##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
File Number 000  51044
 
 COMMUNITY BANCORP
 (Exact name of registrant as specified in its charter)
 
 Nevada
    
    01-0668846(State or other jurisdiction of incorporation)
    
    (I.R.S. Employer Identification No.)400 South 4thStreet, Suite 215, Las Vegas, NV
    
    89101(Address of principal executive offices)
    
    (Zip Code)
 (702) 878
 0700
(Registrants telephone number, including area code)
  þ o
  Large accelerated filer o   
    Accelerated filer þ
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ
  Title of Class
    
    Outstanding as of July 31, 2008Common Stock, $0.001 par value
    
    10,250,986 shares




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##### 



COMMUNITY BANCORP
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS
    
    3ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    17ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    35ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    36PART II  OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    36ITEM 1A.
    
    RISK FACTORS
    
    36ITEM 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
    
    37ITEM 5.
    
    OTHER INFORMATION
    
    37ITEM 6.
    
    EXHIBITS
    
    37SIGNATURES
    
    38CERTIFICATIONS
    
    40EXHIBIT 3.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 PageConsolidated Balance Sheets
    
    
    4Consolidated Statements of Operations and Comprehensive Income (Loss)
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7
 3




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##### Table of Contents



COMMUNITY BANCORP AND SUBSIDIARIES
  CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 June 30,
    
    
    December 31,2008
    
    
    2007(In thousands, except share data)ASSETSCash and due from banks
    
    $
    13,159
    
    
    $
    19,243Interest bearing deposits in other banks
    
    
    791
    
    
    
    141Federal funds sold
    
    
    447
    
    
    
    20Cash and cash equivalents
    
    
    14,397
    
    
    
    19,404Securities available for sale, at fair value
    
    
    61,161
    
    
    
    88,217Securities held to maturity, at amortized cost (fair value of $645 as of June 30, 2008 and $817 as of
December 31, 2007)
    
    
    635
    
    
    
    801Required equity investments, at cost
    
    
    12,335
    
    
    
    14,014Loans, net of allowance for loan losses of $28,050 as of June 30, 2008 and $17,098 as of
December 31, 2007
    
    
    1,473,961
    
    
    
    1,396,890Premises and equipment, net
    
    
    25,557
    
    
    
    27,535Other real estate owned
    
    
    11,033
    
    
    
    Accrued interest and dividends receivable
    
    
    7,083
    
    
    
    8,046Deferred income taxes, net
    
    
    1,716
    
    
    
    1,503Bank owned life insurance
    
    
    10,719
    
    
    
    10,521Goodwill
    
    
    113,636
    
    
    
    113,636Core deposit intangible, net of accumulated amortization of $3,148 as of June 30, 2008 and $2,478 as of
December 31, 2007
    
    
    6,811
    
    
    
    7,481Other assets
    
    
    8,780
    
    
    
    5,473Total assets
    
    $
    1,747,824
    
    
    $
    1,693,521LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDeposits:Non-interest bearing
    
    $
    163,551
    
    
    $
    170,725Interest bearing:Demand
    
    
    706,181
    
    
    
    672,567Savings
    
    
    22,445
    
    
    
    28,465Time, $100,000 or more
    
    
    186,857
    
    
    
    171,664Other time
    
    
    250,189
    
    
    
    187,041Total deposits
    
    
    1,329,223
    
    
    
    1,230,462Borrowings
    
    
    105,412
    
    
    
    146,684Accrued interest payable and other liabilities
    
    
    7,190
    
    
    
    9,090Junior subordinated debt
    
    
    72,166
    
    
    
    72,166Total liabilities
    
    
    1,513,991
    
    
    
    1,458,402Commitments and Contingencies (Note 9)Stockholders equityPreferred stock, par value: $0.001; shares authorized: 20,000,000 at June 30, 2008 and none
at December 31, 2007; shares issued: none
    
    
    
    
    
    
    Common stock, par value: $0.001; shares authorized: 50,000,000 at June 30, 2008 and
30,000,000 at December 31, 2007; shares issued: 10,604,570 as of June 30, 2008 (including
145,178 shares of unvested restricted stock) and 10,620,529 as of December 31, 2007
(including 161,137 shares of unvested restricted stock)
    
    
    11
    
    
    
    11Additional paid-in capital
    
    
    169,815
    
    
    
    168,931Retained earnings
    
    
    70,853
    
    
    
    72,797Accumulated other comprehensive (loss) income, net of tax
    
    
    (162
    )
    
    
    64240,517
    
    
    
    241,803Less cost of treasury stock, 350,575 shares as of June 30, 2008 and December 31, 2007
    
    
    (6,684
    )
    
    
    (6,684
    )Total stockholders equity
    
    
    233,833
    
    
    
    235,119Total liabilities and stockholders equity
    
    $
    1,747,824
    
    
    $
    1,693,521
  4




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##### Table of Contents



COMMUNITY BANCORP AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 (Unaudited)
 For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Interest and dividend income:Loans, including fees
    
    $
    25,232
    
    
    $
    30,439
    
    
    $
    54,058
    
    
    $
    59,373Securities and investments
    
    
    948
    
    
    
    1,448
    
    
    
    2,067
    
    
    
    2,884Federal funds sold
    
    
    17
    
    
    
    529
    
    
    
    27
    
    
    
    1,047Total interest and dividend income
    
    
    26,197
    
    
    
    32,416
    
    
    
    56,152
    
    
    
    63,304Interest expense on:Deposits
    
    
    8,615
    
    
    
    11,926
    
    
    
    18,758
    
    
    
    22,623Borrowings
    
    
    1,021
    
    
    
    1,149
    
    
    
    2,400
    
    
    
    2,301Junior subordinated debt
    
    
    1,034
    
    
    
    1,543
    
    
    
    2,188
    
    
    
    3,073Total interest expense
    
    
    10,670
    
    
    
    14,618
    
    
    
    23,346
    
    
    
    27,997Net interest income before provision for loan losses
    
    
    15,527
    
    
    
    17,798
    
    
    
    32,806
    
    
    
    35,307Provision for loan losses
    
    
    14,226
    
    
    
    486
    
    
    
    18,394
    
    
    
    968Net interest income after provision for loan losses
    
    
    1,301
    
    
    
    17,312
    
    
    
    14,412
    
    
    
    34,339Non-interest income:Service charges and other income
    
    
    738
    
    
    
    557
    
    
    
    1,401
    
    
    
    1,185Bank owned life insurance
    
    
    98
    
    
    
    111
    
    
    
    198
    
    
    
    229Net swap settlements
    
    
    (85
    )
    
    
    44
    
    
    
    (115
    )
    
    
    92Rental income
    
    
    39
    
    
    
    38
    
    
    
    87
    
    
    
    76Gain on sale of securities
    
    
    31
    
    
    
    4
    
    
    
    196
    
    
    
    4Gain on sale of property
    
    
    
    
    
    
    
    
    
    
    1,210
    
    
    
    Net gain on sale of loans
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    285Total non-interest income
    
    
    821
    
    
    
    1,004
    
    
    
    2,977
    
    
    
    1,871Non-interest expense:Salaries, wages and employee benefits
    
    
    5,230
    
    
    
    5,589
    
    
    
    11,095
    
    
    
    11,301Occupancy, equipment and depreciation
    
    
    1,291
    
    
    
    1,227
    
    
    
    2,573
    
    
    
    2,423Core deposit intangible amortization
    
    
    335
    
    
    
    335
    
    
    
    670
    
    
    
    670Data processing
    
    
    303
    
    
    
    268
    
    
    
    533
    
    
    
    583Advertising and public relations
    
    
    405
    
    
    
    464
    
    
    
    782
    
    
    
    737Professional fees
    
    
    616
    
    
    
    428
    
    
    
    1,206
    
    
    
    700Telephone and postage
    
    
    163
    
    
    
    193
    
    
    
    326
    
    
    
    394Stationery and supplies
    
    
    207
    
    
    
    192
    
    
    
    402
    
    
    
    358Directors fees
    
    
    119
    
    
    
    50
    
    
    
    236
    
    
    
    178Insurance
    
    
    436
    
    
    
    140
    
    
    
    660
    
    
    
    259Software maintenance
    
    
    173
    
    
    
    116
    
    
    
    319
    
    
    
    221Loan related
    
    
    123
    
    
    
    82
    
    
    
    223
    
    
    
    177Foreclosed assets, net
    
    
    154
    
    
    
    
    
    
    
    154
    
    
    
    (Gain) Loss on interest rate swaps
    
    
    (814
    )
    
    
    
    
    
    
    15
    
    
    
    Other operating expenses
    
    
    541
    
    
    
    539
    
    
    
    1,198
    
    
    
    1,080Total non-interest expense
    
    
    9,282
    
    
    
    9,623
    
    
    
    20,392
    
    
    
    19,081(Loss) income before income tax provision
    
    
    (7,160
    )
    
    
    8,693
    
    
    
    (3,003
    )
    
    
    17,129Income tax (benefit) provision
    
    
    (2,524
    )
    
    
    3,050
    
    
    
    (1,059
    )
    
    
    6,037Net (loss) income
    
    
    (4,636
    )
    
    
    5,643
    
    
    
    (1,944
    )
    
    
    11,092Other comprehensive (loss) income  unrealized (loss) on available-for-sale securities, net
of income tax benefit of $381, $333, $26 and $262, respectively
    
    
    (877
    )
    
    
    (600
    )
    
    
    (226
    )
    
    
    (445
    )Comprehensive (loss) income
    
    $
    (5,513
    )
    
    $
    5,043
    
    
    $
    (2,170
    )
    
    $
    10,647(LOSS) EARNINGS PER SHARE:Basic
    
    $
    (0.46
    )
    
    $
    0.54
    
    
    $
    (0.19
    )
    
    $
    1.06Diluted
    
    $
    (0.46
    )
    
    $
    0.54
    
    
    $
    (0.19
    )
    
    $
    1.06
  5




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##### Table of Contents



COMMUNITY BANCORP AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the six months ended
 (Unaudited)
 June 30,
    
    
    June 30,2008
    
    
    2007(In thousands)Cash flows from operating activities:Net (loss) income
    
    $
    (1,944
    )
    
    $
    11,092Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation of premises and equipment
    
    
    962
    
    
    
    929Gain on sales of fixed assets
    
    
    
    
    
    
    (20
    )Gain on sale of property
    
    
    (1,210
    )
    
    
    Amortization of core deposit intangible
    
    
    670
    
    
    
    670Loss on interest rate swaps
    
    
    15
    
    
    
    Income from bank owned life insurance
    
    
    (198
    )
    
    
    (229
    )Gain on sale of loans
    
    
    
    
    
    
    (285
    )Gain on sale of securities
    
    
    (196
    )
    
    
    (4
    )Proceeds from sales of loans held for sale
    
    
    
    
    
    
    3,559Originations of loans held for sale
    
    
    
    
    
    
    (2,262
    )Deferred taxes, net
    
    
    (188
    )
    
    
    1,082Provision for loan losses
    
    
    18,394
    
    
    
    968Share-based compensation expense
    
    
    884
    
    
    
    417Net amortization (accretion) of investment premium and discount
    
    
    23
    
    
    
    (76
    )Decrease (increase) in accrued interest receivable
    
    
    963
    
    
    
    (617
    )(Increase) in other assets
    
    
    (3,307
    )
    
    
    (501
    )Decrease in accrued interest payable and other liabilities
    
    
    (1,915
    )
    
    
    (972
    )Income from required equity investments  stock dividends
    
    
    (189
    )
    
    
    (117
    )Net cash provided by operating activities
    
    
    12,764
    
    
    
    13,634Cash flows from investing activities:Net increase in loans
    
    
    (106,383
    )
    
    
    (112,035
    )(Payments) receipts on net swap settlements
    
    
    (115
    )
    
    
    92Proceeds from maturities of and principal paydowns on securities held to maturity
    
    
    166
    
    
    
    98Purchase of securities available for sale
    
    
    (100
    )
    
    
    (2,617
    )Proceeds from maturities of and principal paydowns on securities available for sale
    
    
    26,882
    
    
    
    13,019Proceeds from sale of securities available for sale
    
    
    196
    
    
    
    3,272Net investment in required equity investments
    
    
    1,868
    
    
    
    (5,726
    )(Purchase) sale of premises and equipment
    
    
    (339
    )
    
    
    (2,261
    )Proceeds from sale of premises and equipment
    
    
    2,565
    
    
    
    48Net cash used in investing activities
    
    
    (75,260
    )
    
    
    (106,110
    )Cash flows from financing activities:Net (decrease) increase in borrowings
    
    
    (38,760
    )
    
    
    32,139Net increase in deposits
    
    
    98,761
    
    
    
    50,261Repayment of long-term debt
    
    
    (2,512
    )
    
    
    Excess tax benefit related to exercise of stock options
    
    
    
    
    
    
    51Proceeds from exercise of stock options
    
    
    
    
    
    
    264Net cash provided by financing activities
    
    
    57,489
    
    
    
    82,715Net decrease in cash and cash equivalents
    
    
    (5,007
    )
    
    
    (9,761
    )Cash and cash equivalents, beginning of the year
    
    
    19,404
    
    
    
    46,116Cash and cash equivalents, end of the period
    
    $
    14,397
    
    
    $
    36,355Supplemental disclosure of cash flow information:Interest paid
    
    $
    23,882
    
    
    $
    27,843Income taxes paid
    
    $
    2,565
    
    
    $
    5,161Transfer of loans to other real estate owned
    
    $
    11,033
    
    
    $
    
  6




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##### Table of Contents



COMMUNITY BANCORP AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Nature of Business
      Note 2. Basis of Presentation
     Note 3. Significant Accounting Policies
  Note 4. Recent Accounting Pronouncements
 Fair Value Measurements
 7




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##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Liabilities-Including an Amendment of FASB Statement No. 115.
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133.
 Note 5. Loans
  June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Commercial and industrial
    
    $
    232,579
    
    
    $
    210,614Real estate:Commercial
    
    
    406,218
    
    
    
    370,464Residential
    
    
    38,853
    
    
    
    43,212Construction and land development
    
    
    823,429
    
    
    
    789,185Consumer and other
    
    
    4,797
    
    
    
    5,707Total gross loans
    
    
    1,505,876
    
    
    
    1,419,182Less:Allowance for loan losses
    
    
    28,050
    
    
    
    17,098Net unearned loan fees and discounts
    
    
    3,865
    
    
    
    5,194Total net loans
    
    $
    1,473,961
    
    
    $
    1,396,890
  For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)
    
    
    (In thousands)Balance at beginning of period
    
    $
    19,831
    
    
    $
    15,615
    
    
    $
    17,098
    
    
    $
    14,973Provision for loan losses
    
    
    14,226
    
    
    
    486
    
    
    
    18,394
    
    
    
    968Less amounts charged off
    
    
    (6,126
    )
    
    
    (129
    )
    
    
    (7,671
    )
    
    
    (228
    )Recoveries of amounts charged off
    
    
    119
    
    
    
    13
    
    
    
    229
    
    
    
    272Balance at end of period
    
    $
    28,050
    
    
    $
    15,985
    
    
    $
    28,050
    
    
    $
    15,985
 8




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##### Table of Contents



Note 6. Other Real Estate Owned
   Note 7. Borrowings
    Note 8. Junior Subordinated Debt
  Consolidation of Variable Interest
Entities-an interpretation of ARB No. 51
  9




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##### Table of Contents



Note 9. Commitments and Contingencies
 Financial Instruments with Off-Balance Sheet Risk
    Outstanding commitments
 June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Commitments to extend
credit, including
unsecured commitments
of approximately
$22,604 for 2008 and
$28,137 for 2007
    
    $
    326,023
    
    
    $
    430,093Credit card
commitments,
including unsecured
amounts of
approximately $838
for 2008 and $818 for
2007
    
    
    838
    
    
    
    818Standby letters of
credit, including
unsecured commitments
of approximately
$1,542 for 2008 and
$2,485 for 2007
    
    
    3,137
    
    
    
    4,083$
    329,998
    
    
    $
    434,994
   10




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##### Table of Contents



Accounting for
Contingencies
  Financial Instruments with Concentrations of Credit Risk
    Lease Commitments
   Contingencies
  Note 10. Derivative Financial Instruments
   11




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##### Table of Contents



Note 11. Stockholders Equity
  Note 12. Earnings (Loss) per Share
   For the Three Months Ended June 30,
    
    
    For the Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except (loss) earnings per share data)
    
    
    (In thousands, except (loss) earnings per share data)Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageNet
    
    
    Number
    
    
    Per Share
    
    
    Net
    
    
    Number
    
    
    Per Share
    
    
    Net
    
    
    Number
    
    
    Per Share
    
    
    Net
    
    
    Number
    
    
    Per Share(Loss)
    
    
    of Shares
    
    
    Amounts
    
    
    Income
    
    
    of Shares
    
    
    Amounts
    
    
    (Loss)
    
    
    of Shares
    
    
    Amounts
    
    
    Income
    
    
    of Shares
    
    
    AmountsBasic EPS
    
    $
    (4,636
    )
    
    
    10,109
    
    
    $
    (0.46
    )
    
    $
    5,643
    
    
    
    10,420
    
    
    $
    0.54
    
    
    $
    (1,944
    )
    
    
    10,109
    
    
    $
    (0.19
    )
    
    $
    11,092
    
    
    
    10,418
    
    
    $
    1.06Effect of dilutive securities:Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    Restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPS
    
    $
    (4,636
    )
    
    
    10,109
    
    
    $
    (0.46
    )
    
    $
    5,643
    
    
    
    10,488
    
    
    $
    0.54
    
    
    $
    (1,944
    )
    
    
    10,109
    
    
    $
    (0.19
    )
    
    $
    11,092
    
    
    
    10,490
    
    
    $
    1.06
  Note 13. Share-Based Compensation
 Stock options
  Restricted stock
  12




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##### Table of Contents



Stock appreciation rights
   Note 14. Segments
  For the three months ended and as of June 30, 2008
    
    
    For the six months ended and as of June 30, 2008Community
    
    
    Community
    
    
    
    
    
    
    
    
    
    
    Community
    
    
    CommunityBank of
    
    
    Bank of
    
    
    
    
    
    
    
    
    
    
    Bank of
    
    
    Bank ofNevada
    
    
    Arizona
    
    
    Other (3)
    
    
    Total
    
    
    Nevada
    
    
    Arizona
    
    
    Other (3)
    
    
    Total(In thousands)
    
    
    (In thousands)Interest and dividend income
    
    $
    24,478
    
    
    $
    1,706
    
    
    $
    13
    
    
    $
    26,197
    
    
    $
    52,834
    
    
    $
    3,337
    
    
    $
    (19
    )
    
    $
    56,152Interest expense
    
    
    8,936
    
    
    
    593
    
    
    
    1,141
    
    
    
    10,670
    
    
    
    19,779
    
    
    
    1,165
    
    
    
    2,402
    
    
    
    23,346Net interest income before provision for loan losses
    
    
    15,542
    
    
    
    1,113
    
    
    
    (1,128
    )
    
    
    15,527
    
    
    
    33,055
    
    
    
    2,172
    
    
    
    (2,421
    )
    
    
    32,806Provision for loan losses
    
    
    12,484
    
    
    
    1,742
    
    
    
    
    
    
    
    14,226
    
    
    
    16,519
    
    
    
    1,875
    
    
    
    
    
    
    
    18,394Net interest income after provision for loan losses
    
    
    3,058
    
    
    
    (629
    )
    
    
    (1,128
    )
    
    
    1,301
    
    
    
    16,536
    
    
    
    297
    
    
    
    (2,421
    )
    
    
    14,412Non-interest income
    
    
    783
    
    
    
    38
    
    
    
    
    
    
    
    821
    
    
    
    2,888
    
    
    
    89
    
    
    
    
    
    
    
    2,977Non-interest expenses
    
    
    6,825
    
    
    
    1,303
    
    
    
    1,154
    
    
    
    9,282
    
    
    
    15,772
    
    
    
    2,540
    
    
    
    2,080
    
    
    
    20,392Segment pretax (loss) income
    
    $
    (2,984
    )
    
    $
    (1,894
    )
    
    $
    (2,282
    )
    
    $
    (7,160
    )
    
    $
    3,652
    
    
    $
    (2,154
    )
    
    $
    (4,501
    )
    
    $
    (3,003
    )Segment assets (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,636,013
    
    
    $
    124,886
    
    
    $
    (13,075
    )
    
    $
    1,747,824
 For the three months ended and as of June 30, 2007
    
    
    For the six months ended and as of June 30, 2007Community
    
    
    Community
    
    
    
    
    
    
    
    
    
    
    Community
    
    
    CommunityBank of
    
    
    Bank of
    
    
    
    
    
    
    
    
    
    
    Bank of
    
    
    Bank ofNevada
    
    
    Arizona
    
    
    Other (3)
    
    
    Total
    
    
    Nevada
    
    
    Arizona
    
    
    Other (3)
    
    
    Total(In thousands)
    
    
    (In thousands)Interest and dividend income
    
    $
    30,829
    
    
    $
    1,532
    
    
    $
    55
    
    
    $
    32,416
    
    
    $
    60,300
    
    
    $
    2,894
    
    
    $
    110
    
    
    $
    63,304Interest expense
    
    
    12,524
    
    
    
    551
    
    
    
    1,543
    
    
    
    14,618
    
    
    
    23,907
    
    
    
    1,017
    
    
    
    3,073
    
    
    
    27,997Net interest income before provision for loan losses
    
    
    18,305
    
    
    
    981
    
    
    
    (1,488
    )
    
    
    17,798
    
    
    
    36,393
    
    
    
    1,877
    
    
    
    (2,963
    )
    
    
    35,307Provision for loan losses
    
    
    386
    
    
    
    100
    
    
    
    
    
    
    
    486
    
    
    
    768
    
    
    
    200
    
    
    
    
    
    
    
    968Net interest income after provision for loan losses
    
    
    17,919
    
    
    
    881
    
    
    
    (1,488
    )
    
    
    17,312
    
    
    
    35,625
    
    
    
    1,677
    
    
    
    (2,963
    )
    
    
    34,339Non-interest income
    
    
    911
    
    
    
    93
    
    
    
    
    
    
    
    1,004
    
    
    
    1,618
    
    
    
    178
    
    
    
    75
    
    
    
    1,871Non-interest expenses
    
    
    8,149
    
    
    
    973
    
    
    
    501
    
    
    
    9,623
    
    
    
    16,487
    
    
    
    1,747
    
    
    
    847
    
    
    
    19,081Segment pretax income (loss)
    
    $
    10,681
    
    
    $
    1
    
    
    $
    (1,989
    )
    
    $
    8,693
    
    
    $
    20,756
    
    
    $
    108
    
    
    $
    (3,735
    )
    
    $
    17,129Segment assets (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,569,683
    
    
    $
    89,420
    
    
    $
    4,083
    
    
    $
    1,663,186
 
 (1)
    
    Goodwill included in Community Bank of Nevadas and Community Bank of Arizonas segment
assets amounted to $103.7 million and $9.9 million, respectively.(2)
    
    Goodwill included in Community Bank of Nevadas and Community Bank of Arizonas segment
assets amounted to $105.6 million and $9.5 million, respectively.(3)
    
    Includes intersegment eliminations and reclassifications. 13




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##### Table of Contents



Note 15. Quarterly Data
 For the three months ended
    
    
    For the three months endedJune 30,
    
    
    March 31,
    
    
    June 30,
    
    
    March 31,2008
    
    
    2008
    
    
    2007
    
    
    2007(In thousands, except per share data)Interest and dividend income
    
    $
    26,197
    
    
    $
    29,955
    
    
    $
    32,416
    
    
    $
    30,888Interest expense
    
    
    10,670
    
    
    
    12,676
    
    
    
    14,618
    
    
    
    13,379Net interest income before provision for loan losses
    
    
    15,527
    
    
    
    17,279
    
    
    
    17,798
    
    
    
    17,509Provision for loan losses
    
    
    14,226
    
    
    
    4,168
    
    
    
    486
    
    
    
    482Net interest income after provision for loan losses
    
    
    1,301
    
    
    
    13,111
    
    
    
    17,312
    
    
    
    17,027Non-interest income
    
    
    821
    
    
    
    2,156
    
    
    
    1,004
    
    
    
    867Non-interest expense
    
    
    9,282
    
    
    
    11,110
    
    
    
    9,623
    
    
    
    9,458(Loss) income before income tax provision
    
    
    (7,160
    )
    
    
    4,157
    
    
    
    8,693
    
    
    
    8,436Income tax (benefit) provision
    
    
    (2,524
    )
    
    
    1,465
    
    
    
    3,050
    
    
    
    2,987Net (loss) income
    
    $
    (4,636
    )
    
    $
    2,692
    
    
    $
    5,643
    
    
    $
    5,449Basic (loss) earnings per share
    
    $
    (0.46
    )
    
    $
    0.27
    
    
    $
    0.54
    
    
    $
    0.52Diluted (loss) earnings per share
    
    $
    (0.46
    )
    
    $
    0.26
    
    
    $
    0.54
    
    
    $
    0.52
 Note 16. Sale of Property
   Note 17. Fair Value Accounting
 Fair Value
Measurements The Fair Value Option for Financial Assets and Financial
Liabilities-Including an Amendment of FASB Statement No. 115
   
    
    Level 1  Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets;
 14




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##### Table of Contents




    
    Level 2  Inputs to the valuation methodology include quoted prices for similar assets
and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the
financial instrument; and
    
    Level 3  Inputs to the valuation methodology are unobservable and significant to the
fair value measurement.
   Accounting by Creditors for Impairment of a Loan,
   Fair Value Measurements at Reporting Date Using:Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsDescription
    
    June 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(In thousands)Assets:Securities available
for sale, at fair
value
    
    $
    61,161
    
    
    $
    
    
    
    $
    61,161
    
    
    $
    Interest rate swaps (1)
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    Total
    
    $
    61,176
    
    
    $
    
    
    
    $
    61,176
    
    
    $
    Liabilities:Interest rate swaps (2)
    
    $
    395
    
    
    $
    
    
    
    $
    395
    
    
    $
    $
    395
    
    
    $
    
    
    
    $
    395
    
    
    $
    
 
 (1)
    
    Included in other assets(2)
    
    Included in accrued interest payable and other liabilities   15




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##### Table of Contents



Fair Value Measurements at Reporting Date Using:Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsDescription
    
    June 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(In thousands)Assets:Impaired loans with specific valuation allowance under SFAS No. 114
    
    $
    27,332
    
    
    $
    
    
    
    $
    27,332
    
    
    $
    
  Note 18. Goodwill
 Goodwill and Other Intangible Assets
 Note 19. Subsequent Event
   Accounting for Sales with Leasebacks, an amendment of SFAS No.
13,
 16




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   EXECUTIVE OVERVIEW
     
    
    The provision for loan losses was $14.2 million for the second quarter of 2008,
compared to a provision for loan losses of $4.2 million for the first quarter of 2008 and
$486,000 for the quarter ended June 30, 2007.
    
    The provision for loan losses for the first half of 2008 increased to $18.4 million,
compared to a provision for loan losses of $968,000 for the first half of 2007.
    
    Due to an increase in non-performing loans for the three and six months ended June 30,
2008, interest and dividend income was adversely affected.
    
    Due primarily to the increased provision for loan losses and the adverse effect of the
increase in non-performing loans on interest and dividend income, the Company recognized
a loss for the second quarter of 2008 of $4.6 million, or $(0.46) per diluted share,
compared to net income of $2.7 million for the first quarter of 2008, or $0.26 per
diluted share, and $5.6 million, or $0.54 per diluted share, for the second quarter of
2007.
 17




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##### Table of Contents




    
    The allowance for loan losses increased to $28.1 million, or 1.86% of total gross
loans, at June 30, 2008, compared to $17.1 million, or 1.20% of total gross loans, at
December 31, 2007.
    
    Non-performing loans totaled $69.3 million, or 4.6% of total gross loans, at June 30,
2008, compared to $12.1 million, or 0.85% of total gross loans, at December 31, 2007.
One loan in the amount of $26.2 million represented 1.7% of total gross loans and 37.9%
of non-performing loans. While this loan was not 90 days past due at June 30, 2008,
management classified this loan as non-accrual at June 30, 2008. By classifying this one
loan to non-accrual status, interest income was adversely affected by approximately
$884,000.
    
    OREO was $11.0 million at June 30, 2008, and the Company had no OREO at December 31,
2007. One property in the amount of $2.4 million was sold on July 22, 2008 and for three
properties, totaling $7.2 million, the Company has accepted purchase offers (two of which
are in escrow) with anticipated closings in the third quarter of 2008
    
    Impaired loans, which include all non-performing loans, increased to $103.1 million at
June 30, 2008, compared to $29.8 million at December 31, 2007.
    
    The Companys capital ratios continue to be above the well-capitalized guidelines
established by bank regulatory agencies.
 18




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##### Table of Contents



SUMMARY CONSOLIDATED FINANCIAL DATA AND OTHER DATA
(Unaudited)
 2nd
    
    2nd
    
    
    
    
    
    1st
    
    1stQuarter
    
    Quarter
    
    Percentage
    
    Half
    
    Half
    
    Percentage2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(In thousands, except share and percentage data)
    
    (In thousands, except share and percentage data)SHARE DATAEarnings (loss) per share  basic
    
    $
    (0.46
    )
    
    $
    0.54
    
    
    
    -185.2
    %
    
    $
    (0.19
    )
    
    $
    1.06
    
    
    
    -117.9
    %Earnings (loss) per share  diluted
    
    $
    (0.46
    )
    
    $
    0.54
    
    
    
    -185.2
    %
    
    $
    (0.19
    )
    
    $
    1.06
    
    
    
    -117.9
    %Book value per share
    
    
    22.80
    
    
    $
    22.10
    
    
    
    3.2
    %
    
    
    22.80
    
    
    $
    22.10
    
    
    
    3.2
    %Shares outstanding at period end
    
    
    10,253,995
    
    
    
    10,419,924
    
    
    
    -1.6
    %
    
    
    10,253,995
    
    
    
    10,419,924
    
    
    
    -1.6
    %Weighted average shares outstanding  basic
    
    
    10,108,817
    
    
    
    10,419,924
    
    
    
    -3.0
    %
    
    
    10,108,817
    
    
    
    10,417,919
    
    
    
    -3.0
    %Weighted average shares outstanding  diluted (5)
    
    
    10,108,817
    
    
    
    10,488,289
    
    
    
    -3.6
    %
    
    
    10,108,817
    
    
    
    10,490,016
    
    
    
    -3.6
    %SELECTED OTHER BALANCE SHEET DATAAverage assets
    
    $
    1,749,694
    
    
    $
    1,639,474
    
    
    
    6.7
    %
    
    $
    1,726,246
    
    
    $
    1,621,763
    
    
    
    6.4
    %Average earning assets
    
    $
    1,576,857
    
    
    $
    1,457,476
    
    
    
    8.2
    %
    
    $
    1,554,694
    
    
    $
    1,439,371
    
    
    
    8.0
    %Average stockholders equity
    
    $
    239,894
    
    
    $
    228,470
    
    
    
    5.0
    %
    
    $
    239,292
    
    
    $
    225,698
    
    
    
    6.0
    %Gross loans
    
    $
    1,505,876
    
    
    $
    1,366,362
    
    
    
    10.2
    %
    
    $
    1,505,876
    
    
    $
    1,366,362
    
    
    
    10.2
    %SELECTED FINANCIAL RATIOSReturn on average assets
    
    
    (1.07
    )%
    
    
    1.38
    %
    
    
    -177.2
    %
    
    
    (0.23
    )%
    
    
    1.38
    %
    
    
    -116.4
    %Return on average stockholders equity
    
    
    (7.77
    )%
    
    
    9.91
    %
    
    
    -178.4
    %
    
    
    (1.63
    )%
    
    
    9.91
    %
    
    
    -116.5
    %Net interest margin (1)
    
    
    3.99
    %
    
    
    4.93
    %
    
    
    -19.1
    %
    
    
    4.27
    %
    
    
    4.98
    %
    
    
    -14.2
    %Efficiency ratio (2)
    
    
    56.78
    %
    
    
    51.18
    %
    
    
    10.9
    %
    
    
    56.99
    %
    
    
    51.32
    %
    
    
    11.0
    %Capital RatiosAverage stockholders equity to average assets
    
    
    13.71
    %
    
    
    13.94
    %
    
    
    -1.6
    %
    
    
    13.86
    %
    
    
    13.92
    %
    
    
    -0.4
    %Tier 1 leverage capital ratioConsolidated Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.27
    %
    
    
    12.22
    %
    
    
    -7.8
    %Community Bank of Nevada
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.17
    %
    
    
    11.55
    %
    
    
    -3.3
    %Community Bank of Arizona
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.14
    %
    
    
    30.82
    %
    
    
    -31.3
    %Tier 1 risk-based capital ratioConsolidated Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.98
    %
    
    
    12.07
    %
    
    
    -9.0
    %Community Bank of Nevada
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.97
    %
    
    
    11.32
    %
    
    
    -3.1
    %Community Bank of Arizona
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.37
    %
    
    
    35.51
    %
    
    
    -48.3
    %Total risk-based capital ratioConsolidated Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.24
    %
    
    
    13.63
    %
    
    
    -10.2
    %Community Bank of Nevada
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.23
    %
    
    
    12.36
    %
    
    
    -1.1
    %Community Bank of Arizona
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.63
    %
    
    
    36.76
    %
    
    
    -46.6
    %Asset Quality RatiosNon-performing loans (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    69,282
    
    
    $
    1,311
    
    
    
    5184.7
    %Non-performing assets (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    80,315
    
    
    $
    1,311
    
    
    
    6026.2
    %Non-performing loans to total gross loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.60
    %
    
    
    0.10
    %
    
    
    4500.8
    %Non-performing assets to total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.60
    %
    
    
    0.08
    %
    
    
    5643.9
    %Past due loans30 - 59 days
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    28,546
    
    
    $
    1,090
    
    
    
    2517.3
    %60 - 89 days
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    13,780
    
    
    $
    906
    
    
    
    1420.0
    %Allowance for loan losses to total gross loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.86
    %
    
    
    1.17
    %
    
    
    59.2
    %Allowance for loan losses to non-performing assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    %
    
    
    1,219
    %
    
    
    -97.1
    %Allowance for loan losses to non-performing loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40
    %
    
    
    1,219
    %
    
    
    -96.7
    %Net charge-offs (recoveries) to average loans (6)
    
    
    1.62
    %
    
    
    0.04
    %
    
    
    39.5
    %
    
    
    1.02
    %
    
    
    (0.01
    )%
    
    
    103.0
    %
 
 (1)
    
    Net interest margin represents net interest income on a tax equivalent basis as a percentage of
average interest-earning assets.(2)
    
    Efficiency ratio represents non-interest expenses, excluding provision for loan losses, as a
percentage of the aggregate of net interest income and non-interest income.(3)
    
    Non-performing loans are defined as loans that are past due 90 days or more plus loans placed
in non-accrual status.(4)
    
    Non-performing assets are defined as assets that are past due 90 days or more plus assets
placed in non-accrual status plus other real estate owned.(5)
    
    Weighted average shares outstanding-diluted were equal to weighted average shares-basic for the
second quarter and first half of 2008, as any common stock equivalents would have been
anti-dilutive.(6)
    
    Annualized. 19




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  Allowance for loan losses.
 Available-for-sale securities. Accounting for Certain Investments in Debt and Equity Securities Fair Value Measurements
 Goodwill and other intangibles. Goodwill and Other
Intangible Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
 Share-based compensation. Share-Based
Payment,
 §
    
    Expected volatility  based on the historical volatility of similar entities stock
price that have been public for a period of time at least equal to the expected life of
the option.§
    
    Expected term of the option  based on the simple average of the vesting term and the
original contract term.§
    
    Risk-free rate  based upon the rate on a zero coupon U.S. Treasury bill, for periods
within the expected term of the option.§
    
    Dividend yield  the Company currently has a no dividend policy and accordingly, no
dividend yield is utilized.
  20




---



##### Table of Contents



Segment reporting.
 Fair Value Measurements. Fair
Value Measurements The Fair Value Option for Financial Assets and Financial
Liabilities-Including an Amendment of FASB Statement No. 115
  
    
    Level 1  Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets;
    
    Level 2  Inputs to the valuation methodology include quoted prices for similar assets
and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the
financial instrument; and
    
    Level 3  Inputs to the valuation methodology are unobservable and significant to the
fair value measurement.
 RESULTS OF OPERATIONS
  21




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##### Table of Contents



Net Interest Income and Net Interest Margin
  Distribution, Rate and Yield Analysis of Net Income
 Three Months Ended June 30,2008
    
    
    2007Interest
    
    
    Annualized
    
    
    
    
    
    
    Interest
    
    
    AnnualizedAverage
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Rate/Yield (7)
    
    
    Balance
    
    
    Expense
    
    
    Rate/Yield (7)(In thousands, except percentage data)Assets:Interest earning assets:Loans (1)(2)
    
    $
    1,493,582
    
    
    $
    25,232
    
    
    
    6.79
    %
    
    $
    1,301,307
    
    
    $
    30,439
    
    
    
    9.38
    %Investment securities (3)(4)
    
    
    79,982
    
    
    
    948
    
    
    
    5.29
    %
    
    
    115,495
    
    
    
    1,448
    
    
    
    5.42
    %Federal funds sold
    
    
    3,293
    
    
    
    17
    
    
    
    2.08
    %
    
    
    40,674
    
    
    
    529
    
    
    
    5.21
    %Total interest earning assets (3)
    
    
    1,576,857
    
    
    
    26,197
    
    
    
    6.71
    %
    
    
    1,457,476
    
    
    
    32,416
    
    
    
    8.95
    %Non-interest earning assets:Cash and due from banks
    
    
    16,737
    
    
    
    
    
    
    
    
    
    
    
    23,348Goodwill and intangibles
    
    
    120,632
    
    
    
    
    
    
    
    
    
    
    
    123,427Other assets
    
    
    35,468
    
    
    
    
    
    
    
    
    
    
    
    35,223Total assets
    
    $
    1,749,694
    
    
    
    
    
    
    
    
    
    
    $
    1,639,474Liabilities and stockholders equity:Interest bearing liabilities:Deposits:Interest bearing demand
    
    $
    71,046
    
    
    
    302
    
    
    
    1.71
    %
    
    $
    69,625
    
    
    
    470
    
    
    
    2.71
    %Money market
    
    
    666,254
    
    
    
    3,995
    
    
    
    2.41
    %
    
    
    506,738
    
    
    
    5,878
    
    
    
    4.65
    %Savings
    
    
    23,198
    
    
    
    79
    
    
    
    1.37
    %
    
    
    41,175
    
    
    
    279
    
    
    
    2.72
    %Time
    
    
    396,547
    
    
    
    4,239
    
    
    
    4.30
    %
    
    
    408,380
    
    
    
    5,299
    
    
    
    5.20
    %Total interest bearing deposits
    
    
    1,157,045
    
    
    
    8,615
    
    
    
    2.99
    %
    
    
    1,025,918
    
    
    
    11,926
    
    
    
    4.66
    %Borrowings
    
    
    102,910
    
    
    
    1,021
    
    
    
    3.99
    %
    
    
    89,562
    
    
    
    1,149
    
    
    
    5.15
    %Junior subordinated debt
    
    
    72,166
    
    
    
    1,034
    
    
    
    5.76
    %
    
    
    87,630
    
    
    
    1,543
    
    
    
    7.06
    %Total interest bearing liabilities
    
    
    1,332,121
    
    
    
    10,670
    
    
    
    3.22
    %
    
    
    1,203,110
    
    
    
    14,618
    
    
    
    4.87
    %Non-interest bearing liabilities:Demand deposits
    
    
    168,644
    
    
    
    
    
    
    
    
    
    
    
    195,581Other liabilities
    
    
    9,035
    
    
    
    
    
    
    
    
    
    
    
    12,313Total liabilities
    
    
    1,509,800
    
    
    
    
    
    
    
    
    
    
    
    1,411,004Stockholders equity
    
    
    239,894
    
    
    
    
    
    
    
    
    
    
    
    228,470Total liabilities and stockholders equity
    
    $
    1,749,694
    
    
    
    
    
    
    
    
    
    
    $
    1,639,474Net interest income
    
    
    
    
    
    $
    15,527
    
    
    
    
    
    
    
    
    
    
    $
    17,798Net interest spread (3)(5)
    
    
    
    
    
    
    
    
    
    
    3.49
    %
    
    
    
    
    
    
    
    
    
    
    4.08
    %Net interest margin (3)(6)
    
    
    
    
    
    
    
    
    
    
    3.99
    %
    
    
    
    
    
    
    
    
    
    
    4.93
    %
 
 (1)
    
    Includes average non-accrual loans of $39.7 million and $1.1 million for the three months ended
June 30, 2008 and 2007, respectively.(2)
    
    Net loan fees of $1.7 million and $2.0 million are included in the yield computations for
the three months ended June 30, 2008 and 2007, respectively.(3)
    
    Yields on securities, total interest-earning assets, net interest spread and net interest
margin have been adjusted to a tax-equivalent basis. These adjustments amounted to $104,000 and
$110,000 for the three months ended June 30, 2008 and 2007, respectively.(4)
    
    Includes securities available for sale, securities held to maturity, interest bearing
deposits in other banks and required equity investments.(5)
    
    Net interest spread represents the average yield earned on interest earning assets less
the average rate paid on interest bearing liabilities.(6)
    
    Net interest margin is computed by dividing net interest income, on a tax equivalent
basis, by total average earning-assets.(7)
    
    Yields are computed based on actual number of days during the period. 22




---



##### Table of Contents



Six Months Ended June 30,2008
    
    
    2007Interest
    
    
    Annualized
    
    
    
    
    
    
    Interest
    
    
    AnnualizedAverage
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Rate/Yield (7)
    
    
    Balance
    
    
    Expense
    
    
    Rate/Yield (7)(In thousands, except percentage data)Assets:Interest earning assets:Loans (1)(2)
    
    $
    1,465,222
    
    
    $
    54,058
    
    
    
    7.42
    %
    
    $
    1,282,448
    
    
    $
    59,373
    
    
    
    9.34
    %Investment securities (3)(4)
    
    
    87,152
    
    
    
    2,067
    
    
    
    5.26
    %
    
    
    116,965
    
    
    
    2,884
    
    
    
    5.35
    %Federal funds sold
    
    
    2,320
    
    
    
    27
    
    
    
    2.34
    %
    
    
    39,958
    
    
    
    1,047
    
    
    
    5.28
    %Total interest earning assets (3)
    
    
    1,554,694
    
    
    
    56,152
    
    
    
    7.29
    %
    
    
    1,439,371
    
    
    
    63,304
    
    
    
    8.90
    %Non-interest earning assets:Cash and due from banks
    
    
    16,398
    
    
    
    
    
    
    
    
    
    
    
    24,144Goodwill and intangibles
    
    
    120,803
    
    
    
    
    
    
    
    
    
    
    
    123,544Other assets
    
    
    34,351
    
    
    
    
    
    
    
    
    
    
    
    34,704Total assets
    
    $
    1,726,246
    
    
    
    
    
    
    
    
    
    
    $
    1,621,763Liabilities and stockholders equity:Interest bearing liabilities:Deposits:Interest bearing demand
    
    $
    73,348
    
    
    
    713
    
    
    
    1.95
    %
    
    $
    66,247
    
    
    
    865
    
    
    
    2.63
    %Money market
    
    
    632,790
    
    
    
    8,934
    
    
    
    2.84
    %
    
    
    490,091
    
    
    
    11,267
    
    
    
    4.64
    %Savings
    
    
    24,133
    
    
    
    178
    
    
    
    1.48
    %
    
    
    47,785
    
    
    
    648
    
    
    
    2.73
    %Time
    
    
    393,566
    
    
    
    8,933
    
    
    
    4.56
    %
    
    
    407,863
    
    
    
    9,843
    
    
    
    4.87
    %Total interest bearing deposits
    
    
    1,123,837
    
    
    
    18,758
    
    
    
    3.36
    %
    
    
    1,011,986
    
    
    
    22,623
    
    
    
    4.51
    %Borrowings
    
    
    113,478
    
    
    
    2,400
    
    
    
    4.25
    %
    
    
    90,073
    
    
    
    2,301
    
    
    
    5.15
    %Junior subordinated debt
    
    
    72,166
    
    
    
    2,188
    
    
    
    6.10
    %
    
    
    87,630
    
    
    
    3,073
    
    
    
    7.07
    %Total interest bearing liabilities
    
    
    1,309,481
    
    
    
    23,346
    
    
    
    3.59
    %
    
    
    1,189,689
    
    
    
    27,997
    
    
    
    4.75
    %Non-interest bearing liabilities:Demand deposits
    
    
    168,205
    
    
    
    
    
    
    
    
    
    
    
    195,086Other liabilities
    
    
    9,268
    
    
    
    
    
    
    
    
    
    
    
    11,290Total liabilities
    
    
    1,486,954
    
    
    
    
    
    
    
    
    
    
    
    1,396,065Stockholders equity
    
    
    239,292
    
    
    
    
    
    
    
    
    
    
    
    225,698Total liabilities and stockholders equity
    
    $
    1,726,246
    
    
    
    
    
    
    
    
    
    
    $
    1,621,763Net interest income
    
    
    
    
    
    $
    32,806
    
    
    
    
    
    
    
    
    
    
    $
    35,307Net interest spread (3)(5)
    
    
    
    
    
    
    
    
    
    
    3.70
    %
    
    
    
    
    
    
    
    
    
    
    4.15
    %Net interest margin (3)(6)
    
    
    
    
    
    
    
    
    
    
    4.27
    %
    
    
    
    
    
    
    
    
    
    
    4.98
    %
 
 (1)
    
    Includes average non-accrual loans of $27.4 million and $1.2 million for the six months ended
June 30, 2008 and 2007, respectively.(2)
    
    Net loan fees of $3.8 million and $3.7 million are included in the yield computations for
the six months ended June 30, 2008 and 2007, respectively.(3)
    
    Yields on securities, total interest-earning assets, net interest spread and net interest
margin have been adjusted to a tax-equivalent basis.These adjustments amounted to $212,000 and $221,000 for the six months ended June 30, 2008 and
2007, respectively.(4)
    
    Includes securities available for sale, securities held to maturity, interest bearing
deposits in other banks and required equity investments.(5)
    
    Net interest spread represents the average yield earned on interest earning assets less
the average rate paid on interest bearing liabilities.(6)
    
    Net interest margin is computed by dividing net interest income, on a tax equivalent
basis, by total average earning-assets.(7)
    
    Yields are computed based on actual number of days during the period. 23




---



##### Table of Contents



Three months ended June 30, 2008 vs. 2007
    
    
    Six months ended June 30, 2008 vs. 2007increase (decrease) due to change in
    
    
    increase (decrease) due to change in(In thousands)
    
    
    
    
    
    
    
    
    
    
    (In thousands)Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest and dividend income:Loans
    
    $
    4,063
    
    
    $
    (9,270
    )
    
    $
    (5,207
    )
    
    $
    7,753
    
    
    $
    (13,068
    )
    
    $
    (5,315
    )Investments securities
    
    
    (425
    )
    
    
    (75
    )
    
    
    (500
    )
    
    
    (711
    )
    
    
    (106
    )
    
    
    (817
    )Federal funds sold
    
    
    (309
    )
    
    
    (203
    )
    
    
    (512
    )
    
    
    (641
    )
    
    
    (379
    )
    
    
    (1,020
    )Total interest and dividend income
    
    
    3,329
    
    
    
    (9,548
    )
    
    
    (6,219
    )
    
    
    6,401
    
    
    
    (13,553
    )
    
    
    (7,152
    )Interest expense:Interest bearing demand
    
    
    11
    
    
    
    (179
    )
    
    
    (168
    )
    
    
    87
    
    
    
    (239
    )
    
    
    (152
    )Money market
    
    
    1,498
    
    
    
    (3,381
    )
    
    
    (1,883
    )
    
    
    2,737
    
    
    
    (5,070
    )
    
    
    (2,333
    )Savings
    
    
    (94
    )
    
    
    (106
    )
    
    
    (200
    )
    
    
    (245
    )
    
    
    (225
    )
    
    
    (470
    )Time
    
    
    (148
    )
    
    
    (912
    )
    
    
    (1,060
    )
    
    
    (371
    )
    
    
    (539
    )
    
    
    (910
    )Borrowings
    
    
    157
    
    
    
    (285
    )
    
    
    (128
    )
    
    
    538
    
    
    
    (439
    )
    
    
    99Junior subordinated debt
    
    
    (246
    )
    
    
    (263
    )
    
    
    (509
    )
    
    
    (499
    )
    
    
    (386
    )
    
    
    (885
    )Total interest expense
    
    
    1,178
    
    
    
    (5,126
    )
    
    
    (3,948
    )
    
    
    2,247
    
    
    
    (6,898
    )
    
    
    (4,651
    )Net interest income
    
    $
    2,151
    
    
    $
    (4,422
    )
    
    $
    (2,271
    )
    
    $
    4,154
    
    
    $
    (6,655
    )
    
    $
    (2,501
    )
     24




---



##### Table of Contents



Provision for Loan Losses
   Non-Interest Income
  Three months ended
    
    
    
    
    
    
    Six months endedJune 30,
    
    
    
    
    
    
    June 30,2008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    IncreaseAmount
    
    
    (decrease)
    
    
    Amount
    
    
    (decrease)(In thousands)
    
    
    (In thousands)Service charges and other income
    
    $
    738
    
    
    $
    557
    
    
    $
    181
    
    
    $
    1,401
    
    
    $
    1,185
    
    
    $
    216Income from bank owned life insurance
    
    
    98
    
    
    
    111
    
    
    
    (13
    )
    
    
    198
    
    
    
    229
    
    
    
    (31
    )Net swap settlements
    
    
    (85
    )
    
    
    44
    
    
    
    (129
    )
    
    
    (115
    )
    
    
    92
    
    
    
    (207
    )Rental income
    
    
    39
    
    
    
    38
    
    
    
    1
    
    
    
    87
    
    
    
    76
    
    
    
    11Gain on sale of securities
    
    
    31
    
    
    
    4
    
    
    
    27
    
    
    
    196
    
    
    
    4
    
    
    
    192Gain on sale of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,210
    
    
    
    
    
    
    
    1,210Net gain on sales of loans
    
    
    
    
    
    
    250
    
    
    
    (250
    )
    
    
    
    
    
    
    285
    
    
    
    (285
    )Total non-interest income
    
    $
    821
    
    
    $
    1,004
    
    
    $
    (183
    )
    
    $
    2,977
    
    
    $
    1,871
    
    
    $
    1,106
  25




---



##### Table of Contents



Non-Interest Expense
  Three months ended
    
    
    
    
    
    
    Six months endedJune 30,
    
    
    
    
    
    
    June 30,2008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    IncreaseAmount
    
    
    (decrease)
    
    
    Amount
    
    
    (decrease)(In thousands)
    
    
    (In thousands)Salaries, wages and employee benefits
    
    $
    5,230
    
    
    $
    5,589
    
    
    $
    (359
    )
    
    $
    11,095
    
    
    $
    11,301
    
    
    $
    (206
    )Occupancy, equipment and depreciation
    
    
    1,291
    
    
    
    1,227
    
    
    
    64
    
    
    
    2,573
    
    
    
    2,423
    
    
    
    150Core deposit intangible amortization
    
    
    335
    
    
    
    335
    
    
    
    
    
    
    
    670
    
    
    
    670
    
    
    
    Data processing
    
    
    303
    
    
    
    268
    
    
    
    35
    
    
    
    533
    
    
    
    583
    
    
    
    (50
    )Advertising and public relations
    
    
    405
    
    
    
    464
    
    
    
    (59
    )
    
    
    782
    
    
    
    737
    
    
    
    45Professional fees
    
    
    616
    
    
    
    428
    
    
    
    188
    
    
    
    1,206
    
    
    
    700
    
    
    
    506Telephone and postage
    
    
    163
    
    
    
    193
    
    
    
    (30
    )
    
    
    326
    
    
    
    394
    
    
    
    (68
    )Stationery and supplies
    
    
    207
    
    
    
    192
    
    
    
    15
    
    
    
    402
    
    
    
    358
    
    
    
    44Directors fees
    
    
    119
    
    
    
    50
    
    
    
    69
    
    
    
    236
    
    
    
    178
    
    
    
    58Insurance
    
    
    436
    
    
    
    140
    
    
    
    296
    
    
    
    660
    
    
    
    259
    
    
    
    401Software maintenance
    
    
    173
    
    
    
    116
    
    
    
    57
    
    
    
    319
    
    
    
    221
    
    
    
    98Loan related
    
    
    123
    
    
    
    82
    
    
    
    41
    
    
    
    223
    
    
    
    177
    
    
    
    46Foreclosed assets, net
    
    
    154
    
    
    
    
    
    
    
    154
    
    
    
    154
    
    
    
    
    
    
    
    154(Gain) loss on interest rate swaps
    
    
    (814
    )
    
    
    
    
    
    
    (814
    )
    
    
    15
    
    
    
    
    
    
    
    15Other operating expenses
    
    
    541
    
    
    
    539
    
    
    
    2
    
    
    
    1,198
    
    
    
    1,080
    
    
    
    118Total non-interest expense
    
    $
    9,282
    
    
    $
    9,623
    
    
    $
    (341
    )
    
    $
    20,392
    
    
    $
    19,081
    
    
    $
    1,311
       26




---



##### Table of Contents



Income Tax Expense
    FINANCIAL CONDITION
 Investment Securities
  As of June 30,
    
    
    As of December 31,2008
    
    
    2007Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In thousands)Available for sale:U.S. Government-sponsored agencies
    
    $
    6,183
    
    
    $
    6,281
    
    
    $
    26,537
    
    
    $
    26,811Municipal bonds
    
    
    19,612
    
    
    
    19,814
    
    
    
    20,750
    
    
    
    20,982SBA loan pools
    
    
    350
    
    
    
    348
    
    
    
    501
    
    
    
    497Mortgage-backed securities
    
    
    35,168
    
    
    
    34,718
    
    
    
    40,300
    
    
    
    39,897Mutual funds
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    30Total available for sale
    
    $
    61,313
    
    
    $
    61,161
    
    
    $
    88,118
    
    
    $
    88,217Held to maturity:Municipal bonds
    
    $
    490
    
    
    $
    500
    
    
    $
    646
    
    
    $
    661SBA loan pools
    
    
    145
    
    
    
    145
    
    
    
    155
    
    
    
    156Total held to maturity
    
    $
    635
    
    
    $
    645
    
    
    $
    801
    
    
    $
    817Total investment securities
    
    $
    61,948
    
    
    $
    61,806
    
    
    $
    88,919
    
    
    $
    89,034
  27




---



##### Table of Contents



Loans
  June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Commercial and industrial
    
    $
    232,579
    
    
    $
    210,614Real estate:Commercial
    
    
    406,218
    
    
    
    370,464Residential
    
    
    38,853
    
    
    
    43,212Construction and land development
    
    
    823,429
    
    
    
    789,185Consumer and other
    
    
    4,797
    
    
    
    5,707Total gross loans
    
    
    1,505,876
    
    
    
    1,419,182Less:Allowance for Losses
    
    
    28,050
    
    
    
    17,098Net unearned loan fees and discounts
    
    
    3,865
    
    
    
    5,194Total net loans
    
    $
    1,473,961
    
    
    $
    1,396,890
   28




---



##### Table of Contents



DETAIL COMPOSITE OF LOAN PORTFOLIO
 Total ImpairedSpecificBalance
    
    
    Allowance
    
    
    Total
    
    
    Accruing
    
    
    Non Accrual(In thousands)Real Estate:Total Construction & LandSingle FamilySingle Family Residential
    
    $
    196,244
    
    
    $
    4,375
    
    
    $
    30,824
    
    
    $
    8,689
    
    
    $
    22,135Condominiums
    
    
    18,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Single Family
    
    
    214,564
    
    
    
    4,375
    
    
    
    30,824
    
    
    
    8,689
    
    
    
    22,135Multifamily
    
    
    45,954
    
    
    
    2,400
    
    
    
    14,823
    
    
    
    14,823
    
    
    
    Retail
    
    
    334,100
    
    
    
    83
    
    
    
    32,168
    
    
    
    
    
    
    
    32,168Industrial
    
    
    98,336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Office
    
    
    89,963
    
    
    
    
    
    
    
    8,552
    
    
    
    6,302
    
    
    
    2,250Other
    
    
    40,512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Construction & Land
    
    
    823,429
    
    
    
    6,858
    
    
    
    86,367
    
    
    
    29,814
    
    
    
    56,553CommercialOfficeOwner occupied
    
    
    117,775
    
    
    
    
    
    
    
    2,746
    
    
    
    
    
    
    
    2,746Non owner occupied
    
    
    43,291
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Office
    
    
    161,066
    
    
    
    
    
    
    
    2,746
    
    
    
    
    
    
    
    2,746Retail
    
    
    124,665
    
    
    
    710
    
    
    
    2,492
    
    
    
    1,282
    
    
    
    1,210Industrial
    
    
    63,778
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    56,709
    
    
    
    100
    
    
    
    203
    
    
    
    
    
    
    
    203Total Commercial
    
    
    406,218
    
    
    
    810
    
    
    
    5,441
    
    
    
    1,282
    
    
    
    4,159Residential
    
    
    38,853
    
    
    
    642
    
    
    
    920
    
    
    
    517
    
    
    
    403Total Real Estate
    
    
    1,268,500
    
    
    
    8,310
    
    
    
    92,728
    
    
    
    31,613
    
    
    
    61,115Commercial & Industrial
    
    
    232,579
    
    
    
    2,704
    
    
    
    10,343
    
    
    
    2,190
    
    
    
    8,153Consumer
    
    
    4,797
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Total Gross Loans
    
    
    1,505,876
    
    
    $
    11,014
    
    
    $
    103,075
    
    
    $
    33,803
    
    
    $
    69,272Allowance for loan losses
    
    
    28,050
    
    
    
    
    
    
    $
    11,014Deferred Fees, Net
    
    
    3,865Net Loans
    
    $
    1,473,961
 29




---



##### Table of Contents



DETAIL COMPOSITE OF CONSTRUCTION & LAND LOAN PORTFOLIO
 Total ImpairedSpecificBalance
    
    
    Allowance
    
    
    Total
    
    
    Accruing
    
    
    Non Accrual(In thousands)Construction & LandConstructionSingle FamilySingle Family Residential
    
    $
    25,420
    
    
    $
    443
    
    
    $
    6,424
    
    
    $
    
    
    
    $
    6,424Condominiums
    
    
    18,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Single Family
    
    
    43,740
    
    
    
    443
    
    
    
    6,424
    
    
    
    
    
    
    
    6,424Multifamily
    
    
    7,413
    
    
    
    2,400
    
    
    
    7,413
    
    
    
    7,413
    
    
    
    Retail
    
    
    139,366
    
    
    
    
    
    
    
    1,362
    
    
    
    
    
    
    
    1,362Industrial
    
    
    33,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Office
    
    
    47,453
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    10,978
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Construction
    
    
    282,054
    
    
    
    2,843
    
    
    
    15,199
    
    
    
    7,413
    
    
    
    7,786Acquisition & DevelopmentSingle FamilySingle Family Residential
    
    
    75,300
    
    
    
    2,704
    
    
    
    17,807
    
    
    
    8,609
    
    
    
    9,198Condominiums
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Single Family
    
    
    75,300
    
    
    
    2,704
    
    
    
    17,807
    
    
    
    8,609
    
    
    
    9,198Multifamily
    
    
    17,535
    
    
    
    
    
    
    
    7,410
    
    
    
    7,410
    
    
    
    Retail
    
    
    131,811
    
    
    
    83
    
    
    
    30,806
    
    
    
    
    
    
    
    30,806Industrial
    
    
    17,464
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Office
    
    
    24,060
    
    
    
    
    
    
    
    6,302
    
    
    
    6,302
    
    
    
    Other
    
    
    6,468
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Acquisition & Development
    
    
    272,638
    
    
    
    2,787
    
    
    
    62,325
    
    
    
    22,321
    
    
    
    40,004Developed LandSingle FamilySingle Family Residential
    
    
    31,816
    
    
    
    1,228
    
    
    
    4,964
    
    
    
    80
    
    
    
    4,884Condominiums
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Single Family
    
    
    31,816
    
    
    
    1,228
    
    
    
    4,964
    
    
    
    80
    
    
    
    4,884Multifamily
    
    
    21,006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Retail
    
    
    39,346
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Industrial
    
    
    2,433
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Office
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    18,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Developed Land
    
    
    113,312
    
    
    
    1,228
    
    
    
    4,964
    
    
    
    80
    
    
    
    4,884Raw LandSingle FamilySingle Family Residential
    
    
    63,708
    
    
    
    
    
    
    
    1,629
    
    
    
    
    
    
    
    1,629Condominiums
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Single Family
    
    
    63,708
    
    
    
    
    
    
    
    1,629
    
    
    
    
    
    
    
    1,629Multifamily
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Retail
    
    
    23,577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Industrial
    
    
    45,335
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Office
    
    
    18,305
    
    
    
    
    
    
    
    2,250
    
    
    
    
    
    
    
    2,250Other
    
    
    4,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Raw Land
    
    
    155,425
    
    
    
    
    
    
    
    3,879
    
    
    
    
    
    
    
    3,879Total Construction & Land
    
    $
    823,429
    
    
    $
    6,858
    
    
    $
    86,367
    
    
    $
    29,814
    
    
    $
    56,553
 30




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##### Table of Contents



Non-performing Assets
  June 30,
    
    
    December 31,
    
    
    June 30,2008
    
    
    2007
    
    
    2007(In thousands)Non-accrual loans, not restructured
    
    $
    69,272
    
    
    $
    12,076
    
    
    $
    1,311Accruing loans past due 90 days or more
    
    
    10
    
    
    
    20
    
    
    
    Restructured loans
    
    
    
    
    
    
    
    
    
    
    Total non-performing loans
(NPLs)
    
    
    69,282
    
    
    
    12,096
    
    
    
    1,311OREO
    
    
    11,033
    
    
    
    
    
    
    
    Total non-performing assets
(NPAs)
    
    $
    80,315
    
    
    $
    12,096
    
    
    $
    1,311Selected ratiosNPLs to total gross loans
    
    
    4.60
    %
    
    
    0.85
    %
    
    
    0.10
    %NPAs to total gross loans
and OREO
    
    
    5.29
    %
    
    
    0.85
    %
    
    
    0.10
    %NPAs to total assets
    
    
    4.60
    %
    
    
    0.71
    %
    
    
    0.08
    %
  June 30, 2008
    
    
    December 31, 2007Non-Accrual
    
    
    
    
    
    
    Percent of
    
    
    Non-Accrual
    
    
    
    
    
    
    Percent ofBalance
    
    
    %
    
    
    Total Loans
    
    
    Balance
    
    
    %
    
    
    Total Loans(In thousands, except percentage data)Commercial and industrial
    
    $
    8,153
    
    
    
    11.8
    %
    
    
    0.54
    %
    
    $
    2,042
    
    
    
    16.9
    %
    
    
    0.15
    %Real Estate:Commercial
    
    
    4,159
    
    
    
    6.0
    %
    
    
    0.27
    %
    
    
    4,291
    
    
    
    35.5
    %
    
    
    0.30
    %Residential
    
    
    403
    
    
    
    0.6
    %
    
    
    0.03
    %
    
    
    
    
    
    
    0.0
    %
    
    
    0.00
    %Construction and land development
    
    
    56,553
    
    
    
    81.6
    %
    
    
    3.76
    %
    
    
    5,738
    
    
    
    47.6
    %
    
    
    0.40
    %Consumer and Other
    
    
    4
    
    
    
    0.0
    %
    
    
    0.00
    %
    
    
    5
    
    
    
    0.0
    %
    
    
    0.00
    %Total Loans
    
    $
    69,272
    
    
    
    100.0
    %
    
    
    4.60
    %
    
    $
    12,076
    
    
    
    100.0
    %
    
    
    0.85
    %
    31




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##### Table of Contents



Impaired Loans
   June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Impaired loans with a valuation allowance
    
    $
    38,346
    
    
    $
    3,097Impaired loans without a valuation allowance
    
    
    64,729
    
    
    
    26,702Total impaired loans
    
    $
    103,075
    
    
    $
    29,799Average balance of impaired loans (1)
    
    $
    75,408
    
    
    $
    15,163Related valuation allowance
    
    $
    11,014
    
    
    $
    1,283Interest income recognized on impaired loans (1)
    
    $
    2,769
    
    
    $
    1,551Interest income recognized on a cash basis on
impaired loans (1)
    
    $
    1,047
    
    
    $
    948
 
 (1)
    
    For the six months ended June 30, 2008 and twelve months ended December 31, 2007.  32




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##### Table of Contents



Allowance for Loan Losses
  Three Months
    
    
    Six Months
    
    
    
    
    
    
    Three Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Year Ended
    
    
    Ended
    
    
    EndedJune 30,
    
    
    June 30,
    
    
    December 31,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2007(In thousands)Allowance for Loan Losses:Balance at beginning of period
    
    $
    19,831
    
    
    $
    17,098
    
    
    $
    14,973
    
    
    $
    15,615
    
    
    $
    14,973Charge-offs:Commercial and industrial
    
    
    1,296
    
    
    
    1,837
    
    
    
    1,125
    
    
    
    61
    
    
    
    157Real Estate:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    229
    
    
    
    229
    
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    1,261
    
    
    
    1,261
    
    
    
    228
    
    
    
    
    
    
    
    Construction and land development
    
    
    3,284
    
    
    
    4,284
    
    
    
    
    
    
    
    
    
    
    
    Consumer and other
    
    
    56
    
    
    
    60
    
    
    
    199
    
    
    
    68
    
    
    
    71Total charge-offs
    
    
    6,126
    
    
    
    7,671
    
    
    
    1,552
    
    
    
    129
    
    
    
    228RecoveriesCommercial and industrial
    
    
    115
    
    
    
    218
    
    
    
    294
    
    
    
    13
    
    
    
    272Real Estate:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    Construction and land development
    
    
    4
    
    
    
    11
    
    
    
    1
    
    
    
    
    
    
    
    Consumer and other
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Total recoveries
    
    
    119
    
    
    
    229
    
    
    
    322
    
    
    
    13
    
    
    
    272Net loans
charge-offs
(recoveries)
    
    
    6,007
    
    
    
    7,442
    
    
    
    1,230
    
    
    
    116
    
    
    
    (44
    )Provision for loan losses
    
    
    14,226
    
    
    
    18,394
    
    
    
    3,355
    
    
    
    486
    
    
    
    968Balance at end of period
    
    $
    28,050
    
    
    $
    28,050
    
    
    $
    17,098
    
    
    $
    15,985
    
    
    $
    15,985Total gross loans
    
    $
    1,505,876
    
    
    $
    1,505,876
    
    
    $
    1,419,182
    
    
    $
    1,366,362
    
    
    $
    1,366,362Average gross loans (net of deferred fees)
    
    
    1,493,582
    
    
    
    1,465,222
    
    
    
    1,318,995
    
    
    
    1,301,307
    
    
    
    1,282,448Non-performing loans
    
    
    69,282
    
    
    
    69,282
    
    
    
    12,096
    
    
    
    1,311
    
    
    
    1,311Non-performing assets
    
    
    80,315
    
    
    
    80,315
    
    
    
    12,096
    
    
    
    1,311
    
    
    
    1,311Selected ratios:Net charge-offs (recoveries) to average loans (annualized)
    
    
    1.62
    %
    
    
    1.02
    %
    
    
    0.09
    %
    
    
    0.04
    %
    
    
    -0.01
    %Provision for loan losses to average loans (annualized)
    
    
    3.83
    %
    
    
    2.52
    %
    
    
    0.25
    %
    
    
    0.15
    %
    
    
    0.15
    %Allowance for loan losses to total gross loans outstanding at end
of period
    
    
    1.86
    %
    
    
    1.86
    %
    
    
    1.20
    %
    
    
    1.17
    %
    
    
    1.17
    %Allowance for loan losses to total non-performing loans
    
    
    40
    %
    
    
    40
    %
    
    
    141
    %
    
    
    1,219
    %
    
    
    1,219
    %Allowance for loan losses to total non-performing assets
    
    
    35
    %
    
    
    35
    %
    
    
    141
    %
    
    
    1,219
    %
    
    
    1,219
    %
   33




---



##### Table of Contents



Goodwill
 Goodwill and Other Intangible Assets
 Deposits
   Borrowings and Junior Subordinated Debt
     34




---



##### Table of Contents



Consolidation of Variable Interest
Entities-an interpretation of ARB No. 51
 REGULATORY MATTERS
  ActualCommunity
    
    CommunityMinimum
    
    Well
    
    Bank of
    
    Bank of
    
    CommunityRegulatory
    
    Capitalized
    
    Nevada
    
    Arizona
    
    BancorpTier 1 leverage capital
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    11.17
    %
    
    
    21.14
    %
    
    
    11.27
    %Tier 1 risk-based capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    10.97
    %
    
    
    18.37
    %
    
    
    10.98
    %Total risk-based capital
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    12.23
    %
    
    
    19.63
    %
    
    
    12.24
    %
  LIQUIDITY MANAGEMENT
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   35




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Controls and Procedures
  (a)
    
    information required to be disclosed by the Company in
this Quarterly Report on Form 10-Q and the other
reports which the Company files or submits under the
Exchange Act would be accumulated and communicated to
the Companys management, including its Chief
Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding
required disclosure;(b)
    
    information required to be disclosed by the Company in
this Quarterly Report on Form 10-Q and the other
reports which the Company files or submits under the
Exchange Act would be recorded, processed, summarized
and reported within the time periods specified in the
SECs rules and forms; and(c)
    
    the Companys disclosure controls and procedures are effective as of
the end of the period covered by this Quarterly Report on Form 10-Q to
ensure that material information relating to the Company and its
consolidated subsidiary is made known to them, particularly during the
period for which periodic reports, including this Quarterly Report on
Form 10-Q, are being prepared.
 Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Stock Repurchase Program
  
 Item 3. Defaults Upon Senior Securities
  36




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
    Director
    
    For
    
    WithheldJacob D. Bingham
    
    
    8,189,110
    
    
    
    372,027Dan H. Stewart
    
    
    8,214,102
    
    
    
    347,035Edward M. Jamison
    
    
    8,490,596
    
    
    
    70,541Gary W. Stewart
    
    
    8,202,304
    
    
    
    358,833Lawrence K. Scott
    
    
    8,492,813
    
    
    
    68,324Jack M. Woodcock
    
    
    8,215,223
    
    
    
    345,914
    For
    
    Against
    
    Abstained6,060,832
    
    2,491,329
    
    8,973
   For
    
    Against
    
    Abstained8,527,085
    
    31,499
    
    2,551
 
 Item 5. Other Information
  
 Item 6. Exhibits
 3.1
    
    Certificate of Amendment to Articles of Incorporation31.1
    
    Rule 13a-14(a) Certification by Chief Executive Officer31.2
    
    Rule 13a-14(a) Certification by Chief Financial Officer32.1
    
    Section 1350 Certifications
 37




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##### Table of Contents



SIGNATURES
  COMMUNITY BANCORPBy:
    /s/ Edward M. JamisonEdward M. JamisonPresident and Chief Executive Officer
(Principal Executive Officer)Dated: August 7, 2008COMMUNITY BANCORPBy:

/s/ Patrick HartmanPatrick HartmanExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)
(Chief Accounting Officer)Dated: August 7, 2008 38




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##### Table of Contents



EXHIBIT
INDEX
 3.1
    
    Certificate of Amendment to Articles of Incorporation31.1
    
    Rule 13a-14(a) Certification by Chief Executive Officer31.2
    
    Rule 13a-14(a) Certification by Chief Financial Officer32.1
    
    Section 1350 Certifications
 39