**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





þ
            Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934 for the Quarterly Period EndedMarch
                31, 2007




or




 ̈
            Transition
                Report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934 for the Transition Period from _____________ to
                ___________







Commission
      File Number: 0-27384







**CAPITAL
                CORP OF THE WEST**(Exact
                name of registrant as specified in its charter)







California
            
            77-0405791(State
                or other jurisdiction of incorporation or organization)
            
            IRS
                Employer ID Number







550
                West Main, Merced, CA 95340(Address
                of principal executive offices)





Registrant’s
      telephone number, including area code: (209)
      725-2200





Former
      name, former address and former fiscal year, if changed since last report: Not
      applicable





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 þ No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer in Rule 12b-2 of the Exchange Act. Large
      accelerated filer  ̈ Accelerated filer þ Non-accelerated filer  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈ No þ





The
      number of shares outstanding of the registrant’s common stock, no par value, as
      of May 5, 2007 was 10,778,494. No shares of preferred stock, no par value,
      were
      outstanding at May 5, 2007.





**Capital
      Corp of the West**


Table
      of
      Contents





PART
      I.
      -- FINANCIAL INFORMATION





Item
                1. Financial StatementsConsolidated
                Balance Sheets (unaudited)
            3Consolidated
                Statements of Income
                (unaudited)
            4Consolidated
                Statements of Changes in Shareholders’ Equity
                (unaudited)
            5Consolidated
                Statements of Comprehensive Income
                (unaudited)
            6Consolidated
                Statements of Cash Flows
                (unaudited)
            7Notes
                to the Consolidated Financial Statements
                (unaudited)
            8Item
                2. Management’s Discussion and Analysis of Financial
                Condition and Results of Operations
            13Item
                3. Quantitative and Qualitative Disclosures about Market
                Risk
            30Item
                4. Controls and Procedures
            30





PART
      II.
      -- OTHER INFORMATION





Item
                1. Legal Proceedings
            31Item
                1A. Risk Factors
            31Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            34Item
                3. Defaults Upon Senior Securities
            34Item
                4. Submission of Matters to a Vote of Security
                Holders
            34Item
                5. Other Information
            34Item
                6. Exhibits
            34SIGNATURES
            35Exhibit
                Index
            36


-2-
 Table
            of Contents




**Capital
      Corp of the West**


**Consolidated
      Balance Sheets**


(Unaudited)




As
                of March 31,
            
            As
                of December 31,(Dollars
                in thousands)
            
            2007
            
            2006**ASSETS:**Cash
                and non-interest-bearing deposits in other banks
            
            $
            45,819
            
            $
            44,853Federal
                funds sold
            
            
            50,590
            
            
            150,680Time
                deposits at other financial institutions
            
            
            350
            
            
            350Investment
                securities available for sale, at fair value
            
            
            248,801
            
            
            256,538Investment
                securities held to maturity, at cost; fair value of $165,188 and
                $166,266
                at March 31, 2007 and December 31, 2006
            
            
            165,942
            
            
            168,058Loans,
                net of allowance for loan losses of $14,165 and $14,031 at March
                31, 2007
                and December 31, 2006
            
            
            1,221,254
            
            
            1,210,730Interest
                receivable
            
            
            8,700
            
            
            9,819Premises
                and equipment, net
            
            
            45,409
            
            
            42,320Goodwill
            
            
            1,405
            
            
            1,405Cash
                value of life insurance
            
            
            43,460
            
            
            43,051Investment
                in housing tax credit limited partnerships
            
            
            9,868
            
            
            10,082Other
                assets
            
            
            15,009
            
            
            23,653Total
                assets:
            
            $
            1,856,607
            
            $
            1,961,539LIABILITIES:**Deposits:**Non-interest-bearing
                demand
            
            $
            240,369
            
            $
            287,723Negotiable
                orders of withdrawal
            
            
            231,636
            
            
            225,481Savings
            
            
            430,037
            
            
            436,494Time,
                under $100,000
            
            
            327,953
            
            
            299,409Time,
                $100,000 and over
            
            
            304,510
            
            
            366,234Total
                deposits
            
            
            1,534,505
            
            
            1,615,341Other
                borrowings
            
            
            125,324
            
            
            151,697Junior
                subordinated debentures
            
            
            31,960
            
            
            31,960Accrued
                interest, taxes and other liabilities
            
            
            13,173
            
            
            14,961Total
                liabilities
            
            
            1,704,962
            
            
            1,813,959**SHAREHOLDERS’
                EQUITY:****Preferred
                stock,**no
                par value; 10,000,000 shares authorized; none outstanding
            
            
            -
            
            
            -Common
                stock, no par value; 20,000,000 shares authorized; 10,778,494 and
                10,760,762 issued and outstanding at March 31, 2007 and December
                31,
                2006
            
            
            65,350
            
            
            64,586Retained
                earnings
            
            
            87,726
            
            
            84,614Accumulated
                other comprehensive loss, net
            
            
            (1,431
            )
            
            (1,620
            )Total
                shareholders’ equity
            
            
            151,645
            
            
            147,580Total
                liabilities and shareholders’ equity
            
            $
            1,856,607
            
            $
            1,961,539




See
      accompanying notes to consolidated financial statements


-3-
 Table
          of Contents


Capital
      Corp of the West


Consolidated
      Statements of Income


(Unaudited)




For
                the three months ended March 31,(Dollars
                in thousands, except per share data)
            
            2007
            
            2006**Interest
                income:**Interest
                and fees on loans
            
            $
            25,278
            
            $
            22,223Interest
                on deposits with other financial institutions
            
            
            5
            
            
            5Interest
                on investments held to maturity:Taxable
            
            
            813
            
            
            942Non-taxable
            
            
            921
            
            
            941Interest
                on investments available for sale:Taxable
            
            
            2,952
            
            
            3,476Non-taxable
            
            
            11
            
            
            11Interest
                on federal funds sold
            
            
            1,235
            
            
            49Total
                interest income
            
            
            31,215
            
            
            27,647**Interest
                expense:**Interest
                on negotiable orders of withdrawal
            
            
            585
            
            
            360Interest
                on savings deposits
            
            
            3,510
            
            
            1,869Interest
                on time deposits, under $100
            
            
            3,659
            
            
            1,888Interest
                on time deposits, $100 and over
            
            
            4,184
            
            
            2,384Interest
                of federal funds purchased
            
            
            -
            
            
            442Interest
                on other borrowings
            
            
            1,858
            
            
            1,971Interest
                on junior subordinated debentures
            
            
            675
            
            
            375Total
                interest expense
            
            
            14,471
            
            
            9,289Net
                interest income
            
            
            16,744
            
            
            18,358Provision
                for loan losses
            
            
            200
            
            
            -Net
                interest income after provision for loan losses
            
            
            16,544
            
            
            18,358**Noninterest
                income:**Service
                charges on deposit accounts
            
            
            1,705
            
            
            1,421Increase
                in cash value of life insurance
            
            
            409
            
            
            306Other
            
            
            845
            
            
            905Total
                noninterest income
            
            
            2,959
            
            
            2,632**Noninterest
                expenses:**Salaries
                and related expenses
            
            
            7,808
            
            
            6,859Premises
                and occupancy
            
            
            1,544
            
            
            1,189Equipment
            
            
            1,184
            
            
            991Professional
                fees
            
            
            811
            
            
            920Supplies
            
            
            229
            
            
            236Marketing
            
            
            313
            
            
            387Community
                support donations
            
            
            180
            
            
            218Intangible
                amortization
            
            
            -
            
            
            11Communications
            
            
            348
            
            
            356Other
            
            
            1,490
            
            
            1,309Total
                noninterest expenses
            
            
            13,907
            
            
            12,476Income
                before provision for income taxes
            
            
            5,596
            
            
            8,514Provision
                for income taxes
            
            
            1,620
            
            
            2,957Net
                income
            
            $
            3,976
            
            $
            5,557Basic
                earnings per share
            
            $
            0.37
            
            $
            0.52Diluted
                earnings per share
            
            $
            0.36
            
            $
            0.51




See
      accompanying notes to consolidated financial statements


-4-
 Table
          of Contents





Capital
      Corp of the West


Consolidated
      Statement of Changes in Shareholders’ Equity


(Unaudited)





Common
                Stock
            
            
            
            Accumulated
                other(Amounts
                in thousands)
            
            Number
                of shares
            
            Amounts
            
            Retained
                earnings
            
            Comprehensive
                (loss) gain
            
            TotalBalance,
                December 31, 2005
            
            
            **10,575**
            
            **$**
            **59,785**
            
            **$**
            **65,049**
            
            **$**
            **(2,589**
            **)**
            **$**
            **122,245**Exercise
                of stock options, including tax benefit of $10
            
            
            88
            
            
            1,289
            
            
            -
            
            
            -
            
            
            1,289Effect
                of share-based payment expense
            
            
            -
            
            
            226
            
            
            -
            
            
            -
            
            
            226Net
                change in fair value of available for sale investment securities,
                net of
                tax effect of $93
            
            
            -
            
            
            -
            
            
            -
            
            
            (128
            )
            
            (128
            )Net
                change in fair value of interest rate floor, net of tax benefit of
                $153
            
            
            -
            
            
            -
            
            
            -
            
            
            (211
            )
            
            (211
            )Cash
                dividends
            
            
            -
            
            
            -
            
            
            (531
            )
            
            -
            
            
            (531
            )Net
                income
            
            
            -
            
            
            -
            
            
            5,557
            
            
            -
            
            
            5,557Balance,
                March 31, 2006
            
            
            10,663
            
            $
            61,300
            
            $
            70,075
            
            $
            (2,928
            )
            $
            128,447Balance,
                December 31, 2006
            
            
            **10,761**
            
            **$**
            **64,586**
            
            **$**
            **84,614**
            
            **$**
            **(1,620**
            **)**
            **$**
            **147,580**Exercise
                of stock options, including tax benefit of $18
            
            
            17
            
            
            215
            
            
            -
            
            
            -
            
            
            215Effect
                of share-based payment expense
            
            
            -
            
            
            549
            
            
            -
            
            
            -
            
            
            549Net
                change in fair value of available for sale investment securities,
                net of
                tax effect of $129
            
            
            -
            
            
            -
            
            
            -
            
            
            142
            
            
            142Net
                change in fair value of interest rate floor, net of tax effect of
                $34
            
            
            -
            
            
            -
            
            
            -
            
            
            47
            
            
            47Cash
                dividends
            
            
            -
            
            
            -
            
            
            (864
            )
            
            -
            
            
            (864
            )Net
                income
            
            
            -
            
            
            -
            
            
            3,976
            
            
            -
            
            
            3,976Balance,
                March 31, 2007
            
            
            10,778
            
            $
            65,350
            
            $
            87,726
            
            $
            (1,431
            )
            $
            151,645




See
      accompanying notes to consolidated financial statements


-5-
 Table
          of Contents


Capital
      Corp of the West


Consolidated
      Statements of Comprehensive Income


(Unaudited)


For
                  the three months ended March 31,(Amounts
                  in thousands)
              
              2007
              
              2006Net
                  income
              
              $
              3,976
              
              $
              5,557Unrealized
                  gain (loss) on securities arising during the year, net
              
              
              142
              
              
              (128
              )Unrealized
                  gain (loss) on interest rate floor arising during the year,
                  net
              
              
              25
              
              
              (213
              )Reclassification
                  adjustment for losses realized in net income, net of tax (benefit of
                  $15 in 2007 and benefit of $1 in 2006 for the time periods
                  presented)
              
              
              22
              
              
              2Comprehensive
                  income
              
              $
              4,165
              
              $
              5,218


See
      accompanying notes to consolidated financial statements.


-6-
 Table
          of Contents


Capital
      Corp of the West


Consolidated
      Statements of Cash Flows


(Unaudited)




Three
                months ended
              March
                31,(Dollars
                in thousands)
            
            2007
            
            2006**Operating
                activities:**Net
                income
            
            $
            3,976
            
            $
            5,557Adjustments
                to reconcile net income to net cash provided byOperating
                activities:Provision
                for loan losses
            
            
            200
            
            
            -Depreciation,
                amortization and accretion, net
            
            
            1,979
            
            
            1,772Origination
                of loans held for sale
            
            
            (1,517
            )
            
            (433
            )Proceeds
                from sales of loans
            
            
            2,262
            
            
            599Gain
                on sale of loans
            
            
            (65
            )
            
            (40
            )Increase
                in cash value of life insurance
            
            
            (409
            )
            
            (306
            )Non-cash
                share based payment expense
            
            
            549
            
            
            226Net
                decrease in interest receivable & other assets
            
            
            9,887
            
            
            16,120Net
                (increase) decrease in accrued interest, taxes and other
                liabilities
            
            
            (1,788
            )
            
            3,021Net
                cash provided by operating activities
            
            
            15,074
            
            
            26,516**Investing
                activities:**Investment
                securities purchased - available for sale securities
            
            
            (107
            )
            
            (232
            )Investment
                securities purchased - held to maturity securities
            
            
            -
            
            
            (2,568
            )Proceeds
                from maturities of available for sale investment
                securities
            
            
            8,084
            
            
            13,783Proceeds
                from maturities of held to maturity investment securities
            
            
            1,947
            
            
            3,865Proceeds
                from sales of available for sale securities
            
            
            -
            
            
            1,071Loans
                purchased
            
            
            -
            
            
            (30,015
            )Net
                increase in loans
            
            
            (12,208
            )
            
            (70,567
            )Purchases
                of premises and equipment
            
            
            (4,056
            )
            
            (2,768
            )Net
                cash used in investing activities
            
            
            (6,340
            )
            
            (87,431
            )**Financing
                activities:**Net
                (decrease) increase in demand, NOW and savings deposits
            
            
            (47,656
            )
            
            (72,219
            )Net
                (decrease) increase in certificates of deposit
            
            
            (33,180
            )
            
            85,853Net
                proceeds from federal funds purchased
            
            
            -
            
            
            48,950Net
                decrease in other borrowings
            
            
            (26,373
            )
            
            (38,976
            )Payment
                of cash dividends
            
            
            (864
            )
            
            (531
            )Exercise
                of stock options
            
            
            197
            
            
            1,279Tax
                benefits related to exercise of stock options
            
            
            18
            
            
            10Net
                cash (used in) provided by financing activities
            
            
            (107,858
            )
            
            24,366Net
                decrease in cash and cash equivalents
            
            
            (99,124
            )
            
            (36,549
            )Cash
                and cash equivalents at beginning of period
            
            
            195,533
            
            
            91,581Cash
                and cash equivalents at end of period
            
            $
            96,409
            
            $
            55,032**Supplemental
                disclosure of noncash investing and financing
                activities:**Interest
                rate floor unrealized gain (loss), net of taxes
            
            $
            47
            
            $
            (211
            )Interest
                paid
            
            
            14,120
            
            
            8,427Income
                tax payments
            
            
            -
            
            
            -Investment
                securities unrealized gain (loss), net of tax
            
            $
            142
            
            $
            (128
            )




See
      accompanying notes to consolidated financial statements


-7-
 Table
          of Contents


Capital
      Corp of the West


Notes
      to
      Consolidated Financial Statements


March
      31,
      2007 and December 31, 2006


(Unaudited)





GENERAL
      COMPANY





Capital
      Corp of the West (the “Company”) is a bank holding company incorporated under
      the laws of the State of California on April 26, 1995. The Company at March
      31,
      2007 had total assets of $1.86 billion and total shareholders’ equity of $151.6
      million. On November 1, 1995, the Company became registered as a bank holding
      company and is the holder of all of the capital stock of County Bank (the
“Bank”). The Company's primary asset is the Bank **** and
      the
      Bank is the Company's primary source of income. As of May 5, 2007, the Company
      had outstanding 10,778,494 shares of Common Stock, no par value, held by
      approximately 1,700 shareholders. There were no preferred shares outstanding
      at
      May 5, 2007. The Company has one wholly-owned inactive non-bank subsidiary,
      Capital West Group (“CWG”). The Bank has two wholly-owned subsidiaries, Merced
      Area Investment & Development, Inc. (“MAID”) a real estate company and
      County Asset Advisors (“CAA”) . CAA is currently inactive, and MAID has limited
      operations serving as the owner of certain bank properties. All references
      herein to the Company includes all subsidiaries of the Company, the Bank and
      the
      Bank's subsidiaries, unless the context otherwise requires. The Company is
      also
      the parent of County Statutory Trust I, County Statutory Trust II, and County
      Statutory Trust III, which are all trust subsidiaries established to facilitate
      the issuance of trust preferred securities.





GENERAL
      BANK





The
      Bank
      was organized on August 1, 1977, as County Bank of Merced, a California
      state banking corporation. The Bank commenced operations in 1977. In November
      1992, the Bank changed its legal name to County Bank. The Bank's deposits are
      insured by the Federal Deposit Insurance Corporation ("FDIC"), up to applicable
      limits. The Bank is a member of the Federal Reserve System.





INDUSTRY
      AND MARKET AREA







Capital
      Corp of the West/County Bank is a community bank with operations located mainly
      in the San Joaquin Valley of Central California. The corporate headquarters
      and
      main branch facility are located at 550 West Main Street, Merced, California
      in
      a three-story building which is approximately 29,000 square feet of office
      space
      with a two-story, attached parking garage. In addition to this facility, there
      are three support centers in downtown Merced with an additional square footage
      of 33,000 square feet of office space.





The
      Bank
      currently has 26 branch operations located in the Central Valley, 1 branch
      operation in San Francisco, and 1 branch operation in San Jose. The Central
      Valley operations include branches located in: Merced (2), Atwater, Los Banos,
      Hilmar, Sacramento, Sonora, Turlock (2), Modesto (2), Riverbank, Ceres, Newman,
      Dos Palos, Livingston, Mariposa, Madera, Clovis (2), Fresno (5), and Stockton.
      The Bank owns ten of these branch facilities and the remaining eighteen
      facilities are leased. The Management of the Bank believes that the facilities
      will be adequate to accommodate operations for the foreseeable
      future.





OTHER
      FINANCIAL NOTES





All
      adjustments which in the opinion of Management are necessary for a fair
      presentation of the Company’s financial position at March 31, 2007 and December
      31, 2006 and the results of operations for the three month periods ended March
      31, 2007 and 2006, and the statements of cash flows for the three months ended
      March 31, 2007 and 2006 have been included therein. The interim results for
      the
      three months ended March 31, 2007 are not necessarily indicative of results
      for
      the full year. These consolidated financial statements should be read in
      conjunction with the consolidated financial statements and the notes included
      in
      the Company’s Annual Report and Form 10-K for the year ended December 31,
      2006.


-8-
 Table
          of Contents


In
      the
      opinion of management, the accompanying unaudited financial statements have
      been
      prepared in accordance with accounting principles generally accepted in the
      United States and with the instructions to Form 10-Q and Rule 10-01 of
      Regulation S-X.





Cash
      and
      cash equivalents on the Consolidated Statement of Cash Flows include cash,
      noninterest bearing deposits in other banks, and federal funds
      sold.





Basic
      earnings per share (EPS) is computed by dividing net income available to common
      shareholders by the weighted average number of common shares outstanding during
      the period. Diluted earnings per share is computed by dividing net income
      available to common shareholders by the weighted average number of common shares
      outstanding during the period and potential common shares outstanding. Diluted
      earnings per share reflects the potential dilution that could occur if
      securities or other contracts to issue common stock were exercised or converted
      into common stock or resulted in the issuance of common stock that then shared
      in the earnings of the Company.





The
      following table provides a reconciliation of the numerator and denominator
      of
      the basic and diluted earnings per share computation of the three month periods
      ended March 31, 2007 and 2006:





For
                The Three MonthsEnded
                March 31,(Dollars
                in thousands, except per share data)
            
            2007
            
            2006Basic
                EPS computation:Net
                income
            
            $
            3,976
            
            $
            5,557Average
                common shares outstanding
            
            
            10,774
            
            
            10,599Basic
                EPS
            
            $
            0.37
            
            $
            0.52Diluted
                EPS Computations:Net
                income
            
            $
            3,976
            
            $
            5,557Average
                common shares outstanding
            
            
            10,774
            
            
            10,599Effect
                of stock options
            
            
            195
            
            
            32210,969
            
            
            10,921Diluted
                EPS
            
            $
            0.36
            
            $
            0.51





INTANGIBLE
      ASSETS





The
      Company fully amortized all remaining core deposit premium intangible in 2006
      leaving goodwill as the only intangible asset recorded. Goodwill is reviewed
      at
      least annually for potential impairment. Amortization of the core deposit
      premium intangible and other intangibles was $11,000 during the first quarter
      of
      2006. Core deposit premium intangibles of $460,000 and $4,340,000 were initially
      recorded as a result of purchasing deposits from Town and Country Finance and
      Thrift in July, 1996 and the purchase of three branches from Bank of America
      in
      December, 1997, respectively.





BORROWED
      FUNDS





For
      the
      three months ended March 31, 2007, the Company decreased other borrowings which
      were obtained primarily from the Federal Home Loan Bank and Pacific Coast
      Bankers’ Bank. The decrease in other borrowings totaled $26,373,000 for the
      three months ended March 31, 2007. The decrease in other borrowings is primarily
      due to Management’s decision not to renew maturing
      borrowings.


-9-
 Table
          of Contents


SHARE-BASED
      PAYMENT





The
      Company maintains a stock option plan for certain directors, executives, and
      officers. The plan stipulates that (i) all options have an exercise price equal
      to the fair market value on the date of grant; (ii) all options have a ten-year
      term and become exercisable as follows: 25% at date of issuance and 25% per
      year
      for the subsequent three years; and (iii) all must be exercised within 90 days
      following termination of employment or they expire. The Company’s stock option
      plan is designed to provide equity compensation to officers and directors that
      is based on Company stock price performance. The shares issued pursuant to
      the
      Company’s plan are newly issued, registered and non-restrictive.




On
        January 1, 2006, the Company began recording share-based
        payment expense
        in accordance with Statement of Financial Accounting Standards No. 123-R,
        Share-based Payment, (“SFAS 123R”) as interpreted by SEC Staff Accounting
        Bulletin No. 107. The Company adopted the modified prospective transition
        method
        provided for under SFAS 123R, and consequently has not retroactively adjusted
        results from prior periods. Under this transition method, compensation cost
        associated with stock option awards now includes quarterly amortization of
        the
        remaining unvested portion of stock options outstanding prior to January
        1,
        2006. Share-based payment expense was recorded as a non-cash expense increase
        in
        salaries and benefits expense, which had the effect of reducing net income,
        earnings per share, and diluted earnings per share. Share-based payment expense
        is recorded on a ratable basis in the period in which the stock option vests.
        The Company uses the Black-Scholes-Merton closed form model, an acceptable
        model
        under SFAS 123R, for estimating the fair value of stock options. For the
        valuation of stock options, the Company used the following assumptions: a
        risk
        free rate of 4.5%; a volatility rate of 26.95%; an expected dividend rate
        of
        1.20%; and an expected term of 6.28 years for the quarter ended March 31,
        2007
        and a risk free rate of 4.35%; a volatility rate of 27.81%; an expected dividend
        rate of 0.50%; and an expected term of 5.99 years for the three months ended
        March 31, 2006.




**Information
      as Reported in the Financial Statements**





The
      following table presents the stock option compensation expense included in
      the
      Company’s Consolidated Statements of Income and Comprehensive Income for the
      three months ended March 31, 2007:





Three
                Months Ended March 31, 2007
            
            Three
                Months Ended
              March
                31, 2006(Dollars
                in thousands except per share data)Stock
                option compensation expense
            
            $
            549
            
            $
            226Tax
                benefit recorded related to stock option compensation
                expense
            
            
            (91
            )
            
            (10
            )Decrease
                in net income
            
            
            458
            
            $
            216Effect
                on:Net
                income per share - basic
            
            $
            (0.04
            )
            $
            (0.02
            )Net
                income per share - diluted
            
            $
            (0.04
            )
            $
            (0.02
            )




Options
      activity during the first three months of 2007 is as follows:




(Shares
                in thousands)
            
            #
                of shares
            
            Weighted-Average
                exercise price per shareOutstanding
                at January 1, 2007
            
            
            679
            
            $
            20.73Options
                granted
            
            
            152
            
            
            30.43Options
                exercised
            
            
            (17
            )
            
            11.12Options
                forfeited
            
            
            -
            
            
            -Outstanding
                at March 31, 2007
            
            
            814
            
            
            22.75Exercisable
                at March 31, 2007
            
            
            597
            
            $
            19.52Forfeited
                during the first three months of 2007
            
            
            -
            
            
            -




-10-
 Table
          of Contents


Options
      grants during the first three months of 2007:





March
                31,(Shares
                in thousands)
            
            2007
            
            2006#
                of shares
            
            Weighted-Average
                fair value per share
            
            #
                of shares
            
            Weighted-Average
                fair value per shareOptions
                granted
            
            
            152
            
            $
            9.67
            
            
            52
            
            $
            11.77





Option
      vesting activity that occurred during the first three months of
      2007:





(Shares
                in thousands)
            
            #
                of shares
            
            Weighted-Average
                fair value per shareNonvested
                options at January 1, 2007
            
            
            115
            
            $
            11.17Options
                granted
            
            
            152
            
            
            9.67Options
                vested
            
            
            (50
            )
            
            10.17Options
                forfeited
            
            
            -
            
            
            -Nonvested
                options at March 31, 2007
            
            
            217
            
            $
            10.38




Vested
      option summary information as of March 31, 2007 is as follows:




(Shares
                and dollars in thousands, except per share data)
            
            #
                of shares
            
            Aggregate
                intrinsic value
            
            Weighted-Average
                remaining contractual life
            
            Weighted-Average
                exercise price per shareVested
                options exercisable at March 31, 2007
            
            
            597
            
            $
            4,197
            
            
            6.43
            
            $
            19.52Total
                options outstanding at March 31, 2007
            
            
            814
            
            $
            3,094
            
            
            7.24
            
            $
            22.75





The
      vesting schedule for each option holder’s stock option contract is identical to
      the exercise schedule for each option contract. The total intrinsic value of
      options exercised was $353,000 and $1,724,000 for the quarters ended March
      31,
      2007 and March 31, 2006. Intrinsic value is defined as positive difference
      between the current market price for the underlying stock
      and the strike
      price of an
      option. The exercise price must be less than the current market price of the
      underlying stock to have intrinsic value. The total fair value of shares vested
      was $509,000 and $226,000 for the three months ended March 31, 2007 and 2006.
      Total future compensation expense related to non-vested awards was $1,978,000
      with a weighted average period to be recognized of 2.40 years as of March 31,
      2007. There are 217,000 authorized shares remaining available for future grant
      under the Company’s stock option plan.


-11-
 Table
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**Recent
      Accounting Pronouncements**





In
      February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments - an amendment of FASB Statements No. 133 and 140." SFAS
      No. 155 simplifies accounting for certain hybrid instruments currently governed
      by SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
      by allowing fair value remeasurement of hybrid instruments that contain an
      embedded derivative that otherwise would require bifurcation. SFAS No. 155
      also
      eliminates the guidance in SFAS No.133 Implementation Issue No. D1, "Application
      of Statement 133 to Beneficial Interests in Securitized Financial Assets,"
      which
      provides such beneficial interests are not subject to SFAS No. 133. SFAS No.
      155
      amends SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
      and Extinguishments of Liabilities - a Replacement of FASB Statement No. 125,"
      by eliminating the restriction on passive derivative instruments that a
      qualifying special-purpose entity may hold. This statement is effective for
      financial instruments acquired or issued after the beginning of an entity’s
      first fiscal year that begins after September 15, 2006. The adoption of this
      statement did not have a material impact on the Company’s Consolidated Financial
      Statements.





In
      March
      2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 156,
      "Accounting for Servicing of Financial Assets- an amendment of FASB Statement
      No. 140." SFAS No.156 requires an entity to recognize a servicing asset or
      servicing liability each time it undertakes an obligation to service a financial
      asset by entering into a servicing contract in specific situations.
      Additionally, the servicing asset or servicing liability shall be initially
      measured at fair value; however, an entity may elect the "amortization method"
      or "fair value method" for subsequent balance sheet reporting periods. SFAS
      No.156 is effective as of an entity's first fiscal year beginning after
      September 15, 2006. Early adoption is permitted as of the beginning of an
      entity's fiscal year, provided the entity has not yet issued financial
      statements, including interim financial statements, for any period of that
      fiscal year. The adoption of this statement did not have a material impact
      on
      the Company’s Consolidated Financial Statements.





In
      June
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48 (FIN48), *Accounting
      for Uncertainty in Income Taxes.* FIN 48
      clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with FASB Statement No. 109, *Accounting
      for Income Taxes* .
      FIN 48
      requires that management make a determination as to whether each tax position
      is
      more-likely-than-not to be sustained under tax authority examination, based
      on
      the technical merits of the position. If the more-likely-than-not threshold
      is
      met, management must measure the benefit of each position to determine the
      amount of benefit to recognize in the financial statements. Differences between
      tax positions taken in a tax return and amounts recognized in the financial
      statements will generally result in: (a) an increase in a liability for income
      taxes payable or a reduction in an income tax refund; (b) a reduction in a
      deferred tax asset or an increase in a deferred tax liability; or both. This
      interpretation was effective for fiscal years beginning after December 15,
      2006.
      The adoption of this statement did not have a material impact on the Company’s
      Consolidated Financial Statements.





In
      September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
      No.
      157, " *Employers’
      Fair Value Measurements* ”
which
      defines and establishes a framework for measuring fair value used in FASB
      pronouncements that require or permit fair value measurement. This statement
      expands disclosures using fair value to measure assets and liabilities in
      interim and annual periods subsequent to the period of initial recognition.
      SFAS
      No. 157 is effective for financial statements issued for fiscal years after
      November 15, 2007, and interim periods within those years. Management does
      not
      expect the adoption of this statement to have a material impact on the Company’s
      Consolidated Financial Statements.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
      159), which creates an alternative measurement method for certain financial
      assets and liabilities. SFAS 159 permits fair value to be used for both the
      initial and subsequent measurements on a contract-by-contract election, with
      changes in fair value to be recognized in earnings as those changes occur.
      This
      election is referred to as the “fair value option”. SFAS 159 also requires
      additional disclosures to compensate for the lack of comparability that will
      arise from the use of the fair value option. SFAS 159 is effective for fiscal
      years beginning after November 15, 2007, with early adoption permitted as
      of the beginning of a company’s fiscal year, provided the company has not yet
      issued financial statements for that fiscal year. Management is currently
      evaluating the impact the adoption of SFAS 159 will have on its financial
      position and results of operations. Management has decided not to early adopt
      SFAS 159.


-12-
 Table
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**Item
      2. Management's Discussion And Analysis Of Financial Condition****And
      Results Of Operations**





The
      following Management's Discussion and Analysis of Financial Condition and
      Results of Operations contain forward-looking statements that are subject to
      risks and uncertainties and include information about possible or assumed future
      results of operations. Many possible events or factors could affect the future
      financial results and performance of the company. This could cause results
      or
      performance to differ materially from those expressed in our forward-looking
      statements. Words such as “expects”, “anticipates”, “believes”, “estimates”,
“intends,” “plans,” “assumes,” “projects,” “predicts,” “forecasts,” and
      variations of such words and other similar expressions are intended to identify
      such forward-looking statements. These statements are not guarantees of future
      performance and involve certain risks, uncertainties and assumptions which
      are
      difficult to predict. Therefore, actual outcomes and results may differ
      materially from what is expressed or forecasted in, or implied by, such
      forward-looking statements.





Readers
      of the Company’s Form 10-Q should not base their investment decisions solely on
      forward looking statements and should consider all uncertainties and risks
      discussed throughout this report, as well as those discussed in the Company’s
      2006 Annual Report on Form 10-K filed on March 16, 2007. These statements are
      representative only on the date hereof, and the Company undertakes no obligation
      to update any forward-looking statements made. Some possible events or factors
      that could occur that may cause differences from expected results include the
      following: the Company’s loan growth is dependent on economic conditions, as
      well as various discretionary factors, such as decisions to sell, or purchase
      certain loans or loan portfolios; or sell or buy participations of loans; the
      quality and adequacy of management of our borrowers; industry, product and
      geographic concentrations and the mix of the loan portfolio. The rate of
      charge-offs and provision expense can be affected by local, regional and
      international economic and market conditions, concentrations of borrowers,
      industries, products and geographical conditions, the mix of the loan portfolio
      and management’s judgments regarding the collectibility of loans. Liquidity
      requirements may change as a result of fluctuations in assets and liabilities
      and off-balance sheet exposures, which will impact the capital and debt
      financing needs of the Company and the mix of funding sources. Decisions to
      purchase, hold, or sell securities are also dependent on liquidity requirements
      and market volatility, as well as on and off-balance sheet positions. Factors
      that may impact interest rate risk include local, regional and international
      economic conditions, levels, mix, maturities, yields or rates of assets and
      liabilities and the wholesale and retail funding sources of the Company.





The
      Company is also exposed to the potential of losses arising from adverse changes
      in market rates and prices which can adversely impact the value of financial
      products, including securities, loans, and deposits. In addition, the banking
      industry in general is subject to various monetary and fiscal policies and
      regulations, which include those determined by the Federal Reserve Board, the
      Federal Deposit Insurance Corporation and state regulators, whose policies
      and
      regulations could affect the Company’s results.





Other
      factors that may cause actual results to differ from the forward-looking
      statements include the following: competition with other local and regional
      banks, savings and loan associations, credit unions and other nonbank financial
      institutions, such as investment banking firms, investment advisory firms,
      brokerage firms, mutual funds and insurance companies, as well as other entities
      which offer financial services; interest rate, market and monetary fluctuations;
      inflation; market volatility; general economic conditions; introduction and
      acceptance of new banking-related products, services and enhancements; fee
      pricing strategies, mergers and acquisitions and their integration into the
      Company, civil disturbances or terrorist threats or acts, or apprehension about
      the possible future occurrences or acts of this type, outbreak or escalation
      of
      hostilities in which the United States is involved, any declaration of war
      by
      the U.S. Congress or any other national or international calamity, crisis or
      emergency changes in laws and regulations, recently issued accounting
      pronouncements, government policies, regulations, and their enforcement
      (including Bank Secrecy Act-related matters, taxing statutes and regulations);
      restrictions on dividends that our subsidiaries are allowed to pay to us; the
      ability to satisfy requirements related to the Sarbanes-Oxley Act and other
      regulation on internal control; and management’s ability to manage these and
      other risks. For additional information relating to the risks of the Company's
      business see "Risk Factors" in the Company's Annual Report on Form 10-K.


-13-
 Table
          of Contents


**Critical
      accounting policies and estimates**





Management’s
      discussion and analysis of its financial condition and results of operations
      are
      based upon the Company’s consolidated financial statements, which have been
      prepared in accordance with accounting principles generally accepted in the
      United States. The preparation of these financial statements requires the
      Company to make estimates and judgments that affect the reported amounts of
      assets, liabilities, revenues and expenses, and related disclosure of contingent
      assets and liabilities. On an on-going basis, the Company evaluates its
      estimates, including those related to the adequacy of the allowance for loan
      losses and reserve for unfunded loan commitments, valuation of deferred income
      taxes and contingencies. The Company bases its estimates on historical
      experience and on various other assumptions that are believed to be reasonable
      under the circumstances, the results of which form the basis for making
      judgments about the carrying values of assets and liabilities that are not
      readily apparent from other sources. Actual results will differ from these
      estimates. (See caption “Allowance for Loan Losses” below in the current Form
      10-Q and in the Company’s 2006 annual report for a more detailed
      discussion).




The
      following discussion and analysis is designed to provide a better understanding
      of the significant changes and trends related to the Company and its
      subsidiaries' financial condition, operating results, asset and liability
      management, liquidity and capital resources and should be read in conjunction
      with the Consolidated Financial Statements of the Company and the Notes thereto
      included in the Company’s 2006 Annual Report and Form 10-K.




**Results
      of Operations**




**Three
      Months Ended March 31, 2007 Compared With Three Months Ended March 31,
      2006**




OVERVIEW




For
      the
      three months ended March 31, 2007 the Company reported net income of $3,976 ,000.
      This compares to $5,557 ,000
      for
      the same period in 2006 and represents a decrease of $1,581 ,000
      or 28 %.
      Basic
      and diluted earnings per share were $0.37 and $0.36 for the
      three months ended March 31, 2007 and $0.52 and $0.51 for the
      three months ended March 31, 2006. This was a decrease of $0.15 per
      share for basic and $0.15 for
      diluted earnings per share for the three months ended March 31, 2007. The
      decrease in net income is mainly due to the reduction in the net interest
      margin. The decrease in the net interest margin is primarily attributable to
      higher prevailing interest rates paid on deposits. The annualized return on
      average assets was 0.84% for the three months ended March 31, 2007 compared
      to
      1.28% for the three months ended March 31, 2006. The Company's annualized return
      on average equity of 10.68% for the three months ended March 31, 2007 compared
      to 17.63% for the three months ended March 31, 2006.




NET
      INTEREST INCOME




The
      Company's primary source of income is net interest income and represents the
      difference between interest income and fees derived from earning assets and
      interest paid on interest bearing liabilities. The following table illustrates
      the results and changes in interest income and interest expense for the three
      months ended March 31, 2007 and March 31, 2006.





For
                the three months ended March 31,(Dollars
                in thousands)
            
            2007
            
            2006
            
            Percent
                changeTotal
                interest income
            
            $
            31,215
            
            $
            27,647
            
            
            13
            %Total
                interest expense
            
            
            14,471
            
            
            9,289
            
            
            56Net
                interest income
            
            $
            16,744
            
            $
            18,358
            
            
            (9)
            %


-14-
 Table
            of Contents




The
      following table illustrates the average balances affecting interest income
      and
      expense, and interest earned or paid on those balances on a tax adjusted basis
      for the periods indicated.




For
                the three months ended March 31,(Dollars
                in thousands)
            
            2007
            
            2006
            
            Percent
                changeAverage
                interest earning assets
            
            $
            1,738,074
            
            $
            1,603,724
            
            
            8
            %Average
                interest bearing liabilities
            
            $
            1,473,996
            
            $
            1,310,863
            
            
            12
            %Average
                interest rate earned
            
            
            7.36
            
            
            7.07
            
            
            4
            %Average
                interest rate paid
            
            
            3.98
            
            
            2.87
            
            
            39
            %Net
                interest margin
            
            
            3.98
            %
            
            4.72
            %
            
            (16
            )%




The
      level
      of interest income is affected by changes in volume of and rates earned on
      interest-earning assets. Interest-earning assets consist primarily of loans,
      investment securities and federal funds sold. The increase in total interest
      income for the three months ended March 31, 2007 was primarily the result of
      an
      increase in both the volume of interest-earning assets and the average interest
      rates earned. The increase in average interest earning assets during the first
      quarter of 2007 was made possible by increased asset generation from our
      existing branch network with funding being provided from the increase in time
      and savings deposits in the first quarter of 2007, and the issuance of
      subordinated debt in 2006. The increase in interest rates earned during the
      three months ended March 31, 2007 compared to the same period in 2006 was
      primarily the result of an increase in prevailing market interest rates.
      Management believes that while deposit competition will likely continue, the
      dramatic increase in interest rates paid on deposits will likely slow. Short
      term interest rates for the first quarter of 2007 as compared to the same period
      in 2006 have increased as a result of the Federal Reserve Board’s Open Market
      Committee actions that increased short term rates through June 2006. Interest
      expense is a function of the volume and rates paid on interest-bearing
      liabilities. Interest-bearing liabilities consist primarily of certain deposits
      and borrowed funds. The increase in interest-bearing liabilities during the
      first quarter of 2007 when compared to the same period in 2006 was primarily
      the
      result of an increase in time and savings deposits. The increase in savings
      deposits was primarily the result of a decision the Bank made in September
      of
      2006 to retain deposits that were previously swept out at the end of the day
      to
      other depository institutions. This action allowed the Bank to retain
      $49,840,000 in savings deposits in September 2006, and this amount has grown
      to
      $99,124,000 as of March 31, 2007. The increase in time deposits in the first
      quarter of 2007 was partially the result of customers reallocating funds from
      non interest bearing demand deposit accounts to interest bearing time accounts.
      The Bank has also increased market penetration into existing markets and
      expanded into new markets, which has increased deposits in the savings and
      time
      segments of the deposit portfolio. Management’s decision to reduce the amount of
      federal funds sold allowed the Bank to reduce its brokered deposits to
      $38,893,000 as of March 31, 2007 as compared to $92,943,000 at December 31,
      2006. The increase in interest rates paid during the three months ended March
      31, 2007 when compared to 2006 was primarily the result of an increase in
      prevailing interest rates and a change in the mix within the deposit portfolio.
      Average time deposits accounted for 43% of the average deposit portfolio as
      of
      March 31, 2007 compared to 35% as of March 31, 2006. The increase in the time
      and savings deposit segment of the deposit portfolio was coupled with declines
      in the demand deposit segment of the deposit portfolio causing the average
      interest rate paid on interest bearing liabilities to increase.




The
      net
      interest margin provides a measurement of the Company's ability to utilize
      funds
      profitably during the period of measurement. The Company's decrease in the
      net
      interest margin for the first three months of 2007 when compared to the same
      period in 2006 was primarily attributable to increased yields paid on the
      savings and time segments of the deposit portfolio of 147 and 112 basis points,
      respectively, and increases in their average balances of $28,180,000 and
      $192,071,000, respectively. Loans as a percentage of average interest-earning
      assets increased to 70% for the three months ended March 31, 2007 as compared
      with 69% for the same time period in 2006. The increase in loans as a percentage
      of interest-earning assets is mainly attributable to increased loan production
      generated through our branch network. Average loan growth for the three months
      ended March 31, 2007 grew to $1,222,832,000 from $1,107,764,000 or $115,068,000
      from March 31, 2006. The loan growth occurred primarily in the non-residential
      real estate mortgage loan segment of the portfolio. Net interest income and
      the
      net interest margin are presented in the table on pages 18 and 19 on a
      taxable-equivalent basis to consistently reflect income from taxable loans
      and
      securities and tax-exempt securities based on a 35% marginal tax
      rate.


-15-
 Table
          of Contents




AVERAGE
      BALANCES AND RATES EARNED AND PAID




The
      following table presents condensed average balance sheet information for the
      Company, together with average interest rates earned and paid on the various
      sources and uses of its funds for each of the periods indicated. Nonaccruing
      loans are included in the calculation of the average balances of loans, but
      the
      nonaccrued interest on such loans is excluded.





AVERAGE
      BALANCE SHEET & ANALYSIS OF NET INTEREST EARNINGS


Three
                months ended
            
            Three
                months endedMarch
                31, 2007
            
            March
                31, 2006Average
              Balance
            
            Taxable
              Equivalent
              Interest
            
            Taxable
              Equivalent
              Yield/rate
            
            Average
              Balance
            
            Taxable
              EquivalentInterest
            
            Taxable
              EquivalentYield/rate(Dollars
                in thousands)**Assets**Federal
                funds sold
            
            $
            95,294
            
            $
            1,235
            
            
            5.26
            %
            $
            4,593
            
            $
            49
            
            
            4.33
            %Time
                deposits at other financial institutions
            
            
            350
            
            
            5
            
            
            5.79
            
            
            350
            
            
            5
            
            
            5.79Taxable
                investment securities
            
            
            318,932
            
            
            3,787
            
            
            4.82
            
            
            390,601
            
            
            4,446
            
            
            4.62Nontaxable
                investment securities
            
            
            100,666
            
            
            1,231
            
            
            4.96
            
            
            100,416
            
            
            1,248
            
            
            5.04Loans,
                gross:
            
            
            1,222,832
            
            
            25,278
            
            
            8.38
            
            
            1,107,764
            
            
            22,223
            
            
            8.14Total
                interest-earning assets
            
            
            1,738,074
            
            
            31,536
            
            
            7.36
            
            
            1,603,724
            
            
            27,971
            
            
            7.07Allowance
                for loan losses
            
            
            (14,023
            )
            
            
            
            
            
            
            
            (15,168
            )Cash
                and due from banks
            
            
            44,121
            
            
            
            
            
            
            
            
            49,507Premises
                and equipment, net
            
            
            44,128
            
            
            
            
            
            
            
            
            29,931Interest
                receivable and other assets
            
            
            76,654
            
            
            
            
            
            
            
            
            67,493Total
                assets
            
            $
            1,888,954
            
            
            
            
            
            
            
            $
            1,735,487**Liabilities
                And Shareholders' Equity**Negotiable
                order of withdrawal
            
            $
            219,934
            
            $
            585
            
            
            1.08
            
            $
            214,810
            
            $
            360
            
            
            0.68Savings
                deposits
            
            
            413,341
            
            
            3,510
            
            
            3.44
            
            
            385,161
            
            
            1,869
            
            
            1.97Time
                deposits
            
            
            667,787
            
            
            7,843
            
            
            4.76
            
            
            475,716
            
            
            4,272
            
            
            3.64Total
                interest-bearing deposits
            
            
            1,301,062
            
            
            11,938
            
            
            3.72
            
            
            1,075,687
            
            
            6,501
            
            
            2.45Federal
                funds purchased
            
            
            -
            
            
            -
            
            
            -
            
            
            38,468
            
            
            442
            
            
            4.66Other
                borrowings
            
            
            140,974
            
            
            1,858
            
            
            5.35
            
            
            180,212
            
            
            1,971
            
            
            4.44Subordinated
                Debentures
            
            
            31,960
            
            
            675
            
            
            8.57
            
            
            16,496
            
            
            375
            
            
            9.22Total
                interest-bearing liabilities
            
            
            1,473,996
            
            
            14,471
            
            
            3.98
            
            
            1,310,863
            
            
            9,289
            
            
            2.87Noninterest-bearing
                deposits
            
            
            251,155
            
            
            
            
            
            
            
            
            284,121Accrued
                interest, taxes and other liabilities
            
            
            14,897
            
            
            
            
            
            
            
            
            14,410Total
                liabilities
            
            
            1,740,048
            
            
            
            
            
            
            
            
            1,609,394Total
                shareholders' equity
            
            
            148,906
            
            
            
            
            
            
            
            
            126,093Total
                liabilities and shareholders' equity
            
            $
            1,888,954
            
            
            
            
            
            
            
            $
            1,735,487Net
                interest income and margin
            
            
            
            
            $
            17,065
            
            
            3.98
            %
            
            
            
            $
            18,682
            
            
            4.72
            %




( 1)  Tax-equivalent
      adjustments included in the nontaxable investment securities portfolio are
      $276,000 and $296,000 for the three months ended March 31, 2007 and 2006. Tax
      equivalent adjustments included in the taxable investment securities created
      by
      a dividends received deduction were $22,000 and $37,000 for the three months
      ended March 31, 2007 and 2006. Tax
      equivalent income adjustments recorded at the statutory federal rate of 35%
      that
      are included in taxable investment securities income were created by a qualified
      zone academy bond of $23,000 in the first three months of 2007.


(2)  Amounts
      of interest earned included loan fees of $861,000 and $908,000 and loan costs
      of
      $123,000 and $111,000 for the three months ended March 31, 2007 and 2006,
      respectively.


(3)  Net
      interest margin is computed by dividing net interest income by total average
      interest-earning assets.


-16-
 Table
          of Contents




NET
      INTEREST INCOME CHANGES DUE TO VOLUME AND RATE




The
      following table sets forth, for the periods indicated, a summary of the changes
      in interest earned and interest paid resulting from changes in average asset
      and
      liability balances (Volume) and changes in average interest rates (Rate) and
      the
      total net change in interest income and expenses. The changes in interest due
      to
      both rate and volume have been allocated to volume and rate changes in
      proportion to the relationship of the absolute dollar amount of the change
      in
      each.





Net
      Interest Income Variance Analysis:




Three
                months endedMarch
                31, 2007 compared to March 31, 2006(In
                thousands)
            
            Volume
            
            Rate
            
            TotalIncrease
                (decrease) in interest income:Federal
                funds sold
            
            
            1,173
            
            
            13
            
            
            1,186Taxable
                investment securities
            
            
            (849
            )
            
            190
            
            
            (659
            )Tax-exempt
                investment securities
            
            
            3
            
            
            (20
            )
            
            (17
            )Loans
            
            
            2,364
            
            
            691
            
            
            3,055Total:
            
            
            2,691
            
            
            874
            
            
            3,565Increase
                in interest expense:Interest
                bearing demand
            
            
            9
            
            
            216
            
            
            225Savings
                deposits
            
            
            146
            
            
            1,495
            
            
            1,641Time
                deposits
            
            
            2,026
            
            
            1,545
            
            
            3,571Federal
                funds purchased
            
            
            (221
            )
            
            (221
            )
            
            (442
            )Other
                borrowings
            
            
            (480
            )
            
            367
            
            
            (113
            )Junior
                subordinated debentures
            
            
            329
            
            
            (29
            )
            
            300Total:
            
            
            1,809
            
            
            3,373
            
            
            5,182Increase
                in net interest income
            
            
            882
            
            
            (2,499
            )
            
            (1,617
            )




PROVISION
      FOR LOAN LOSSES




The
      provision for loan losses was $ 200 ,000
      and
      $0 the three months ended March 31, 2007 and 2006, an increase of $200,000
      in
      2007. For an explanation of the increase in the provision for loan losses during
      the first quarter of 2007, see "Allowance for Loan Losses" elsewhere herein. As
      of
      March 31, 2007 the allowance for loan losses was $14,165,000 or 1.15% of total
      loans compared to $14,031,000 or 1.15% of total loans as of December 31, 2006.
      At March 31, 2007, nonperforming assets totaled $15,341,000 or 0.82% of total
      assets, nonperforming loans totaled $15,281,000 or 1.24% of total loans and
      the
      allowance for loan losses totaled 92.70% of nonperforming loans. At December
      31,
      2006, nonperforming assets totaled $2,435,000 or 0.12% of total assets,
      nonperforming loans totaled $2,375,000 or 0.19% of total loans and the allowance
      for loan losses totaled 590.78% of nonperforming loans. No assurance can be
      given that nonperforming loans will not increase or that the allowance for
      loan
      losses will be adequate to cover losses inherent in the loan portfolio. For
      more
      information related to nonperforming loans, see the section titled
“NONPERFORMING ASSETS” included in this report.


-17-
 Table
          of Contents




NONINTEREST
      INCOME





Non-interest
      income increased by $327,000 or 12% to $2,959,000 for the three months ended
      March 31, 2007 compared with $2,632,000 for the same period during 2006. Service
      charges on deposit accounts increased by $284,000 or 20% to $ 1,705 ,000
      for
      the three months ended March 31, 2007 compared with $1,421,000 for the same
      period in 2006. The increase in service charges on deposit accounts for the
      three month period was the result of increased Bank focus on service charges
      as
      a way to increase non-interest income. The increase of $103,000 for the three
      months ended March 31, 2007 in cash surrender value of life insurance policies
      was the result of higher average earning balances compared to March 31, 2006.
      Other non-interest income decreased by $60,000 or 7% when compared to the same
      period in 2006. The primary reason for the decrease in other non-interest income
      is attributable to a decrease in the fees collected in the mortgage broker
      business and a decrease in the amount of fees derived from letters of
      credit.





NONINTEREST
      EXPENSE **** ****





Non-interest
      expenses increased by $1,431,000 or 11% to $ 13,907 ,000
      for
      the three months ended March 31, 2007 compared with $12,476,000 for the same
      period in 2006. The primary components of non-interest expenses were salaries
      and employee benefits, premises and occupancy expenses, equipment expenses,
      professional fees, supplies expenses, marketing expenses, intangible
      amortization and other operating expenses.





For
      the
      three months ended March 31, 2007, salaries and related expenses increased
      by
      $949,000 or 14% to $7,808,000. This compares to the $6,859,000 for the three
      months ended March 31, 2006. The increase was primarily the result of normal
      salary progression, increased support staff used to support branch operations,
      the staffing of new branch offices, regulatory compliance support functions,
      and
      increased expense in 2007 associated with share-based payment as part of
      salaries and related benefits. The increase in share-based payment expense
      totaled $333,000 from $216,000 for the three months ended March 31, 2006 to
      $549,000 for the three months ended March 31, 2007. Premises and occupancy
      expense increased by $355,000 or 30% to $1,544,000 for the three months ended
      March 31, 2007. This compares to the $1,189,000 recorded for the same period
      in
      2006. The primary reason for the increase in 2007 was related to the opening
      of
      new branch facilities.  Equipment
      expense increased by $193,000 or 19% to $1,184,000 primarily due to an increase
      depreciation expense for the three months ended March 31, 2007. The
      additional equipment expenses were primarily the result of purchases related
      to
      the opening of new branch offices. When comparing the results for the three
      months ended March 31, 2007 to the same periods in March 31, 2006, professional
      fees decreased by $109,000 or 12% for the three months, marketing expense
      decreased $74,000 or 19%, supplies expense decreased by $7,000 or 3%, community
      support donations decreased by $38,000 or 17%, intangible amortization expenses
      decreased by $11,000 due to deposit premium intangibles being fully amortized,
      and other non-interest expenses increased $175,000 or 13% from 2006 levels.
      The
      decrease in certain elements of non-interest expense is the result of the
      Company implementing cost controls wherever possible without undermining core
      business support.




PROVISION
      FOR INCOME TAXES




The
      Company
      recorded a decrease in the provision for income taxes of $1,337,000 or 45%
      to
      $ 1,620 ,000
      for
      the three months ended March 31, 2007 compared to the $2,957,000 recorded for
      the same time period in 2006. During the three months ended March 31, 2007,
      the
      Company recorded an effective tax rate of 29%. For the same time period in
      2006,
      the Company recorded an effective tax rate of 35%. The decrease in the effective
      tax rate is the result of nontaxable income representing a greater percentage
      of
      income before taxes and the recognition of increasing tax credits related to
      investments in housing tax credit limited partnerships.


-18-
 Table
          of Contents





Effective
          January 1, 2007, we adopted FASB Interpretation No. 48, *Accounting
          for Uncertainty in Income Taxes* (FIN
          48). FIN 48 prescribes a more-likely-than-not threshold for financial statement
          recognition and measurement of a tax position taken or expected to be taken
          in a
          tax return. This interpretation also provides guidance on derecognition
          of
          income tax assets and liabilities, classification of current and deferred
          income
          tax assets and liabilities, accounting for interest and penalties associated
          with tax positions, accounting for income taxes in interim periods and
          income
          tax disclosures. We
          recognize both interest and penalties as a component of income tax expense.
          The
          Company did not have any accrued interest or penalties due to tax authorities
          at
          adoption or March 31, 2007. The
          Company has not recorded any cumulative effects of applying this interpretation
          due to management’s belief that all of the Company’s tax positions are
          more-likely-than-not to be upheld under audit. The
          Company files a consolidated federal income tax return and the Company
          files
          income tax returns in the State of California. We are not subject to federal
          income tax examinations for taxable years prior to 2003, or state examinations
          prior to 2002.




**Financial
      Condition**




Total
      assets at March 31, 2007 were $1,856,607,000, a decrease of $104,932,000 or
      5%
      compared with total assets of $1,961,539,000 at December 31, 2006. Net loans
      were $ 1,221,254 ,000
      at
      March 31, 2007, an increase of $10,524,000 or 1% compared with net loans of
      $ 1,210,730 ,000
      at
      December 31, 2006. Deposits were $1,534,505,000 at March 31, 2007, a decrease
      of
      $80,836,000 or 5% compared with deposits of $1,615,341,000 at December 31,
      2006.
      The decrease in total assets of the Company between December 31, 2006 and March
      31, 2007 was primarily the result of federal funds sold being reduced by
      $100,090,000 to retire other borrowings and brokered deposits.




Total
      shareholders' equity was $151,645,000 at March 31, 2007, an increase of
      $4,065,000 or 3% from the $147,580,000 at December 31, 2006. The growth in
      shareholders’ equity between December 31, 2006 and March 31, 2007 was primarily
      achieved through the retention of accumulated earnings.




OFF-BALANCE
      SHEET COMMITMENTS




The
      following table shows the distribution of the Company's undisbursed loan
      commitments at the dates indicated.





March
                31,
            
            December
                31,(In
                thousands)
            
            2007
            
            2006Letters
                of credit
            
            $
            7,017
            
            $
            6,739Commitments
                to extend credit
            
            
            443,685
            
            
            445,189Total
            
            $
            450,702
            
            $
            451,928





As
      a
      financial services provider; the Bank routinely commits to extend credit,
      including loan commitments, standby letters of credit and financial guarantees.
      A significant portion of commitments to extend credit may expire without being
      drawn upon. These commitments are subject to the same credit policies and
      approval process used for the Bank’s loans.





RETIREMENT
      PLANS





The
      Company has a supplemental retirement plan covering current and former executive
      officers. This plan is a non−qualified defined benefit plan and is unsecured and
      unfunded. The Company has purchased insurance on the lives of the participants
      and intends to use the cash values of these policies to pay the retirement
      obligations. For more information on the life insurance plans, see the section
      titled “CASH VALUE OF LIFE INSURANCE” contained in this report.


-19-
 Table
            of Contents




The
      following table sets forth the net periodic benefit cost recognized for the
      plan:





(Dollars
                in thousands)
            
            Three
                Months Ended March 31, 2007Net
                pension cost included the following components:Service
                cost-benefits earned during the period
            
            $
            79Interest
                cost on projected benefit obligation
            
            
            53Net
                periodic pension cost
            
            $
            132





During
      the three months ended March 31, 2007, the Company contributed and paid out
      as
      benefits $37,000 to participants under the plan. For the year ending December
      31, 2007, the Company expects to contribute and pay out as benefits $150,000
      to
      participants under the plans.





CASH
      VALUE OF LIFE INSURANCE




The
      Bank
      maintains certain cash surrender value life insurance policies to, among other
      things, partially offset the cost of employee and director benefit programs.
      The
      policies are also associated with a supplemental retirement plan for the
      Company's executive management and deferred retirement benefits for
      participating board members. The
      Company has purchased insurance on the lives of the participants and intends
      to
      hold these policies until their death to obtain the death proceeds associated
      with the policies. Income
      from these policies is reflected in non-interest income. At March 31 2007,
      the
      Bank held $43,460,000 in cash surrender value of life insurance, an increase
      of
      $409,000 from the $43,051,000 maintained at December 31, 2006.




INVESTMENT
      IN HOUSING TAX CREDIT LIMITED PARTNERSHIPS




The
      Bank
      invests in housing tax credit limited partnerships to help meet the Bank’s
      Community Reinvestment Act low income housing investment requirements as well
      as
      to obtain federal and state income tax credits. These partnerships provide
      the
      funding for low-income housing projects that might not otherwise be built.
      The
      Bank had invested or was committed to invest a total of $13,800,000 in these
      partnerships as of March 31, 2007 and December 31, 2006.





INVESTMENT
      SECURITIES





At
      March
      31, 2007 equity securities included $5,093,000 of preferred stock issued by
      the
      Federal National Mortgage Association and the Federal Home Loan Mortgage
      Corporation. These issues of preferred stock are tied to various short term
      indices ranging from the one year LIBOR interest rate to the five year U.S.
      Treasury rate. These securities have AA- credit ratings from the securities
      rating agencies and are callable by the issuer at par.





INTEREST
      RATE FLOOR





During
      the third quarter of 2005, the Company purchased an interest rate floor from
      Wachovia Bank. The interest rate floor provides the Company with partial
      protection against an interest rate downturn on loans that are indexed off
      the
      Prime rate through September 1, 20 10.
      For
      more information on the interest rate floor see the Note 1 in the derivative
      instruments and hedging activities section of the Company’s 2006 Annual Report
      and Form 10-K.


-20-
 Table
          of Contents


The
      fair
      value and notional amounts for the cash flow hedge at March 31, 2007 and
      December 31, 2006 are presented below.




March
                31, 2007
            
            December
                31, 2006(Dollars
                in thousands)
            
            Fair
                Value
            
            Notional
                Amount
            
            Fair
                Value
            
            Notional
                AmountPurchased
                option, interest rate floor
            
            $
            358
            
            $
            100,000
            
            $
            314
            
            $
            100,000




The
        increase of $44,000 or 14% in the fair value of the interest rate floor between
        December 31, 2006 and March 31, 2007 was primarily the result of a changing
        interest rate environment which caused a corresponding increase in the
        probability that the Company will receive future cash inflows related to
        this
        contract. The Company recorded a reduction of interest income in the first
        quarter of 2007 of $37,000 related to the amortization of the interest rate
        floor. The Company recorded the reduction as a reclassification from other
        comprehensive income of $22,000 with a tax benefit of $15,000. The Company
        recorded a reduction of interest income in the first quarter of 2006 of $3,000
        related to the amortization of the interest rate floor. The Company recorded
        the
        reduction as a reclassification from other comprehensive income of $2,000
        with a
        tax benefit of $1,000.




LOANS





The
      Company concentrates its lending activities in five principal areas: commercial,
      agricultural, real estate construction, real estate mortgage, and consumer
      loans. Interest rates charged for loans made by the Company vary with the degree
      of risk, the size and term of the loan, borrowers’ depository relationships with
      the Company and prevailing market rates.





As
      a
      result of the Company’s loan portfolio mix, the future quality of these assets
      could be affected by any adverse trends in its geographic market or in the
      broader economy. These trends are beyond the control of the Company.





The
      Bank’s business activity is with customers located primarily in the counties of
      Fresno, Madera, Mariposa, Merced, Sacramento, San Francisco, San Joaquin,
      Stanislaus, Santa Clara and Tuolumne in the state of California. The consumer
      and small business loan portfolio consists of loans to small businesses, home
      equity, credit cards and the purchase of financing contracts principally from
      automobile and recreational vehicle dealers. Individual loans and lines of
      credit are made in a variety of ways. In many cases collateral such as real
      estate, automobiles and equipment are used to support the extension of credit.
      Repayment, however, is largely dependent upon the borrower’s personal cash
      flow.





Commercial
      lending activities are spread across a wide spectrum of customers including
      loans to businesses, construction and permanent real estate financing, short
      and
      long term agricultural loans for production and real estate purposes and SBA
      financing. In most cases, collateral is taken to secure and reduce the Bank’s
      credit risk. Each loan is submitted to an individual risk grading process but
      the borrowers’ ability to repay is dependent, in part, upon factors affecting
      the local and national economies.





The
      following table shows the composition of the loan portfolio of the Company
      by
      type of loan on the dates indicated:




(Dollars
                in thousands)
            
            March
                31, 2007
            
            December
                31, 2006Loan
                Categories:
            
            Dollar
                Amount
            
            Percent
                of loans
            
            Dollar
                Amount
            
            Percent
                of loansCommercial
            
            $
            317,262
            
            
            26
            %
            $
            320,121
            
            
            26
            %Agricultural
            
            
            86,999
            
            
            7
            
            
            81,568
            
            
            7Real
                estate construction
            
            
            144,049
            
            
            12
            
            
            136,152
            
            
            11Real
                estate construction residential
            
            
            43,129
            
            
            3
            
            
            41,081
            
            
            3Real
                estate mortgage
            
            
            533,210
            
            
            43
            
            
            502,355
            
            
            41Real
                estate mortgage residential
            
            
            25,304
            
            
            2
            
            
            39,725
            
            
            3Consumer
            
            
            85,466
            
            
            7
            
            
            103,759
            
            
            9Total
            
            
            1,235,419
            
            
            100
            %
            
            1,224,761
            
            
            100
            %Less
                allowance for loan losses
            
            
            (14,165
            )
            
            
            
            
            (14,031
            )Net
                loans
            
            $
            1,221,254
            
            
            
            
            $
            1,210,730




-21-
 Table
          of Contents


The
      Bank’s loan portfolio is well diversified in terms of loan products and
      geography. The Bank does not originate single family residential loans to hold
      in its loan portfolio as the Bank merely acts in a loan brokerage capacity.
      Our
      total residential real estate exposure totals $68,433,000 or 5.5% of our loans.
      The Bank has never incurred a loss in its home equity portfolio. The Bank’s
      agricultural loans aggregate $86,999,000 million or 7% of our loans, and the
      Bank’s agriculture loans have no exposure to recent citrus or poultry losses.
      The Bank is headquartered in Merced County, but more than 70% of the collateral
      associated with the Bank’s loan portfolio is located outside of Merced County.
      Management believes the Bank is well diversified and that much of the concerns
      regarding the weakness in the Central Valley residential real estate market
      will
      not impact the future loan loss experience. The Bank does not have any sub-prime
      residential loans in its loan portfolio and 38% of the Bank’s real estate loans
      involve properties that are owner-occupied.





The
      table
      that follows shows the regional distribution of the portfolio of real estate
      construction, real estate residential construction, real estate mortgage, and
      real estate residential mortgage on March 31, 2007.





(Dollars
                in thousands)
            
            San
                Francisco Bay Area
            
            Merced/
              Mariposa
            
            Stockton/
              Modesto
            
            Sacramento
            
            Fresno/
              Bakersfield
            
            All
                Other
            
            TotalReal
                estate construction
            
            $
            20,769
            
            $
            25,727
            
            $
            38,869
            
            $
            22,767
            
            $
            35,917
            
            $
            -
            
            $
            144,049Real
                estate construction residential
            
            
            3,352
            
            
            5,464
            
            
            5,263
            
            
            9,337
            
            
            18,521
            
            
            1,192
            
            
            43,129Real
                estate mortgage
            
            
            49,489
            
            
            184,264
            
            
            154,395
            
            
            39,124
            
            
            86,314
            
            
            19,624
            
            
            533,210Real
                estate mortgage residential
            
            
            1,049
            
            
            12,493
            
            
            7,842
            
            
            14
            
            
            3,819
            
            
            87
            
            
            25,304Total
            
            $
            74,659
            
            $
            227,948
            
            $
            206,369
            
            $
            71,242
            
            $
            144,571
            
            $
            20,903
            
            $
            745,692Owner
                occupied
            
            $
            28,107
            
            $
            99,261
            
            $
            75,733
            
            $
            21,092
            
            $
            53,298
            
            $
            3,291
            
            $
            280,782Non-owner
                occupied
            
            $
            46,552
            
            $
            128,687
            
            $
            130,636
            
            $
            50,150
            
            $
            91,273
            
            $
            17,612
            
            $
            464,910





NONPERFORMING
      ASSETS





Nonperforming
      assets include non-accrual loans, loans 90 days or more past due, restructured
      loans and other real estate owned.




Nonperforming
      loans are those in which the borrower fails to perform in accordance with the
      original terms of the obligation and include loans on non-accrual status, loans
      past due 90 days or more and restructured loans. The Bank generally places
      loans
      on non-accrual status and accrued but unpaid interest is reversed against the
      current year's income when interest or principal payments become 90 days or
      more
      past due unless the outstanding principal and interest is adequately secured
      and, in the opinion of management, is deemed in the process of collection.
      Interest income on non-accrual loans is recorded on a cash basis. Payments
      may
      be treated as interest income or return of principal depending upon management's
      opinion of the ultimate risk of loss on the individual loan. Cash payments
      are
      treated as interest income where management believes the remaining principal
      balance is fully collectible. Additional loans not 90 days past due may also
      be
      placed on non-accrual status if management reasonably believes the borrower
      will
      not be able to comply with the contractual loan repayment terms and collection
      of principal or interest is in question.




A
      "restructured loan" is a loan on which interest accrues at a below market rate
      or upon which certain principal has been forgiven so as to aid the borrower
      in
      the final repayment of the loan, with any interest previously accrued, but
      not
      yet collected, being reversed against current income. Interest is reported
      on a
      cash basis until the borrower's ability to service the restructured loan in
      accordance with its terms is reestablished. The Company had no restructured
      loans as of the dates indicated in the table below.


-22-
 Table
          of Contents




The
      following table summarizes nonperforming assets of the Company at March 31,
      2007
      and December 31, 2006:





March
                31, 2007
            
            December
                31, 2006(Dollars
                in thousands)Non-accrual
                loans
            
            $
            14,108
            
            $
            2,375Accruing
                loans past due 90 days or more
            
            
            1,109
            
            
            -Total
                nonperforming loans
            
            
            15,217
            
            
            2,375Other
                real estate owned
            
            
            60
            
            
            60Total
                nonperforming assets
            
            $
            15,277
            
            $
            2,435Nonperforming
                loans to total loans
            
            
            1.23
            %
            
            0.19
            %Nonperforming
                assets to total assets
            
            
            0.82
            %
            
            0.12
            %





During
      the first three months of 2007, two customers with loans that totaled
      $12,977,000 were placed on non-accrual status, while seven customers with loans
      that totaled approximately $924,000 were removed from non-accrual
      status.




The
      increase in non-accrual loans of $12,906,000 between March 31, 2007 and December
      31, 2006 was primarily the result of a problem with one specific customer and
      not a general degradation of overall credit quality in the portfolio. The loan
      is well collateralized and no loss, based on existing information, is
      anticipated and no reserves have been allocated to this credit. If the
      aforementioned customer was removed from non-accrual status, non-accrual loans
      would have decreased to $1,181,000. .




Contractual
      accrued interest income on loans on non-accrual status as of March 31, 2007
      and
      December 31, 2006, which would have been recognized if the loans had been
      current in accordance with their original terms, was approximately $658,000
      and
      $137,000, respectively.




At
      March
      31, 2007, nonperforming assets represented 0.82% of total assets an increase
      of
      70 basis points when compared to the 0.12% at December 31, 2006. Nonperforming
      loans represented 1.23% of total loans at March 31, 2007, an increase of 104
      basis points compared to the 0.19% at December 31, 2006. Nonperforming loans
      that were secured by first deeds of trust on real property were $12,974,000
      and
      $473,000 at March 31, 2007 and December 31, 2006. The increase in nonperforming
      loans that were secured by first deeds of trust on real property was primarily
      the result of one customer adding $12,927,000 of loan balances to this category.
      Other forms of collateral such as inventory and equipment secured a portion
      of
      the nonperforming loans as of each date. No assurance can be given that the
      collateral securing nonperforming loans will be sufficient to prevent losses
      on
      such loans.




In
      May
      2006, the Bank obtained two properties through foreclosure. During September
      2006, one of these properties was sold. At March 31, 2007 the Company had
      $60,000 invested in two real estate properties that were acquired through
      foreclosure. At December 31, 2005, the Company had $60,000 invested in one
      real
      estate property that was acquired through foreclosure. These properties were
      carried at the lower of their estimated market value, as evidenced by an
      independent appraisal, or the recorded investment in the related loan, less
      estimated selling expenses. At foreclosure, if the fair value of the real estate
      is less than the Company's recorded investment in the related loan, a charge
      is
      made to the allowance for loan losses. The Company expects to sell both
      properties within the next twelve month period. No assurance can be given that
      the Company will sell the properties during 2007 or at any time or for an amount
      that will be sufficient to recover the Company’s investment in these properties.




Management
      defines impaired loans, regardless of past due status on loans, as those on
      which principal and interest are not expected to be collected under the original
      contractual loan repayment terms. An impaired loan is charged off at the time
      management believes the collection process has been exhausted. At March 31,
      2007
      and December 31, 2006, impaired loans were measured based on the present value
      of future cash flows discounted at the loan's effective rate, the loan's
      observable market price or the fair value of collateral if the loan is
      collateral-dependent. Impaired loans at March 31, 2007 were $14,108,000.


-23-
 Table
          of Contents




Except
      for loans that are disclosed above, there were no assets as of March 31, 2007,
      where known information about possible credit problems of the borrower causes
      management to have serious doubts as to the ability of the borrower to comply
      with the present loan repayment terms and which may become nonperforming assets.
      Given the scope and extent of the Company's loan portfolio, however, it is
      always possible that current credit problems may exist that may not have yet
      been identified by the Bank’s credit officers.




**Allowance
      for Loan Losses**





The
      following table summarizes the loan loss experience of the Company for the
      three
      months ended March 31, 2007 and 2006, and for the year ended December 31,
      2006.





March
                31,
            
            December
                31,(Dollars
                in thousands)
            
            2007
            
            2006
            
            2006Allowance
                for Loan Losses:Balance
                at beginning of period
            
            $
            14,031
            
            $
            14,776
            
            $
            14,776Provision
                for loan losses
            
            
            200
            
            
            -
            
            
            400Charge-offs:Commercial
                and agricultural
            
            
            2
            
            
            238
            
            
            2,134Real
                estate - mortgage
            
            
            -
            
            
            -
            
            
            -Consumer
            
            
            291
            
            
            15
            
            
            495Total
                charge-offs
            
            
            293
            
            
            253
            
            
            2,629RecoveriesCommercial
                and agricultural
            
            
            178
            
            
            562
            
            
            1,337Real-Estate
                - mortgage
            
            
            -
            
            
            -
            
            
            -Consumer
            
            
            49
            
            
            56
            
            
            147Total
                recoveries
            
            
            227
            
            
            618
            
            
            1,484Net
                (charge-offs) recoveries
            
            
            (66
            )
            
            365
            
            
            (1,145
            )Balance
                at end of period
            
            $
            14,165
            
            $
            15,141
            
            $
            14,031Loans
                outstanding at period-end
            
            $
            1,235,419
            
            $
            1,168,880
            
            $
            1,224,761Average
                loans outstanding
            
            $
            1,222,832
            
            $
            1,107,764
            
            $
            1,187,156Annualized
                net charge-offs to average loans
            
            
            0.02
            %
            
            (0.13
            )%
            
            0.10
            %Allowance
                for loan lossesTo
                total loans
            
            
            1.15
            %
            
            1.30
            %
            
            1.15
            %To
                nonperforming loans
            
            
            93.09
            %
            
            234.27
            %
            
            590.78
            %To
                nonperforming assets
            
            
            92.72
            %
            
            232.12
            %
            
            576.22
            %


-24-
 Table
          of Contents




The
      Company maintains an allowance for loan losses at a level considered by
      management to be sufficient to cover the inherent risks of loss associated
      with
      its loan portfolio under prevailing economic conditions. In determining the
      adequacy of the allowance for loan losses, management takes into consideration,
      among other things, growth trends in the portfolio, examination by financial
      institution supervisory authorities, prior loan loss experience for the Company,
      concentrations of credit risk, delinquency trends, specific credit risks,
      general economic conditions, the interest rate environment and internal and
      external credit reviews. In addition, the risks management considers vary
      depending on the nature of the loan. The normal risks considered by management
      with respect to agricultural loans include, among other things, the fluctuating
      value of the collateral, changes in weather conditions and the availability
      of
      adequate water resources in the Company's local market area. The normal risks
      considered by management with respect to real estate construction loans include,
      among other things, fluctuation in real estate values, the demand for improved
      commercial and industrial properties and housing, the availability of permanent
      financing in the Company's market area and borrowers' ability to obtain
      permanent financing. The normal risks considered by management with respect
      to
      real estate mortgage loans include, among other things, fluctuations in the
      value of real estate. Additionally, the Company relies on data obtained through
      independent appraisals for significant properties to determine loss exposure
      on
      nonperforming loans.




The
      balance in the allowance is affected by the amounts provided from operations,
      amounts charged off and recoveries of loans previously charged off. The Company
      recorded a provision for loan losses in the first three months of 2007 of
      $200,000 compared with $0 in the same period of 2006. The increase was related
      to the overall increase in the credit risks associated with the Bank’s
      individual credit relationships during the first nine months of 2006 when
      compared to the same period in 2005. The Company had net charge-offs of $66,000
      for the three months ended March 31, 2007 compared with net recoveries of
      $365,000 for the same three months in 2006. The increased charge-offs occurred
      primarily within the consumer segment of the loan portfolio.




During
      the third quarter of 2006, the Company enhanced its methodology used to compute
      the adequacy of the Allowance for Loan Losses. Prior to the third quarter 2006,
      the Company utilized regulatory guidance as a measuring metric to determine
      the
      level of the allowance for loan losses required.




In
      the
      third quarter of 2006, management completed their data collection and historical
      loss calculations, and began using documented historical loss experience by
      loan
      type to develop a statistically relevant model to reserve for inherent losses
      in
      the loan portfolio. This new methodology resulted in an allowance that was
      materially the equivalent of the figure developed under the prior method. There
      was no provision adjustment recorded relevant to this enhancement in
      methodology.




The
      allowance for loan losses is based on estimates and ultimate future losses
      may
      vary from current estimates. It is possible that future economic or other
      factors may adversely affect the Company's borrowers, and thereby cause loan
      losses to exceed the current allowance and require the Company to make
      additional provisions to the allowance for loan losses. In addition, there
      can
      be no assurance that future economic or other factors will not adversely affect
      the Company's borrowers, or that the Company's asset quality may not deteriorate
      through rapid growth, failure to enforce underwriting standards, failure to
      maintain appropriate underwriting standards, failure to maintain an adequate
      number of qualified loan personnel, failure to identify and monitor potential
      problem loans or for other reasons, and thereby cause loan losses to exceed
      the
      current allowance.




The
      allocation of the allowance for loan losses to loan categories is an estimate
      by
      credit officers of the relative risk characteristics of loans in those
      categories. No assurance can be given that losses in one or more loan categories
      will not exceed the portion of the allowance allocated to that category or
      even
      exceed the entire allowance.


-25-
 Table
          of Contents




The
      following table summarizes a breakdown of the allowance for loan losses by
      category and the percentage by loan category of total loans for the dates
      indicated.





March
                31, 2007
            
            December
                31, 2006
            
            December
                31, 2005(Dollars
                in thousands)
            
            Amount
            
            Loans
                % tototal
                loans
            
            Amount
            
            Loans
                % tototal loans
            
            Amount
            
            Loans
                % tototal loansCommercial
                and Agricultural
            
            $
            4,086
            
            
            33
            %
            $
            4,983
            
            
            33
            %
            $
            6,024
            
            
            32
            %Real
                Estate (Construction)
            
            
            1,432
            
            
            15
            
            
            1,658
            
            
            15
            
            
            2,474
            
            
            16Real
                Estate (Mortgage)
            
            
            5,803
            
            
            45
            
            
            3,882
            
            
            44
            
            
            5,598
            
            
            44Consumer
            
            
            2,844
            
            
            7
            
            
            3,508
            
            
            8
            
            
            680
            
            
            8**Total**
            
            **$**
            **14,165**
            
            
            **100**
            **%**
            **$**
            **14,031**
            
            
            **100**
            **%**
            **$**
            **14,776**
            
            
            **100**
            **%**








OTHER
      ASSETS





At
      March
      31, 2007, the Company recorded a balance in other assets of $15,009,000 and
      $23,653,000 at December 31, 2006, a decrease of 37%. The primary reason for
      the
      change in other assets is due to a $3,333,000 and $8,665,000 loan participation
      funding receivable at March 31, 2007 and December 31, 2006, respectively. During
      January 2007 and April 2007, respectively, those funding receivables were
      collected from the participating banks.





RESERVE
      FOR UNFUNDED LENDING COMMITMENTS





The
      reserve for unfunded lending commitments included in other liabilities at March
      31, 2007 and 2006, and December 31, 2006, is presented below.





March
                31,
            
            December
                31,(Dollars
                in thousands)
            
            2007
            
            2006
            
            2006Balance
                at the beginning of period
            
            $
            710
            
            $
            717
            
            $
            717Provision
                for credit losses
            
            
            -
            
            
            (11
            )
            
            (7
            )Balance
                at the end of period
            
            $
            710
            
            $
            706
            
            $
            710




EXTERNAL
      FACTORS AFFECTING ASSET QUALITY




As
      a
      result of the Company's loan portfolio mix, the future quality of its assets
      could be affected by adverse economic trends in its region or in the
      agricultural community. These trends are beyond the control of the Company.




California
      is an earthquake-prone region. Accordingly, a major earthquake could result
      in
      material loss to the Company. At times the Company's service area has
      experienced other natural disasters such as floods and droughts. The Company's
      properties and substantially all of the real and personal property securing
      loans in the Company's portfolio are located in California. The Company faces
      the risk that many of its borrowers face uninsured property damage, interruption
      of their businesses or loss of their jobs from earthquakes, floods or droughts.
      As a result these borrowers may be unable to repay their loans in accordance
      with their terms and the collateral for such loans may decline significantly
      in
      value. The Company's service area is a largely agricultural region and therefore
      is highly dependent on a reliable supply of water for irrigation purposes.
      The
      area obtains nearly all of its water from the run-off of melting snow in the
      mountains of the Sierra Nevada to the east. Although such sources have usually
      been available in the past, water supply can be adversely affected by light
      snowfall over one or more winters or by any diversion of water from its present
      natural courses. Any such natural disaster could impair the ability of many
      of
      the Company's borrowers to meet their obligations to the Company.




Parts
      of
      California have experienced significant floods during 2006. No assurance can
      be
      given that future flooding will not have an adverse impact on the Company and
      its borrowers and depositors.


-26-
 Table
          of Contents




LIQUIDITY




In
      order
      to maintain adequate liquidity, the Company must have sufficient resources
      available at all times to meet its cash flow requirements. The need for
      liquidity in a banking institution arises principally to provide for deposit
      withdrawals, the credit needs of its customers and to take advantage of
      investment opportunities as they arise. The Company may achieve desired
      liquidity from both assets and liabilities. The Company considers cash and
      deposits held in other banks, federal funds sold, other short term investments,
      maturing loans and investments, payments of principal and interest on loans
      and
      investments and potential loan sales as sources of asset liquidity. The Company
      also has the ability to access significant amounts of asset liquidity through
      borrowings from the Federal Home Loan Bank secured by pledged loans. Deposit
      growth and access to credit lines established with correspondent banks and
      market sources of funds are considered by the Company as additional sources
      of
      liability liquidity. The Company’s primary source of liquidity is from dividends
      received from the Bank. Dividends from the Bank are subject to certain
      regulatory restrictions.




The
      Company reviews its liquidity position on a regular basis based upon its current
      position and expected trends of loans and deposits. These assets include cash
      and deposits in other banks, time deposits at other financial institutions,
      available-for-sale securities and federal funds sold. The Company's liquid
      assets totaled $345,560,000 and $452,421,000 on March
      31, 2007 and December 31, 2006, respectively, and constituted 19% and 23% of
      total assets on both those dates. Liquidity is also affected by the collateral
      requirements of its public deposits and certain borrowings. Total market value
      of pledged securities was $282,868,000 at March 31, 2007 compared with
      $280,182,000 at December 31, 2006.




Although
      the Company's primary sources of liquidity include liquid assets and the Bank’s
      deposit base, the Company maintains lines of credit with the Federal Reserve
      Bank of San Francisco, Federal Home Loan Bank of San Francisco, Pacific Coast
      Banker’s Bank, Union Bank of California, Wells Fargo Bank and First Tennessee
      Bank aggregating $275,263,000 of which $22,500,000 was outstanding as of March
      31, 2007 and $239,289,000
      of which $46,500,000 was
      outstanding as of December 31, 2006. Management believes that the Company
      maintains adequate amounts of liquid assets to meet its liquidity needs. The
      Company's liquidity might be insufficient if deposit withdrawals were to exceed
      anticipated levels. Deposit withdrawals can increase if a company experiences
      financial difficulties or receives adverse publicity for other reasons, or
      if
      its pricing, products or services are not competitive with those offered by
      other institutions.




CAPITAL
      RESOURCES




Capital
      serves as a source of funds and helps protect depositors against potential
      losses. The primary source of capital for the Company has been generated through
      retention retained earnings. The Company's shareholders' equity increased by
      $4,065,000 or 3% between March 31, 2007 and December 31, 2006. This increase
      was
      achieved through the retention of accumulated earnings and the exercise of
      stock
      options.




The
      Company is subject to various regulatory capital requirements administered
      by
      the federal banking agencies. Failure to meet minimum capital requirements
      can
      initiate mandatory and possibly additional discretionary actions by the
      regulators that, if undertaken, could have a material adverse effect on the
      Company’s consolidated financial statements. Management believes, as of March
      31, 2007, that the Company and the Bank met all applicable capital requirements.
      The Company’s leverage capital ratio at March 31, 2007 was 9.68% as compared
      with 9.33% as of December 31, 2006. The Company’s total risk based capital ratio
      at March 31, 2007 was 11.71% as compared to 11.52% as of December 31,
      2006.


-27-
 Table
          of Contents




In
      the
      opinion of management, the Company’s and Bank’s actual capital amounts and
      ratios met all regulatory requirements as of March 31, 2007 and are summarized
      as follows:




(Dollars
                in thousands)
            
            Actual
            
            For
                Regulatory Capital Adequacy Purposes
            
            To
                Be Well Capitalized Under Prompt Corrective Action
                Provisions:**The
                Company:**
            
            Amount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            RatioTotal
                capital (to risk weighted assets)
            
            $
            197,660
            
            
            12.68
            %
            $
            124,749
            
            
            8
            %
            $
            155,936
            
            
            10
            %Tier
                1 capital (to risk weighted assets)
            
            $
            182,640
            
            
            11.71
            %
            $
            62,375
            
            
            4
            %
            $
            93,562
            
            
            6
            %Leverage
                ratio(1)
            
            $
            182,640
            
            
            9.68
            %
            $
            75,502
            
            
            4
            %
            $
            94,377
            
            
            5
            %**The
                Bank:**Total
                capital (to risk weighted assets)
            
            $
            171,577
            
            
            11.06
            %
            $
            124,143
            
            
            8
            %
            $
            155,179
            
            
            10
            %Tier
                1 capital (to risk weighted assets)
            
            $
            156,557
            
            
            10.09
            %
            $
            62,071
            
            
            4
            %
            $
            93,107
            
            
            6
            %Leverage
                ratio(1)
            
            $
            156,557
            
            
            8.33
            %
            $
            75,204
            
            
            4
            %
            $
            94,005
            
            
            5
            %


(1)
      The
      leverage ratio consists of Tier 1 capital divided by adjusted quarterly average
      assets. The minimum leverage ratio allowed by bank regulators is 3 percent
      for
      banking organizations that do not anticipate significant growth and that have
      well-diversified risk, excellent asset quality and in general, are considered
      top-rated banks.




The
      Company’s and Bank’s actual capital amounts and ratios met all regulatory
      requirements as of December 31, 2006 and were summarized as
      follows:




(Dollars
                in thousands)
            
            Actual
            
            For
                Regulatory Capital Adequacy Purposes
            
            To
                Be Well Capitalized Under Prompt Corrective Action
                Provisions**The
                Company:**
            
            Amount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            RatioTotal
                capital (to risk weighted assets)
            
            $
            193,721
            
            
            12.49
            %
            $
            124,119
            
            
            8
            %
            $
            155,148
            
            
            10
            %Tier
                I capital (to risk weighted assets)
            
            $
            178,764
            
            
            11.52
            %
            $
            62,059
            
            
            4
            %
            $
            93,089
            
            
            6
            %Leverage
                ratio(1)
            
            $
            178,764
            
            
            9.33
            %
            $
            76,644
            
            
            4
            %
            $
            95,806
            
            
            5
            %**The
                Bank:**Total
                capital (to risk weighted assets)
            
            $
            167,238
            
            
            10.83
            %
            $
            123,523
            
            
            8
            %
            $
            154,404
            
            
            10
            %Tier
                I capital (to risk weighted assets)
            
            $
            152,281
            
            
            9.86
            %
            $
            61,762
            
            
            4
            %
            $
            92,643
            
            
            6
            %Leverage
                ratio(1)
            
            $
            152,281
            
            
            7.98
            %
            $
            76,313
            
            
            4
            %
            $
            95,392
            
            
            5
            %


(1)
      The
      leverage ratio consists of Tier 1 capital divided by quarterly average assets.
      The minimum leverage ratio allowed by bank regulators is 3 percent for banking
      organizations that do not anticipate significant growth and that have well
      diversified risk, excellent asset quality and in general, are considered
      top-rated banks.




The
      Company declares dividends solely at the discretion of the Company’s Board of
      Directors, subject to compliance with regulatory requirements. In order to
      pay
      any cash dividends, the Company must receive payments of dividends or management
      fees from the Bank. There are certain regulatory limitations on the payment
      of
      cash dividends by banks.




DEPOSITS




Deposits
      are the Company's primary source of funds. At March 31, 2007, the Company had
      a
      deposit mix of 28% in savings deposits, 41% in time deposits, 15% in
      interest-bearing checking accounts and 16% in noninterest-bearing demand
      accounts compared to 27% in savings deposits, 41% in time deposits, 14% in
      interest-bearing checking accounts and 18% in noninterest-bearing demand
      accounts at December 31, 2006. Noninterest-bearing demand deposits enhance
      the
      Company's net interest income by lowering its cost of funds.


-28-
 Table
          of Contents


The
      Company obtains deposits primarily from the communities it serves. No material
      portion of its deposits has been obtained from or is dependent on any one person
      or industry. The Company's business is not seasonal in nature. The Company
      accepts time deposits in excess of $100,000 from customers. These deposits
      are
      priced to remain competitive. At March 31, 2007, the Company had brokered
      deposits of $38,893,000. At December 31, 2006, the Company’s brokered deposits
      totaled $92,943,000. The decrease in brokered deposits during the first three
      months of 2007 was related to management’s decision to allow these high cost
      funds to mature without renewal. The Bank has a policy target for brokered
      deposits of no more than 15% of the Bank’s asset base. Brokered deposits did not
      exceed the policy limit as of March 31, 2007.





Maturities
      of time certificates of deposits of $100,000 or more outstanding at March 31,
      2007 and December 31, 2006 are summarized as follows:





(Dollars
                in thousands)
            
            March
                31, 2007
            
            December
                31, 2006Three
                months or less
            
            $
            180,436
            
            $
            190,565Over
                three to six months
            
            
            75,304
            
            
            103,261Over
                six to twelve months
            
            
            25,339
            
            
            50,555Over
                twelve months
            
            
            23,431
            
            
            21,853Total
            
            $
            304,510
            
            $
            366,234





**Federal
      Funds Purchased and Other Borrowed Funds**




The
      total
      of federal funds purchased remained at $0 for the three months ended March
      31,
      2007 from December 31, 2006. Other borrowed funds have decreased primarily
      by
      the repayment of obligations obtained from proceeds of maturities of investment
      securities in the Company’s investment portfolio and the reduction in federal
      funds sold.





In
      December 2005, the Bank entered into a repurchase agreement with an embedded
      LIBOR floor for $100,000,000 with J.P. Morgan. This agreement has a maturity
      date of December 15, 2010. The repurchase agreement will help to insulate the
      Company from the e ffects
      of
      a downward rate environment. For more information about the agreement, see
      Note
      5 on “Other Borrowings” in the Company’s 2006 Annual Report and Form 10-K.





**Return
      on Equity and Assets**





Three
                Months Ended March 31,
            
            Year
                ended December 312007
            
            2006
            
            2006Annualized
                return on average assets
            
            
            0.84
            %
            
            1.28
            %
            
            1.25
            %Annualized
                return on average equity
            
            
            10.68
            
            
            17.63
            
            
            16.85Average
                equity to average assets
            
            
            7.88
            
            
            7.27
            
            
            7.44Dividend
                payout ratio
            
            
            21.62
            %
            
            9.62
            %
            
            13.7
            %




**Impact
      of Inflation**




The
      primary impact of inflation on the Company is its effect on interest rates.
      The
      Company’s primary source of income is net interest income which is affected by
      changes in interest rates. The Company attempts to limit inflation’s impact on
      its net interest margin through management of rate sensitive assets and
      liabilities and the analysis of interest rate sensitivity.


-29-
 Table
          of Contents


**Item
      3. Quantitative and Qualitative Disclosures about Market Risk**





In
      the
      normal course of business, the Company is exposed to market risk which includes
      both price and liquidity risk. Price risk is created from fluctuations in
      interest rates and the mismatch in repricing characteristics of assets,
      liabilities, and off balance sheet instruments at a specified point in time.
      Mismatches in interest rate repricing among assets and liabilities arise
      primarily through the interaction of the various types of loans versus the
      types
      of deposits that are maintained as well as from management's discretionary
      investment and funds gathering activities. Liquidity risk arises from the
      possibility that the Company may not be able to satisfy current and future
      financial commitments or that the Company may not be able to liquidate financial
      instruments at market prices. Risk management policies and procedures have
      been
      established and are utilized to manage the Company's exposure to market risk.
      Quarterly testing of the Company’s assets and liabilities under both increasing
      and decreasing interest rate environments are performed to insure the Company
      does not assume a magnitude of risk that is outside approved policy
      limits.





The
      Company’s success is largely dependent upon its ability to manage interest rate
      risk. Interest rate risk can be defined as the exposure of the Company’s net
      interest income to adverse movements in interest rates. Although the Company
      manages other risks, such as credit and liquidity risk in the normal course
      of
      its business, management considers interest rate risk to be its most significant
      market risk and could potentially have the largest material effect on the
      Company’s financial condition and results of operations. Correspondingly, the
      overall strategy of the Company is to manage interest rate risk, through balance
      sheet structure, to be interest rate neutral.





The
      Company’s interest rate risk management is the responsibility of the
      Asset/Liability Management Committee (ALCO), which provides monthly reports
      to
      the Board of Directors. ALCO establishes policies that monitor and coordinate
      the Company’s sources, uses and pricing of funds. ALCO is also involved in
      formulating the economic projections for the Company’s budget and strategic
      plan. ALCO sets specific rate sensitivity limits for the Company. ALCO monitors
      and adjusts the Company’s exposure to changes in interest rates to achieve
      predetermined risk targets that it believes are consistent with current and
      expected market conditions. Balance sheet management personnel monitor the
      asset
      and liability changes on an ongoing basis and provide report information and
      recommendations to the ALCO committee in regards to those changes.





It
      is the
      opinion of management there has been no material change in the Company’s market
      risk during the first three months of 2007 when compared to the level of market
      risk at December 31, 2006. If interest rates were to suddenly and materially
      fall from levels experienced during the first three months of 2007, the Company
      could become susceptible to an increased level of market risk.





**Item
      4. Controls and Procedures**





EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES





Under
      the
      supervision and with the participation of the Company’s management, including
      its chief executive officer and chief financial officer, the Company conducted
      an evaluation of the effectiveness of the design and operation of its disclosure
      controls and procedures as defined by Rule 13a-15(e) under the Securities
      Exchange Act of 1934.





Based
      on
      the evaluation, the chief executive officer and chief financial officer
      concluded that as of the end of the period covered by this report the disclosure
      controls and procedures were adequate and effective, and that the material
      information required to be included in this report, including information from
      the Company’s consolidated subsidiaries, was properly recorded, processed,
      summarized and reported, and was made known to the chief executive officer
      and
      chief financial officer by others within the Company in a timely manner,
      particularly during the period when this quarterly report on Form 10-Q was
      being
      prepared.


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CHANGES
      IN INTERNAL CONTROL OVER FINANCIAL REPORTING





There
      was
      no change in the Company’s internal control over financial reporting that
      occurred during the most recent fiscal quarter that materially affected, or
      is
      reasonably likely to materially affect, the internal control over financial
      reporting.




**PART
      II - Other Information**




**Item
      1. Legal Proceedings**




The
      Company is a party to routine litigation in the ordinary course of its business.
      In the opinion of management, pending and threatened litigation is not likely
      to
      have a material adverse effect on the financial condition or results of
      operations of the Company.





**Item
      1A. Risk Factors**




Readers
      and prospective investors in our securities should carefully consider the
      following risk factors as well as the other information contained or
      incorporated by reference in this report.





The
      risks
      and uncertainties described below are not the only ones facing us. Additional
      risks and uncertainties that management is not aware of or focused on or that
      management currently deems immaterial may also impair our business operations.
      This report is qualified in its entirety by these risk factors.





If
      any of
      the following risks actually occur, the Company’s financial condition and
      results of operations could be materially and adversely affected. If this were
      to happen, the value of the Company’s securities could decline significantly,
      and shareholders could lose all or part of their investment.





**Market
      and Interest Rate Risk**





***Changes
      in interest rates could reduce income and cash flow***





The
      discussion in this report under “Market and Interest Rate Risk Management” and
“Earnings Sensitivity” is incorporated by reference in this paragraph. The
      Company’s income and cash flow depend to a great extent on the difference
      between the interest earned on loans and investment securities, and the interest
      paid on deposits and other borrowings. We cannot control or prevent changes
      in
      the level of interest rates. They fluctuate in response to general economic
      conditions and the policies of various governmental and regulatory agencies,
      in
      particular, the FRB. Changes in monetary policy, including changes in interest
      rates, will influence the origination of loans, the purchase of investments,
      the
      generation of deposits and the rates received on loans and investment securities
      and paid on deposits and other liabilities.





**Risks
      related to the nature and geographical location of Capital Corp of the West’s
      business**





***Capital
      Corp of the West invests in loans that contain inherent credit risks that may
      cause us to incur losses***





The
      Company closely monitors the markets in which it conducts its lending operations
      and adjusts its strategy to control exposure to loans with higher credit risk.
      Asset reviews are performed using grading standards and criteria similar to
      those employed by bank regulatory agencies. We can provide no assurance that
      the
      credit quality of our loans will not deteriorate in the future and that such
      deterioration will not adversely affect Capital Corp of the
      West.


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**Deterioration
      of local economic conditions could hurt our profitability** .




Our
      operations are primarily located in the Central Valley of California. As a
      result of this geographic concentration, our financial results depend largely
      upon economic conditions in these areas. The local economy relies heavily on
      real estate, agriculture and ranching. A significant downturn in any or all
      of
      these industries could result in a decline in the local economy in general,
      which could in turn negatively impact us. Poor economic conditions could cause
      us to incur losses associated with higher default rates and decreased collateral
      values in our loan portfolio. Also, if there were significant recessionary
      conditions in our market area, our financial condition would be negatively
      impacted.




***The
      markets in which Capital Corp of the West operates are subject to the risk
      of
      earthquakes and other natural disasters***





Most
      of
      the properties of Capital Corp of the West are located in California. Also,
      most
      of the real and personal properties which currently secure the Company's loans
      are located in California. California is a state which is prone to earthquakes,
      brush fires, flooding and other natural disasters. In addition to possibly
      sustaining damage to its own properties, if there is a major earthquake, flood
      or other natural disaster, Capital Corp of the West faces the risk that many
      of
      its borrowers may experience uninsured property losses, or sustained job
      interruption and/or loss which may materially impair their ability to meet
      the
      terms of their loan obligations. A major earthquake, flood or other natural
      disaster in California could have a material adverse effect on Capital Corp
      of
      the West's business, financial condition, results of operations and cash
      flows.





***Substantial
      competition in the California banking market could adversely affect us***





Banking
      is a highly competitive business. We compete actively for loan, deposit, and
      other financial services business in California. Our competitors include a
      large
      number of state and national banks, thrift institutions and credit unions,
      as
      well as many financial and non-financial firms that offer services similar
      to
      those offered by us. Other competitors include large financial institutions
      that
      have substantial capital, technology and marketing resources. Such large
      financial institutions may have greater access to capital at a lower cost than
      us, which may adversely affect our ability to compete effectively.





***Risks
      associated with potential acquisitions or divestitures or restructuring may
      adversely affect us***





We
      may
      seek to acquire or invest in financial and non-financial companies,
      technologies, services or products that complement our business. There can
      be no
      assurance that we will be successful in completing any such acquisition or
      investment as this will depend on the availability of prospective target
      opportunities at valuation levels which we find attractive and the competition
      for such opportunities from other bidders. In addition, we continue to evaluate
      the performance of all of our subsidiaries, businesses and business lines and
      may sell, liquidate or otherwise divest a subsidiary, business or business
      line.
      Any acquisitions, divestitures or restructuring may result in the issuance
      of
      potentially dilutive equity securities, significant write-offs, including those
      related to goodwill and other intangible assets, and/or the incurrence of debt,
      any of which could have a material adverse effect on our business, financial
      condition and results of operations. Acquisitions, divestitures or restructuring
      could involve numerous additional risks including difficulties in obtaining
      any
      required regulatory approvals and in the assimilation or separation of
      operations, services, products and personnel, the diversion of management's
      attention from other business concerns, higher than expected deposit attrition
      (run-off), divestitures required by regulatory authorities, the disruption
      of
      our business, and the potential loss of key employees. There can be no assurance
      that we will be successful in addressing these or any other significant risks
      encountered.


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**Regulatory
      Risks**





***Restrictions
      on dividends and other distributions could limit amounts payable to us***





As
      a
      holding Company, a substantial portion of our cash flow typically comes from
      dividends of our Bank. Various statutory provisions restrict the amount of
      dividends our Bank can pay to us without regulatory approval.





***Adverse
      effects of, or changes in, banking or other laws and regulations or governmental
      fiscal or monetary policies could adversely affect us***





We
      are
      subject to significant federal and state regulation and supervision, which
      is
      primarily for the benefit and protection of our customers and not for the
      benefit of investors. In the past, our business has been materially affected
      by
      these regulations. This trend is likely to continue in the future. Laws,
      regulations or policies, including accounting standards and interpretations
      currently affecting us and our subsidiaries, may change at any time. Regulatory
      authorities may also change their interpretation of these statutes and
      regulations. Therefore, our business may be adversely affected by any future
      changes in laws, regulations, policies or interpretations or regulatory
      approaches to compliance and enforcement, including legislative and regulatory
      reactions to acts of terrorism, and major U.S. corporate bankruptcies and
      reports of accounting irregularities at U.S. public companies.





Additionally,
      our business is affected significantly by the fiscal and monetary policies
      of
      the federal government and its agencies. We are particularly affected by the
      policies of the FRB, which regulates the supply of money and credit in the
      U.S.
      Under long-standing policy of the FRB, the Company is expected to act as a
      source of financial strength for its subsidiary banks. As a result of that
      policy, we may be required to commit financial and other resources to our
      subsidiary bank in circumstances where we might not otherwise do so. Among
      the
      instruments of monetary policy available to the FRB are (a) conducting open
      market operations in U.S. government securities, (b) changing the discount
      rates of borrowings by depository institutions, and (c) imposing or
      changing reserve requirements against certain borrowings by banks and their
      affiliates. These methods are used in varying degrees and combinations to
      directly affect the availability of bank loans and deposits, as well as the
      interest rates charged on loans and paid on deposits. The policies of the FRB
      may have a material effect on our business, results of operations and financial
      condition.





**Systems,
      Accounting and Internal Control Risks**





***The
      accuracy of the Company’s judgments and estimates about financial and accounting
      matters will impact operating results and financial
      condition***





The
      discussion under “Critical Accounting Policies and Estimates” in this report and
      the information referred to in that discussion is incorporated by reference
      in
      this paragraph. The Company’s makes certain estimates and judgments in preparing
      its financial statements. The quality and accuracy of those estimates and
      judgments will have an impact on the Company’s operating results and financial
      condition.


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***The
      Company’s information systems may experience an interruption or breach in
      security***





The
      Company relies heavily on communications and information systems to conduct
      its
      business. Any failure, interruption or breach in security of these systems
      could
      result in failures or disruptions in the Company’s customer relationship
      management and systems. There can be no assurance that any such failures,
      interruptions or security breaches will not occur or, if they do occur, that
      they will be adequately corrected by the Company. The occurrence of any such
      failures, interruptions or security breaches could damage the Company’s
      reputation, result in a loss of customer business, subject the Company to
      additional regulatory scrutiny, or expose the Company to litigation and possible
      financial liability, any of which could have a material adverse effect on the
      Company’s financial condition and results of operations.





***The
      Company’s controls and procedures may fail or be circumvented***





Management
      regularly reviews and updates the Company’s internal control over financial
      reporting, disclosure controls and procedures, and corporate governance policies
      and procedures. Any system of controls and procedures, however well designed
      and
      operated, is based in part on certain assumptions and can provide only
      reasonable, not absolute, assurances that the objectives of the system are
      met.
      Any failure or circumvention of the Company’s controls and procedures or failure
      to comply with regulations related to controls and procedures could have a
      material adverse effect on the Company’s business, results of operations and
      financial condition.




**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.**




In
      the
      opinion of management, there is no additional information relating to these
      periods being reported which warrants inclusion in the report.




**Item
      6. Exhibits**




See
      Exhibit Index


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**SIGNATURES**




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




CAPITAL
      CORP OF THE WEST




(Registrant)







Date:
                May 9, 2007
            By/s/
                Thomas T. HawkerThomas
                T. HawkerPresident
                andChief
                Executive Officer








Date:
                May 9, 2007
            By/s/
                David A. HeaberlinDavid
                A. HeaberlinChief
                Financial Officer/Treasurer


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Exhibit
      Index





Exhibit
            Description31.1
            Certification
                of Registrant's Chief Executive
                Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
                200231.2
            Certification
                of Registrant's Chief Financial
                Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232.1
            Certification
                of Registrant’s Chief Executive
                Officer Pursuant to 18 U.S.C. Section 135032.2
            Certification
                of Registrant’s Chief Financial
                Officer Pursuant to 18 U.S.C. Section
                1350




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