or after
January 1, 2009. Earlier adoption is prohibited. This standard will change
the accounting treatment for business combinations on a prospective
basis.
  Effective
January 1, 2008, SoCal adopted SFAS No. 157, Fair Value Measurements,
which among other things, requires enhanced disclosures about financial
instruments carried at fair value. SFAS No. 157 establishes a hierarchical
disclosure framework associated with the level of observable pricing scenarios
utilized in measuring financial instruments at fair value. The degree of
judgment utilized in measuring the fair value of financial instruments generally
correlates to the level of the observable pricing scenario. Financial
instruments with readily available active quoted prices or for which fair value
can be measured from actively quoted prices generally will have a higher degree
of observable pricing and a lesser degree of judgment utilized in measuring fair
value. Conversely, financial instruments rarely traded or not quoted will
generally have little or no observable pricing and a higher degree of judgment
utilized in measuring fair value. Observable pricing scenarios are impacted by a
number of factors, including the type of financial instrument, whether the
financial instrument is new to the market and not yet established and the
characteristics specific to the transaction.
  On
October 10, 2008, the FASB issued FSP FAS 157-3, “Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active,” which
clarifies how companies should apply the fair value measurement methodologies of
SFAS 157 to financial assets when markets they are traded in are illiquid or
inactive. Under the provisions of this FSP, companies may use their own
assumptions about future cash flows and appropriately risk-adjusted discount
rates when relevant observable inputs are either not available or are based
solely on transaction prices that reflect forced liquidations or distressed
sales. This FSP is effective as of September 30, 2008. There was no impact
to our financial position or results of operations from the adoption of this
FSP.
  F-5
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—Including an Amendment of FASB Statement
No. 115, which permits entities to choose to measure financial
instruments and certain warranty and insurance contracts at fair value. 
SFAS No. 159 applies to all reporting entities, including not-for-profit
organizations, and contains financial statement presentation and disclosure
requirements for assets and liabilities reported at fair value. SFAS
No. 159 is effective as of the beginning of an entity’s first fiscal year
that begins after November 15, 2007. SoCal adopted SFAS No. 159 on
January 1, 2008. SoCal chose not to elect the option to
measure eligible financial assets and liabilities at fair
value.
  3.
              Commitments
      and Contingencies
  In the
normal course of business there are outstanding various commitments to extend
credit which are not reflected in the financial statements, including unfunded
loan commitments of approximately $36.4 million at September 30, 2008 and $62.5
million at December 31, 2007. Such loans relate primarily to real estate
construction loans and revolving lines of credit and other commercial loans.
However, all such unfunded commitments will not necessarily culminate in actual
extensions of credit by SoCal as some of these are expected to expire without
being fully drawn upon.
  Standby
letters of credit are conditional commitments issued to guarantee the
performance or financial obligation of a client to a third party. These
guarantees are issued primarily relating to purchases of inventory or as
security for real estate rents by commercial clients and are typically
short-term in nature. Credit risk is similar to that involved in extending loan
commitments to clients and accordingly, evaluation and collateral requirements
similar to those for loan commitments are used. The majority of all such
commitments are collateralized. Standby letters of credit totaled $1.4
million and $769 thousand at September 30, 2008 and December 31, 2007,
respectively.  SoCal provides a reserve for undisbursed
commitments which totaled $130 thousand and $141 thousand at September 30,
2008 and December 31, 2007, respectively.
  In
connection with the acquisition of Spectrum Bank, SoCal assumed the
following:  leases for two  branches, which expire in 2008 and
2011, and an administrative office, which expires in 2010.  These leases
include provisions for periodic rent increases as well as payment by the lessee
of certain operating expenses.
 
 Total
rent expense for the three- and nine-month periods ended September 30, 2008 was
approximately $62 thousand and $168 thousand, respectively.
 
 The
approximate future minimum annual payments for these leases are as
follows:
  Year
      EndingDecember
      31,2008
              
              $
              62,0002009
              
              
              58,3802010
              
              
              53,9402011
              
              
              34,960Total
              
              $
              209,280
 
  4.
              Comprehensive
      Loss
  Comprehensive income
(loss) is reported in addition to net income (loss) for all periods
presented. Comprehensive (loss) is comprised of net income (loss) plus
other comprehensive income (loss). Other comprehensive income (loss), net of
taxes, was comprised of the unrealized gain (losses) on available-for-sale
investment securities of ($404) thousand and $28 thousand for the nine-month
periods ended September 30, 2008 and 2007 and ($99) thousand and $71 thousand
for the three-month periods ended September 30, 2008 and 2007.
Comprehensive (loss) was ($33.9) million and ($35.4) million for the three-
and nine-month periods ended September 30, 2008,
respectively.  Comprehensive (loss) was ($79) thousand and ($275)
thousand for the three and nine-month periods ended September 30,
2007.
  5.
              Stock-Based
      Compensation
 
 SoCal has
adopted SFAS No. 123(R), Shared-Based
Payment.  This Statement requires entities to recognize the
cost of employee services received in exchange for awards of stock options, or
other equity instruments, based on the grant-date fair value of those
awards.  This cost is recognized over the period which an employee is
required to provide services in exchange for the award, generally the vesting
period.  Stock-based compensation expense totaled $76 thousand and $32
thousand for the quarters ended September 30, 2008 and 2007,
respectively.  A tax benefit of $30 thousand and $8 thousand was
recognized in connection with the stock-based compensation for the quarters
ended September 30, 2008 and 2007, respectively.  Stock-based
compensation expense totaled $240 thousand and $162 thousand for the nine-month
periods ended September 30, 2008 and 2007, respectively.   A
tax benefit of $99 thousand and $25 thousand was recognized  in
connection with the stock-based compensation expense for the nine-month periods
ended September 30, 2008 and 2007, respectively.    The
expense for 2007 was recognized under the Professional Business Bank 2001
Incentive and Nonqualified Stock Option Plan.
  F-6
  SoCal has
one stock-based compensation plan, the Belvedere SoCal 2007 Equity Incentive
Plan (the "Plan"), which, among other things, permits the grant of stock options
and stock purchase rights.  The Plan is designed primarily to attract
and retain personnel and provide additional incentives to employees, directors
and consultants to promote the success of SoCal's business.  The
maximum aggregate number of shares that may be issued under the Plan is
1,500,000.  The amount, frequency and terms of share-based awards are
subject to all applicable terms and conditions of the Plan and such other terms
and conditions as prescribed by a Committee of the Board of
Directors.  New shares are issued upon the exercise of
options.
  The Plan
requires that the option or share price may not be less than the fair market
value of the stock on the grant date, except for options granted in substitution
for options outstanding under the Professional Business Bank Stock Option Plan,
and that the stock be paid in full at the time the option is
exercised.  All options vest on a date determined by the Committee,
but not later than ten years from the date of grant.
  Management
estimates the fair value of each option award as of the date of grant using a
Black-Scholes-Merton option pricing model.  Expected volatility is
based on historical volatility of similar entities over a preceding period
commensurate with the expected term of the option because the Company's common
stock has been publicly traded for a shorter period than the expected term of
the options.  The expected term represents the period that the
stock-based awards are expected to be outstanding.  The risk free
interest rate for the expected term of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.  Expected dividend yield
was not considered in the option pricing formula because SoCal has not paid cash
dividends historically.  In addition to these assumptions, management
makes estimates regarding pre-vesting forfeitures that will impact total
compensation expense recognized under the Plan.
  There
were two types of options granted in 2008.  The first were options
granted with performance conditions that vest based on certain qualifying
events, or cliff vest at the 7th anniversary of the grant date if no qualifying
event occurs.  SoCal granted 175,402 and 11,640 of performance based
options during the first and third quarters of 2008, respectively. The second
type of options were granted with a time-based condition that cliff vest at the
5th anniversary of the grant date.  SoCal granted 175,409 and 11,641
of time-based options during the first and third quarters of 2008,
respectively.  There were no stock options granted in the second
quarter of 2008 or the first nine months of 2007.
  The
following table summarizes the assumptions utilized in the calculation of the
fair value of the options granted during the stated periods:
 
 
 
 Three-month
      period endedMarch 31, 2008
              
              Three-month period ended September 30,
    2008Risk-free
      interest rate
              3.21%
              
              3.46%Expected
      life
              6
      years
              
              5 yearsExpected
      volatility
              28%
              
              30%Expected
      dividend yield
              N/A
              
              N/AWeighted
      average grant date fair value
              $5.10
              
              $4.92
  A summary
of stock option activity and related information for the nine-month period ended
September 30, 2008 follows:
 Shares
              
              
              Weighted
                Average
      Exercise Price
              
              
              WeightedAverageRemainingContractual
                Term
              
              
              Aggregate
                Intrinsic
      ValueOutstanding
      December 31, 2007
              
              
              135,041
              
              
              $
              15.21Options
      granted
              
              
              374,092
              
              
              
              15.00Options
      forfeited
              
              
              (36,584
              )
              
              
              15.00Options
      exercised
              
              
              -Outstanding
      at September 30, 2008
              
              
              472,549
              
              
              
              15.06
              
              
              8.3
      years
              
              
              $
              -Options
      exercisable, September 30, 2008
              
              
              135,041
              
              
              
              15.21
              
              
              5.3
      years
              
              
              $
              -Options
      expected to vest after September 30, 2008
              
              
              336,854
              
              
              $
              15.00
              
              
              9.5 years
              
              
              $
              -
  F-7
  All
options granted in 2008 allow for early exercise into shares of restricted
common stock of SoCal under identical vesting terms as the original
options.  Such options are not shown as exercisable in the above
table.
  At
September 30, 2008, there was $1.5 million in unrecognized compensation costs
related to the outstanding options that is expected to be recognized over a
weighted average period of 5.1 years.
  6.
              Loss
      Per Share
  Basic
loss per share for each of the periods presented was computed by dividing net
loss adjusted for stock dividends paid or declared on non-cumulative perpetual
preferred stock by the weighted average number of shares outstanding during each
such period.
 
 Basic and
diluted loss per share for the three-month periods ended September 30, 2008 and
2007 are computed as follows (dollars in thousands):
  SoCal
                Three-month
      period ended September 30, 2008
              
              Net
      Loss
              
              
              Weighted
                Average
                Number
      of
                Shares
                Outstanding
              
              Per
                Share
                AmountBasic
      loss per share:Net
      loss
              
              $
              (33,752
              )Preferred
      stock dividend
              
              
              (814
              )Net
      loss available to common shareholders
              
              $
              (34,566
              )
              
              
              3,331,413
              
              
              $
              (10.38
              )
  Professional
      Business Bank
                Three-month
      period ended September 30, 2007
              
              Net
      Loss
              
              
              Weighted
                Average
                Number
      of
                Shares
                Outstanding
              
              Per
                Share
                AmountNet
      loss available to common shareholders
              
              $
              (150
              )
              
              
              1,998,477
              
              
              $
              (0.08)
  Basic and
diluted earnings per share for the nine-month periods ended September 30, 2008
and 2007 are computed as follows (dollars in thousands):
  SoCal
                Nine-month
      period ended September 30, 2008
              
              Net
      Loss
              
              
              Weighted
                Average
                Number
      of
                Shares
                Outstanding
              
              Per
                Share
                AmountBasic
      loss per share:Net
      loss
              
              $
              (35,009
              )Preferred
      stock dividend
              
              
              (2,355
              )Net
      loss available to common shareholders
              
              $
              (37,364
              )
              
              
              3,180,736
              
              
              $
              (11.75
              )
  F-8
  Professional
      Business Bank
                Nine-month
      period ended September 30, 2007
              
              Net
      Loss
              
              
              Weighted
                Average
                Number
      of
                Shares
                Outstanding
              
              Per
                Share
                AmountNet
      loss available to common shareholders
              
              $
              (303
              )
              
              
              1,994,269
              
              
              $
              (0.15)
  7.
              Allowance
      for Loan Losses
  The
following table presents the changes in the allowance for loan losses as of the
dates indicated (dollars in thousands):
  Three-month
      period ended
                September
      30,
              
              
              Nine-month
      period ended
                September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Balance
      at beginning of period
              
              $
              5,385
              
              
              $
              2,404
              
              
              $
              4,077
              
              
              $
              1,869Allowance
      acquired at acquisition of Spectrum
              
              
              -
              
              
              
              -
              
              
              
              1,436
              
              
              
              -Additional
      provision
              
              
              256
              
              
              
              983
              
              
              
              2,316
              
              
              
              1,520Charge-offs
              
              
              (45
              )
              
              
              (6
              )
              
              
              (2,247
              )
              
              
              (8
              )Recoveries
              
              
              26
              
              
              
              -
              
              
              
              40
              
              
              
              -Total
              
              $
              5,622
              
              
              $
              3,381
              
              
              $
              5,622
              
              
              $
              3,381
  8.
              Acquisition
      of Spectrum Bank
  Effective January 31, 2008, SoCal acquired all of
the common stock of Spectrum, a California state-chartered bank headquartered in
Irvine, California with branch offices in Huntington Beach and Montebello,
California.  All the outstanding Spectrum shares were exchanged for
$20.2 million in cash and $15.5 million in trust preferred
securities.  The acquisition was accounted for in accordance with
SFAS No. 141, Business
Combinations.  Accordingly, the net assets were recorded at
their estimated fair values, and the operating results were included in the
financial statements from the date of
acquisition.  Goodwill totaled $27.8 million (none of which is
deductible for tax purposes) and a core deposit intangible of $722 thousand was
recorded and is being amortized over approximately seven
years.  Capitalized direct transaction costs were approximately $1
million including $740,000 paid to the Fund.  The allocation of the
purchase price to the assets and liabilities acquired will be finalized no later
than fourth quarter 2008, as SoCal obtains more information regarding asset
valuations, liabilities assumed and revisions of preliminary estimates of fair
values made at the date of purchase.  The purchase price has been
allocated on a preliminary basis, using information currently available as
presented below (dollars in thousands):
  Assets
      acquired:Cash
      and due from banks
              
              $
              4,283Federal
      funds sold
              
              
              17,080Interest-bearing
      deposits in other financial institutions
              
              
              2,608Investment
      securities available for sale
              
              
              41,475Loans,
      net
              
              
              79,452Premises
      and equipment
              
              
              4,947Goodwill
              
              
              27,832Other
      intangible assets, net
              
              
              722Accrued
      interest and other assets
              
              
              9,043Total
      assets acquired
              
              
              187,442Liabilities
      assumed:Total
      deposits
              
              
              142,011Accrued
      interest and other liabilities
              
              
              9,196Total
      liabilities assumed
              
              
              151,207Total
      consideration paid
              
              $
              36,235
  F-9
 9.
              Junior
      Subordinated Debentures
  In
January 2008, SoCal issued $15.5 million of junior subordinated debentures to
Belvedere SoCal Statutory Trust I, a Delaware business trust that was formed for
the exclusive purpose of issuing trust preferred securities. The Trust purchased
debentures with: (1) the proceeds of the sale of its common trust securities to
SoCal for $464 thousand, and (2) certain shares of common stock in Spectrum Bank
valued at $15 million that the Trust received from certain shareholders of
Spectrum Bank in exchange for the Trust’s trust preferred securities. The
subordinated debentures and trust preferred securities have generally identical
terms, including that they mature in 2038, are redeemable at SoCal’s option at
par, and require monthly distributions/interest payments at a rate of
10%.   The trust preferred securities and corresponding junior
subordinated debentures contain provisions limiting Socal’s ability to
declare and pay dividends on its common stock in certain events.  SoCal has
unconditionally guaranteed certain distributions on, and certain payments on
liquidation and redemption of, the trust preferred securities.
  Interest
expense recognized by SoCal for the three- and nine-month periods ended
September 30, 2008 related to the subordinated debentures was $387 thousand and
$1.0 million, respectively.
  10.
              Note
      Payable
 
 In March
2008, SoCal borrowed $8 million through a loan secured by the stock of the
Subsidiary Bank.  The loan bears interest at three-month LIBOR plus
3.1% (7.15% at September 30, 2008) with quarterly interest payments through
September 2009, followed by principal and interest payments through the maturity
date of March 2018.  The promissory note and related loan agreements
contain certain customary restrictions including a potential limitation on the
ability of the Subsidiary Bank to pay dividends to SoCal for purposes other than
to allow SoCal to service the loan. The
holder notified SoCal that it was in violation of the loan's debt service and
minimum total capital covenants for the third quarter 2008. The holder
has waived their right to declare the loan in default pursuant to the above
covenant violations.
  11.
                Investment
      Securities
  SoCal
classifies as held-to-maturity those debt securities that the Company has the
positive intent and ability to hold to maturity.  All other debt and
equity securities are classified as available-for-sale. Securities
held-to-maturity are accounted for at cost and adjusted for amortization of
premiums and accretion of discounts. Available-for-sale securities are accounted
for at fair value, with the net unrealized gains and losses, net of income tax
effects, presented as a separate component of shareholders’ equity. At each
reporting date, held-to-maturity and available-for-sale securities are assessed
to determine whether there is an other-than-temporary impairment. Such
impairment, if any, is required to be recognized in current earnings rather than
as a separate component of shareholders’ equity. Realized gains and losses on
sales of securities are recognized in earnings at the time of sale and are
determined on a specific-identification basis. Purchase premiums and discounts
are recognized in interest income using the effective-yield method over the
terms of the securities. For mortgage-backed securities (“MBS”), the
amortization or accretion is based on estimated average lives of the securities.
The lives of these securities can fluctuate based on the amount of prepayments
received or losses realized on the underlying collateral of the
securities.
  Investment
securities have been classified in the statement of condition according to
management's intent.  The carrying amounts and fair values of
available-for-sale and held-to-maturity investment securities were as follows at
the dates indicated (dollars in thousands):
  September
      30, 2008Gross
                      
                      
                      GrossAmortized
                      
                      
                      Unrealized
                      
                      
                      Unrealized
                      
                      
                      MarketCost
                      
                      
                      Gains
                      
                      
                      Losses
                      
                      
                      ValueAvailable-for-Sale
      SecuritiesU.S.
      Government Agencies
                      
                      $
                      1,638
                      
                      
                      
                      
                      
                      $
                      ( 19
                      )
                      
                      $
                      1,619States
      and Political Subdivisions
                      
                      
                      6,250
                      
                      
                      
                      
                      
                      
                      (646
                      )
                      
                      
                      5,604Mortgage-Backed
      Securities
                      
                      
                      1,987
                      
                      
                      $
                      1
                      
                      
                      
                      (3
                      )
                      
                      
                      1,985Total
      available-for-sale securities
                      
                      
                      9,875
                      
                      
                      
                      1
                      
                      
                      
                      (668
                      )
                      
                      
                      9,208Held-to-Maturity
      SecuritiesCollateralized
      Mortgage Obligations
                      
                      
                      21,113
                      
                      
                      
                      735
                      
                      
                      
                      (318
                      )
                      
                      
                      21,530Total
      held-to-maturity securities
                      
                      
                      21,113
                      
                      
                      
                      735
                      
                      
                      
                      (318
                      )
                      
                      
                      21,530Total
      investment securities
                      
                      $
                      30,988
                      
                      
                      $
                      736
                      
                      
                      $
                      (986
                      )
                      
                      $
                      30,738
 F-10
 December
      31, 2007Gross
                  
                  
                  GrossAmortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  MarketCost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueAvailable-for-Sale
      SecuritiesU.S.
      Government Agencies
                  
                  $
                  4,028
                  
                  
                  $
                  -
                  
                  
                  $
                  ( 2
                  )
                  
                  $
                  4,026Mortgage-Backed
      Securities
                  
                  
                  4,741
                  
                  
                  
                  19
                  
                  
                  
                  -
                  
                  
                  
                  4,760Total
      investment securities
                  
                  $
                  8,769
                  
                  
                  $
                  19
                  
                  
                  $
                  (2
                  )
                  
                  $
                  8,786
 As of
September 30, 2008 and December 31, 2007, all investment securities were pledged
to secure borrowings and for other purposes.
  12.
                    Goodwill
      and Other Intangible Assets
 
 Goodwill resulted from the
purchase of PBB and Spectrum Bank. Goodwilland other intangible assets
deemed to have indefinite lives generated from purchase business combinations
are not subject to amortization and are instead tested for impairment no less
than annually under SFAS No. 142. The current year impairment test of
goodwill was
performed as of August 31, 2008 andresulted in a $33.3 million
write-down of goodwill which is included in the loss for the period.  See
Note 15, Fair Value Measurements, for further discussion of the
write-down.
  13.
                  Other
      Real Estate Owned
  Other
Real Estate Owned ("OREO") is real estate acquired through, or in lieu of, loan
foreclosures that is expected to be sold and is recorded at its fair value less
estimated costs to sell (fair value). The amount, if any, by which the recorded
amount of the loan exceeds the fair value less estimated costs to sell are
charged to the allowance for loan or lease losses at the time of foreclosure, if
necessary. After foreclosure, valuations are periodically performed by
management with any subsequent write-downs recorded as a valuation allowance
and recognized in other operating expenses. Operating expenses of such
properties, net of related income, are included in other expenses and gains and
losses on their disposition are included in other income and other expenses, as
applicable.
  SoCal’s
investment in OREO totaled $1.2 million at September 30, 2008. SoCal had no
OREO at December 31, 2007.
  14.
                Pro
      forma financial information
  The
September 30, 2008 consolidated financial statements include the accounts of
Spectrum since February 1, 2008. The following supplemental proforma information
discloses selected financial information for the three- and nine-month periods
ended September 30, 2008 and 2007 as though the Spectrum merger had been
completed as of the beginning of the period. The proforma information for
the three- and nine-month periods ended September 30, 2007 combines
Professional Business Bank, as the predecessor business to SoCal, and
Spectrum.  The unaudited proforma income for the three- and nine-month
periods ended September 30, 2008 includes nonrecurring merger expenses incurred
by Spectrum for cancellation of all outstanding options of Spectrum per the
terms of the merger agreement, severance payments to Spectrum executives
under change of control agreements and cash settlements of deferred compensation
programs totaling $4.0 million, net of tax. Dollars are in thousands except per
share data.
  Three-month
      periods ended
                  September
      30,
                
                
                Nine-month
      periods ended
                  September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Revenue
      (net interest income plus non-interest income)
                
                $
                3,970
                
                
                $
                4,787
                
                
                $
                12,837
                
                
                $
                14,071Net
      (loss) income
                
                $
                (33,752
                )
                
                $
                78
                
                
                $
                (38,817
                )
                
                $
                581Basic
      (loss) earnings per share
                
                $
                (10.38
                )
                
                $
                0.02
                
                
                $
                (12.36
                )
                
                $
                0.18Diluted
      (loss) earnings per share
                
                $
                (10.38
                )
                
                $
                0.02
                
                
                $
                (12.36
                )
                
                $
                0.17
 15.
              Fair
      Value Measurements
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
which provides enhanced guidance for using fair value to measure assets and
liabilities. The standard applies whenever other standards require or permit
assets or liabilities to be measured at fair value. The standard does not expand
the use of fair value in any new circumstances. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. SoCal
adopted SFAS No. 157 as of January 1, 2008 and the adoption did not
have a material impact on its consolidated financial statements or results
of operations. The valuation hierarchy is based upon the transparency of inputs
to the valuation of an asset or liability as of the measurement date. The three
levels are defined as follows:
 
 ●Level 1
              Inputs
      to the valuation methodology are quoted prices (unadjusted) for identical
      assets or liabilities in active markets.●Level 2
              Inputs
      to the valuation methodology include quoted prices for similar assets and
      liabilities in active markets, and inputs that are observable for the
      asset or liability, either directly or indirectly, for substantially the
      full term of the financial instrument.●  Level
      3
              Inputs
      to the valuation methodology are unobservable and significant to the fair
      value measurement.
  F-11
  Following
is a description of the valuation methodologies used for instruments measured at
fair value, as well as the general classification of such instruments pursuant
to the valuation hierarchy:
  Assets
 
 Securities
 
 Where
quoted prices are available in an active market, securities are classified
within Level 1 of the valuation hierarchy. Level 1 inputs include securities
that have quoted prices in active markets for identical assets. If quoted market
prices are not available, then fair values are estimated by using pricing
models, quoted prices of securities with similar characteristics, or discounted
cash flow. Examples of such instruments, which would generally be classified
within Level 2 of the valuation hierarchy, include certain collateralized
mortgage and debt obligations and certain high-yield debt securities. In certain
cases where there is limited activity or less transparency around inputs to the
valuation, securities are classified within Level 3 of the valuation hierarchy.
SoCal’s current available-for-sale portfolio does not have securities that are
valued using Level 3 inputs as of September 30, 2008. When measuring fair value,
the valuation techniques available under the market approach, income approach
and/or cost approach are used. SoCal’s evaluations are based on market data and
SoCal employs combinations of these approaches for its valuation methods
depending on the asset class.
  Impaired
Loans
 
 SFAS No.
157 applies to loans measured for impairment using the practical expedients
permitted by SFAS No. 114,Accounting by Creditors for Impairment of a Loan, including impaired
loans measured at an observable market price (if available), or at the fair
value of the loan’s collateral (if the loan is collateral dependent). Fair value
of the loan’s collateral, when the loan is dependent on collateral, is
determined by appraisals or independent valuation which is then adjusted for the
cost related to liquidation of the collateral. Fair value of impaired loans that
are not collateral dependent is calculated based on the present value of future
cash flows. For impaired loans that are collateral dependent, either a Level 2
or Level 3 valuation methodology is used. The fair value of impared loans that
are not collateral dependent is measured using a Level 3
methodology.
 
 Other Real Estate
Owned
 
 OREO is
measured at fair value less cost to sell which is a Level 2 valuation
methodology based on quoted prices for similiar assets or a Level 3 valuation
methodology when an income approach is used. SoCal believes that the fair
value component in its valuation follows the provisions of SFAS No. 157. Fair
value of OREO at September 30, 2008 was determined by independent
appraised values less estimated costs to sell.
  Goodwill
  Initiation
of the goodwill analysis during the third quarter was prompted by recent and
significant deterioration in financial institution traded market values,
including several acquisition transactions at heavily discounted prices, and
significant weakening in local market conditions that diminish future customer
business activity expectations. The reduced fair value conclusion was derived
through a valuation analysis that utilized an equal weighting of valuations
based on comparable transactions and discounted cash flow analysis. Given the
wide range of potential values indicated by the comparable transactions analysis
and limited applicability to SoCal, it was determined that the comparable
transaction average value analysis should receive a 50% weight. The discounted
cash flow valuation was also assigned a 50% weight. Given the discounted cash
flow's reliance on subjective assumptions, the assigned fair value is deemed to
be a Level 3 valuation.
  F-12
 Assets Measured on a
Recurring Basis
 
 Assets
measured at fair value on a recurring basis are summarized below (dollars in
thousands):
  Fair
      Value Measurements at September 30, 2008 UsingSeptember
      30, 2008
              
              Quoted
      Prices in
                      Active Markets for
                      Identical Assets
                      (Level 1)
              
              Significant
      OtherObservable
      Inputs(Level
      2)
              
              SignificantUnobservable
      Inputs(Level
      3)(in
      000’s)Assets:Available-for-sale
      investment securities
              
              $
              9,208
              
              
              $
              —
              
              
              $
              9,208
              
              
              $
              —
  Assets
measured at fair value on a non-recurring basis are summarized below (dollars in
thousands):
 
 Fair
      Value Measurements at September 30, 2008 UsingSeptember
      30, 2008
                
                Quoted
      Prices in
                  Active
      Markets for
                  Identical
      Assets
                  (Level
      1)
                
                Significant
      Other
                  Observable
      Inputs
                  (Level
      2)
                
                Significant
                  Unobservable
      Inputs
                  (Level
      3)(in
      000's)Assets:Impaired
      loans
                
                $
                1,916
                
                
                $
                —
                
                
                $
                1,916
                
                
                $
                —OREO
                
                $
                1,218
                
                
                $
                —
                
                
                $
                1,218
                
                
                $
                —Goodwill
                
                $
                23,990
                
                
                $
                —
                
                
                $
                —
                
                
                $
                23,990
  Impaired
loans consist of collateral-dependent nonaccrual loans. A valuation
allowance of $195 thousand is included in the allowance for loan losses for the
impaired loans.
  OREO
consists of four properties consisting of three residential properties and one
participation interest in residential unimproved lots.  The properties were
valued by independent appraisals, net of estimated selling
costs.
  During the thirdquarter 2008, in accordance with the provisions of SFAS No. 142,
following the completion of an analysis of goodwill value, goodwill with a
carrying amount of $57.3 million was written down to its implied fair value of
$24.0 million. This resulted in an impairment charge of $33.3 million, which was
included in the loss for the period.
  F-13
 
 ITEM 2.    MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Background
  SoCal
acquired Professional Business Bank on November 23, 2007 and Spectrum on January
31, 2008.  Prior to November 23, 2007, SoCal had no significant
operations.  Accordingly, the discussion and results of operations and
financial condition for the three- and nine-month periods ended September
30, 2008 are for SoCal. The results of operations and financial condition
for the three- and nine-month periods ended September 30, 2007 are for
Professional Business Bank only. Securities and Exchange Commission rules
require the presentation of certain prior period comparative financial
statements of the acquired business when the acquiring company succeeds to
substantially all of the business and the registrant’s own operations prior to
the acquisition appear insignificant relative to the business
acquired.
 
 Effective
July 3, 2008, SoCal completed the merger of the Subsidiary Banks.  By
combining the two banks, SoCal expects to improve operational efficiency, reduce
regulatory compliance costs, and consolidate vendor relationships.  The
merger of Spectrum Bank into Professional Business Bank was accounted for as a
transfer of assets and liabilities between entities under common control and,
accordingly, the assets and liabilities of Spectrum were transferred at their
carrying amounts, similar to a pooling of interests.  However, the
existing Spectrum branches and certain customer-related activities will continue
to be conducted using the Spectrum brand.
  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 SoCal. These forward
looking statements involve risks and uncertainties, including the risks and
uncertainties described in our annual report on Form 10-KSB in the discussion
under the caption, “Business - Factors That May Affect Future Operating
Results,” which was filed with the Securities and Exchange Commission on March
31, 2008. There can be no assurance that future developments affecting SoCal
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.
  Critical
Accounting Policies
  This
discussion and analysis is based upon SoCal’s financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
SoCal’s management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, and expenses and related disclosure of
contingencies.
  Our
accounting policies are integral to understanding the results
reported.  Our most complex accounting policies require management’s
judgment to ascertain the valuation of assets, liabilities, commitments and
contingencies.  SoCal has established detailed policies and control
procedures that are intended to ensure valuation methods are well controlled and
applied consistently from period to period.  In addition, the policies
and procedures are intended to ensure that the process for changing
methodologies occurs in an appropriate manner.  The following is a
brief description of the significant accounting policies involving significant
management valuation judgments.
  Allowance for
Loan Losses.  The allowance for loan losses represents
management’s best estimate of losses inherent in the existing loan portfolio.
The allowance for loan losses is increased by the provision for loan losses
charged to expense and reduced by loans charged off, net of recoveries. The
provision for loan losses is determined based on management’s assessment of
several factors: reviews and evaluation of specific loans, changes in the nature
and volume of the loan portfolio, current economic conditions and the related
impact on specific borrowers and industry groups, historical loan loss
experiences, the level of classified and nonperforming loans and the results of
regulatory examinations.  Refer to “Provision for Loan Losses” on page
9 for a full discussion of Socal’s methodology of assessing the adequacy of
the allowance for loan losses.
  Loans are
considered impaired if, based on current information and events, it is probable
that SoCal will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate
stipulated in the loan agreement, except that all collateral-dependent loans are
measured for impairment based on the fair value of the collateral. In measuring
the fair value of the collateral, management uses assumptions and methodologies
consistent with those that would be utilized by unrelated third
parties.
  3
  Changes
in the financial condition of individual borrowers, in economic conditions, in
historical loss experience and in the condition of the various markets in which
collateral may be sold may all affect the required level of the allowance for
loan losses and the associated provision for loan losses.
 The Bank
has an analysis of its portfolio performed on a quarterly basis utilizing a
model which calculates an estimated reserve based upon loan type, collateral
type, and geographic location.  The model estimates the odds of
payment default, and the potential charge-off rate given default.  The
model is fine tuned for Joint Policy Statement factors and actual loan
performance on a loan by loan basis.  Underlying factors for
geography, collateral type and overall payment history and losses given default
are adjusted quarterly from call report data gathered from approximately 1,100
smaller community banks in the Western United States.
 Goodwill and
Other Intangibles.  Net assets of
entities acquired in purchase transactions are recorded at fair value at the
date of acquisition. The historical cost basis of individual assets and
liabilities are adjusted to reflect their fair value. Identified intangibles are
amortized on a straight-line basis over the period benefited. Goodwill is not
amortized for book purposes, although it is reviewed for potential
impairment on an annual basis, or if events or circumstances indicate a
potential impairment. The impairment test is performed in two phases. The first
step of the goodwill impairment test compares the fair value of the reporting
unit with its carrying amount, including goodwill. If the fair value of the
reporting unit exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired; however, if the carrying amount of the reporting unit
exceeds its fair value, an additional procedure must be performed. That
additional procedure compares the implied fair value of the reporting unit’s
goodwill (as defined in SFAS No. 142, Goodwill and Other Intangible
Assets) with the carrying amount of that goodwill. An impairment loss is
recorded to the extent that the carrying amount of goodwill exceeds its implied
fair value.  During the third quarter of 2008, SoCal engaged a third
party to provide an independent impairment analysis of goodwill in accordance
with the requirements of SFAS 142. The fair value of SoCal was determined using
valuation approaches typically applied in business combinations involving
financial institutions: (1) comparable transactions approach, (2) discounted
cash flow approach and (3) control permium approach. The process of
evaluating goodwill for impairment requires assumptions and estimates including
market trends and multiples of companies engaged in similar businesses. If any
of those assumptions change over time, the estimated value assigned to goodwill
could change significantly.
  The
independent analysis resulted in a non-cash charge of $33.3
million  for the write-down of goodwill.  The charge does
not affect our tangible equity or our liquidity position.  Regulatory
capital ratios are unaffected by the write-down of goodwill, with all ratios
remaining in excess of the “well-capitalized” designation for Professional
Business Bank.  As goodwill is not tax deductible at the time of
acquisition, there is no corresponding tax impact for the write-down of this
asset.  This charge is not expected to impact ongoing
operations.
  Other
intangible assets subject to amortization are also evaluated for impairment in
accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. An impairment loss will be recognized if
the carrying amount of the intangible asset is not recoverable and exceeds fair
value. The carrying amount of the intangible is considered “not recoverable” if
it exceeds the sum of the undiscounted cash flows expected to result from the
use of the asset.
  Fair
Value. Effective January 1, 2008, SoCal adopted SFAS No. 157, Fair Value Measurements,
which among other things, requires enhanced disclosures about financial
instruments carried at fair value. SFAS No. 157 establishes a hierarchical
disclosure framework associated with the level of observable pricing scenarios
utilized in measuring financial instruments at fair value. The degree of
judgment utilized in measuring the fair value of financial instruments generally
correlates to the level of the observable pricing scenario. Financial
instruments with readily available active quoted prices or for which fair value
can be measured from actively quoted prices generally will have a higher degree
of observable pricing and a lesser degree of judgment utilized in measuring fair
value. Conversely, financial instruments rarely traded or not quoted will
generally have little or no observable pricing and a higher degree of judgment
utilized in measuring fair value. Observable pricing scenarios are impacted by a
number of factors, including the type of financial instrument, whether the
financial instrument is new to the market and not yet established and the
characteristics specific to the transaction.
  Overview
  The
following discussion reviews and analyzes the operating results of SoCal for the
for the three- and nine-month periods ended September 30, 2008 and PBB for
the three- and nine-month periods ended September 30, 2007 and the
financial condition of SoCal at September 30, 2008 and December 31,
2007.  It should be read in conjunction with SoCal’s Annual Report to
Shareholders on Form 10-K and the unaudited financial statements and the other
financial data presented elsewhere in this quarterly report.
  SoCal
recorded a net loss of $35.0 million, ($11.75) basic and diluted loss per share,
for the nine-month period ended September 30, 2008 as compared to PBB’s
$303 thousand loss, ($0.15) basic and diluted loss per share, for the nine-month
period ended September 30, 2007. The increased loss was primarily due
to the $33.3 million non-cash write-down of goodwill discussed above along
with a $5.9 million increase in other non-interest expenses and a $796
thousand increase in provision for loan losses, partially offset by a $3.2
million increase in net interest income, a $546 thousand increase in
non-interest income and a $1.5 million decrease in income tax
expense.
 
 SoCal
recorded a net loss of $33.8 million, ($10.38) basic and diluted loss per share,
for the three-month period ended September 30, 2008 as compared to PBB’s $150
thousand loss, ($0.08) basic and diluted loss per share, for the three-month
period ended September 30, 2007.  The increased loss was primarily due
to the $33.3 million non-cash write-down of goodwill along with a $2.2
million increase in other non-interest expenses, partially offset by a $735
thousand increase in net interest income, a $727 thousand decrease to the
provision for loan losses, a $92 thousand increase in non-interest income, and
an increase in income tax benefit of $338 thousand.
 
 Total
assets increased from $270.1 million at December 31, 2007 to $395.0 million
at September 30, 2008, an increase of $124.9 million, or 46.2%  Net
loans grew from $210.3 million at December 31, 2007 to $303.4 million at
September 30, 2008, an increase of $93.1 million, or 44.3%, which includes
approximately 13% of organic loan growth. Deposits grew from $194.0 million at
December 31, 2007 to $321.1 million at September 30, 2008, an increase of
$127.0 million, or 65.5%.  The primary reason for the increase in
assets, loans and deposits relates to the acquisition of Spectrum, which
contributed $187.4 million in assets, $80.9 million in loans and $142.0 million
in deposits at the acquisition date.
  Total
assets decreased from $458.9 million at June 30, 2008 to $395.0 million at
September 30, 2008, a decrease of $63.9 million, or 13.9%. The primary reasons
for the decrease in total assets are the $33.3 million write-down of goodwill
during the third quarter of 2008 along with a reduction in Fed Funds Sold of
$28.1 million. Total
deposits decreased from $342.7 million at June 30, 2008 to $321.1 million at
September 30, 2008, a decrease of $21.6 million, or 6.3%. Customer deposit
decreases of $45.6 million, primarily time deposits, were partially offset by a
$24.0 million increase in brokered deposits.
  4
  Set forth
below are certain key financial performance ratios for the periods
indicated:
  For
      the nine-month period
                ended
      September 30,2008
              
              
              2007Return
      on Average Assets (1)
              
              (10.93%)
              
              
              (0.21%)Return
      on Average Equity (1)
              
              (62.39%)
              
              
              (2.01%)(1)
      Annualized
  Net
Interest Income
  SoCal’s interest income
was $5.8 million and $17.5 million for the three- and nine-month periods ended
September 30, 2008 as compared to PBB’s $4.3 million and
$11.9 million for the three- and nine-month periods ended September 30,
2007.  SoCal’s interest expense
was $2.0 million and $6.1 million for the three- and nine-month periods ended
September 30, 2008 as compared to PBB’s $1.3 million and
$3.7 million for the three- and nine-month periods ended September 30,
2007. SoCal’s net
interest income was $3.8 million and $11.4 million for the three- and nine-month
periods ended September 30, 2008 as compared to PBB’s $3.1 million and
$8.2 million for the three- and nine-month periods ended September 30,
2007.  The increase in interest income was primarily due to the $146.9
million and $165.2 million increase in SoCal’s average
interest-earning assets for the three- and nine-month periods ended September
30, 2008 as compared to PBB’s interest-earning
assets for the same periods in 2007.  The increase in interest
expense was due to a $148.3 million and $133.6 million increase in SoCal’s average
interest-bearing liabilities.  The decrease in net interest margin
from 5.84% for the nine-month period ended September 30, 2007 to
4.39% for the nine-month period ended September 30, 2008 is primarily
due to declines in market interest rates, additional interest costs incurred on
holding company debt and Spectrum’s lower net interest margin as compared to
that of PBB, which decreased the overall net interest margin on the combined
banks.
 
 The
increase in SoCal’s average
interest-earning assets and average interest-bearing liabilities as compared to
PBB’s average
interest-earning assets and average interest-bearing liabilities for the same
period in the prior year is primarily the result of the acquisition of
Spectrum.  Average loans increased $136.8 million, or 84.5%, to $298.8
million at September 30, 2008 compared to $161.9 million at September 30,
2007.   Average interest-bearing deposits increased $104.3
million, or 94.1%, to $215.3 million at September 30, 2008 compared to $111.0
million at September 30, 2007.
  The
weighted average yield on interest-earning assets decreased as a result of a
decline in market interest rates. The prime rate decreased seven times,
totaling a reduction of 325 basis points, from September 2007 through September
2008.  Variable rate loans, with rates primarily indexed to the prime
rate, comprise approximately 73% of the loan portfolio.  The decline in the
prime rate impacted the loan portfolio immediately and to a greater extent than
its impact on the interest-bearing liabilities generally due to a lag in
deposit repricing as compared to loans.
  The
following table presents the weighted average yield on each specified category
of interest-earning assets, the weighted average rate paid on each specified
category of interest-bearing liabilities, and the resulting interest rate spread
and net interest margin for the periods indicated.  Loan fees, which are
not material, are included in interest earned on loans (dollars in
thousands).
  5
  Three-month
      period ended September 30,Belvedere
      SoCal
              
              
              Professional
      Business Bank2008
              
              
              2007Average
              
              
              
              
              
              
              
              
              AverageInterest
              
              
              Yield
      or
              
              
              
              
              
              Interest
              
              
              Yield
      orAverage
              
              
              Earned
              
              
              Rate
              
              
              Average
              
              
              Earned
              
              
              RateBalance
              
              
              or
      Paid
              
              
              Paid
              
              
              Balance
              
              
              or
      Paid
              
              
              PaidAssetsInterest-Earning
      Assets:Investment
      Securities-Taxable
              
              $
              17,771
              
              
              $
              233
              
              
              
              5.22%
              
              
              $
              13,454
              
              
              $
              172
              
              
              
              5.07%Investment
      Securities-Nontaxable
              
              
              7,970
              
              
              
              84
              
              
              
              6.35%
              
              
              
              -
              
              
              
              -
              
              
              
              -Interest-Bearing
      Deposits in OtherFinancial
      Institutions
              
              
              554
              
              
              
              6
              
              
              
              4.31%
              
              
              
              100
              
              
              
              1
              
              
              
              3.97%Federal
      Funds Sold
              
              
              10,139
              
              
              
              49
              
              
              
              1.92%
              
              
              
              2,296
              
              
              
              30
              
              
              
              5.18%Loans
              
              
              307,827
              
              
              
              5,396
              
              
              
              6.97%
              
              
              
              181,542
              
              
              
              4,106
              
              
              
              8.97%Total
      Interest-Earning Assets
              
              
              344,261
              
              
              
              5,768
              
              
              
              6.67%
              
              
              
              197,392
              
              
              
              4,309
              
              
              
              8.66%Noninterest-Earning
      Assets:Cash
      and Due from Banks
              
              
              8,501
              
              
              
              
              
              
              
              
              
              
              
              4,158Premises
      and Equipment
              
              
              5,158
              
              
              
              
              
              
              
              
              
              
              
              488Goodwill
              
              
              56,686
              
              
              
              
              
              
              
              
              
              
              
              -Other
      Intangible Assets, Net
              
              
              2,763
              
              
              
              
              
              
              
              
              
              
              
              -Accrued
      Interest and Other Assets
              
              
              13,325
              
              
              
              
              
              
              
              
              
              
              
              4,070Allowance
      for Loan Losses
              
              
              (5,793
              )
              
              
              
              
              
              
              
              
              
              
              (2,614
              )Total
      Assets
              
              $
              424,901
              
              
              
              
              
              
              
              
              
              
              $
              203,494Liabilities
      and Shareholders' EquityInterest-Bearing
      Liabilities:Money
      Market, Savings and NOW
              
              $
              88,770
              
              
              
              310
              
              
              
              1.39%
              
              
              $
              74,449
              
              
              
              608
              
              
              
              3.24%Time Deposits under$100,000
              
              
              71,336
              
              
              
              545
              
              
              
              3.04%
              
              
              
              18,378
              
              
              
              250
              
              
              
              5.40%Time
      Deposits of $100,000 or More
              
              
              59,381
              
              
              
              602
              
              
              
              4.03%
              
              
              
              15,166
              
              
              
              198
              
              
              
              5.18%Short-Term
      Borrowings
              
              
              2,147
              
              
              
              4
              
              
              
              0.74%
              
              
              
              15,088
              
              
              
              195
              
              
              
              5.13%Note
      Payable
              
              
              7,979
              
              
              
              387
              
              
              
              6.28%
              
              
              
              -
              
              
              
              -
              
              
              
              -Subordinated
      Debentures
              
              
              15,445
              
              
              
              126
              
              
              
              9.97%
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
      Interest-Bearing Liabilities
              
              
              245,058
              
              
              
              1,974
              
              
              
              3.20%
              
              
              
              123,081
              
              
              
              1,251
              
              
              
              4.08%Noninterest-Bearing
      Liabilities:Demand
      Deposits
              
              
              100,306
              
              
              
              
              
              
              
              
              
              
              
              58,803Other
      Liabilities
              
              
              3,982
              
              
              
              
              
              
              
              
              
              
              
              1,415Shareholders'
      Equity
              
              
              75,555
              
              
              
              
              
              
              
              
              
              
              
              20,195Total
      Liabilities and Shareholders' Equity
              
              $
              424,901
              
              
              
              
              
              
              
              
              
              
              $
              203,494Net
      Interest Income
              
              
              
              
              
              $
              3,794
              
              
              
              
              
              
              
              
              
              
              $
              3,058Net
      Yield on Interest-EarningAssets
      (Net Interest Margin)
              
              
              
              
              
              
              
              
              
              
              4.38%
              
              
              
              
              
              
              
              
              
              
              
              6.15%
  Yields
are computed on a tax equivalent basis resulting in an adjustment of $43
thousand to interest earned on municipal bonds for the three-month period ended
September 30, 2008.  There were no municipal bonds held during the
three-month period ended September 30, 2007.
  6
  Nine-month
      period ended September 30,Belvedere
      SoCal
                2008
              
              
              Professional
      Business Bank
                2007Average
              
              
              
              
              
              
              
              
              AverageInterest
              
              
              Yield
      or
              
              
              
              
              
              Interest
              
              
              Yield
      orAverage
              
              
              Earned
              
              
              Rate
              
              
              Average
              
              
              Earned
              
              
              RateBalance
              
              
              or
      Paid
              
              
              Paid
              
              
              Balance
              
              
              or
      Paid
              
              
              PaidAssetsInterest-Earning
      Assets:Investment
      Securities-Taxable
              
              $
              23,210
              
              
              $
              767
              
              
              
              4.41%
              
              
              $
              14,146
              
              
              $
              528
              
              
              
              4.99%Investment
      Securities-Nontaxable
              
              
              7,663
              
              
              
              235
              
              
              
              6.21%
              
              
              
              -
              
              
              
              -
              
              
              
              -Interest-Bearing
      Deposits in Other Financial Institutions
              
              
              1,067
              
              
              
              38
              
              
              
              4.76%
              
              
              
              2,668
              
              
              
              107
              
              
              
              5.36%Federal
      Funds Sold
              
              
              17,141
              
              
              
              291
              
              
              
              2.27%
              
              
              
              8,874
              
              
              
              347
              
              
              
              5.23%Loans
              
              
              298,777
              
              
              
              16,212
              
              
              
              7.25%
              
              
              
              161,941
              
              
              
              10,879
              
              
              
              8.98%Total
      Interest-Earning Assets
              
              
              347,858
              
              
              
              17,543
              
              
              
              6.74%
              
              
              
              187,629
              
              
              
              11,861
              
              
              
              8.45%Noninterest-Earning
      Assets:Cash
      and Due from Banks
              
              
              8,490
              
              
              
              
              
              
              
              
              
              
              
              5,128Premises
      and Equipment
              
              
              4,690
              
              
              
              
              
              
              
              
              
              
              
              453Goodwill
              
              
              53,874
              
              
              
              
              
              
              
              
              
              
              
              -Other
      Intangibles Assets, Net
              
              
              2,818
              
              
              
              
              
              
              
              
              
              
              
              -Accrued
      Interest andOther Assets
              
              
              15,923
              
              
              
              
              
              
              
              
              
              
              
              3,488Allowance
      for Loan Losses
              
              
              (5,874
              )
              
              
              
              
              
              
              
              
              
              
              (2,269
              )Total
      Assets
              
              $
              427,779
              
              
              
              
              
              
              
              
              
              
              $
              194,429
  Liabilities
      and Shareholders' EquityInterest-Bearing
      Liabilities:Money
      Market, Savings and NOW
              
              $
              82,145
              
              
              
              856
              
              
              
              1.39%
              
              
              $
              78,596
              
              
              
              2,106
              
              
              
              3.58%Time
      Deposits under $100,000
              
              
              71,928
              
              
              
              2,003
              
              
              
              3.72%
              
              
              
              20,262
              
              
              
              823
              
              
              
              5.43%Time
      Deposits of $100,000 or  More
              
              
              61,250
              
              
              
              1,641
              
              
              
              3.58%
              
              
              
              12,101
              
              
              
              461
              
              
              
              5.09%Short-Term
      Borrowings
              
              
              14,686
              
              
              
              308
              
              
              
              2.80%
              
              
              
              7,218
              
              
              
              270
              
              
              
              5.00%Note
      Payable
              
              
              7,124
              
              
              
              263
              
              
              
              4.93%
              
              
              
              -
              
              
              
              -
              
              
              
              -Subordinated
      Debentures
              
              
              13,771
              
              
              
              1,032
              
              
              
              10.01%
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
      Interest-Bearing Liabilities
              
              
              250,904
              
              
              
              6,103
              
              
              
              3.25%
              
              
              
              118,177
              
              
              
              3,660
              
              
              
              4.14%Noninterest-Bearing
      Liabilities:Demand
      Deposits
              
              
              97,487
              
              
              
              
              
              
              
              
              
              
              
              54,939Other
      Liabilities
              
              
              4,437
              
              
              
              
              
              
              
              
              
              
              
              1,154Shareholders'
      Equity
              
              
              74,951
              
              
              
              
              
              
              
              
              
              
              
              20,159Total
      Liabilities and Shareholders' Equity
              
              $
              427,779
              
              
              
              
              
              
              
              
              
              
              $
              194,429Net
      Interest Income
              
              
              
              
              
              $
              11,440
              
              
              
              
              
              
              
              
              
              
              $
              8,201Net
      Yield on Interest-EarningAssets (Net
      Interest Margin)
              
              
              
              
              
              
              
              
              
              
              4.39%
              
              
              
              
              
              
              
              
              
              
              
              5.84%
  Yields
are computed on a tax equivalent basis resulting in an adjustment of $121
thousand to interest earned on municipal bonds for the nine-month
period ended September 30, 2008. There were no municipal bonds held
during the nine-month period ended September 30, 2007.
  7
  Rate and Volume
Analysis
  The
following tables show the increase or decrease in interest income, interest
expense and net interest income resulting from the changes in rates and volumes
for the periods indicated (dollars in thousands):
  Three
      Months Ended September 30, 2008versusThree
      Months Ended September30, 2007Increase
      (Decrease) DueTo
      Change inVolume
                
                
                Rate
                
                
                TotalInterest-Earning
      Assets:Investment
      Securities-Taxable
                
                $
                56
                
                
                $
                5
                
                
                $
                61Investment
      Securities-Nontaxable
                
                
                84
                
                
                
                -
                
                
                
                84Certificates
      of Deposit
                
                
                4
                
                
                
                1
                
                
                
                5Federal
      Funds Sold
                
                
                23
                
                
                
                (4
                )
                
                
                19Loans
                
                
                1,898
                
                
                
                (608
                )
                
                
                1,290Total
      Interest Income
                
                
                2,065
                
                
                
                (606
                )
                
                
                1,459Interest-Bearing
      Liabilities:Money
      Market, Savings and NOW
                
                
                615
                
                
                
                (913
                )
                
                
                (298
                )Time
      Deposits under $100,000
                
                
                319
                
                
                
                (24
                )
                
                
                295Time
      Deposits of $100,000 or More
                
                
                437
                
                
                
                (33
                )
                
                
                404Short-Term
      Borrowings
                
                
                (96
                )
                
                
                ( 95
                )
                
                
                (191
                )Subordinated
      Debentures
                
                
                387
                
                
                
                -
                
                
                
                387Note
      Payable
                
                
                126
                
                
                
                -
                
                
                
                126Total
      Interest Expense
                
                
                1,788
                
                
                
                (1,065
                )
                
                
                723Net
      Interest Income
                
                $
                277
                
                
                $
                459
                
                
                $
                736Nine
      Months Ended September 30, 2008versusNine
      Months Ended September 30, 2007Increase
      (Decrease) DueTo
      Change inVolume
                
                
                Rate
                
                
                TotalInterest-Earning
      Assets:Investment
      Securities-Taxable
                
                $
                305
                
                
                $
                (66
                )
                
                $
                239Investment
      Securities-Nontaxable
                
                
                235
                
                
                
                -
                
                
                
                235Certificates
      of Deposit
                
                
                (58
                )
                
                
                (11
                )
                
                
                (69
                )Federal
      Funds Sold
                
                
                209
                
                
                
                (265
                )
                
                
                (56
                )Loans
                
                
                7,753
                
                
                
                (2,420
                )
                
                
                5,333Total
      Interest Income
                
                
                8,444
                
                
                
                (2,762
                )
                
                
                5,682Interest-Bearing
      Liabilities:Money
      Market, Savings and NOW
                
                
                91
                
                
                
                (1,341
                )
                
                
                (1,250
                )Time
      Deposits under $100,000
                
                
                1,511
                
                
                
                (331
                )
                
                
                1,180Time
      Deposits of $100,000 or More
                
                
                1,355
                
                
                
                (175
                )
                
                
                1,180Short-Term
      Borrowings
                
                
                194
                
                
                
                (156
                )
                
                
                38Subordinated
      Debentures
                
                
                1,032
                
                
                
                -
                
                
                
                1,032Note
      Payable
                
                
                263
                
                
                
                -
                
                
                
                263Total
      Interest Expense
                
                
                4,446
                
                
                
                (2,003
                )
                
                
                2,443Net
      Interest Income
                
                $
                3,998
                
                
                $
                (759
                )
                
                $
                3,239
 
   8
  Provision for Loan
Losses
  SoCal
made provisions for loan losses of $256 thousand and $2.3 million for the three-
and nine-month periods ended September 30, 2008 and Professional Business Bank
made provisions of $983 thousand and $1.5 million for the three- and
nine-month periods ended September 30, 2007,
respectively.  The increase year over year reflects SoCal’s assessment
of the overall adequacy of the allowance for loan losses considering the $1.8
million charge-off of one real estate construction loan along with an increase
in nonperforming loans.
 
 During
the second quarter, additional provision was recorded to replenish the allowance
for loan losses after a $1.8 million charge-off on one real estate construction
participation loan.  The loan was classified as impaired at March 31,
2008 with a $510 thousand specific reserve pending an updated appraisal from the
lead bank.  The appraisal received during the second quarter indicated
additional reserves were required.  Management recorded
a charge-off of the $1.8 million impairment based on the appraised value,
reducing the loan balance to $520 thousand.  The loan remained on
nonaccrual status until being transferred to OREO during the third
quarter.
 
 Management
believes that the allowance for loan losses is adequate. Quarterly detailed
reviews are performed by management to identify the risks inherent in the loan
portfolio, assess the overall quality of the loan portfolio and to determine the
adequacy of the allowance for loan losses and the related provision for loan
losses to be charged to expense. These systematic reviews follow the methodology
set forth by the FDIC in its 2006 policy statement on the allowance for loan
losses.
  Management
has adopted a methodology designed by a third-party to prepare the quarterly
provision for loan loss calculations.  The methodology estimates the
expected loss rates based on a two-factor approach.  The first factor
is based on the actual payment default rate in the loan
portfolio.  For loan types that have not generated an actual
payment default rate, a rate is applied based on industry experience for
such loans by type and geographic location.  The second factor is
based on the rate of loss as determined by dividing the expected net charge-off
of defaulted loans, with defaulted loans being defined as loans that have 30
days or greater payment delinquency plus nonaccrual and gross loans charged-off,
by total loans in each group.   This rate reflects industry
experience as determined by state and loan type.  Taken together, the
two factors produce the expected loss rate.
 
 The
calculation is applied to outstanding loan balances,
including participation loans,and expected contingent funding of
commitments to fund as of the measurement date. Expected losses on loans
identified as specifically impaired are excluded from the above
measurements, as the provision for such loans is based on the present value of
expected future cash flows discounted at the historical effective interest rate
stipulated in the loan agreement, or based on the fair value of collateral
for collateral-dependent loans and is included as a separate component in
calculating the required provision for loan losses.
  SoCal has
also elected to take external, subjective (so-called qualitative) factors into
consideration when assessing the adequacy of the allowance for loan losses.
These qualitative factors take into account and weight by risk, among other
things, the growth and nature of the loan portfolio, concentration of credits,
lending policies, economic trends, competition and legal and regulatory
requirements. The total qualitative reserve requirement is determined by
applying the risk weights of the qualitative factors to the total amount of
loans outstanding and is included as the third component in the
calculation.
  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 will be sizable in
relation to the allowance. Additionally, subsequent evaluation of the loan
portfolio by us and by our regulators, in light of factors then prevailing, may
require increases in the allowance through charges to the provision for loan
losses.
  Non-Interest
Income
  Non-interest
income consists primarily of service charges on deposit accounts. Non-interest
income for SoCal was $176 thousand and $866 thousand for the three- and
nine-month periods ended September 30, 2008.  Non-interest income for
Professional Business Bank was $83 thousand and $320 thousand for the three- and
nine-month periods ended September 30, 2007. Virtually all of the increase is
attributable to the acquisition of Spectrum’s deposit base.  During
the three-month period ended September 30, 2008, losses on sales of
available-for-sale investment securities totaling $116 thousand were included in
non-interest income.  There were no sales of investment
securities during the first nine months of 2007.
  9
  Non-Interest
Expense
  Three-month
      period ended September 30,
              
              
              Nine-month
      period ended September 30,Belvedere
                SoCal
                2008
              
              
              Professional
      Business Bank
                2007
              
              
              Percent
                Change
              
              
              Belvedere
                SoCal
                2008
              
              
              Professional
      Business Bank
                2007
              
              
              Percent
                ChangeSalaries
      and employee benefits
              
              $
              2,161,301
              
              
              $
              1,316,074
              
              
              
              64.2%
              
              
              $
              6,782,574
              
              
              $
              4,167,056
              
              
              
              62.8%Occupancy
      and equipment
              
              
              369,910
              
              
              
              176,762
              
              
              
              109.3%
              
              
              
              1,084,985
              
              
              
              496,718
              
              
              
              118.4%Professional
      fees
              
              
              743,872
              
              
              
              298,962
              
              
              
              148.8%
              
              
              
              1,845,512
              
              
              
              924,943
              
              
              
              99.5%Data
      processing
              
              
              342,686
              
              
              
              124,316
              
              
              
              175.7%
              
              
              
              1,000,316
              
              
              
              421,296
              
              
              
              137.4%Marketing
      and business promotion
              
              
              35,715
              
              
              
              38,490
              
              
              
              (7.2%
              )
              
              
              149,010
              
              
              
              102,834
              
              
              
              44.9%Office
      and administrative expenses
              
              
              241,645
              
              
              
              194,415
              
              
              
              24.3%
              
              
              
              734,605
              
              
              
              579,758
              
              
              
              26.7%Write-down
      of goodwill
              
              
              33,301,000
              
              
              
              -
              
              
              
              100.0%
              
              
              
              33,301,000
              
              
              
              -
              
              
              
              100.0%Other
      expenses
              
              
              623,598
              
              
              
              175,128
              
              
              
              256.1%
              
              
              
              1,452,607
              
              
              
              506,798
              
              
              
              186.6%Total
              
              $
              37,819,727
              
              
              $
              2,324,147
              
              
              
              1527.8%
              
              
              $
              46,350,609
              
              
              $
              7,199,403
              
              
              
              543.8%
 
 Salary
and employee benefits increased $845 thousand, or 64.2%, and $2.6 million, or
62.8%, for the three-and nine-month periods ended September 30, 2008 compared to
the same periods in 2007.  Virtually all of the increase related to
the addition of 33 full-time and two part-time Spectrum
employees.   The remainder of the increase was the result of
increased stock-based compensation costs, salary adjustments and other employee
benefits.
  Occupancy
and equipment expenses increased $193 thousand, or 109.3%, and $588 thousand, or
118.4%, for the three- and nine-month periods ended September 30, 2008. The
increase was primarily due to the acquisition of Spectrum, which added two
branch offices and one administrative office to the existing branches of
Professional Business Bank.
 
 Professional
fees increased $445 thousand, or 148.8%, and $921 thousand, or 99.5%, for
the three- and nine-month periods ended September 30, 2008 due to
professional fees incurred by Spectrum, Sarbanes-Oxley Act of
2002 implementation costs and legal, accounting and audit fees
incurred by the holding company.
 
 Data
processing expenses increased $218 thousand, or 175.7%, and $579 thousand,
or 137.4%, for the three- and nine-month periods ended September 30,
2008 due to system conversion costs and the increased transaction volume
subsequent to the acquisition of Spectrum.
 
 Marketing
and business promotion expenses decreased $3 thousand, or 7.2% as a result
of consolidating advertising for Professional Business Bank and
Spectrum.  Marketing and business promotion costs increased $14
thousand, or 14.2%, for the nine-month periods ended September 30,
2008 compared to the same period in 2007 due to costs incurred by the
holding company related to the processing and publication of public filings and
marketing costs incurred by Spectrum.
 
 Office
and administrative expenses increased $47 thousand, or 24.3%, and $155
thousand, or 26.7%, for the three- and nine-month periods ended September 30,
2008 due to administrative costs incurred by the combined banks.
  As
discussed previously, an independent analysis performed during the third quarter
of 2008 resulted in a $33.3 million write-down of goodwill. See Notes to
Consolidated Financial Statements, Notes 12 and 15, for a more detailed
discussion.
  Other
expenses increased $448 thousand, or 256.1%, and $946 thousand, or 186.6%,
for the three- and nine-month periods ended September 30, 2008 due to
amortization of  core deposit intangibles and expenses incurred
by the holding company and Spectrum.
 
 Income
Tax (Benefit) Expense
 
 The
income tax benefit for the three- and nine-month periods ended September 30,
2008, respectively, totaled $354 thousand, an effective rate of 43.9%, and $1.4
million, an effective tax rate of 44.2%.  The income tax benefit for
the three-month period ended September 30, 2007 totaled $15 thousand, an
effective rate of 9.3%.  The income tax provision for the nine-month
period ended September 30, 2007 totaled $105 thousand, an effective rate of
53.2%.  The fluctuating effective rates (compared to a statutory rate
of 41.2%) for the three- and nine-month periods ended September 30, 2007 were
due to nondeductible merger-related costs and stock compensation costs incurred
by PBB during these periods partially offset by interest income exclusions for
certain loans in designated enterprise zones of California.   No
valuation allowance for deferred taxes is considered necessary based on the
earnings history of the combined banks.
  10
  The
income tax rates used in determining the income tax provision or benefit were
34.000% for federal income tax purposes and 7.115% for state income taxes, net
of federal income tax benefit.  Generally, the current tax expense is
the result of applying the current tax rate to taxable income.  The
deferred portion is intended to account for the fact that (losses) income on
which taxes are recognized differs from financial statement pre-tax (loss)
income because some items of income and expense are recognized in different
years for income tax purposes than in the financial statements.  These
recognition anomalies cause “temporary differences”; eventually, all taxes are
paid and benefits realized.
  Regulatory
Capital
  At
September 30, 2008, Tier 1 capital of PBB, which is comprised of shareholders’
equity as modified by certain regulatory adjustments, was $34.8
million.
  Under
regulatory capital guidelines, capital adequacy is measured as a percentage of
risk-adjusted assets in which risk percentages are applied to assets and certain
off-balance-sheet items, such as unused loan commitments and standby letters of
credit. The guidelines require that a portion of total capital be core, or Tier
1, capital consisting of common shareholders’ equity and non-cumulative
perpetual preferred stock, less goodwill and certain deductions. Tier 2 capital
consists of other elements, primarily some types of non-perpetual preferred
stock, subordinated debt and mandatory convertible debt, plus the allowance for
loan losses, subject to certain limitations. Under current regulatory
guidelines, SoCal’s $15 million
in trust preferred securities outstanding currently qualify as Tier 1
capital up to 25% of core capital. The guidelines also evaluate the
leverage ratio, which is Tier 1 capital divided by average tangible
assets.  Beginning with the quarter ended March 31, 2009, amendments to the
risk-based capital guidelines will become effective and the amount of trust
preferred securities that may be included in Tier 1 capital may not exceed 25%
of the sum of all core capital elements, including restricted core capital
elements, net of goodwill less any associated deferred tax
liability.
  The
following table sets forth the minimum regulatory requirements to qualify as
being well-capitalized or adequately capitalized and the capital
ratios for SoCal and PBB as of the date indicated (dollars in
thousands):
  September 30,
      2008:
              
              Actual
              
              For
      Capital Adequacy
                Purposes
              
              To
      Be Well CapitalizedAmount
              
              Ratio
              
              Amount
              
              Ratio
              
              Amount
              
              
              RatioSoCalTotal
      Capital (to risk-weighted assets)
              
              $
              33,446
              
              
              9.65%
              
              $
              27,727
              
              8%
              
              
              N/A
              
              
              
              N/ATier
      1 Capital (to risk-weighted assets)
              
              
              29,084
              
              
              8.39%
              
              
              13,864
              
              4%
              
              
              N/A
              
              
              
              N/ATier
      1 Capital (to average assets)
              
              
              29,084
              
              
              7.46%
              
              
              15,593
              
              4%
              
              
              N/A
              
              
              
              N/AProfessional
      Business BankTotal
      Capital (to risk-weighted assets)
              
              
              39,171
              
              
              11.27%
              
              
              27,808
              
              8%
              
              $
              34,760
              
              
              10%Tier
      1 Capital (to risk-weighted assets)
              
              
              34,809
              
              
              10.01%
              
              
              13,904
              
              4%
              
              
              20,856
              
              
              6%Tier
      1 Capital (to average assets)
              
              
              34,809
              
              
              8.91%
              
              
              15,633
              
              4%
              
              
              19,542
              
              
              5%
  The United States Treasury Department
recently announced a Capital Purchase Program
under the Troubled Asset Relief Program, the $700 billion relief program for
financial institutions passed by Congress. Under the Capital Purchase Program,
the Treasury department is offering to purchase senior preferred stock in
qualifying financial institutions with an initial cumulative dividend rate of
5%, increasing to 9% after five years. Financial institutions participating
in the program are required to issue warrants to purchase their common
stock equal to 30% of the value of the preferred stock purchased by the Treasury
Department.
 
 SoCal has applied for $10.4 million of
TARP Capital Purchase Program funding. Management reserves the right to modify
or withdraw the application following release of program rules
applicable to SoCal. Application approval is at the discretion of the Treasury
Department, with consideration given to a concurrent recommendation from SoCal's
primary federal regulator. Given that program rules for nonexchange traded
applicants have not yet been issued, it is uncertain when SoCal's application
will be processed and if approved, when funding may occur.
 Deposits
  Deposits
grew from $194.0 million at December 31, 2007 to $321.1 million at
September 30, 2008, an increase of $127.1 million, or 65.5%.  The
increase primarily related to the acquisition of Spectrum, which contributed
$142.0 million in deposits.
  Total
demand deposits represented 30.3% of total deposits at September 30, 2008
compared to 37.8% at December 31, 2007.  Total interest-bearing checking,
money market and savings accounts as a group totaled 27.0% of total deposits at
September 30, 2008 compared to 25.5% at December 31, 2007.  Total
certificates of deposit represented 42.5% of total deposits at September
30, 2008 compared to 36.7% at December 31, 2007.
  At
September 30, 2008 and December 31, 2007, the deposit portfolio consisted of
$60.1 million and $20.0 million in brokered deposits, respectively, which are
defined to include not only deposits received through deposit brokers, but also
deposits bearing
interest in excess of 75 basis points over market rates.  Movement in
brokered deposit balances reflect loan portfolio growth and shifts in other
funding sources.
  11
 
 The
following table sets forth the scheduled maturities of time deposits in
denominations of $100,000 or greater at September 30, 2008 (dollars in
thousands):
  Three
      Months or less
              
              $
              15,502Over
      Three Months to One Year
              
              
              24,790Over
      One Year to Three Years
              
              
              5,199Over
      Three Years
              
              
              4,196Total
              
              $
              49,687
  Liquidity
and Borrowings
  Liquidity
management for banks requires that funds always be available to pay anticipated
deposit withdrawals and maturing financial obligations promptly and fully in
accordance with their terms. The balance of the funds required is generally
provided by payments on loans, the acquisition of additional deposit
liabilities and liquidation of assets.
  Liquidity
may be enhanced, if necessary, through short-term borrowings. As of September
30, 2008, SoCal had short-term borrowing facilities available totaling
approximately $127.0 million. This consisted of $22.5 million in unsecured
federal funds lines of credit with correspondent banks and approximately
$104.5 million in a secured line of credit with the Federal Home Loan
Bank.
  SoCal has
from time to time borrowed funds on a short-term basis from the Federal Home
Loan Bank and other financial institutions.  Outstanding borrowings
totaled $6.0 million and $18.0 million at September 30, 2008 and December 31,
2007, respectively.  The interest rate was 1.33% and 3.80% on these
outstanding borrowings at September 30, 2008 and December 31, 2007,
respectively.  The average amounts outstanding totaled $17.5 million
and $7.8 million and the weighted average interest rates were 2.10% and 4.90%
for the nine-month period ended September 30, 2008 and the year ended December
31, 2007, respectively.  The maximum outstanding at any month-end
during the nine-month period ended September 30, 2008 and the year ended
December 31, 2007 was $39.0 million and $18.0 million,
respectively.
  In March
2008, SoCal borrowed $8.0 million through a loan secured by the stock of the
Subsidiary Bank.  The loan bears interest at three-month LIBOR plus
3.1% (7.15% at September 30, 2008) with quarterly interest payments through
September 2009, followed by principal and interest payments through the maturity
date of March 2018.  The promissory note and related loan agreements
contain certain customary restrictions, including a potential limitation on the
ability of the Subsidiary Bank to pay dividends to SoCal for purposes other than
to allow SoCal to service the loan.
  The
holder notified SoCal that it was in violation of the loan's debt service and
minimum total capital covenants for the third quarter 2008. The holder waived their rightto declare the loan in default pursuant to the
above covenant violations.
  In
January 2008, SoCal issued $15.5 in junior subordinated debentures to
Belvedere SoCal Statutory Trust I, a Delaware business trust that was formed for
the exclusive purpose of issuing trust preferred securities. The Trust
purchased debentures with: (1) the proceeds of the sale of its common trust
securities to SoCal for $464 thousand, and (2) certain shares of common stock in
Spectrum Bank valued at $15 million that the Trust received from certain
shareholders of Spectrum Bank in exchange for the Trust’s trust preferred
securities. The junior subordinated debentures and trust preferred securities
have generally identical terms, including that they mature in January 2038 are
redeemable at SoCal’s option at par
and require monthly interest payments at a rate of 10%. SoCal has
unconditionally guaranteed certain distributions on, and certain payments on
liquidation and redemption of, the trust preferred securities.  The trust
preferred securities and corresponding junior subordinated deferrable interest
debentures contain provisions limiting our ability to declare and pay dividends
on SoCal’s common stock in certain events.
  Loan
Portfolio
 
 SoCal’s
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 commercial
loans, lines of credit, certain consumer and installment loans, commercial and
residential construction loans, as well as specialized products such as SBA and
CalCAP loans.
  12
 The
following table sets forth the components of total net loans outstanding in each
category at the date indicated (dollars in thousands):
  September
      30, 2008
              
              
              December
      31, 2007Amount
              
              
              Percent
      of
              
              
              Amount
              
              
              Percent
      ofOutstanding
              
              
              Total
              
              
              Outstanding
              
              
              TotalLoansCommercial
              
              $
              80,252
              
              
              
              25.9%
              
              
              $
              56,791
              
              
              
              26.5%Real
      Estate - Construction
              
              
              41,930
              
              
              
              13.6%
              
              
              
              37,566
              
              
              
              17.5%Real
      Estate - Other
              
              
              179,607
              
              
              
              58.1%
              
              
              
              113,123
              
              
              
              52.7%Consumer
              
              
              7,563
              
              
              
              2.4%
              
              
              
              7,127
              
              
              
              3.3%Total
      Loans
              
              
              309,352
              
              
              
              100.0%
              
              
              
              214,607
              
              
              
              100.0%Net
      Deferred Loan Fees
              
              
              (356
              )
              
              
              
              
              
              
              (273
              )Allowance
      for Loan Losses
              
              
              (5,622
              )
              
              
              
              
              
              
              (4,077
              )Net
      Loans
              
              $
              303,374
              
              
              
              
              
              
              $
              210,257CommitmentsLetters
      of Credit
              
              $
              1,398
              
              
              
              
              
              
              $
              769Undisbursed
      Loans andCommitments
      to Grant Loans
              
              
              36,390
              
              
              
              
              
              
              
              62,459Total
      Commitments
              
              $
              37,788
              
              
              
              
              
              
              $
              63,228
  The
following table sets forth participation loans purchased by loan type at the
dates indicated:
  September
      30, 2008
                      
                      
                      December
      31, 2007Amount
      in
                        Thousands
                      
                      
                      Percent
      of
                        Total
                      
                      
                      Amount
      in
                        Thousands
                      
                      
                      Percent
      of
                        TotalCommercial
                      
                      $
                      1,125
                      
                      
                      
                      3.8
                      %
                      
                      $
                      339
                      
                      
                      
                      1.1
                      %Real
      Estate - Other
                      
                      
                      17,634
                      
                      
                      
                      59.1
                      %
                      
                      
                      21,717
                      
                      
                      
                      72.6
                      %Real
      Estate - Construction
                      
                      
                      11,078
                      
                      
                      
                      37.1
                      %
                      
                      
                      7,857
                      
                      
                      
                      26.3
                      %Total
                      
                      $
                      29,837
                      
                      
                      
                      100.0
                      %
                      
                      $
                      29,913
                      
                      
                      
                      100.0
                      %
  At
September 30, 2008 one borrowing relationship totaling $3.5 million, of which
$3.4 million is outstanding, was graded Substandard.  Of the total
outstanding balance, approximately $1.0 million was past due at September 30,
2008, of which $0.5 million is collateralized by deposits at PBB.  The
borrowers have filed suit against PBB and an advisory director alleging
conspiracy to disparage the borrower.  PBB denies the allegations and
believes that the suit is unwarranted.  PBB has currently declared the
loans in default. While the
loans are supported by various guarantors, PBB is currently unsure of what
action, if any, will be required to collect from the guarantors.  While
management believes that the amount included in the allowance for loan losses at
September 30, 2008 is adequate to cover any potential losses related to this
relationship, there is no assurance that an additional provision will not be
required in the future.
  Nonperforming
Assets
  Nonaccrual
loans are those loans for which SoCal has discontinued accrual of interest
because reasonable doubt exists as to the full and timely collection of either
principal or interest.  Loans past due 90
days generally will continue to accrue interest when the loan is both
well secured and in the process of collection.  Other real estate
owned consists of real properties that secured loans on which we have taken
title in partial or complete satisfaction of the loan.
  When a
loan is placed on nonaccrual status, all interest previously accrued but
uncollected is reversed against current period operating
results.  Income on such loans is then recognized only to the extent
that cash is received and, where the ultimate collection of the carrying amount
of the loan is probable, after giving consideration to the borrower’s current
financial condition, historical repayment performance and other
factors.  Accrual of interest is resumed only when (i) principal and
interest are brought fully current, and (ii) such loan is either considered, in
management’s judgment, to be fully collectible or otherwise well secured and in
the process of collection.
  The
following table sets forth information about non-performing assets at the dates
indicated (dollars in thousands):
  September
      30,2008
              
              
              December
      31, 2007Loans
      90 Days Past Due and Still Accruing
    Interest
              
              $
              291
              
              
              $
              -Nonaccrual
      Loans
              
              
              1,916
              
              
              
              920Total
      Nonperforming Loans
              
              
              2,207
              
              
              
              920Other
      Real Estate Owned
              
              
              1,218
              
              
              
              -Total
      Nonperforming Assets
              
              $
              3,425
              
              
              $
              920Nonperforming
      Loans as a Percentage of Total Loans
              
              
              0.71%
              
              
              
              0.43%Allowance
      for Loan Losses as a Percentageof Nonperforming
      Loans
              
              
              254.73%
              
              
              
              443.15%Nonperforming
      Assets as aPercentage of Total Assets
              
              
              0.87%
              
              
              
              0.34%
  13
 The increase
in nonperforming assets resulted primarily from placing several SBA loans, one
real estate construction participation loan and one commercial loan on
nonaccrual, as well as taking three properties in settlement of SBA loan
obligations.  The current economic slowdown has negatively affected the
ability of borrowers to meet their payment obligations under the terms of
the loans.  Management continues to actively evaluate the entire loan
portfolio as part of their internal credit review process.
  The increase
in nonperforming assets resulted primarily from placing several SBA loans, one
real estate construction participation loan and one commercial loan on
nonaccrual, as well as taking three properties in settlement of SBA loan
obligations.  The current economic slowdown has negatively affected the
ability of borrowers to meet their payment obligations under the terms of
the loans.  Management continues to actively evaluate the entire loan
portfolio as part of their internal credit review process.
  Provision
and Changes in Allowance for Loan Losses
  The
following table summarizes the allocation of the allowance for loan losses by
loan type as of the indicated date and the percent of loans in each category to
total loans (dollars in thousands):
 
 September
      30, 2008
              
              
              December
      31, 2007Amount
              
              
              Loan
                Percent
              
              
              Amount
              
              
              Loan
                PercentCommercial
              
              $
              2,731
              
              
              
              25.9%
              
              
              $
              1,286
              
              
              
              26.5%Real
      Estate - Construction
              
              
              1,190
              
              
              
              13.6%
              
              
              
              1,163
              
              
              
              17.5%Real
      Estate - Other
              
              
              1,480
              
              
              
              58.1%
              
              
              
              1,468
              
              
              
              52.7%Consumer
              
              
              221
              
              
              
              2.4%
              
              
              
              152
              
              
              
              3.3%Unallocated
              
              
              -
              
              
              
              n/a
              
              
              
              8
              
              
              
              n/aTotal
              
              $
              5,622
              
              
              
              100.0%
              
              
              $
              4,077
              
              
              
              100.0%
  The
following table presents an analysis of changes in the allowance for loan losses
during the periods indicated (dollars in thousands):
  Three-month
      period ended September
      30,
              
              
              Nine-month
      period ended
                September
      30,BelvedereSoCal
              
              
              ProfessionalBusinessBank
              
              
              Belvedere
                SoCal
              
              
              Professional
      BusinessBank2008
              
              
              2007
              
              
              2008
              
              
              2007Balance
      at beginning of period
              
              
              $
              5,385
              
              
              $
              2,404
              
              
              $
              4,077
              
              
              $
              1,869Allowance
      acquired at acquisition of Spectrum
              
              
              
              
              
              
              
              
              
              
              
              1,436Charge-offs:Commercial
              
              
              
              (19
              )
              
              
              -
              
              
              
              (127
              )
              
              
              -Real
      Estate - Construction
              
              
              
              -
              
              
              
              -
              
              
              
              (1,934
              )
              
              
              -Real
      Estate - Other
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Consumer
              
              
              
              (26
              )
              
              
              (6
              )
              
              
              (186
              )
              
              
              (8
              )Total
      charge-offs
              
              
              
              (45
              )
              
              
              (6
              )
              
              
              (2,247
              )
              
              
              (8
              )Recoveries:Commercial
              
              
              
              26
              
              
              
              -
              
              
              
              26
              
              
              
              -Real
      Estate - Construction
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Real
      Estate - Other
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Consumer
              
              
              
              -
              
              
              
              -
              
              
              
              14
              
              
              
              -Total
      recoveries
              
              
              
              26
              
              
              
              -
              
              
              
              40
              
              
              
              -Additional
      provision
              
              
              
              256
              
              
              
              983
              
              
              
              2,316
              
              
              
              1,520Balance
      at end of period
              
              
              $
              5,622
              
              
              $
              3,381
              
              
              $
              5,622
              
              
              $
              3,381
  At
September 30, 2008 and December 31, 2007, the allowance for loan losses
was 1.82% and 1.90%, respectively, of total loans.
  14
  Investment
Portfolio
 
 The
following table summarizes the types, amounts, yields and maturities of
investment securities held as of the dates indicated (dollars in
thousands):
  September
      30, 2008
                  
                  
                  
                  
                  
                  December
      31, 2007Weighted
                  
                  
                  
                  
                  
                  
                  
                  
                  WeightedAmortized
                  
                  
                  Market
                  
                  
                  Average
                  
                  
                  Amortized
                  
                  
                  Market
                  
                  
                  AverageCost
                  
                  
                  Value
                  
                  
                  Yield
                  
                  
                  Cost
                  
                  
                  Value
                  
                  
                  YieldAvailable-for-Sale
      SecuritiesU.S.
      Government AgenciesWithin
      One Year
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  $
                  2,004
                  
                  
                  $
                  2,002
                  
                  
                  
                  4.24
                  %One
      to Five Years
                  
                  
                  1,638
                  
                  
                  
                  1,618
                  
                  
                  
                  6.20
                  %
                  
                  
                  2,024
                  
                  
                  
                  2,024
                  
                  
                  
                  5.42
                  %1,638
                  
                  
                  
                  1,618
                  
                  
                  
                  6.20
                  %
                  
                  
                  4,028
                  
                  
                  
                  4,026
                  
                  
                  
                  4.40
                  %States
      and Political SubdivisionsOver
      Ten Years
                  
                  
                  6,250
                  
                  
                  
                  5,604
                  
                  
                  
                  4.47
                  %
                  
                  
                  -
                  
                  
                  
                  -6,250
                  
                  
                  
                  5,604
                  
                  
                  
                  4.47
                  %
                  
                  
                  -
                  
                  
                  
                  -Mortgage-Backed
      SecuritiesWithin
      One Year
                  
                  
                  1,453
                  
                  
                  
                  1,454
                  
                  
                  
                  3.81
                  %
                  
                  
                  -
                  
                  
                  
                  -One
      to Five Years
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  1,230
                  
                  
                  
                  1,231
                  
                  
                  
                  4.16
                  %After
      Five Years to Ten Years
                  
                  
                  185
                  
                  
                  
                  185
                  
                  
                  
                  5.00
                  %
                  
                  
                  558
                  
                  
                  
                  559
                  
                  
                  
                  4.98
                  %Over
      Ten Years
                  
                  
                  349
                  
                  
                  
                  346
                  
                  
                  
                  5.71
                  %
                  
                  
                  2,953
                  
                  
                  
                  2,970
                  
                  
                  
                  4.78
                  %1,987
                  
                  
                  
                  1,985
                  
                  
                  
                  4.26
                  %
                  
                  
                  4,741
                  
                  
                  
                  4,760
                  
                  
                  
                  4.84
                  %Subtotal
      available-for-sale securities
                  
                  
                  9,875
                  
                  
                  
                  9,207
                  
                  
                  
                  4.73
                  %
                  
                  
                  8,769
                  
                  
                  
                  8,786
                  
                  
                  
                  4.56
                  %Held-to-Maturity
      SecuritiesCollateralized
      Mortgage ObligationsOver
      Ten Years
                  
                  
                  21,113
                  
                  
                  
                  21,530
                  
                  
                  
                  5.31
                  %
                  
                  
                  -
                  
                  
                  
                  -21,113
                  
                  
                  
                  21,530
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      investment securities
                  
                  $
                  30,988
                  
                  
                  $
                  30,737
                  
                  
                  
                  5.09
                  %
                  
                  $
                  8,769
                  
                  
                  $
                  8,786
                  
                  
                  
                  4.56
                  %
 
 
 During
September 2008 SoCal purchased $21.1 million of seasoned private label
collateralized mortgage obligation (CMO) securities secured by prime and Alt A
residential mortgages originated from 2003 to 2007,94% of which were originated
prior to 2006. CMO purchase prices ranged from 75.8% to 93.3% of their par value
and credit loss protection provided by subordinated tranches ranged from 4.02%
to 12.10% of par. All purchased CMOs carry current AAA credit
ratings.
  Item
3.  Quantitative and Qualitative Disclosures About Market
Risk
 
 Market
risk is the risk of loss in a financial instrument arising from adverse changes
in market prices, interest rates, foreign currency exchange rates, commodity
prices and equity prices. SoCal's market risk arises primarily from interest
rate risk inherent in its lending, investment and deposit taking
activities. Management uses various asset/liability strategies to manage
the re-pricing characteristics of SoCal's earning assets and funding
liabilities to ensure that exposure to interest rate fluctuations is within
its guidelines of acceptable risk-taking. Economic hedging strategies,
including the terms and pricing of loans, investments, deposits and borrowings,
are used to reduce mismatches in interest rate re-pricing opportunities of
portfolio assets and their funding sources.
 
 Interest
rate risk is addressed by the Asset Liability Management Committee (“ALCO”)
which is comprised of executive officers of SoCal. The ALCO monitors interest
rate risk by analyzing the potential impact on the net value of equity and net
interest income from potential changes in interest rates, and considers the
impact of alternative strategies or changes in balance sheet structure. The
ALCO manages SoCal's balance sheet in part to maintain, within acceptable
ranges, the potential impact on net value of equity and net interest income
despite fluctuations in market interest rates.
  15
  Exposure
to interest rate risk is reviewed on at least a quarterly basis by the ALCO and
the Board of Directors. Interest rate risk exposure is measured using interest
rate sensitivity analysis to determine the change in net portfolio value in the
event of hypothetical changes in interest rates. If potential changes to the net
value of equity and net interest income resulting from hypothetical interest
rate changes are not within the limits established by the Board of Directors,
management may adjust the asset and liability mix to bring interest rate risk
within approved limits.
  At
September 30, 2008, SoCal's interest rate risk position was within the Board's
established risk limits and moderately asset-sensitive.
  Item
4.  Controls and Procedures
 
 Evaluation
of Controls and Procedures
 
 With the
participation of management, including our Chief Executive Officer and Principal
Accounting Officer, the effectiveness of SoCal's disclosure controls and
procedures (as defined in Rule 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”)) were evaluated as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based upon that
evaluation, SoCal's Chief Executive Officer and Principal Accounting Officer
have concluded that:
 
 (a)           information
required to be disclosed by SoCal in this Quarterly Report on Form 10-Q and the
other reports which SoCal files or submits under the Exchange Act would be
accumulated and communicated to SoCal's management, including its Chief
Executive Officer and Principal Accounting Officer, as appropriate, to allow
timely decisions regarding required disclosure;
 
 (b)           information
required to be disclosed by SoCal in this Quarterly Report on Form 10-Q and the
other reports which SoCal files or submits under the Exchange Act would be
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms; and
 
 (c)           SoCal's
disclosure controls and procedures are effective as of the end of the period
covered by this Quarterly Report on Form 10-Q to ensure that material
information relating to SoCal and its consolidated subsidiary is made known to
them, particularly during the period for which periodic reports, including this
Quarterly Report on Form 10-Q, are being prepared.
  Changes
in Internal Control over Financial Reporting
 
 There
were no changes during the period covered by this Quarterly Report on Form 10-Q
in SoCal's internal control over financial reporting (as defined in
Rule 15d-15(f) under the Exchange Act) that have materially affected, or
are reasonably likely to materially affect, internal control over financial
reporting.
  16
  PART
II – OTHER INFORMATION
 
 Item
1.  Legal Proceedings
 
 There
have been no material changes in legal proceedings as described in the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2007.
 
 Item
1A.  Risk Factors
 
 Economic
conditions continue to be disruptive, particularly in the financial
sector.  The cost and availability of funds may be adversely affected
by relatively illiquid credit markets, and the demand for our products and
services may decline as our borrowers and customers realize the impact of an
economic slowdown.  The severity and duration of these adverse
conditions is unknown and may exacerbate our exposure to credit risk and
adversely affect the ability of borrowers to perform under the terms of their
lending arrangements with us. Accordingly, continued turbulence in the U.S. and
international markets and economy may adversely affect our liquidity, financial
condition, results of operations and profitability.
 
 There can
be no assurance that the actions of the U.S. government, Federal Reserve and
other governmental and regulatory bodies for the purpose of stabilizing the
financial markets, or market response to those actions, will achieve the
intended effect. Our business may not benefit from these actions and further
government or market developments could adversely impact us.
  We may be
required to pay significantly higher FDIC premiums because market developments
have significantly depleted the insurance fund of the FDIC and reduced the ratio
of reserves to insured deposits.
 Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds
 
 None
  Item
3.  Defaults Upon Senior Securities
 
 None.
 
 Item
4.  Submission of Matters to a Vote of Security Holders
 
 None.
 
 Item
5.  Other Information
  On
November 11, 2008, it was announced that Alan Lane, the executive chairman of
SoCal and its subsidiary, Professional Business Bank, will resign his duties as
executive chairman of both entities effective December 5, 2008.  Mr.
Lane will remain as chairman of Professional Business Bank in a non-executive
capacity at least through the end of 2008.
  17
 
 Item
6.  Exhibits
  10.1
                          First
      Amendment to Management Agreement10.2
                          Baribault
      Employment Agreement10.3
                          Warrant
      Agreement31.1
                          Rule
      15d-14(a) Certification by Chief Executive Officer31.2
                          Rule
      15d-14(a) Certification by Principal Accounting Officer32.1
                          Section
      1350
Certifications
 ______________________
   
  18
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Company has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
 
 BELVEDERE
      SOCALBy:
              /s/    WILLIAM
      BARIBAULTWilliam
      Baribault
                President
      and Chief Executive Officer
                (Principal
      Executive Officer)Dated: November
      19, 2008BELVEDERE
      SOCALBy:
              /s/    DANELLE
      THOMSENDanelle
      Thomsen
                Manager
      of Financial Reporting
                (Principal
      Accounting Officer)Dated: November
      19, 2008
   
   19