**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 EndedJune
                30, 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 August 6, 2007 was 10,789,944. No shares of preferred stock, no par value,
      were outstanding at August 6, 2007.


-1-


**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
            33Item
                4. Controls and Procedures
            34





PART
      II.
      -- OTHER INFORMATION





Item
                1. Legal Proceedings
            34Item
                1A. Risk Factors
            34Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            36Item
                3. Defaults Upon Senior Securities
            36Item
                4. Submission of Matters to a Vote of Security
                Holders
            36Item
                5. Other Information
            36Item
                6. Exhibits
            36SIGNATURES
            37Exhibit
                Index
            38





-2-


**Capital
      Corp of the West**


**Consolidated
      Balance Sheets**


(Unaudited)


As
                of June 30,
            
            As
                of December 31,(Dollars
                in thousands)
            
            2007
            
            2006**ASSETS:**Cash
                and non-interest-bearing deposits in other banks
            
            $
            42,425
            
            $
            44,853Federal
                funds sold
            
            
            28,225
            
            
            150,680Time
                deposits at other financial institutions
            
            
            100
            
            
            350Investment
                securities available for sale, at fair value
            
            
            233,565
            
            
            256,538Investment
                securities held to maturity, at cost; fair value of $157,256 and
                $166,266
                at June 30, 2007 and December 31, 2006
            
            
            162,074
            
            
            168,058Loans,
                net of allowance for loan losses of $17,661 and $14,031 at June 30,
                2007
                and December 31, 2006
            
            
            1,293,433
            
            
            1,210,730Interest
                receivable
            
            
            9,178
            
            
            9,819Premises
                and equipment, net
            
            
            46,549
            
            
            42,320Goodwill
            
            
            1,405
            
            
            1,405Cash
                value of life insurance
            
            
            43,890
            
            
            43,051Investment
                in housing tax credit limited partnerships
            
            
            9,653
            
            
            10,082Other
                assets
            
            
            19,993
            
            
            23,653Total
                assets:
            
            $
            1,890,490
            
            $
            1,961,539**LIABILITIES:**Deposits:Non-interest-bearing
                demand
            
            $
            234,062
            
            $
            287,723Negotiable
                orders of withdrawal
            
            
            248,084
            
            
            225,481Savings
            
            
            418,255
            
            
            436,494Time,
                under $100,000
            
            
            344,369
            
            
            299,409Time,
                $100,000 and over
            
            
            269,273
            
            
            366,234Total
                deposits
            
            
            1,514,043
            
            
            1,615,341Other
                borrowings
            
            
            182,309
            
            
            151,697Junior
                subordinated debentures
            
            
            31,960
            
            
            31,960Accrued
                interest, taxes and other liabilities
            
            
            13,301
            
            
            14,961Total
                liabilities
            
            
            1,741,613
            
            
            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; 10,789,944 and
                10,760,762 issued and outstanding at June 30, 2007 and December 31,
                2006
            
            
            65,874
            
            
            64,586Retained
                earnings
            
            
            87,180
            
            
            84,614Accumulated
                other comprehensive loss, net
            
            
            (4,177
            )
            
            (1,620
            )Total
                shareholders’ equity
            
            
            148,877
            
            
            147,580Total
                liabilities and shareholders’ equity
            
            $
            1,890,490
            
            $
            1,961,539


See
      accompanying notes to consolidated financial statements




-3-


Capital
      Corp of the West


Consolidated
      Statements of Income


(Unaudited)


For
                the three months ended June 30,
            
            For
                the six months ended June 30,(Dollars
                in thousands, except per share data)
            
            2007
            
            2006
            
            2007
            
            2006**Interest
                income:**Interest
                and fees on loans
            
            $
            26,367
            
            $
            25,208
            
            $
            51,646
            
            $
            47,431Interest
                on deposits with other financial institutions
            
            
            3
            
            
            4
            
            
            8
            
            
            9Interest
                on investments held to maturity:Taxable
            
            
            822
            
            
            899
            
            
            1,635
            
            
            1,841Non-taxable
            
            
            893
            
            
            942
            
            
            1,813
            
            
            1,883Interest
                on investments available for sale:Taxable
            
            
            2,903
            
            
            3,287
            
            
            5,855
            
            
            6,763Non-taxable
            
            
            11
            
            
            22
            
            
            22
            
            
            33Interest
                on federal funds sold
            
            
            298
            
            
            44
            
            
            1,533
            
            
            93Total
                interest income
            
            
            31,297
            
            
            30,406
            
            
            62,512
            
            
            58,053**Interest
                expense:**Interest
                on negotiable orders of withdrawal
            
            
            837
            
            
            305
            
            
            1,422
            
            
            665Interest
                on savings deposits
            
            
            3,510
            
            
            1,913
            
            
            7,020
            
            
            3,782Interest
                on time deposits, under $100
            
            
            4,169
            
            
            2,889
            
            
            7,828
            
            
            4,777Interest
                on time deposits, $100 and over
            
            
            3,251
            
            
            3,081
            
            
            7,435
            
            
            5,465Interest
                of federal funds purchased
            
            
            5
            
            
            432
            
            
            5
            
            
            874Interest
                on other borrowings
            
            
            1,853
            
            
            1,912
            
            
            3,711
            
            
            3,883Interest
                on junior subordinated debentures
            
            
            675
            
            
            398
            
            
            1,350
            
            
            773Total
                interest expense
            
            
            14,300
            
            
            10,930
            
            
            28,771
            
            
            20,219Net
                interest income
            
            
            16,997
            
            
            19,476
            
            
            33,741
            
            
            37,834Provision
                for loan losses
            
            
            3,713
            
            
            200
            
            
            3,913
            
            
            200Net
                interest income after provision for loan losses
            
            
            13,284
            
            
            19,276
            
            
            29,828
            
            
            37,634**Noninterest
                income:**Service
                charges on deposit accounts
            
            
            2,089
            
            
            1,504
            
            
            3,794
            
            
            2,925Gain
                on sale of securities
            
            
            -
            
            
            622
            
            
            -
            
            
            622Increase
                in cash value of life insurance
            
            
            431
            
            
            294
            
            
            840
            
            
            600Other
            
            
            1,114
            
            
            1,002
            
            
            1,959
            
            
            1,907Total
                noninterest income
            
            
            3,634
            
            
            3,422
            
            
            6,593
            
            
            6,054**Noninterest
                expenses:**Salaries
                and related expenses
            
            
            7,468
            
            
            7,335
            
            
            15,276
            
            
            14,194Premises
                and occupancy
            
            
            1,760
            
            
            1,255
            
            
            3,305
            
            
            2,444Equipment
            
            
            1,296
            
            
            1,042
            
            
            2,480
            
            
            2,033Professional
                fees
            
            
            859
            
            
            554
            
            
            1,670
            
            
            1,474Supplies
            
            
            268
            
            
            303
            
            
            497
            
            
            539Marketing
            
            
            607
            
            
            466
            
            
            920
            
            
            853Community
                support donations
            
            
            188
            
            
            291
            
            
            368
            
            
            509Intangible
                amortization
            
            
            -
            
            
            12
            
            
            -
            
            
            23Communications
            
            
            416
            
            
            381
            
            
            764
            
            
            731Other
            
            
            3,283
            
            
            1,467
            
            
            4,772
            
            
            2,782Total
                noninterest expenses
            
            
            16,145
            
            
            13,106
            
            
            30,052
            
            
            25,582Income
                before provision for income taxes
            
            
            773
            
            
            9,592
            
            
            6,369
            
            
            18,106Provision
                for income taxes
            
            
            131
            
            
            3,338
            
            
            1,751
            
            
            6,295Net
                income
            
            $
            642
            
            $
            6,254
            
            $
            4,618
            
            $
            11,811Basic
                earnings per share
            
            $
            0.06
            
            $
            0.59
            
            $
            0.43
            
            $
            1.11Diluted
                earnings per share
            
            $
            0.06
            
            $
            0.57
            
            $
            0.42
            
            $
            1.08


See
      accompanying notes to consolidated financial statements


-4-





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 $879
            
            
            145
            
            
            3,056
            
            
            -
            
            
            -
            
            
            3,056Effect
                of share-based payment expense
            
            
            -
            
            
            435
            
            
            -
            
            
            -
            
            
            435Net
                change in fair value of available for sale investment securities,
                net of
                tax effect of $2,155(1)
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,893
            )
            
            (2,893
            )Net
                change in fair value of interest rate floor, net of tax benefit of
                $215(2)
            
            
            -
            
            
            -
            
            
            -
            
            
            (296
            )
            
            (296
            )Cash
                dividends
            
            
            -
            
            
            -
            
            
            (1,387
            )
            
            -
            
            
            (1,387
            )Net
                income
            
            
            -
            
            
            -
            
            
            11,811
            
            
            -
            
            
            11,811Balance,
                June 30, 2006
            
            
            **10,720**
            
            **$**
            **63,276**
            
            **$**
            **75,473**
            
            **$**
            **(5,778**
            **)**
            **$**
            **132,971**Balance,
                December 31, 2006
            
            
            **10,761**
            
            **$**
            **64,586**
            
            **$**
            **84,614**
            
            **$**
            **(1,620**
            **)**
            **$**
            **147,580**Exercise
                of stock options, including tax benefit of $23
            
            
            29
            
            
            438
            
            
            -
            
            
            -
            
            
            438Effect
                of share-based payment expense
            
            
            -
            
            
            850
            
            
            -
            
            
            -
            
            
            850Net
                change in fair value of available for sale investment securities,
                net of
                tax effect of $1,865
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,577
            )
            
            (2,577
            )Net
                change in fair value of interest rate floor, net of tax effect of
                $15(3)
            
            
            -
            
            
            -
            
            
            -
            
            
            20
            
            
            20Cash
                dividends
            
            
            -
            
            
            -
            
            
            (2,052
            )
            
            -
            
            
            (2,052
            )Net
                income
            
            
            -
            
            
            -
            
            
            4,618
            
            
            -
            
            
            4,618Balance,
                June 30, 2007
            
            
            **10,790**
            ****
            ****$****
            **65,874**
            ****
            ****$****
            **87,180**
            ****
            ****$****
            **(4,177**
            **)**
            ****$****
            **148,877**


(1)  Includes
      reclassification adjustment for net gains included in net income of $361 (net
      of
      $261 tax expense).


(2)  Includes
      reclassification adjustment for net losses included in net income of $5 (net
      of
      $3 tax benefit).


(3)  Includes
      reclassification adjustment for net losses included in net income of $116 (net
      of $83 tax benefit).


See
      accompanying notes to consolidated financial statements


-5-


Capital
      Corp of the West


Consolidated
      Statements of Comprehensive Income


(Unaudited)


For
                the six months ended June 30,(Amounts
                in thousands)
            
            2007
            
            2006Net
                income
            
            $
            4,618
            
            $
            11,811Unrealized
                gain (loss) on securities arising during the year, net
            
            
            (2,577
            )
            
            (2,532
            )Unrealized
                gain (loss) on interest rate floor arising during the year,
                net
            
            
            (96
            )
            
            (301
            )Reclassification
                adjustment for losses realized in net income, net of tax (benefit of
                $83 in 2007 and expense of $258 in 2006 for the time periods
                presented)
            
            
            116
            
            
            (356
            )Comprehensive
                income
            
            $
            2,061
            
            $
            8,622


See
      accompanying notes to consolidated financial statements


-6-


Capital
      Corp of the West


Consolidated
      Statements of Cash Flows


(Unaudited)


Six
                months ended June 30,(Dollars
                in thousands)
            
            
            2007
            
            
            2006**Operating
                activities:**Net
                income
            
            $
            4,618
            
            $
            11,811Adjustments
                to reconcile net income to net cash provided by operating
                activities:Provision
                for loan losses
            
            
            3,913
            
            
            200Depreciation,
                amortization and accretion, net
            
            
            4,247
            
            
            3,545Origination
                of loans held for sale
            
            
            (4,589
            )
            
            (2,236
            )Proceeds
                from sales of loans
            
            
            4,810
            
            
            1,543Gain
                on sale of loans
            
            
            (254
            )
            
            (112
            )Gain
                on sale of AFS securities
            
            
            -
            
            
            (622
            )Increase
                in cash value of life insurance
            
            
            (839
            )
            
            (600
            )Non-cash
                share based payment expense
            
            
            850
            
            
            435Net
                decrease in interest receivable & other assets
            
            
            6,665
            
            
            14,569Gain
                on sale of other real estate owned
            
            
            (102
            )
            
            -Net
                (increase) decrease in accrued interest, taxes and other
                liabilities
            
            
            (1,660
            )
            
            2,282Net
                cash provided by operating activities
            
            
            17,659
            
            
            30,815**Investing
                activities:**Investment
                securities purchased - available for sale securities
            
            
            (196
            )
            
            (2,762
            )Investment
                securities purchased - held to maturity securities
            
            
            -
            
            
            (3,659
            )Proceeds
                from maturities of available for sale investment
                securities
            
            
            16,899
            
            
            28,713Proceeds
                from maturities of held to maturity investment securities
            
            
            5,642
            
            
            8,196Proceeds
                from sales of available for sale securities
            
            
            1,917
            
            
            19,368Net
                decrease in time deposits at other institutions
            
            
            250
            
            
            -Proceeds
                from the sale of other real estate owned
            
            
            102
            
            
            -Loans
                purchased
            
            
            (9,577
            )
            
            (30,015
            )Net
                increase in loans
            
            
            (79,003
            )
            
            (99,360
            )Purchases
                of premises and equipment
            
            
            (6,276
            )
            
            (8,332
            )Net
                cash used in investing activities
            
            
            (70,242
            )
            
            (87,851
            )**Financing
                activities:**Net
                (decrease) increase in demand, NOW and savings deposits
            
            
            (49,297
            )
            
            (128,051
            )Net
                (decrease) increase in certificates of deposit
            
            
            (52,001
            )
            
            198,285Net
                increase (decrease) in other borrowings
            
            
            30,612
            
            
            (46,337
            )Issuance
                of subordinated debentures
            
            
            -
            
            
            15,464Payment
                of cash dividends
            
            
            (2,052
            )
            
            (1,387
            )Exercise
                of stock options
            
            
            415
            
            
            2,177Tax
                benefits related to exercise of stock options
            
            
            23
            
            
            879Net
                cash (used in) provided by financing activities
            
            
            (72,300
            )
            
            41,030Net
                decrease in cash and cash equivalents
            
            
            (124,883
            )
            
            (16,006
            )Cash
                and cash equivalents at beginning of period
            
            
            195,533
            
            
            91,581Cash
                and cash equivalents at end of period
            
            $
            70,650
            
            $
            75,575**Supplemental
                disclosure of noncash investing and financing
                activities:**Interest
                rate floor unrealized gain (loss), net of taxes
            
            $
            20
            
            $
            (296
            )Interest
                paid
            
            
            27,218
            
            
            19,758Income
                tax payments
            
            
            1,900
            
            
            5,200Investment
                securities unrealized gain (loss), net of tax
            
            $
            (2,577
            )
            $
            (2,893
            )


See
      accompanying notes to consolidated financial statements


-7-


Capital
      Corp of the West


Notes
      to
      Consolidated Financial Statements


June
      30,
      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 June
      30,
      2007 had total assets of $1.89 billion and total shareholders’ equity of
      $148.877 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 and source of income is the Bank. As
      of August 7, 2007, the Company had outstanding 10,789,944 shares of Common
      Stock, no par value, held by approximately 1,700 shareholders. There were no
      preferred shares outstanding at August 7, 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







County
      Bank is a community bank with operations located mainly in the San Joaquin
      Valley of Central California with small operations in the San Francisco Bay
      Area. The corporate headquarters of the Company and the Bank’s main branch
      facility are located at 550 West Main Street, Merced, California. 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 27 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), Delhi, and
      Stockton. The Bank owns eleven 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 June 30, 2007 and December
      31, 2006 and the results of operations for the three and six month periods
      ended
      June 30, 2007 and 2006, and the statements of cash flows for the three and
      six
      months ended June 30, 2007 and 2006 have been included therein. The interim
      results for the six and three months ended June 30, 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-


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 and six month
      periods ended June 30, 2007 and 2006:





For
                The Three Months
            
            For
                The Six MonthsEnded
                June 30,
            
            Ended
                June 30,(Dollars
                in thousands, except per share data)
            
            2007
            
            2006
            
            2007
            
            2006Basic
                EPS computation:Net
                income
            
            $
            642
            
            $
            6,254
            
            $
            4,618
            
            $
            11,811Average
                common shares outstanding
            
            
            10,783
            
            
            10,687
            
            
            10,779
            
            
            10,643Basic
                EPS
            
            $
            0.06
            
            $
            0.59
            
            $
            0.43
            
            $
            1.11Diluted
                EPS Computations:Net
                income
            
            $
            642
            
            $
            6,254
            
            $
            4,618
            
            $
            11,811Average
                common shares outstanding
            
            
            10,783
            
            
            10,687
            
            
            10,779
            
            
            10,643Effect
                of stock options
            
            
            166
            
            
            264
            
            
            179
            
            
            29210,949
            
            
            10,951
            
            
            10,958
            
            
            10,935Diluted
                EPS
            
            $
            0.06
            
            $
            0.57
            
            $
            0.42
            
            $
            1.08





BORROWED
      FUNDS





For
      the
      six months ended June 30, 2007, the Company increased other borrowings which
      were obtained primarily from the Federal Home Loan Bank. The increase in other
      borrowings of $30,612,000 was used to fund a portion of the decrease in the
      Bank’s brokered deposit balances and an increase in the Bank’s gross loan
      balances.


-9-


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 5.1%; a volatility rate of 26.63%; an expected dividend rate of
      1.64%; and an expected term of 6.32 years for the three months ended June 30,
      2007 and a risk free rate of 4.82%; a volatility rate of 31.86%; an expected
      dividend rate of 0.85%; and an expected term of 5.88 years for the three months
      ended June 30, 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 and six months ended June 30, 2007 and June 30, 2006:





Three
                Months Ended
            
            Six
                Months EndedJune
                30, 2007
            
            June
                30, 2006
            
            June
                30, 2007
            
            June
                30, 2006(Dollars
                in thousandsexcept
                per share data)Stock
                option compensation expense
            
            $
            301
            
            $
            209
            
            $
            850
            
            $
            435Tax
                benefit recorded related to stock option compensation
                expense
            
            
            (37
            )
            
            (18
            )
            
            (128
            )
            
            (28
            )Decrease
                in net income
            
            $
            264
            
            $
            191
            
            $
            722
            
            $
            407Effect
                on:Net
                income per share - basic
            
            $
            (0.02
            )
            $
            (0.02
            )
            $
            (0.07
            )
            $
            (0.04
            )Net
                income per share - diluted
            
            $
            (0.02
            )
            $
            (0.02
            )
            $
            (0.07
            )
            $
            (0.04
            )




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





(Shares
                in thousands)
            
            #
                of shares
            
            Weighted-Average
                exercise price per shareOutstanding
                at January 1, 2007
            
            
            680
            
            $
            20.73Options
                granted
            
            
            181
            
            $
            29.46Options
                exercised
            
            
            (29
            )
            $
            14.23Options
                forfeited
            
            
            -
            
            $
            -Outstanding
                at June 30, 2007
            
            
            832
            
            $
            22.85Exercisable
                at June 30, 2007
            
            
            608
            
            $
            19.91




-10-


Options
      grants during the first six months of 2007:





June
                30,(Shares
                in thousands)
            
            2007
            
            2006#
                of shares
            
            Weighted-Average
                fair value per share
            
            #
                of shares
            
            Weighted-Average
                fair value per shareOptions
                granted
            
            
            181
            
            $
            9.32
            
            
            99
            
            $
            11.83





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





(Shares
                in thousands)
            
            #
                of shares
            
            Weighted-Average
                fair value per shareNonvested
                options at January 1, 2007
            
            
            115
            
            $
            11.17Options
                granted
            
            
            181
            
            $
            9.32Options
                vested
            
            
            (72
            )
            $
            10.15Options
                forfeited
            
            
            -
            
            $
            -Nonvested
                options at June 30, 2007
            
            
            224
            
            $
            10.00




Vested
      option summary information as of June 30, 2007 is as follows:




(Shares
                and dollars in thousands, except per share data)
            
            #
                of shares
            
            Aggregate
                intrinsic value
            
            Weighted-Average
                remaining contractual life in years
            
            Weighted-Average
                exercise price per shareVested
                options exercisable at June 30, 2007
            
            
            608
            
            $
            2,462
            
            
            6.31
            
            $
            19.91Total
                options outstanding at June 30, 2007
            
            
            832
            
            $
            924
            
            
            7.11
            
            $
            22.85





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 $402,000 and $1,021,000 for the six months ended June
      30,
      2007 and June 30, 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 $731,000 and $296,000 for the six months ended June 30, 2007 and 2006.
      Total
      future compensation expense related to non-vested awards was $1,895,000 with
      a
      weighted average period to be recognized of 2.22 years as of June 30, 2007.
      There are 642,000 authorized shares remaining available for future grant under
      the Company’s stock option plan.




-11-


**Recent
      Accounting Pronouncements**





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 is
      currently evaluating the impact the adoption of SFAS 157 will have on its
      financial position and results of operations.





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 and has decided not to early adopt SFAS
      159.


-12-


**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 for
      2006
      and in Part II Item 1A of this report.


-13-


**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
      and Six Months Ended June 30, 2007 Compared With Three and Six Months Ended
      June
      30, 2006**




OVERVIEW




For
      the
      three and six months ended June 30, 2007 the Company reported net income of $642 ,000
      and
      $4,618,000. This compares to $6,254 ,000
      and
      $11,811,000 for the comparative periods in 2006 and represents a decrease of $5,612 ,000
      or
      90% and $7,193,000 or 61%. Basic earnings per share were $0.06 and $0.43 and
      diluted earnings per share were $0.06 and $0.42 for
      the
      three and six months ended June 30, 2007. This compares to basic earnings per
      share of $0.59 and $1.11 and
      diluted earnings per share were $0.57 and $1.08 for
      the
      three and six months ended June 30, 2006. This was a decrease of $0.53
      and
      $0.68 per
      share for
      basic
      and $0.51
      and
      $0.66 for
      diluted earnings per share for the three and six months ended June 30,
      200 7.
      The
      decrease in net income is primarily attributable to an increase in the provision
      for loan losses recorded of $3,513,000 and $3,713,000 for the three and six
      months ended June 30, 2007 compared to the same time periods in 2006. The
      increase in the provision was primarily attributable to a specific reserve
      recorded against a housing development loan in Rocklin California, in the amount
      of $3,231,000. For more information related to the provision for loan losses,
      see the section titled “NONPERFORMING ASSETS” on page 27 of this report. The
      increase in the provision for loan loss was combined with a contraction in
      the
      net interest margin and an increase in noninterest expense which resulted in
      decreased net income for the three and six months ended June 30, 2007 compared
      to the same time periods in 2006. The decrease in net interest margin was
      primarily attributable to higher prevailing interest rates paid on deposits
      and
      a change in the deposit portfolio’s mix of deposits. The increase in noninterest
      expense has primarily been driven by a specific reserve of $1,519,000 related
      to
      the unfunded commitments recorded in the second quarter of 2007 related to
      the
      aforementioned housing development loan in Rocklin California, increased costs
      associated with branch expansion, and acquisition expenses. For more information
      related to the specific reserve recorded in noninterest expense, see the section
      titled “RESERVE FOR UNFUNDED COMMITMENTS” on page 32 of this report. The Bank
      has opened seven new branch facilities in eighteen months. These new branches
      have driven up salary and benefit costs by staffing needs, additional equipment
      costs, and depreciation of new facilities. The annualized return on average
      assets was 0.15% and .50% for the three and six months ended June 30, 2007
      compared to 1.41% and 1.35% for the three and six months ended June 30, 2006.
      The Company's annualized return on average equity of 1.68% and 6.18% for the
      three and six months ended June 30, 2007 compared to 19.10% and 18.38% for
      the
      three and six months ended June 30, 2006.


-14-




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 dates
      indicated.





For
                the three months ended June 30,
            
            For
                the six months ended June 30,(Dollars
                in thousands)
            
            2007
            
            2006
            
            Percent
                change
            
            2007
            
            2006
            
            Percent
                changeTotal
                interest income
            
            $
            31,297
            
            $
            30,406
            
            
            2.9
            %
            $
            62,512
            
            $
            58,053
            
            
            7.7
            %Total
                interest expense
            
            
            14,300
            
            
            10,930
            
            
            30.8
            %
            
            28,771
            
            
            20,219
            
            
            42.3
            %Net
                interest income
            
            $
            16,997
            
            $
            19,476
            
            
            (12.7
            )%
            $
            33,741
            
            $
            37,834
            
            
            (10.8
            )%




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 June 30,
            
            For
                the six months ended June 30,(Dollars
                in thousands)
            
            2007
            
            2006
            
            Percent
                change
            
            2007
            
            2006
            
            Percent
                changeAverage
                interest earning assets
            
            $
            1,681,495
            
            $
            1,639,847
            
            
            2.5
            %
            $
            1,709,628
            
            $
            1,621,885
            
            
            5.4
            %Average
                interest bearing liabilities
            
            $
            1,430,610
            
            $
            1,340,360
            
            
            6.7
            %
            $
            1,452,184
            
            $
            1,325,693
            
            
            9.5
            %Average
                interest rate earned
            
            
            7.54
            %
            
            7.51
            %
            
            0.4
            %
            
            7.45
            %
            
            7.30
            %
            
            2.1
            %Average
                interest rate paid
            
            
            4.01
            %
            
            3.27
            %
            
            22.6
            %
            
            4.00
            %
            
            3.08
            %
            
            29.9
            %Net
                interest margin
            
            
            4.13
            %
            
            4.84
            %
            
            (14.7
            )%
            
            4.05
            %
            
            4.78
            %
            
            (15.3
            )%




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 and six months ended June 30, 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
      2007 was made possible by increased asset generation from our existing branch
      network with funding being provided from the reduction in federal funds sold
      and
      the issuance of other borrowings. The increase in interest rates earned during
      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 three and six
      months ended June 30, 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 rates paid during the three and
      six
      months ended June 30, 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. The increase in interest-bearing liabilities during 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
      the Bank 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, which grew to $91,152,000 at December 31, 2006 and has since contracted
      slightly to $80,098,000 as of June 30, 2007. Average savings deposits accounted
      for 28% and 27% of the average deposit portfolio for the three and six months
      ended June 30, 2007 compared to 24% and 26% for the same time periods in 2006.
      The increase in time deposits in 2007 was partially the result of customers
      reallocating funds from noninterest 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 decided
      to
      reduce the amount of federal funds sold allowing the Bank to reduce high cost
      brokered time deposits to $15,594,000 as of June 30, 2007 compared to
      $92,943,000 at December 31, 2006. Average time deposits accounted for 41% and
      42% of the average deposit portfolio for the three and six months ended June
      30,
      2007 compared to 42% and 38% for the same time periods in 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.


-15-




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 and six months ended June 30, 2007 when
      compared to the same period in 2006 was primarily attributable to a larger
      percentage increase in yields paid for deposits than yields earned on loans.
      Loans as a percentage of average interest-earning assets increased to 74% and
      72% for the three and six months ended June 30, 2007 as compared with 71% and
      70% 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. For the three and six months ended June
      30, 2007 average loans grew to $1,251,297,000 and $1,237,143,000 from
      $1,171,876,000 and $1,139,997,000. The increase in average loan growth equated
      to 6.8% and 8.5% respectively. 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 16 and
      17
      on a taxable-equivalent basis to consistently reflect income from taxable loans
      and securities and tax-exempt securities based on a 35% marginal federal tax
      rate.




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 June 30, 2007
            
            Three
                months ended June 30, 2006(Dollars
                in thousands)
            
            AverageBalance
            
            Taxable
                EquivalentInterest
            
            Taxable
                EquivalentYield/rate
            
            AverageBalance
            
            Taxable
                EquivalentInterest
            
            Taxable
                EquivalentYield/rate**Assets**Federal
                funds sold
            
            $
            22,513
            
            $
            298
            
            
            5.31
            %
            $
            3,511
            
            $
            44
            
            
            5.03
            %Time
                deposits at other financial institutions
            
            
            221
            
            
            3
            
            
            5.44
            
            
            350
            
            
            4
            
            
            4.58Taxable
                investment securities (1)
            
            
            308,193
            
            
            3,736
            
            
            4.86
            
            
            360,428
            
            
            4,204
            
            
            4.68Nontaxable
                investment securities (1)
            
            
            99,271
            
            
            1,194
            
            
            4.82
            
            
            103,682
            
            
            1,259
            
            
            4.87Loans,
                gross: (2)
            
            
            1,251,297
            
            
            26,367
            
            
            8.45
            
            
            1,171,876
            
            
            25,208
            
            
            8.63Total
                interest-earning assets
            
            
            1,681,495
            
            
            31,598
            
            
            7.54
            
            $
            1,639,847
            
            $
            30,719
            
            
            7.51Allowance
                for loan losses
            
            
            (14,278
            )
            
            
            
            
            
            
            
            (15,188
            )Cash
                and due from banks
            
            
            42,218
            
            
            
            
            
            
            
            
            45,724Premises
                and equipment, net
            
            
            46,218
            
            
            
            
            
            
            
            
            33,536Interest
                receivable and other assets
            
            
            77,076
            
            
            
            
            
            
            
            
            67,550Total
                assets
            
            $
            1,832,729
            
            
            
            
            
            
            
            $
            1,771,469**Liabilities
                And Shareholders' Equity**Negotiable
                order of withdrawal
            
            $
            239,261
            
            $
            837
            
            
            1.40
            %
            $
            203,459
            
            $
            305
            
            
            0.60
            %Savings
                deposits
            
            
            414,123
            
            
            3,510
            
            
            3.40
            
            
            341,294
            
            
            1,913
            
            
            2.25Time
                deposits
            
            
            615,893
            
            
            7,420
            
            
            4.83
            
            
            588,581
            
            
            5,970
            
            
            4.07Total
                interest-bearing deposits
            
            
            1,269,277
            
            
            11,767
            
            
            3.72
            
            
            1,133,334
            
            
            8,188
            
            
            2.92Federal
                funds purchased
            
            
            336
            
            
            5
            
            
            5.97
            
            
            -
            
            
            -
            
            
            -Other
                borrowings
            
            
            129,037
            
            
            1,853
            
            
            5.76
            
            
            189,171
            
            
            2,344
            
            
            4.97Junior
                subordinated debentures
            
            
            31,960
            
            
            675
            
            
            8.47
            
            
            17,855
            
            
            398
            
            
            8.94Total
                interest-bearing liabilities
            
            
            1,430,610
            
            
            14,300
            
            
            4.01
            
            $
            1,340,360
            
            $
            10,930
            
            
            3.27Noninterest-bearing
                deposits
            
            
            234,545
            
            
            
            
            
            
            
            
            284,520Accrued
                interest, taxes and other liabilities
            
            
            14,986
            
            
            
            
            
            
            
            
            15,611Total
                liabilities
            
            
            1,680,141
            
            
            
            
            
            
            
            $
            1,640,491Total
                shareholders' equity
            
            
            152,588
            
            
            
            
            
            
            
            
            130,978Total
                liabilities and shareholders' equity
            
            $
            1,832,729
            
            
            
            
            
            
            
            $
            1,771,469Net
                interest income and margin (3)
            
            
            
            
            $
            17,298
            
            
            4.13
            %
            
            
            
            $
            19,789
            
            
            4.84
            %




( 1)  Tax-equivalent
      adjustments included in the nontaxable investment securities portfolio are
      $290,000 and $295,000 for the three months ended June 30, 2007 and 2006. Tax
      equivalent adjustments included in the taxable investment securities created
      by
      a dividends received deduction were $11,000 and $18,000 for the three months
      ended June 30, 2007 and 2006.


(2)  Amounts
      of interest earned included net loan fees of $1,004,000 and $833,000 for the
      three months ended June 30, 2007 and 2006, respectively.


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


-16-


AVERAGE
      BALANCE SHEET & ANALYSIS OF NET INTEREST EARNINGS


Six
                  months endedJune 30, 2007
            
            Six
                  months endedJune 30, 2006(Dollars
                in thousands)
            
            Average
              Balance
            
            Taxable
              Equivalent
              Interest
            
            Taxable
              Equivalent
              Yield/Rate
            
            Average
              Balance
            
            Taxable
              EquivalentInterest
            
            Taxable
              EquivalentYield/Rate**Assets**Federal
                funds sold
            
            $
            58,703
            
            $
            1,533
            
            
            5.27
            %
            $
            4,049
            
            $
            93
            
            
            4.63
            %Time
                deposits at other financial institutions
            
            
            285
            
            
            8
            
            
            5.66
            
            
            350
            
            
            9
            
            
            5.19Taxable
                investment securities
            
            
            313,532
            
            
            7,522
            
            
            4.84
            
            
            375,431
            
            
            8,650
            
            
            4.65Nontaxable
                investment securities
            
            
            99,965
            
            
            2,424
            
            
            4.89
            
            
            102,058
            
            
            2,507
            
            
            4.95Loans,
                gross:
            
            
            1,237,143
            
            
            51,646
            
            
            8.42
            
            
            1,139,997
            
            
            47,431
            
            
            8.39Total
                interest-earning assets
            
            $
            1,709,628
            
            $
            63,133
            
            
            7.45
            
            $
            1,621,885
            
            $
            58,690
            
            
            7.30Allowance
                for loan losses
            
            
            (14,152
            )
            
            
            
            
            
            
            
            (15,178
            )Cash
                and due from banks
            
            
            43,164
            
            
            
            
            
            
            
            
            47,605Premises
                and equipment, net
            
            
            45,179
            
            
            
            
            
            
            
            
            31,743Interest
                receivable and other assets
            
            
            76,866
            
            
            
            
            
            
            
            
            67,522Total
                assets
            
            $
            1,860,685
            
            
            
            
            
            
            
            $
            1,753,577**Liabilities
                And Shareholders' Equity**Negotiable
                order of withdrawal
            
            $
            229,651
            
            $
            1,422
            
            
            1.25
            %
            $
            209,104
            
            $
            665
            
            
            0.64
            %Savings
                deposits
            
            
            413,734
            
            
            7,020
            
            
            3.42
            
            
            363,106
            
            
            3,782
            
            
            2.10Time
                deposits
            
            
            641,697
            
            
            15,263
            
            
            4.80
            
            
            532,460
            
            
            10,242
            
            
            3.88Total
                interest bearing deposits
            
            
            1,285,082
            
            
            23,705
            
            
            3.72
            
            
            1,104,670
            
            
            14,689
            
            
            2.70Federal
                funds purchased
            
            
            169
            
            
            5
            
            
            5.97
            
            
            -
            
            
            -
            
            
            -Other
                borrowings
            
            
            134,973
            
            
            3,711
            
            
            5.54
            
            
            203,844
            
            
            4,757
            
            
            4.71Subordinated
                Debentures
            
            
            31,960
            
            
            1,350
            
            
            8.52
            
            
            17,179
            
            
            773
            
            
            9.07Total
                interest-bearing liabilities
            
            $
            1,452,184
            
            $
            28,771
            
            
            4.00
            
            $
            1,325,693
            
            $
            20,219
            
            
            3.08Non-interest
                bearing deposits
            
            
            242,804
            
            
            
            
            
            
            
            
            284,321Accrued
                interest, taxes and other liabilities
            
            
            14,940
            
            
            
            
            
            
            
            
            15,014Total
                liabilities
            
            $
            1,709,928
            
            
            
            
            
            
            
            $
            1,625,028Total
                shareholders' equity
            
            
            150,757
            
            
            
            
            
            
            
            
            128,549Total
                liabilities and shareholders' equity
            
            $
            1,860,685
            
            
            
            
            
            
            
            $
            1,753,577Net
                interest income and margin
            
            
            
            
            $
            34,362
            
            
            4.05
            %
            
            
            
            $
            38,471
            
            
            4.78
            %




(1)  Tax-equivalent
      adjustments included in the nontaxable investment securities portfolio are
      $5 89,000
      and $591,000 for the six months ended June 30, 2007 and 2006. Tax equivalent
      adjustments included in the taxable investment securities created by a dividends
      received deduction were $32,000 and $46,000 for the six months ended June 30,
      2007 and 2006.


(2)  Amounts
      of interest earned included net loan fees of $1,742,000 and $1,630,000 for
      the
      six months ended June 30, 2007 and 2006, respectively.


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


-17-




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 on a tax equivalent basis.
      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 endedJune
                30, 2007 compared to June 30, 2006(Dollars
                in thousands)
            
            Rate
            
            Volume
            
            TotalIncrease
                (decrease) in interest income:Federal
                funds sold
            
            $
            3
            
            $
            251
            
            $
            254Time
                deposits at other institutions
            
            
            -
            
            
            (1
            )
            
            (1
            )Taxable
                investment securities
            
            
            162
            
            
            (630
            )
            
            (468
            )Tax-exempt
                investment securities
            
            
            (12
            )
            
            (53
            )
            
            (65
            )Loans
            
            
            (525
            )
            
            1,684
            
            
            1,159Total:
            
            $
            (372
            )
            $
            1,251
            
            $
            879Increase
                in interest expense:Interest
                bearing demand
            
            $
            470
            
            $
            62
            
            $
            532Savings
                deposits
            
            
            1,127
            
            
            470
            
            
            1,597Time
                deposits
            
            
            1,163
            
            
            287
            
            
            1,450Federal
                funds purchased
            
            
            -
            
            
            5
            
            
            5Other
                borrowings
            
            
            334
            
            
            (825
            )
            
            (491
            )Junior
                subordinated debentures
            
            
            (22
            )
            
            299
            
            
            277Total:
            
            
            3,072
            
            
            298
            
            
            3,370Increase
                in net interest income
            
            $
            (3,444
            )
            $
            953
            
            $
            (2,491
            )







Six
                months endedJune
                30, 2007 compared to June 30, 2006(Dollars
                  in thousands)
            
            Rate
            
            Volume
            
            TotalIncrease
                (decrease) in interest income:Federal
                funds sold
            
            $
            14
            
            $
            1,426
            
            $
            1,440Time
                deposits at other institutions
            
            
            -
            
            
            (1
            )
            
            (1
            )Taxable
                investment securities
            
            
            62
            
            
            (1,190
            )
            
            (1,128
            )Tax-exempt
                investment securities
            
            
            (32
            )
            
            (51
            )
            
            (83
            )Loans
            
            
            160
            
            
            4,055
            
            
            4,215Total:
            
            $
            204
            
            $
            4,239
            
            $
            4,443Increase
                in interest expense:Interest
                bearing demand
            
            $
            686
            
            $
            71
            
            $
            757Savings
                deposits
            
            
            2,650
            
            
            588
            
            
            3,238Time
                deposits
            
            
            2,689
            
            
            2,332
            
            
            5,021Federal
                funds purchased
            
            
            -
            
            
            5
            
            
            5Other
                borrowings
            
            
            198
            
            
            (1,244
            )
            
            (1,046
            )Junior
                subordinated debentures
            
            
            (6
            )
            
            583
            
            
            577Total:
            
            
            6,217
            
            
            2,335
            
            
            8,552Increase
                in net interest income
            
            $
            (6,013
            )
            $
            1,904
            
            $
            (4,109
            )




-18-




PROVISION
      FOR LOAN LOSSES




The
      provision for loan losses was $3,713,000 and $3,913,000 for the three and six
      months ended June 30, 2007 and $200,000 and $200,000 for the three and six
      months ended June 30, 2006, an increase of $3,513,000 and $3,713,000 in 2007.
      For an explanation of the increase in the provision for loan losses during
      2007,
      see "ALLOWANCE FOR LOAN LOSSES" elsewhere herein. As
      of
      June 30, 2007 the allowance for loan losses was $17,661,000 or 1.35% of total
      loans compared to $14,031,000 or 1.15% of total loans as of December 31, 2006.
      At June 30, 2007, nonperforming assets totaled $14,300,000 or 0.76% of total
      assets, nonperforming loans totaled $14,240,000 or 1.09% of total gross loans
      and the allowance for loan losses totaled 124.02% 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 gross 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” elsewhere herein.




NONINTEREST
      INCOME





Non-interest
      income increased by $212,000 and $539,000 or 6% and 9% to $3,634,000 and
      $6,593,000 for the three and six months ended June 30, 2007, respectively,
      compared to the same time periods in 2006. Service charges on deposit accounts
      increased by $585,000 and $869,000 or 39% and 30% to $2,089,000 and $3,794,000
      for the three and six months ended June 30, 2007, respectively, compared with
      the same periods in 2006. The increase in service charges on deposit accounts
      for the three and six month period was the result of increased Bank focus on
      service charges as a way to increase noninterest income and a greater number
      of
      accounts opened than closed that incur service charges. The decrease in the
      gain
      on sale of securities was the result of a gain taken in the second quarter
      of
      2006 of $622,000 on securities that were available for sale that did not reoccur
      in 2007. The increase of $137,000 and $240,000 for the three and six months
      ended June 30, 2007 in cash surrender value of life insurance policies was
      the
      result of higher average earning balances compared to the same time periods
      in
      2006. Other categories of noninterest income had normal fluctuations in the
      ordinary course of business.





NONINTEREST
      EXPENSE





Noninterest
      expenses increased by $3,039,000 and $4,470,000 or 23% and 17% to $16,145,000
      and $30,052,000 for the three and six months ended June 30, 2007 compared to
      the
      same time periods 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 which includes the provision for
      unfunded commitments.


-19-


Salaries
      and related expenses increased by $133,000 and $1,082,000 or 2% and 8% to
      $7,468,000 and $15,276,000 for the three and six months ended June 30, 2007.
      This compares to the $7,335,000 and $14,194,000 for the same time periods in
      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. Share-based payment expense increased $82,000 and $415,000 for the
      three and six months ended June 30, 2007 compared to the same time periods
      in
      2006. Premises and occupancy expense increased by $505,000 and $861,000 or
      40%
      and 35% for the three and six months ended June 30, 2007 compared to the same
      time periods in 2006. The primary reason for the increase in 2007 was related
      to
      the opening of new branch facilities in 2006 and 2007. Equipment expense
      increased by $254,000 and $447,000 or 24% and 22% for the three and six months
      ended June 30, 2007 compared to the same time periods in 2006. The increase
      in
      equipment depreciation expense is related to the opening of new facilities
      and
      equipment upgrades in existing facilities. When comparing the results for the
      three and six months ended June 30, 2007 to the same periods in 2006,
      professional fees increased by $305,000 and $196,000 or 55% and 13%,
      respectively. The increase in professional fees is primarily attributable to
      increased fees associated with merger and acquisition activity which did not
      occur in 2006. Legal and consulting fees associated with merger and acquisition
      activity was $244,000 for the quarter ended June 30, 2007. Marketing expense
      increased primarily due to a marketing campaign of the thirty year anniversary
      of the Bank and certain time deposit promotions. Supplies expense decreased
      primarily because of increased attention to use of supplies and conservation.
      Other expenses increased primarily due to the provision for unfunded commitments
      increasing by $1,572,000 and $1,583,000 to $1,595,000 for the three and six
      months ended June 30, 2007 compared to $23,000 and $12,000 recorded for the
      three and six months ended June 30, 2006. The increase in the provision for
      unfunded commitments was driven primarily by a $1,519,000 reserve being recorded
      for mechanics liens that have been placed against property that secures a
      nonperforming construction loan based out of Rocklin California. For more
      information related to the nonperforming construction loan, see the section
      titled “NONPERFORMING ASSETS” on page 25 or for more information related to
      the provision for unfunded commitments, see the section titled “RESERVE FOR
      UNFUNDED COMMITMENTS” on page 29. Community support donations decreased
      primarily because they are provided as a percentage of income and have decreased
      as earnings have decreased.




PROVISION
      FOR INCOME TAXES




The
      Company recorded a decrease in the provision for income taxes of $3,207,000
      and
      $4,544,000 or 96% and 72% for the three and six months ended June 30, 2007
      compared to the expense recorded for the same time period in 2006. The Company
      recorded an effective tax rate of 17% and 27% for the three and six months
      ended
      June 30, 2007. For the same time periods 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.




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 June 30, 2007. The
      Company has not recorded any cumulative effects of applying this interpretation
      as those positions that do not meet the threshold are not material to the
      Company's financial statements and due to management’s belief that all of the
      Company’s material tax positions are more-likely-than-not to be upheld, and
      fully realized upon 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.


-20-




**Financial
      Condition**




Total
      assets at June 30, 2007 were $1,890,490,000, a decrease of $71,049,000 or 4%
      compared with total assets of $1,961,539,000 at December 31, 2006. Net loans
      were $1,293,433,000 at June 30, 2007, an increase of $82,703,000 or 7% compared
      with net loans of $ 1,210,730 ,000
      at
      December 31, 2006. Deposits were $1,514,043,000 at June 30, 2007, a decrease
      of
      $101,298,000 or 6% 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
      June 30, 2007 was primarily the result of federal funds sold being reduced
      by
      $122,455,000 to retire brokered deposits and fund reductions in other areas
      of
      the deposit portfolio. For further information on the reduction of brokered
      deposits, see the “NET INTEREST INCOME” section on page 15 of this
      report.




Total
      shareholders' equity was $148,877,000 at June 30, 2007, an increase of
      $1,297,000 or 1% from the $147,580,000 at December 31, 2006. The growth in
      shareholders’ equity between December 31, 2006 and June 30, 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.





June
                30,
            
            December
                31,(In
                thousands)
            
            2007
            
            2006Letters
                of credit
            
            $
            6,939
            
            $
            6,739Commitments
                to extend credit
            
            
            445,272
            
            
            445,189Total
            
            $
            452,211
            
            $
            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 nonqualified defined benefit plan and is unsecured
      and
      unfunded. The Company has purchased insurance on the lives of the participants
      and intends to use the death benefits of these policies to offset the related
      retirement obligations. For more information on the life insurance plans, see
      the section titled “CASH VALUE OF LIFE INSURANCE” contained in this
      report.





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





(Dollars
                in thousands)
            
            Three
                Months Ended June 30, 2007
            
            Six
                Months Ended June 30, 2007Net
                pension cost included the following components:Service
                cost-benefits earned during the period
            
            $
            79
            
            $
            158Interest
                cost on projected benefit obligation
            
            
            53
            
            
            106Net
                periodic pension cost
            
            $
            132
            
            $
            264





During
      the six months ended June 30, 2007, the Company contributed and paid out as
      benefits $75,000 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.


-21-





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 June 30, 2007,
      the
      Bank held $43,890,000 in cash surrender value of life insurance, an increase
      of
      $839,000 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 $12,254,000 and was committed to invest an additional amount
      of $1,546,000 in these partnerships as of June 30, 2007.





INVESTMENT
      SECURITIES





At
      June
      30, 2007 the Bank’s investment 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.





DERIVIATIVE
      INSTRUMENTS





Statement
      of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
      and Hedging Activities (SFAS 133), as amended and interpreted, establishes
      accounting and reporting standards for derivative instruments, including certain
      derivative instruments embedded in other contracts, and for hedging activities.
      As required by SFAS 133, the Company records all derivatives on the balance
      sheet at fair value.  The accounting for changes in the fair value of
      derivatives depends on the intended use of the derivative and the resulting
      designation. Derivatives used to hedge the exposure to changes in the fair
      value
      of an asset, liability, or firm commitment attributable to a particular risk,
      such as interest rate risk, are considered fair value hedges. Derivatives used
      to hedge the exposure to variability in expected future cash flows, or other
      types of forecasted transactions, are considered cash flow hedges. To qualify
      for hedge accounting, the Company must comply with the detailed rules and strict
      documentation requirements at the inception of the hedge, and hedge
      effectiveness is assessed at inception and periodically throughout the life
      of
      each hedging relationship.


-22-


The
      Company’s objective in using derivatives is to reduce its exposure to
      variability in cash flows relating to receipts on its prime-based variable-rate
      loans. To accomplish this objective, the Company uses an interest rate floor
      contract to protect the Company against movements in interest rates below the
      floor’s strike rate over the life of the agreement. The interest rate floor
      contract is with Wachovia Bank that is effective from October 1, 2005 until
      September 1, 2010. The contract’s cost was $1,270,000, and that cost is being
      amortized over the life of the contract. The notional amount of the floor is
      $100,000,000 with a strike rate of 6.5% vs. the prime rate as published in
      the
      H15 bulletin from the Federal Reserve Bank for the first of each month. The
      interest rate floor contract is designated as a cash flow hedge of the overall
      changes in cash flows below the interest floor contract’s strike rate of 6.5% on
      the Company’s designated prime-based interest receipts. The hedged transactions
      are the forecasted interest receipts of the first prime-based interest payments
      received by the Company on designated prime-based loans each calendar month
      that, in aggregate for each month, are interest payments on $100 million
      principal of the Company’s then-existing pool of designated prime-based loans
      that reset on the first of every month. With respect to the $100 million
      principal of the Company’s then existing pool of designated prime-based loans,
      the interest floor contract specifically designates the hedged transaction
      to be
      (i) the forecasted interest receipts of the first prime-based interest receipts
      on $75 million principal of the Company loans with a specified spread to prime
      over 1% and (ii) the first prime-base interest receipts on $25 million principal
      of the Company loans with a specified spread to prime over 0.5%. The designation
      described above is consistent with the approach outlined in DIG Issue No. G25.
      DIG Issue No. G25 addresses the “first-payments-received technique” for
      identifying the hedged forecasted transactions in a cash flow hedge of the
      variable prime-based or other variable non-benchmark-rate-based interest
      payments for a rolling portfolio of prepayable interest-bearing financial assets
      or liabilities. The pool of designated prime-based loans being hedged contain
      no
      optionality (no embedded caps or floors). During 2007 and 2006, the floor was
      used to hedge the variable cash flows associated with existing variable-rate
      loan assets that are based on the prime rate. For accounting purposes, the
      interest floor contract is designated as a cash flow hedge of the overall
      changes in cash flows on the first prime-based interest payments received by
      the
      Company each calendar month during the term of the hedge that, in aggregate
      for
      each period, are interest payments on principal from specified portfolios equal
      to the notional amount of the floor. 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.





Both
      prospective and retrospective assessments of hedge effectiveness are based
      on
      the approach described in SFAS 133 Implementation Issue No. G20, “Assessing and
      Measuring the Effectiveness of a Purchased Option Used in a Cash Flow Hedge”
(Issue G20) at inception and on an ongoing basis. Under this approach, the
      assessment of hedge effectiveness is based on total changes in the option’s cash
      flows. The Company performs its effectiveness assessments and measures
      ineffectiveness by comparing the actual option with a hypothetically perfect
      option, as discussed in Issue G20. Prospective and retrospective assessments
      of
      hedge effectiveness and measurements of hedge ineffectiveness are performed
      on a
      quarterly basis, when financial statements are reported. The effective portion
      of changes in the fair value of the derivative is initially reported in other
      comprehensive income (outside of earnings) and subsequently reclassified to
      earnings (“interest and fees on loans” for the hedging relationship described
      above) when the hedged transactions affect earnings. Ineffectiveness resulting
      from the hedge, if any, is recorded as a gain or loss in the consolidated
      statement of income and comprehensive income as part of noninterest income
      or
      noninterest expense. The Company also monitors the risk of counterparty default
      on an ongoing basis.





Prepayments
      in hedged loan portfolios are treated in a manner consistent with the guidance
      in SFAS 133 Implementation Issue No. G25, “Cash Flow hedges: Using the
      First-Payments-Received Technique in Hedging the Variable Interest Payments
      on a
      Group of Non-Benchmark-Rate-Based Loans,” which allows the designated forecasted
      transactions to be the variable prime-rate-based interest payments on a rolling
      portfolio of prepayable interest-bearing loans using the first-payments-received
      technique, thereby allowing interest payments from prime-based loans that prepay
      to be replaced with interest payments from newly originated prime-based
      loans.





As
      of
      June 30, 2007, no derivatives were designated as fair value hedges or hedges
      of
      net investments in foreign operations. Additionally, the Company does not use
      derivatives for trading or speculative purposes.





To
      the
      extent the hedging relationship is effective, changes in the fair value of
      the
      floor each period will be deferred in accumulated other comprehensive income
      (AOCI), and the floor purchase price will be reclassified from AOCI to earnings
      (amortized) as adjustments to interest income on loans.


-23-


The
      decrease of $165,000 or 53% in the fair value of the interest rate floor between
      December 31, 2006 and June 30, 2007 was primarily the result of a changing
      interest rate environment which caused a corresponding decrease in the
      probability that the Company will receive future cash inflows related to this
      contract. The Company recorded a reduction of interest income of $45,000 and
      $82,000 for the three and six month ended June 30, 2007 related to the
      amortization of the interest rate floor. The Company recorded the reduction
      as a
      reclassification from other comprehensive income of $48,000 with a tax benefit
      of $34,000 for the six months ended June 30, 2007. The Company recorded a
      reduction of interest income in the first half of 2006 of $8,000 related to
      the
      amortization of the interest rate floor. The Company recorded the reduction
      as a
      reclassification from other comprehensive income of $5,000 with a tax benefit
      of
      $3,000. In the second quarter of 2007 the hedge became partially ineffective,
      requiring the Company under SFAS 133 to record a charge of $117,000 in
      noninterest expense. The Company recorded the expense as a reclassification
      from
      AOCI of $68,000 with a tax benefit of $49,000.





Management
      is currently working to redesignate the hedge, in order to expand the scope
      of
      loans which can be included in the loan pools. This redesignation is expected
      to
      allow the hedge to remain 100% effective. If the hedge becomes ineffective
      in
      the future, management will evaluate the options available at that time, and
      take appropriate action based on the facts.





The
      fair
      value and notional amounts for the cash flow hedge at June 30, 2007 and December
      31, 2006 are presented
      below.


June
                30, 2007
            
            December
                31, 2006(Dollars
                in thousands)
            
            Fair
                Value
            
            Notional
                Amount
            
            Fair
                Value
            
            Notional
                AmountPurchased
                option, interest rate floor
            
            $
            149
            
            $
            100,000
            
            $
            314
            
            $
            100,000





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 as
      part of the Bank’s underwriting, but the borrowers’ ability to repay is
      dependent, in part, upon factors affecting the local and national
      economies.


-24-


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


(Dollars
                in thousands)
            
            June
                30, 2007
            
            December
                31, 2006Loan
                Categories:
            
            Dollar
                Amount
            
            Percent
                of loans
            
            Dollar
                Amount
            
            Percent
                of loansCommercial
            
            $
            337,633
            
            
            26
            %
            $
            320,121
            
            
            26
            %Agricultural
            
            
            90,870
            
            
            7
            
            
            81,568
            
            
            7Real
                estate construction
            
            
            146,191
            
            
            11
            
            
            136,152
            
            
            11Real
                estate construction residential
            
            
            41,664
            
            
            3
            
            
            41,081
            
            
            3Real
                estate mortgage
            
            
            578,960
            
            
            44
            
            
            502,355
            
            
            41Real
                estate mortgage residential
            
            
            24,516
            
            
            2
            
            
            39,725
            
            
            3Consumer
            
            
            91,260
            
            
            7
            
            
            103,759
            
            
            9Total
            
            
            1,311,094
            
            
            100
            %
            
            1,224,761
            
            
            100
            %Less
                allowance for loan losses
            
            
            (17,661
            )
            
            
            
            
            (14,031
            )Net
                loans
            
            $
            1,293,433
            
            
            
            
            $
            1,210,730





The
      Bank’s loan portfolio continues to be well diversified in terms of loan products
      and geography. The Bank does not originate single family residential loans
      for
      the loan portfolio but merely functions in a loan brokerage capacity. The Bank
      does not carry any sub-prime residential loans in its portfolio. Our total
      residential real estate exposure totals $66 million (residential mortgages
      and
      liens on residential properties of $4 million, $20 million in home equity lines
      and residential construction loans of $42 million) or 5% of our loans. The
      Bank’s agricultural loans aggregate $91 million or 7% of our loans and include
      no citrus or poultry exposures as of June 30, 2007. While we are headquartered
      in Merced County, more than 71% of our real estate loans, by dollar amount,
      are
      actually located outside of Merced County.





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 June 30, 2007.





(Dollars
                in thousands)
            
            San
                Francisco Bay Area
            
            Merced/
              Mariposa
            
            Stockton/
              Modesto
            
            Sacramento
            
            Fresno/
              Bakersfield
            
            All
                Other
            
            TotalReal
                estate construction
            
            $
            22,036
            
            $
            26,343
            
            $
            32,761
            
            $
            28,967
            
            $
            36,084
            
            $
            -
            
            $
            146,191Real
                estate construction residential
            
            
            4,975
            
            
            5,956
            
            
            6,263
            
            
            8,209
            
            
            16,261
            
            
            -
            
            
            41,664Real
                estate mortgage
            
            
            58,502
            
            
            180,969
            
            
            168,508
            
            
            45,739
            
            
            95,043
            
            
            30,199
            
            
            578,960Real
                estate mortgage residential
            
            
            1,063
            
            
            11,835
            
            
            7,931
            
            
            582
            
            
            3,105
            
            
            -
            
            
            24,516Total
            
            $
            86,576
            
            $
            225,103
            
            $
            215,463
            
            $
            83,497
            
            $
            150,493
            
            $
            30,199
            
            $
            791,331Owner
                occupied
            
            
            26,502
            
            
            102,454
            
            
            79,945
            
            
            33,021
            
            
            64,098
            
            
            10,771
            
            
            316,791Non-owner
                occupied
            
            $
            60,074
            
            $
            122,649
            
            $
            135,518
            
            $
            50,476
            
            $
            86,395
            
            $
            19,428
            
            $
            474,540





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.


-25-




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.




The
      following table summarizes nonperforming assets of the Company at June 30,
      2007
      and December 31, 2006:





June
                30, 2007
            
            December
                31, 2006(Dollars
                in thousands)Non-accrual
                loans
            
            $
            14,240
            
            $
            2,375Accruing
                loans past due 90 days or more
            
            
            -
            
            
            -Total
                nonperforming loans
            
            
            14,240
            
            
            2,375Other
                real estate owned
            
            
            60
            
            
            60Total
                nonperforming assets
            
            $
            14,300
            
            $
            2,435Nonperforming
                loans to total loans
            
            
            1.09
            %
            
            0.19
            %Nonperforming
                assets to total assets
            
            
            0.76
            %
            
            0.12
            %





During
      the first six months of 2007, six customers with loans that totaled $13,766,000
      were placed on non-accrual status, while twelve customers with loans that
      totaled approximately $1,901,000 were removed from non-accrual
      status.




The
      increase in non-accrual loans of $11,865,000 between June 30, 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. During
      the
      second quarter of 2007, the Bank recorded a specific reserve of $3,231,000
      in
      the allowance for loan losses and a specific reserve of $1,519,000 in unfunded
      commitments related to a construction loan in Rocklin California. The specific
      reserve related to unfunded commitments was recorded to recognize the Bank’s
      liability for mechanic liens placed against the property. For more information
      on the specific reserve related to the mechanic liens, see the section titled
      “RESERVE FOR UNFUNDED COMMITMENTS” on page 29 of this report. Management
      received a third party appraisal on this property and concluded that a reserve
      should be established for this property based on the market value which is
      what
      willing market participants would pay for the property at the time. Subsequent
      to the end of the quarter, the Bank foreclosed on the property on July 25,
      2007
      and charged-off the specific reserve recorded in the second quarter related
      to
      the allowance for loan losses.




Contractual
      accrued interest income on loans on non-accrual status as of June 30, 2007
      and
      December 31, 2006, which would have been recognized if the loans had been
      current in accordance with their original terms, was approximately $1,020,000
      and $137,000, respectively.




At
      June
      30, 2007, nonperforming assets represented 0.76% of total assets an increase
      of
      64 basis points when compared to the 0.12% at December 31, 2006. Nonperforming
      loans represented 1.09% of total gross loans at June 30, 2007, an increase
      of 90
      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 $13,506,000
      and
      $473,000 at June 30, 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 $12,994,000 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.


-26-




At
      June
      30, 2007 the Company had $60,000 invested in one real estate property that
      was
      acquired through foreclosure. At December 31, 2006, the Company had $60,000
      invested in two real estate properties 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
      the remaining property 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 June 30,
      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 June 30, 2007 were $14,240,000.




Except
      for loans that are disclosed above, there were no assets as of June 30, 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 June 30, 2007 and 2006, and for the year ended December 31,
      2006.





June
                30,
            
            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
            
            
            3,913
            
            
            200
            
            
            400Charge-offs:Commercial
                and agricultural
            
            
            142
            
            
            377
            
            
            2,134Real
                estate - mortgage
            
            
            -
            
            
            -
            
            
            -Consumer
            
            
            412
            
            
            265
            
            
            495Total
                charge-offs
            
            
            554
            
            
            642
            
            
            2,629RecoveriesCommercial
                and agricultural
            
            
            214
            
            
            649
            
            
            1,337Real-Estate
                - mortgage
            
            
            -
            
            
            -
            
            
            -Consumer
            
            
            57
            
            
            101
            
            
            147Total
                recoveries
            
            
            271
            
            
            750
            
            
            1,484Net
                (charge-offs) recoveries
            
            
            (283
            )
            
            108
            
            
            (1,145
            )Balance
                at end of period
            
            $
            17,661
            
            $
            15,084
            
            $
            14,031Loans
                outstanding at period-end
            
            $
            1,311,094
            
            $
            1,197,442
            
            $
            1,224,761Average
                loans outstanding
            
            $
            1,237,143
            
            $
            1,139,997
            
            $
            1,187,156Annualized
                net charge-offs to average loans
            
            
            0.05
            %
            
            (0.02
            )%
            
            0.10
            %Allowance
                for loan lossesTo
                total loans
            
            
            1.35
            %
            
            1.26
            %
            
            1.15
            %To
                nonperforming loans
            
            
            124.02
            %
            
            946.89
            %
            
            590.78
            %To
                nonperforming assets
            
            
            123.50
            %
            
            711.85
            %
            
            576.22
            %


-27-




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 of $3,713,000 and 3,913,000 in the three
      and six months ended June 30, 2007 compared with $200,000 and $200,000 in the
      same time periods of 2006. During the second quarter of 2007, the Bank recorded
      a specific reserve of $3,231,000 in the allowance for loan losses related to
      a
      construction loan in Rocklin California. For more information related to the
      construction loan in Rocklin California, see the section titled “NONPERFORMING
      ASSETS” on page 25 of this report. The Company had net charge-offs of
      $283,000 for the six months ended June 30, 2007 compared with net recoveries
      of
      $108,000 for the same six 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 net 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 change 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.


-28-




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.





June
                30, 2007
            
            December
                31, 2006
            
            December
                31, 2005(Dollars
                in thousands)
            
            Amount
            
            Loans
                % tototal
                loans
            
            Amount
            
            Loans
                % tototal loans
            
            Amount
            
            Loans
                % tototal loansCommercial
                and Agricultural
            
            $
            4,003
            
            
            33
            %
            $
            4,983
            
            
            33
            %
            $
            6,024
            
            
            32
            %Real
                Estate (Construction)
            
            
            4,474
            
            
            14
            
            
            1,658
            
            
            15
            
            
            2,474
            
            
            16Real
                Estate (Mortgage)
            
            
            6,311
            
            
            46
            
            
            3,882
            
            
            44
            
            
            5,598
            
            
            44Consumer
            
            
            2,873
            
            
            7
            
            
            3,508
            
            
            8
            
            
            680
            
            
            8**Total**
            
            **$**
            **17,661**
            
            
            **100**
            **%**
            **$**
            **14,031**
            
            
            **100**
            **%**
            **$**
            **14,776**
            
            
            **100**
            **%**




OTHER
      ASSETS





At
      June
      30, 2007, the Company recorded a balance in other assets of $19,993,000 and
      $23,653,000 at December 31, 2006, a decrease of 15%. The primary reason for
      the
      change in other assets is due to a $4,666,000 and $8,665,000 loan participation
      funding receivable at June 30, 2007 and December 31, 2006, respectively. During
      January 2007 and July 2007, respectively, those funding receivables were
      collected from the participating banks.





RESERVE
      FOR UNFUNDED COMMITMENTS





The
      reserve for unfunded commitments included in other liabilities at June 30,
      2007
      and 2006, and December 31, 2006, is presented below.





June
                30, 2007
            
            December
                31,(Dollars
                in thousands)
            
            2007
            
            2006
            
            2006Balance
                at the beginning of period
            
            $
            710
            
            $
            717
            
            $
            717Provision
                for credit losses
            
            
            1,595
            
            
            (11
            )
            
            (7
            )Balance
                at the end of period
            
            $
            2,305
            
            $
            706
            
            $
            710




During
      the second quarter of 2007, the Bank recorded a specific reserve of $1,519,000
      in unfunded commitments related to a construction loan in Rocklin California.
      The specific reserve related to unfunded commitments was recorded to recognize
      the Bank’s estimate of liability for mechanic liens placed against the property.
      For more information related to the specific reserve related to this loan,
      see
      the section titled “NONPERFORMING ASSETS” on page 25 of this
      report.




EXTERNAL
      FACTORS AFFECTING ASSET QUALITY




For
      a
      discussion on external factors affecting asset quality, see Part II Item 1A.
      Risk Factors in this report.


-29-




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 $304,315,000 and $452,421,000 on June
      30, 2007 and December 31, 2006, respectively, and constituted 16% 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 $270,061,000 at June 30, 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 $295,069,000 of which $77,500,000 was outstanding as of June
      30, 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
      $1,297,000 or 1% between June 30, 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 June 30,
      2007, that the Company and the Bank met all applicable capital requirements.
      The
      Company’s leverage capital ratio at June 30, 2007 was 9.97% as compared with
      9.33% as of December 31, 2006. The Company’s total risk based capital ratio at
      June 30, 2007 was 12.41% as compared to 12.49% as of December 31,
      2006.




The
      Company has announced the acquisitions of The Stockmen’s Bank of California and
      Bay View Funding, pending regulatory approval. Management anticipates the
      Company will remain well capitalized after the acquisitions by issuing
      additional trust preferred securities to meet the regulatory
      requirements.


-30-




In
      the
      opinion of management, the Company’s and Bank’s actual capital amounts and
      ratios met all regulatory requirements as of June 30, 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)
            
            $
            202,737
            
            
            12.41
            %
            $
            130,742
            
            
            8
            %
            $
            163,427
            
            
            10
            %Tier
                1 capital (to risk weighted assets)
            
            $
            182,618
            
            
            11.17
            %
            $
            65,371
            
            
            4
            %
            $
            98,056
            
            
            6
            %Leverage
                ratio(1)
            
            $
            182,618
            
            
            9.97
            %
            $
            73,253
            
            
            4
            %
            $
            91,566
            
            
            5
            %**The
                Bank:**Total
                capital (to risk weighted assets)
            
            $
            177,770
            
            
            10.93
            %
            $
            130,142
            
            
            8
            %
            $
            162,677
            
            
            10
            %Tier
                1 capital (to risk weighted assets)
            
            $
            157,651
            
            
            9.69
            %
            $
            65,071
            
            
            4
            %
            $
            97,606
            
            
            6
            %Leverage
                ratio(1)
            
            $
            157,651
            
            
            8.65
            %
            $
            72,889
            
            
            4
            %
            $
            91,111
            
            
            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 June 30, 2007, the Company had
      a
      deposit mix of 28% in savings deposits, 41% in time deposits, 16% in
      interest-bearing checking accounts and 15% 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.


-31-


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 June 30, 2007, the Company had brokered
      deposits of $15,594,000. At December 31, 2006, the Company’s brokered deposits
      totaled $92,943,000. The decrease in brokered deposits during 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 June 30, 2007.





Maturities
      of time certificates of deposits of $100,000 or more outstanding at June 30,
      2007 and December 31, 2006 are summarized as follows:





(Dollars
                in thousands)
            
            June
                30, 2007
            
            December
                31, 2006Three
                months or less
            
            $
            150,102
            
            $
            190,565Over
                three to six months
            
            
            40,512
            
            
            103,261Over
                six to twelve months
            
            
            41,311
            
            
            50,555Over
                twelve months
            
            
            37,348
            
            
            21,853Total
            
            $
            269,273
            
            $
            366,234





**Federal
      Funds Purchased and Other Borrowed Funds**




The
      total
      of federal funds purchased remained at $0 for the six months ended June 30,
      2007
      from December 31, 2006. Other borrowed funds have increased primarily by the
      to
      secure liquidity for future anticipated growth





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**





Six
                Months Ended June 30,
            
            Year
                ended December 312007
            
            2006
            
            2006Annualized
                return on average assets
            
            
            0.50
            %
            
            1.36
            %
            
            1.25
            %Annualized
                return on average equity
            
            
            6.18
            %
            
            18.53
            %
            
            16.85
            %Average
                equity to average assets
            
            
            8.10
            %
            
            7.33
            %
            
            7.44
            %Dividend
                payout ratio
            
            
            44.43
            %
            
            11.71
            %
            
            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.




**Subsequent
      Events**




On
      July
      25, 2007, the Bank foreclosed on a property in Rocklin California which was
      collateral for a residential construction loan. During the second quarter a
      specific reserve was recorded in the allowance for loan losses based on a third
      party appraisal of the property. At completion of the foreclosure on July 25,
      2007, the specific reserve related to this loan was charged-off and the market
      value of the property of $9,253,000 was recorded into other real estate owned.
      The specific reserve related to the mechanic liens will remain recorded until
      a
      resolution with third parties is complete. For more information related to
      the
      aforementioned loan see the section titled “NONPERFORMING ASSETS” included
      herein.


-32-




On
      July
      20, 2007, the Company announced that it entered into a materially definitive
      agreement to purchase Bay View Funding (”BVF”), a factoring business based in
      San Mateo California. The Company will acquire all of the assets and liabilities
      of BVF. The assets consist primarily of receivables of approximately $26,000,000
      to $28,000,000. The purchase price of approximately $14 million represents
      a
      3.25 multiple of BVF’s EBITDA with $11.7 million (85%) payable at closing and an
      additional 5% payable one year after the closing and the remaining 10% due
      two
      years after the closing (assuming certain indemnified events have not occurred).
      In addition, BVF can earn up to an additional .75 multiple of EBITDA (roughly
      $3
      million) over the next two years if a 15% growth in revenue and EBITDA is
      achieved. For more information related to this announcement, see the Company’s
      website at www.ccow.com under
      the news and events section.





**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. Management monitors the asset and liability changes
      on an ongoing basis and provides report information and recommendations to
      the
      ALCO committee in regards to those changes.





It
      is the
      opinion of management that there has been no material change in the Company’s
      market risk during the first six 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 six three months of 2007,
      the
      Company could become susceptible to an increased level of market
      risk.


-33-


**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.





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.
      The Company is also party to legal proceedings related to foreclosed property
      of
      which the Company has already recorded a specific reserve. In the opinion of
      management, pending and threatened litigation, where liabilities have not been
      reserved, have a remote likelihood of having 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.


-34-


**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.





**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, drought, 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.


-35-


***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.





**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.





***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.**




(a.)
            Our
                Annual Meeting of Shareholders for 2007 was held May 22, 2007. The
                number
                of shares represented in person or by proxy and constituting a quorum
                was
                approximately 8,875,000 which equaled approximately 82% of the shares
                outstanding.




(b.)
            The
                following are the results of the election of directors in Class II
                of the
                Board:


Election
                of directors
            Votes
                For
            Votes
                WithheldJohn
                D. Fawcett
            6,673,607
            2,201,154Thomas
                T. Hawker
            6,757,757
            2,117,014Curtis
                A. Riggs
            6,726,447
            2,116,490





(c.)
            The
                following are the results of the vote on proposal 2, to increase
                the
                number of shares available for grants of stock options pursuant to
                the
                Capital Corp of the West 2002 Stock Option
                Plan:





Votes
                For
            Votes
                Against4,645,414
            2,207,142




**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


-36-




**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:
                August 9, 2007
            By/s/
                Thomas T. HawkerThomas
                T. HawkerPresident
                andChief
                Executive Officer








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


-37-


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


-38-