**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

 

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**Form 10-QSB**

** **

**x**        QUARTERLYREPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

**For thequarterly period ended****June30, 2006**

**o        TRANSITION REPORT UNDER SECTION 13 OR15(D) OF THE EXCHANGE ACT**

**For transition period                     to                **

###### **Premier Commercial Bancorp******(Exact name of smallbusiness issuer as specified in its charter)

| **California**                                 | ** ** | **000-57231** | ** ** | **32-0120557**                     |   |
|------------------------------------------------|------------|---------------|------------|------------------------------------|--------|
| (State or other jurisdiction of incorporation) |       | (File Number) |       | (IRS Employer  Identification No.) |   |

** **

**2400 E. Katella Ave., Suite 125, Anaheim, CA 92806**(Address of principalexecutive offices)

**714-978-2552******(Issuer’s telephone number)

Check whether the issuer(1) filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes o No x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o No x

APPLICABLE ONLY TOCORPORATE ISSUERS

Title of Class:Common Stock, no par value; shares outstanding as of June 30, 2006: 1,823,547

 

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**Index**
| Part I — Financial  Information |
|--------------------------------------|
|                                 |   |   |
| Item 1.                              |   | Consolidated Financial  Statements (unaudited except year end) |
|                                 |   | Consolidated Balance  Sheet |
|                                 |   | June 30, 2006 and  December 31, 2005 |
|                                 |   |   |
|                                 |   | Consolidated Statements of Income |
|                                 |   | for three and six months ended |
|                                 |   | June 30, 2006 and June 30, 2005 |
|                                 |   |   |
|                                 |   | Consolidated Statements of Cash Flows |
|                                 |   | for six months ended |
|                                 |   | June 30, 2006 and June 30, 2005 |
|                                 |   |   |
|                                 |   | Consolidated Statement of  Stockholders’ Equity |
|                                 |   | for six months ended |
|                                 |   | June 30, 2006 and the year  ended December 31, 2005 |
|                                 |   |   |
|                                 |   | Notes to  Consolidated Financial Statements |
|                                 |   |   |
| Item 2.                              |   | Management’s  Discussion and Analysis or Plan |
|                                 |   | of Operations |
|                                 |   |   |
| Item 3.                              |   | Controls and  Procedures |
|                                 |   |   |
| Part  II — Other Information    |   |   |
|                                 |   |   |
| Item 6.                              |   | Exhibits |
|                                 |   |   |
| Signatures                           |   |   |
|                                 |   |   |
| Exhibit Index                        |   |   |
|                                 |   |   |
| Certifications                       |   |   |
|                                 |   |   |

 

 

2

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**PART I - FINANCIAL INFORMATION**

**ITEM I -Financial Statements**

**PremierCommercial BancorpConsolidated Balance Sheets******(in thousands)

 
| ** **                                                                                                                                        | ** ** | **30-Jun-06**   | ** ** | **31-Dec-05** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|---------------|------------|
|                                                                                                                                                   | ** ** | **(unaudited)** | ** ** | ** **    | ** ** |
| **Assets**                                                                                                                                        | ** ** | ** **      | ** ** | ** **    | ** ** |
| Cash and due from banks                                                                                                                           |       | $               | 16,979     |          | $          | 10,773 |   |
| Federal funds sold                                                                                                                                |       | 15,480          |       | 45,850        |       |
| Total cash and cash  equivalents                                                                                                                  |       | 32,459          |       | 56,623        |       |
|                                                                                                                                              |       |            |       |          |       |
| Securities available for  sale                                                                                                                    |       | 21,339          |       | 23,862        |       |
| Securities held to maturity                                                                                                                       |       | 6,301           |       | 6,341         |       |
| Loans, net                                                                                                                                        |       | 213,085         |       | 182,299       |       |
| Premises and equipment, net                                                                                                                       |       | 503             |       | 581           |       |
| Cash surrender value of life  insurance                                                                                                           |       | 2,960           |       | 2,906         |       |
|                                                                                                                                              |       |            |       |          |       |
| Federal Reserve Bank and Federal  Home Loan Bank stock, at cost                                                                                   |       | 1,657           |       | 1,217         |       |
| Accrued interest and other  assets                                                                                                                |       | 6,776           |       | 4,568         |       |
| Total Assets                                                                                                                                      |       | $               | 285,080    |          | $          | 278,397 |   |
|                                                                                                                                              |       |            |       |          |       |
| **Liabilities and Shareholders’ Equity**                                                                                                     | ** ** | ** **      | ** ** | ** **    | ** ** |
| Deposits:                                                                                                                                         |       |            |       |          |       |
| Noninterest-bearing demand                                                                                                                        |       | $83,457         |       | $             | 110,514    |   |
| Interest-bearing demand -  NOW                                                                                                                    |       | 1,502           |       | 2,208         |       |
| Money Market                                                                                                                                      |       | 98,114          |       | 98,543        |       |
| Savings                                                                                                                                           |       | 500             |       | 819           |       |
| Time certificates of deposit  of $100,000 or more                                                                                                 |       | 52,779          |       | 40,546        |       |
| Other time certificates                                                                                                                           |       | 2,923           |       | 2,025         |       |
| Total Deposits                                                                                                                                    |       | 239,275         |       | 254,655       |       |
| Short-term borrowings                                                                                                                             |       | —          |       | —        |       |
| Junior Subordinated Debt  Securities                                                                                                              |       | 12,372          |       | 9,279         |       |
| Accrued interest and other  liabilities                                                                                                           |       | 20,241          |       | 2,286         |       |
| Total Liabilities                                                                                                                                 |       | 271,888         |       | 266,220       |       |
| Commitments and contingencies                                                                                                                     |       | —          |       | —        |       |
| Shareholders’ equity                                                                                                                         |       |            |       |          |       |
| Common stock - no par value; authorized 10,000,000  shares; Issued and outstanding, 1,823,547 shares at June 30, 2006 and December  31, 2005 |       | 9,808           |       | 9,808         |       |
| Retained earnings                                                                                                                                 |       | 3,638           |       | 2,691         |       |
| Accumulated other  comprehensive income                                                                                                           |       | (254            | )          | (322          | )          |
| Total shareholders’ equity                                                                                                                   |       | 13,192          |       | 12,177        |       |
| Total liabilities and  shareholders’ equity                                                                                                  |       | $285,080        |       | $             | 278,397    |   |

 

(seeaccompanying notes)

`

3

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**PremierCommercial BancorpConsolidated Statements of Income**(in thousands exceptper share data)

 
| ** **                                           | ** ** | **For the three month period ending** | ** ** | **For the six month period ending** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                           | ** ** | **30-Jun-06**                                                  | ** ** | **30-Jun-05**                                                | ** ** | **30-Jun-06** | ** ** | **30-Jun-05** | ** ** |
| ** **                                           | ** ** | **(unaudited)**                                                | ** ** | **(unaudited)**                                              | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| Interest Income                                      |       |                                                           |       |                                                         |       |   |   |   |   |
| Interest and fees on loans                           |       | $                                                              | 4,539      |                                                         | $          | 2,106 |   | $ | 8,164 |   | $ | 3,893 |   |
| Due From & Federal funds sold                    |       | 176                                                            |       | 103                                                          |       | 331 |   | 196 |   |
| Investment securities                                |       | 256                                                            |       | 270                                                          |       | 518 |   | 521 |   |
| Other interest income                                |       | 38                                                             |       | 18                                                           |       | 54 |   | 29 |   |
|                                                 |       | 5,009                                                          |       | 2,497                                                        |       | 9,067 |   | 4,639 |   |
| Interest expense                                     |       |                                                           |       |                                                         |       |   |   |   |   |
| Interest-bearing demand deposits                     |       | 1                                                              |       | 3                                                            |       | 3 |   | 6 |   |
| Money Market                                         |       | 831                                                            |       | 340                                                          |       | 1,424 |   | 686 |   |
| Savings                                              |       | 1                                                              |       | 1                                                            |       | 2 |   | 1 |   |
| Time certificates of deposit                         |       | 522                                                            |       | 200                                                          |       | 910 |   | 321 |   |
| Short-term borrowings                                |       | 200                                                            |       | 45                                                           |       | 230 |   | 45 |   |
| Long-term debt                                       |       | 144                                                            |       | 93                                                           |       | 288 |   | 186 |   |
|                                                 |       | 1,699                                                          |       | 682                                                          |       | 2,857 |   | 1,245 |   |
|                                                 |       |                                                           |       |                                                         |       |   |   |   |   |
| Net interest income                                  |       | 3,310                                                          |       | 1,815                                                        |       | 6,210 |   | 3,394 |   |
|                                                 |       |                                                           |       |                                                         |       |   |   |   |   |
| Provision for  credit losses                         |       | 350                                                            |       | 225                                                          |       | 600 |   | 372 |   |
|                                                 |       |                                                           |       |                                                         |       |   |   |   |   |
| Net interest  income after provision for loan losses |       | 2,960                                                          |       | 1,590                                                        |       | 5,610 |   | 3,022 |   |
| Noninterest  income                                  |       |                                                           |       |                                                         |       |   |   |   |   |
| Referral fees and gain on loan sale                  |       | 785                                                            |       | 604                                                          |       | 1,454 |   | 1,479 |   |
| Gain on sale of investment securities                |       | (2                                                             | )          | —                                                       |       | (20 | ) | — |   |
| Service charges, fees and other income               |       | 25                                                             |       | 67                                                           |       | 123 |   | 118 |   |
|                                                 |       | 808                                                            |       | 671                                                          |       | 1,557 |   | 1,597 |   |
| Noninterest  expense                                 |       |                                                           |       |                                                         |       |   |   |   |   |
| Salaries and employee benefits                       |       | 1,462                                                          |       | 908                                                          |       | 2,890 |   | 1,886 |   |
| Occupancy                                            |       | 107                                                            |       | 86                                                           |       | 209 |   | 172 |   |
| Equipment                                            |       | 76                                                             |       | 64                                                           |       | 149 |   | 120 |   |
| Commission paid on loan referrals                    |       | 232                                                            |       | 146                                                          |       | 563 |   | 603 |   |
| Professional services                                |       | 135                                                            |       | 83                                                           |       | 292 |   | 183 |   |
| Data processing                                      |       | 91                                                             |       | 81                                                           |       | 170 |   | 146 |   |
| Office related expenses                              |       | 161                                                            |       | 143                                                          |       | 295 |   | 261 |   |
| Other                                                |       | 642                                                            |       | 259                                                          |       | 1,039 |   | 402 |   |
|                                                 |       | 2,906                                                          |       | 1,770                                                        |       | 5,607 |   | 3,773 |   |
| Earnings before income taxes                         |       | 862                                                            |       | 491                                                          |       | 1,560 |   | 846 |   |
|                                                 |       |                                                           |       |                                                         |       |   |   |   |   |
| Income taxes                                         |       | 340                                                            |       | 168                                                          |       | 613 |   | 281 |   |
|                                                 |       |                                                           |       |                                                         |       |   |   |   |   |
| Net Earnings                                         |       | $                                                              | 522        |                                                         | $          | 323 |   | $ | 947 |   | $ | 565 |   |
|                                                 |       |                                                           |       |                                                         |       |   |   |   |   |
| Per Share Data                                       |       |                                                           |       |                                                         |       |   |   |   |   |
| Net earnings -  basic                                |       | $                                                              | 0.29       |                                                         | $          | 0.18 |   | $ | 0.52 |   | $ | 0.31 |   |
| Net Earnings -  diluted                              |       | $                                                              | 0.25       |                                                         | $          | 0.16 |   | $ | 0.45 |   | $ | 0.28 |   |

 

(see accompanying notes)

4

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**PremierCommercial BancorpConsolidated Condensed Statements of Cash Flow******(in thousands)

 
| ** **                                                                           | ** ** | **(For the six month period ended)** | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                           | ** ** | **30-Jun-06**                                                 | ** ** | **30-Jun-05** | ** ** |
| **Cash  flows from operating activities:**                                           | ** ** | ** **                                                    | ** ** | ** ** | ** ** |
| Net earnings                                                                         |       | $                                                             | 947        |   | $ | 565 |   |
| Adjustments to reconcile net earnings to net cash provided  by operating activities: |       |                                                          |       |   |   |
| Depreciation and amortization                                                        |       | 132                                                           |       | 108 |   |
| Provision for loan losses                                                            |       | 600                                                           |       | 372 |   |
| Loss (gain) on sale of investment securities                                         |       | 2                                                             |       | 20 |   |
| Other items, net                                                                     |       | (1,102                                                        | )          | (629 | ) |
| **Net cash provided by operating activities**                                        |       | 579                                                           |       | 436 |   |
|                                                                                 |       |                                                          |       |   |   |
| **Cash  flows from investing activities:**                                           | ** ** | ** **                                                    | ** ** | ** ** | ** ** |
| Proceeds from sale and maturity of investment  securities                            |       | 3,019                                                         |       | 8,005 |   |
| Purchases of investment securities                                                   |       | (932                                                          | )          | (6,532 | ) |
| Net change in loans                                                                  |       | (31,387                                                       | )          | (36,132 | ) |
| Purchases of bank premises and equipment                                             |       | (54                                                           | )          | (338 | ) |
| **Net  cash used in investing activities**                                           |       | (29,354                                                       | )          | (34,997 | ) |
|                                                                                 |       |                                                          |       |   |   |
| **Cash  flows from financing activities:**                                           | ** ** | ** **                                                    | ** ** | ** ** | ** ** |
| Net change in deposits                                                               |       | (15,248                                                       | )          | 54,771 |   |
| Subscriptions from supplemental stock offering in  process                           |       | 16,859                                                        |       | — |   |
| Net change in long-term debt                                                         |       | 3,000                                                         |       | — |   |
| **Net cash provided by financing activities**                                        |       | 4,611                                                         |       | 54,771 |   |
|                                                                                 |       |                                                          |       |   |   |
| **Net  increase (decrease) in cash and cash equivalents**                            |       | (24,164                                                       | )          | 20,210 |   |
|                                                                                 |       |                                                          |       |   |   |
| Cash and cash  equivalents at beginning of year                                      |       | 56,623                                                        |       | 30,792 |   |
| Cash and cash  equivalents at end of period                                          |       | $                                                             | 32,459     |   | $ | 51,002 |   |
|                                                                                 |       |                                                          |       |   |   |
| **Supplemental  disclosure of cash flow information:**                               | ** ** | ** **                                                    | ** ** | ** ** | ** ** |
| Interest paid                                                                        |       | $                                                             | 2,843      |   | $ | 1,227 |   |
| Income taxes paid                                                                    |       | $                                                             | 1,140      |   | $ | 1,055 |   |
|                                                                                 |       |                                                          |       |   |   |

 

(see accompanying notes)

5

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**PremierCommercial BancorpConsolidated Statement of Shareholders’ Equity******(in thousands except sharesoutstanding)

 
| ** **                                                                     | ** ** | **For the period ending December 31, 2005** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | ** **                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                     | ** ** | ** **                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                                                                     | ** ** | ** **                                                                | ** ** | ** ** | ** ** | **Additional** | ** ** | ** ** | ** ** | ** ** | ** ** | **Other** | ** ** | ** ** | ** ** |
| ** **                                                                     | ** ** | **Shares**                                                                | ** ** | **Common** | ** ** | **Paid-in** | ** ** | **Comprehensive** | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | **Total** | ** ** |
| ** **                                                                     | ** ** | **Outstanding**                                                           | ** ** | **Stock** | ** ** | **Capital** | ** ** | **Income** | ** ** | **Earnings** | ** ** | **Income** | ** ** | **Equity** | ** ** |
| **Balance  at January 1, 2005**                                                |       | 1,823,547                                                                 |       | $ | 9,808 |   |   |   |   |   | $ | 1,004 |   | $ | (93 | ) | $ | 10,719 |   |
| Stock Split 5 for  4                                                           |       |                                                                      |       |   |   |   |   |   |   | (1 | ) |   |   | (1 | ) |
| **Comprehensive Income:**                                                      | ** ** | ** **                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net earnings for the year                                                      |       |                                                                      |       |   |   |   |   | $ | 1,688 |   | 1,688 |   |   |   | 1,688 |   |
| Change in unrealized gain (loss) on                                            |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash Flow Hedge, net of tax                                                    |       |                                                                      |       |   |   |   |   | (50 | ) |   |   | (50 | ) | (50 | ) |
| Change in unrealized gain (loss) on available-for-sale  securities, net of tax |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                           |       |                                                                      |       |   |   |   |   | (179 | ) |   |   | (179 | ) | (179 | ) |
| **Total Comprehensive Income**                                                 |       |                                                                      |       |   |   |   |   | $ | 1,459 |   |   |   |   |   |   |   |
| **Balance at December 31, 2005**                                               |       | 1,823,547                                                                 |       | $ | 9,808 |   | $ | — |   |   |   | $ | 2,691 |   | $ | (322 | ) | $ | 12,177 |   |
|                                                                                |            |                                                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                                     | ** ** | ** **                                                                                | ** ** | ** ** | ** ** | ** **     | ** ** | ** **        | ** ** | ** **   | ** ** | ** **        | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|-------------------|------------|--------------|------------|-------------------|------------|------------|------------|
| ** **                                                                     | ** ** | **For the six month period ending June 30, 2006** | ** ** |
| ** **                                                                     | ** ** | ** **                                                                                | ** ** | ** ** | ** ** | ** **     | ** ** | ** **        | ** ** | ** **   | ** ** | ** **        | ** ** | ** ** | ** ** |
| ** **                                                                     | ** ** | ** **                                                                                | ** ** | ** ** | ** ** | ** **     | ** ** | ** **        | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** ** | ** ** |
| ** **                                                                     | ** ** | ** **                                                                                | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **        | ** ** | ** **   | ** ** | **Other**         | ** ** | ** ** | ** ** |
| ** **                                                                     | ** ** | **Shares**                                                                                | ** ** | **Common** | ** ** | **Paid-in**    | ** ** | **Comprehensive** | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | **Total**  | ** ** |
|                                                                           | ** ** | **Outstanding**                                                                           | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Income**        | ** ** | **Earnings** | ** ** | **Income**        | ** ** | **Equity** | ** ** |
| **Balance  at January 1, 2006**                                                |       | 1,823,547                                                                                 |       | $          | 9,808      |           | $          | —            |       |         |       | $                 | 2,691      |       | $          | (322 | ) | $ | 12,177 |   |
| Stock Split 5 for  4                                                           |       |                                                                                      |       |       |       |           |       |              |       |         |       |              |       |       |       |
| **Comprehensive Income:**                                                      | ** ** | ** **                                                                                | ** ** | ** ** | ** ** | ** **     | ** ** | ** **        | ** ** | ** **   | ** ** | ** **        | ** ** | ** ** | ** ** |
| Net earnings for the year                                                      |       |                                                                                      |       |       |       |           |       | $                 | 947        |         | 947        |              |       |       | 947        |   |
| Change in unrealized gain (loss) on                                            |       |                                                                                      |       |       |       |           |       |              |       |         |       |              |       |       |       |
| Cash Flow Hedge, net of tax                                                    |       |                                                                                      |       |       |       |           |       | 78                |       |         |       | 78                |       | 78         |       |
| Change in unrealized gain (loss) on available-for-sale  securities, net of tax |       |                                                                                      |       |       |       |           |       |              |       |         |       |              |       |       |       |
|                                                                           |       |                                                                                      |       |       |       |           |       | (10               | )          |         |       | (10               | )          | (10        | )          |
| **Total Comprehensive Income**                                                 |       |                                                                                      |       |       |       |           |       | $                 | 1,015      |         |       |              |       |       |       |   |
| **Balance  at June 30, 2006**                                                  |       | 1,823,547                                                                                 |       | $          | 9,808      |           | $          | —            |       |         |       | $                 | 3,638      |       | $          | (254 | ) | $ | 13,192 |   |

 

(see accompanying notes)

6

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# **PREMIERCOMMERCIAL BANCORPNOTES TO CONSOLIDATED FINANCIAL STATEMENTS****June 30, 2006**

# **Note 1 Bases of Presentation:**

Theaccompanying unaudited condensed consolidated financial statements of PremierCommercial Bancorp (the “Company”) and its subsidiary Premier Commercial Bank(the “Bank”) have been prepared pursuant to the rules and regulations of theSecurities and Exchange Commission (the “SEC”).

Inthe opinion of management, all adjustments, including normal recurringadjustments necessary to present fairly the financial position of the Companywith respect to the interim consolidated financial statements and the resultsof its operations for the interim period ended June 30, 2006, have beenincluded.  The results of operations forinterim periods are not necessarily indicative of the results for a full year.

**Note 2Loans and Related Allowance for Loan Losses:**

A summary of loans as ofJune 30, 2006 and December 31, 2005 is as follows:

|                             | ** ** | **(in thousands)** | ** ** |
|-----------------------------|------------|-------------------------|------------|
| ** **                  | ** ** | **30-Jun-06**           | ** ** | **31-Dec-05** | ** ** |
|                        |       |                    |       |   |   |
| Real estate -  construction |       | $                       | 15,678     |   | $ | 19,461 |   |
| Real estate -  other        |       | 173,371                 |       | 136,642 |   |
| Commercial                  |       | 24,007                  |       | 27,468 |   |
| Consumer                    |       | 2,695                   |       | 1,301 |   |
| Gross Loans                 |       | 215,751                 |       | 184,872 |   |
|                        |       |                    |       |   |   |
| Deferred loan  fees         |       | (177                    | )          | (683 | ) |
| Allowance for  loan losses  |       | (2,489                  | )          | (1,890 | ) |
| Net Loans                   |       | $                       | 213,085    |   | $ | 182,299 |   |

 

TheBank’s loan portfolios consist primarily of loans to borrowers within theOrange and Los Angeles Counties, California. Although the Bank seeks to avoid concentrations of loans to a single industryor based upon a single class of collateral, real estate and real estateassociated businesses are among the principal industries in the Bank’s marketareas.  As a result, the Bank’s loan andcollateral portfolios are, to some degree, concentrated in thoseindustries.  When real estate is taken ascollateral, advances are generally limited to a certain percentage of theappraised value of the collateral at the time the loan is made, depending onthe type of loan, the underlying property and other factors.

TheBank’s Allowance for loan losses as a percentage of total loans was 1.15% as ofJune 30, 2006 and 1.02% as of December 31, 2005.  Management believes that the Allowance forloan losses at June 30, 2006 is adequate based upon its analysis of the loanportfolio and the methodologies used for this purpose.

7

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*Concentration of Credit Risk. *Asof June 30, 2006, real estate served as the principal source of collateral withrespect to approximately 87.7% of our loan portfolio, of which, 82.2% isconsidered commercial real estate (CRE). Within the makeup of our CRE, approximately 58% of our commercial termloans are granted for owner use, which is repaid from the cash flow of theowner’s business.  We believe that thisfactor coupled with the diversification of business types, location,conservative underwriting and loss history further mitigates the risk in ourCRE portfolio.  The Bank targetscommercial term loans for owners use as it supports the local business economy.  The Bank believes that owner occupiedproperties do not carry the same risk as commercial strip centers and otherincome properties with higher vacancy factors that rely on third parties forrepayment.

Adecline in current economic conditions or rising interest rates could have anadverse effect on the demand for new loans, the ability of borrowers to repayoutstanding loans, the value of real estate and other collateral securing loansand the value of real estate owned by us, as well as our financial conditionand results of operations in general.

**Note3 Commitments and Contingencies**

TheBank’s exposure to credit loss in the event of nonperformance by the otherparty to the financial instrument for commitments to extend credit and standbyletters of credit is represented by the contractual amount of thosecommitments.  Commitments to extendcredit (such as the unfunded portion on lines of credit and commitments to fundnew loans) as of June 30, 2006 and June 30, 2005 amounts to approximately$54.705 million and $23.530 million respectively, of which approximately $1.589million and $837 thousand are related to standby letters of credit,respectively.  The Bank uses the samecredit policies in these commitments as for all of its lending activities.  As such, the credit risk involved in these transactionsis essentially the same as that involved in extending loan facilities tocustomers.

Becauseof the nature of its activities, the Company and Bank are from time to timesubject to pending and threatened legal actions, which arise out of the normalcourse of their business.  In the opinionof management, the ultimate disposition of these matters will not have amaterial adverse effect on the Company’s financial position, results ofoperations or liquidity.

**Note4 Earnings per share**

Basicearnings per share are based on the weighted average number of sharesoutstanding before any dilution from common stock equivalents.  Diluted earnings per share reflect thepotential dilution that could occur if securities or other contracts to issuecommon stock were exercised or converted into common stock or resulted in theissuance of common stock that then shares in the earnings of the entity.

8

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Thefollowing is a reconciliation of the net income and shares outstanding to theincome and number of shares used to compute EPS:
| ** **                                    | ** ** | **Three Months Ending** | ** ** | **Six Months Ending** | ** ** |
|-----------------------------------------------|------------|-----------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **30-Jun-06**                     | ** ** | **30-Jun-06**                   | ** ** |
| ** **                                    | ** ** | **Income**                        | ** ** | **Shares**                      | ** ** | **Income** | ** ** | **Shares** | ** ** |
| ** **                                    | ** ** | **(Numerator)**                   | ** ** | **(Denominator)**               | ** ** | **(Numerator)** | ** ** | **(Denominator)** | ** ** |
| Net income                                    |       | $                                 | 522        |                            |       |   | $ | 947 |   |   |   |
| Average shares  outstanding                   |       |                              |       | 1,823,547                       |       |   |   | 1,823,547 |   |
| **Used in Basic EPS**                         |       | 522                               |       | 1,823,547                       |       | 947 |   | 1,823,547 |   |
| Dilutive effect  of outstanding stock options |       |                              |       | 276,743                         |       |   |   | 277,822 |   |
| **Used in  Diluted EPS**                      |       | $                                 | 522        |                            | 2,100,290  |   | $ | 947 |   | 2,101,369 |   |

 
| ** **                                    | ** ** | ** **                        | ** ** | ** **                      | ** ** | ** **      | ** ** | ** **        | ** ** |
|-----------------------------------------------|------------|-----------------------------------|------------|---------------------------------|------------|-----------------|------------|-------------------|------------|
| ** **                                    | ** ** | **Three Months Ending** | ** ** | **Six Months Ending** | ** ** |
| ** **                                    | ** ** | **30-Jun-05**                     | ** ** | **30-Jun-05**                   | ** ** |
| ** **                                    | ** ** | **Income**                        | ** ** | **Shares**                      | ** ** | **Income**      | ** ** | **Shares**        | ** ** |
|                                          | * *   | **(Numerator)**                   | ** ** | **(Denominator)**               | ** ** | **(Numerator)** | ** ** | **(Denominator)** | * *   |
| Net income                                    |       | $                                 | 323        |                            |       |            | $          | 565               |       |   |   |
| Average shares  outstanding                   |       |                              |       | 1,823,547                       |       |            |       | 1,823,547         |       |
| **Used in Basic EPS**                         |       | 323                               |       | 1,823,547                       |       | 565             |       | 1,823,547         |       |
| Dilutive effect of  outstanding stock options |       |                              |       | 204,324                         |       |            |       | 208,097           |       |
| **Used in Diluted EPS**                       |       | $                                 | 323        |                            | 2,027,871  |            | $          | 565               |       | 2,031,644 |   |

 

**Note5 Stock Based Compensation**

OnJanuary 1, 2006, the Company implemented Statement of Financial AccountingStandards 123(R), “Share-Based Payments” (“SFAS123R”) which replaced SFAS 123and supersedes APB Opinion No. 25 and the related implementation guidance. SFAS123R addresses accounting for equity-based compensation arrangements, includingemployee stock options. The Company adopted the “modified prospective method”where stock-based compensation expense is recorded beginning on the adoptiondate and prior periods are not restated. Under this method, compensation expense is recognized using thefair-value based method for all new awards granted after January 1, 2006.Additionally, compensation expense for unvested options that are outstanding atDecember 31, 2005 is recognized over the requisite service period based on thefair value of those options as previously calculated under the pro formadisclosures of SFAS 123.

Duringthe six months ended June 30, 2006, the Company recognized no stock-basedcompensation as a result of adopting SFAS 123R, since there were no significantunvested options outstanding at January 1, 2006.  Prior to the adoption of SFAS 123R, theCompany accounted for stock-based compensation using the intrinsic method inaccordance with APB Opinion 25, “Accounting for Stock Issued to Employees.”  The following table illustrates the effect onthe six months ended June 30, 2005 net income and earnings per share if theCompany had applied the fair value provisions of SFAS 123:

 
| ** **                                                                                      | ** ** | **(in thousands)** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                      | ** ** | **Six Months**     | ** ** |
| ** **                                                                                      | ** ** | **Ending**              | ** ** |
| ** **                                                                                      | ** ** | **2005**                | ** ** |
| Net income:                                                                                     |       |                    |       |
| As reported                                                                                     |       | $                       | 565        |   |
| Stock-based compensation using the intrinsic value  method                                      |       | —                  |       |
| Stock-based compensation that would have been  reported using the fair value method of SFAS 123 |       | (74                     | )          |
| Pro forma net income                                                                            |       | $                       | 491        |   |
|                                                                                            |       |                    |       |
| Basic earnings  per share:                                                                      |       |                    |       |
| As reported                                                                                     |       | $                       | 0.31       |   |
| Pro forma                                                                                       |       | 0.27                    |       |
|                                                                                            |       |                    |       |
| Diluted earnings  per share:                                                                    |       |                    |       |
| As reported                                                                                     |       | $                       | 0.28       |   |
| Pro forma                                                                                       |       | 0.23                    |       |

 

9

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**Note 6 Holding Company**

OnJune 25, 2004, Premier Commercial Bancorp acquired all the outstanding sharesof the Bank by issuing 1,823,547 shares of common stock in exchange for thesurrender of all outstanding shares of the Bank’s common stock in a holdingcompany reorganization transaction. There was no cash involved in this transaction.

**Note 7Stock Splits**

OnDecember 15, 2004, the Bancorp’s Board of Directors approved a 5-for-4 stocksplit of the Company’s outstanding common stock effective January 19, 2005

On January 18,2006, the Bancorp’s Board of Directors  approveda 5-for-4 stock split of the Company’s outstanding common stock effectiveFebruary 1, 2006

All of theper-share data in these financial statements and footnotes have beenretroactively adjusted to reflect these splits.

10

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**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOR PLAN OF OPERATION**

Thefollowing is management’s discussion and analysis of the major factors thatinfluenced our financial performance for the six months ended June 30,2006.  This analysis should be read inconjunction the unaudited financial statements and notes as set forth in thisreport.  The Company was formed in 2004for the purpose of becoming the holding company for the Bank, which reorganizationwas effective June 25, 2004. *Unless the contextrequires otherwise, the terms “Company,” “us,” “we,” and “our” refers toPremier Commercial Bancorp.*

**FORWARD LOOKING INFORMATION**

**Certain statementscontained in this Quarterly Report on Form 10-QSB (“Report”), including,without limitation, statements containing the words “estimate,” “believes,” “anticipates,”“intends,” “may,” “expects,” “could,” and words of similar import, constitute “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933 andSection 21E of the Securities Exchange Act of 1934.  These forward-looking statements relate to,among other things, our current expectations regarding future operatingresults, net interest margin, strength of the local economy, and allowance forcredit losses.  Such forward lookingstatements involve known and unknown risks, uncertainties and other factorsthat may cause our actual results, performance or achievements to be materiallydifferent from any future results, performance or achievements expressed orimplied by such forward-looking statements. Such factors include, among others, the following: general economic andbusiness conditions in those areas in which we operate, demographic changes,competition, natural disasters, growth in loans and deposits, fluctuations ininterest rates, changes in business strategy or development plans, changes ingovernmental regulation, credit quality, the availability of capital to fundthe expansion of our business, economic, political and global changes arisingfrom the war on terrorism, the conflict with Iraq and its aftermath. Whenrelying on forward-looking statements to make decisions with respect to ourCompany, investors and others are cautioned to consider these and other risksand uncertainties.  We disclaim anyobligation to update any such factors or to publicly announce the results ofany revisions to any of the forward-looking statements contained herein toreflect future events or developments.**

Thisdiscussion should be read in conjunction with our financial statements,including the notes thereto, appearing elsewhere in this report.

**EXECUTIVE OVERVIEW**

## **General**

PremierCommercial Bancorp (the “Company”) (OTC Bulletin Board PCBP.OB) is a Californiacorporation organized in 2004 to act as the holding company for PremierCommercial Bank (the “Bank”), a bank serving Orange and Los AngelesCounties.  Effective June 25, 2004, theCompany acquired all of the outstanding stocks of the Bank in a holding companyformation transaction.

TheCompany reported improved financial results driven by the ongoing economicstrength in its market areas.  Net incomefor the three months ended June 30, 2006 increased 61.6% to $522 thousandcompared to $323 thousand for the comparable period in 2005.  Net income for the six months ended June 30,2006 increased 67.6% to $947 thousand compared to $565 thousand for thecomparable period in 2005.  The assetsensitivity of the balance sheet, loan growth, and a 22.2% increase in the netinterest margin over the comparable quarters were all factors contributing tothe growth in earnings.

Non-interestincome for the three months ended June 30, 2006 increased 20.4% to $808thousand compared to $671 thousand for the comparable period in 2005.  Non-interest income for the six months endedJune 30, 2006 decreased 2.5% to $1.557 million compared to $1.597 million forthe comparable period in 2005.

Non-interestexpense for the three months ended June 30, 2006 increased by 64.2% or $1.1million to $2.9 million compared to the same period in 2005.  Non-interest expense for the six months endedJune 30, 2006 increased by 48.6% or $1.8 million to $5.6 million compared tothe same period in 2005.  Expenseincreases were primarily attributed to increases in salary and employeebenefits.

 

11

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Net loansincreased $30.8 million or 16.9% during the six months ending June 30, 2006compared to an increase of $35.8 million or 36.9% during the same period in2005.  Real Estate loans increased $32.9million and Commercial loans decreased $3.4 million during the first six monthsof 2006.

Deposits decreased$15.3 million or 6.0% during the first six months of 2006 compared to anincrease of $54.8 or 36.7% during the same period in 2005.  Non-interest bearing demand depositsdecreased $27.0 million while interest bearing deposits grew $11.7 millionduring the six month period ending June 30, 2006.  The increase in TCD’s was primarily due tothe increase in interest rates.

**SELECTED FINANCIAL INFORMATION**
| ** **                                           | ** ** | **(in thousands, except share data and ratios)** | ** ** | **(in thousands, except share data and ratios)** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                                           | ** ** | **Unaudited**                                                                  | ** ** | **Unaudited**                                                                  | ** ** |
| ** **                                           | ** ** | **Three Months Ended  June 30,**                                | ** ** | **%**                                                                          | ** ** | **Six Months Ended  June 30,** | ** ** | **%** | ** ** |
| ** **                                           | ** ** | **2006**                                                                       | ** ** | **2005**                                                                       | ** ** | **Change** | ** ** | **2006** | ** ** | **2005** | ** ** | **Change** | ** ** |
| **Summary of Operations:**                           | ** ** | ** **                                                                     | ** ** | ** **                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest  Income                                     |       | $                                                                              | 5,009      |                                                                           | $          | 2,497 |   | 100.60 | % | $ | 9,067 |   | $ | 4,639 |   | 95.45 | % |
| Interest  Expense                                    |       | 1,699                                                                          |       | 682                                                                            |       | 149.12 | % | 2,857 |   | 1,245 |   | 129.48 | % |
| Net  Interest Income                                 |       | 3,310                                                                          |       | 1,815                                                                          |       | 82.37 | % | 6,210 |   | 3,394 |   | 82.97 | % |
| Provision  for Loan Loss                             |       | 350                                                                            |       | 225                                                                            |       | 55.56 | % | 600 |   | 372 |   | 61.29 | % |
|                                                 |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Net  Interest Income After Provision for Loan Losses |       | 2,960                                                                          |       | 1,590                                                                          |       | 86.16 | % | 5,610 |   | 3,022 |   | 85.64 | % |
| Noninterest  Income                                  |       | 808                                                                            |       | 671                                                                            |       | 20.42 | % | 1,557 |   | 1,597 |   | -2.50 | % |
| Noninterest  Expense                                 |       | 2,906                                                                          |       | 1,770                                                                          |       | 64.18 | % | 5,607 |   | 3,773 |   | 48.61 | % |
|                                                 |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Income  Before Income Taxes                          |       | 862                                                                            |       | 491                                                                            |       | 75.56 | % | 1,560 |   | 846 |   | 84.40 | % |
| Income  Taxes                                        |       | 340                                                                            |       | 168                                                                            |       | 102.38 | % | 613 |   | 281 |   | 118.15 | % |
|                                                 |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Net  Income                                          |       | $                                                                              | 522        |                                                                           | $          | 323 |   | 61.61 | % | $ | 947 |   | $ | 565 |   | 67.61 | % |
|                                                 |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| **Per Share Data:**                                  | ** ** | ** **                                                                     | ** ** | ** **                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Earnings  Per Share - Basic                          |       | $                                                                              | 0.29       |                                                                           | $          | 0.18 |   | 61.11 | % | $ | 0.52 |   | $ | 0.31 |   | 67.74 | % |
| Earnings  Per Share - Diluted                        |       | $                                                                              | 0.25       |                                                                           | $          | 0.16 |   | 56.25 | % | $ | 0.45 |   | $ | 0.28 |   | 60.71 | % |
| Book  Value                                          |       | $                                                                              | 7.23       |                                                                           | $          | 6.16 |   | 17.37 | % | $ | 7.23 |   | $ | 6.16 |   | 17.37 | % |
|                                                 |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| **Common Outstanding Shares:**                       |       | 1,823,547                                                                      |       | 1,823,547                                                                      |       | 0.00 | % | 1,823,547 |   | 1,823,547 |   | 0.00 | % |
| (Adjusted  for 5-for-4 stock split)                  |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
|                                                 |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| **Statement of Financial  Condition Summary:**       | ** ** | ** **                                                                     | ** ** | ** **                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  Assets                                        |       |                                                                           |       |                                                                           |       |   |   | $ | 285,080 |   | $ | 222,469 |   | 28.14 | % |
| Total  Deposits                                      |       |                                                                           |       |                                                                           |       |   |   | 239,275 |   | 203,799 |   | 17.41 | % |
| Total  Net Loans                                     |       |                                                                           |       |                                                                           |       |   |   | 213,085 |   | 132,727 |   | 60.54 | % |
| Allowance  for Loan Losses                           |       |                                                                           |       |                                                                           |       |   |   | 2,489 |   | 1,425 |   | 74.67 | % |
| Total  Shareholders’ Equity                     |       |                                                                           |       |                                                                           |       |   |   | 13,192 |   | 11,240 |   | 17.37 | % |
|                                                 |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| **Selected Ratios:**                                 | ** ** | ** **                                                                     | ** ** | ** **                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Return  on Average Assets                            |       | 0.77                                                                           | %          | 0.71                                                                           | %          | 8.45 | % | 0.72 | % | 0.64 | % | 12.50 | % |
| Return  on Average Equity                            |       | 16.84                                                                          | %          | 11.88                                                                          | %          | 41.75 | % | 15.59 | % | 10.51 | % | 48.33 | % |
| Net  interest margin                                 |       | 5.14                                                                           | %          | 4.37                                                                           | %          | 17.62 | % | 5.00 | % | 4.17 | % | 19.90 | % |
| Average  Loans as a Percentage of Average Deposits   |       | 71.75                                                                          | %          | 78.67                                                                          | %          | -8.80 | % | 70.47 | % | 79.21 | % | -11.03 | % |
| Allowance  for Loan Losses to Total Loans            |       |                                                                           |       |                                                                           |       |   |   | 8.49 | % | 1.06 | % | 1.15 | % |
| Tier  I Capital to Average Assets                    |       | 6.55                                                                           | %          | 7.97                                                                           | %          | -17.82 | % | 6.55 | % | 7.97 | % | -17.82 | % |
| Tier  I Capital to Risk-Weighted Assets              |       | 6.81                                                                           | %          | 8.96                                                                           | %          | -24.00 | % | 6.81 | % | 8.96 | % | -24.00 | % |
| Total Capital to  Risk-Weighted Assets               |       | 9.94                                                                           | %          | 11.15                                                                          | %          | -10.85 | % | 9.94 | % | 11.15 | % | -10.85 | % |

 

12

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**KEY FACTORS IN EVALUATING FINANCIALCONDITION AND OPREATING PERFORMANCE**

As a publicly traded community bank holding company,we focus on several key factors including:

·                  Returnto our shareholders

·                  Returnon average assets

·                  Assetquality

·                  Assetgrowth

·                  Operatingefficiency

*Returnto our shareholders.*  Our return to our shareholders ismeasured in the form of return on average equity, or ROE.  Our net income increased 61.6%, to $522thousand for the quarter ended June 30, 2006 from $323 thousand for the sameperiod in 2005.  Net income increased67.6% to $947 thousand on for the six months ended June 30, 2006 from $565thousand for the same period in 2005. Improvement in the Company’s net interest margin, loan growth of 16.9%,and the general asset sensitivity of our balance sheet were all factorscontributing to the strong growth in earnings. Basic and diluted earnings per share (EPS) for the quarter ended June 30,2006 were $0.29, and $0.25 up from $0.18 and $0.16 for the quarter ended June30, 2005.  Basic and diluted earnings pershare (EPS) for the six months ended June 30, 2006 were $0.52, and $0.45 upfrom $0.31 and $0.28 for the six months ended June 30, 2005.  The increase in EPS was a direct result ofthe $2.8 million or 83.0% increase in net interest income.  ROE for the quarter ending June 30, 2006,increased to 16.8% compared to 11.9% for the same period in 2005.  For the six months ended June 30, 2006 andJune 30, 2005, the ROE was 15.6% and 10.5%, respectively.

*Return onAverage Assets*.  Ourreturn on average assets, or ROA, is a measure we use to compare ourperformance with other bank’s and bank holding companies.  ROA for the quarter ended June 30, 2006 was0.77% compared to 0.71% for the same period in 2005.  For the six months ended June 30, 2006 andJune 30, 2005, the ROA was 0.72% and 0.64%, respectively.

*AssetQuality*.  For all banks’sand bank holding companies, asset quality has a significant impact on overallfinancial condition and results of operations. Asset quality is measured in terms of non-performing loans and assets asa percentage of total assets and net charge-offs as a percentage of averageloans. These measures are key elements in estimating the future earnings of acompany.  Non-performing loans totaled$117 thousand at June 30, 2006, compared to $0 at December 31, 2005 and $0 atJune 30, 2005.  Non-performing loans as apercentage of total loans increased to 0.06% as of June 30, 2006, compared to0% at December 31, 2005 and 0% as of June 30, 2005.  Net charge-offs to average loans were 0% forthe six months ended June 30, 2006 and December 31, 2005.

*AssetGrowth*.  As revenuesfrom both net interest income and non-interest income are a function of assetsize, the continued growth in assets has a direct impact on increasing netincome and EPS.  The majority of ourassets are loans, and the majority of our liabilities are deposits, thereforethe ability to generate loans and deposits are fundamental to our assetgrowth.  Total assets increased 2.4% to$285.1 million as of June 30, 2006 from $278.4 million as of December 31, 2005and $222.5 million or 28.1% as of June 30, 2005.  Total deposits decreased to $239.3 million asof June 30, 2006 compared to $254.5 million or -6.0% as of December 31, 2005and increased from $203.8 million or 17.4% as of June 30, 2005.  Gross loans increased to $215.6 million as ofJune 30, 2006 compared to $184.2 million or 17.0% as of December 31, 2005 and$134.3 million or 60.7% as of June 30, 2005.

*OperatingEfficiency*.  Operatingefficiency is the measure of how efficiently earnings before taxes aregenerated as a percentage of revenue. Our efficiency ratio decreased (improved) to 72.2% for the first sixmonths of 2006 compared to 75.6% for the same period in 2005, due to increasesin revenue exceeding the increase in operating expenses.  Net interest income before provisionincreased 48.60% to $6.2 million for the six months ended June 30, 2006, whileoperating expenses increased 63.8% to $5.6 million.

13

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# **Economic Conditions**

* *Current economic data,including financial data and earnings reports of other community banks located inSouthern California suggests that the local economy is stable.  Based on local economic indicators,management believes the economy will continue to remain stable during theremainder of 2006, with a moderate increase in interest rates.  The Bank believes that it will continue todemonstrate growth in both deposits and loans during the remainder of 2006.

The followingsections set forth a discussion of the significant operating changes, businesstrends, financial condition, earnings, capital position and liquidity thatoccurred, in the three months ended June 30, 2006 compared with the three monthsended June 30, 2005, and the six months ended June 30, 2006 compared to the sixmonths ended June 30, 2005, together with an assessment, when consideredappropriate, of external factors that may affect the Company in the future.

**RESULTS OF OPERATIONS**

**NetIncome**

Net income of $522 thousand for the three months ended June 30, 2006,reflects a $199 thousand or 61.6% increase over the like period in 2005.  Net income of $947 thousand for the sixmonths ended June 30, 2006, reflects a $382 thousand or 67.6% increase over thelike period in 2005.  The increase in netincome and profitability for the six months ended June 30, 2006 was dueprimarily to the increase in net interest income and partially offset by the increase in otheroperating expense, due to the continued growth of the Company.

# **Net Interest Income**

Net interestincome is the Company’s largest source of operating income and is derived frominterest and fees received on interest earning assets, less interest expenseincurred on interest bearing liabilities. The most significant impact on the Company’s net interest betweenperiods is derived from the interaction of changes in the volume of and ratesearned or paid on interest earning assets and interest bearingliabilities.  The volume of loans, investmentsecurities and other interest earning assets, compared to the volume ofinterest bearing deposits and indebtedness, combined with the spread, produceschanges in the net interest income between periods.

The following table presents for the periods indicated, condensed average balance sheet informationfor the Company, together with interest income and yields earned on averageinterest earnings assets, as well as interest expense and rates paid on averageinterest bearing liabilities.

14

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**AVERAGE BALANCE SHEET INFORMATION**
| ** **                                               | ** ** | **For the three months ended June 30,** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                               | ** ** | **2006**                                                              | ** ** | **2005** | ** ** |
| ** **                                               | ** ** | **Average**                                                           | ** ** | ** ** | ** ** | **Yield/** | ** ** | **Average** | ** ** | ** ** | ** ** | **Yield/** | ** ** |
| ** **                                               | ** ** | **Balance**                                                           | ** ** | **Interest** | ** ** | **Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| ** **                                               | ** ** | **(dollars in thousands)**                                  | ** ** |
| **Assets:**                                              | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Loans                                                    |       | $                                                                     | 214,280    |   | $ | 4,539 |   | 8.47 | % | $ | 118,015 |   | $ | 2,106 |   | 7.14 | % |
| Investment securities                                    |       | 27,614                                                                |       | $ | 256 |   | 3.71 | % | 34,323 |   | $ | 270 |   | 3.15 | % |
| Federal funds sold                                       |       | 14,109                                                                |       | 176 |   | 4.99 | % | 12,496 |   | 103 |   | 3.30 | % |
| Interest-earning deposits with  other institutions       |       | 1,775                                                                 |       | 38 |   | 8.56 | % | 1,139 |   | 18 |   | 6.32 | % |
| Total average interest-earning assets                    |       | 257,778                                                               |       | 5,009 |   | 7.77 | % | 165,973 |   | 2,497 |   | 6.02 | % |
| Other assets                                             |       | 16,439                                                                |       |   |   |   |   | 15,987 |   |   |   |   |   |
| Less allowance for loan losses                           |       | (2,255                                                                | )          |   |   |   |   | (1,200 | ) |   |   |   |   |
| Total average assets                                     |       | $                                                                     | 271,962    |   |   |   |   |   | $ | 180,760 |   |   |   |   |   |
|                                                     |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Shareholders’ Equity:**          | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest Bearing  liabilities:                           |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                 |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand - NOW                            |       | $                                                                     | 1,967      |   | $ | 1 |   | 0.20 | % | $ | 4,176 |   | $ | 3 |   | 0.29 | % |
| Money Market                                             |       | 101,811                                                               |       | 831 |   | 3.26 | % | 66,606 |   | 340 |   | 2.04 | % |
| Savings                                                  |       | 730                                                                   |       | 1 |   | 0.55 | % | 768 |   | 1 |   | 0.52 | % |
| Time certificates of deposits                            |       | 50,857                                                                |       | 522 |   | 4.11 | % | 22,241 |   | 200 |   | 3.60 | % |
| Total average interest-bearing deposits                  |       | 155,365                                                               |       | 1,355 |   | 3.49 | % | 93,791 |   | 544 |   | 2.32 | % |
|                                                     |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings                                    |       | 15,375                                                                |       | 200 |   | 5.20 | % | 2,966 |   | 45 |   | 6.07 | % |
| Long-term debt                                           |       | 9,313                                                                 |       | 144 |   | 6.18 | % | 6,186 |   | 93 |   | 6.01 | % |
| Total interest-bearing liabilities                       |       | 180,053                                                               |       | 1,699 |   | 3.77 | % | 102,943 |   | 682 |   | 2.65 | % |
|                                                     |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                          |       | 74,948                                                                |       |   |   |   |   | 66,101 |   |   |   |   |   |
| Other liabilities                                        |       | 4,560                                                                 |       |   |   |   |   | 845 |   |   |   |   |   |
| Shareholders’ equity                                |       | 12,401                                                                |       |   |   |   |   | 10,871 |   |   |   |   |   |
| Total average liabilities and  shareholders’ equity |       | $                                                                     | 271,962    |   |   |   |   |   | $ | 180,760 |   |   |   |   |   |
| Net interest income                                      |       |                                                                  |       | $ | 3,310 |   |   |   |   |   | $ | 1,815 |   |   |   |
| Net interest margin                                      |       |                                                                  |       |   |   | 5.14 | % |   |   |   |   | 4.37 | % |

 

15

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**AVERAGE BALANCE SHEET INFORMATION**
| ** **                                               | ** ** | **For the six months ended June 30,** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                               | ** ** | **2006**                                                            | ** ** | **2005** | ** ** |
| ** **                                               | ** ** | **Average**                                                         | ** ** | ** ** | ** ** | **Yield/** | ** ** | **Average** | ** ** | ** ** | ** ** | **Yield/** | ** ** |
| ** **                                               | ** ** | **Balance**                                                         | ** ** | **Interest** | ** ** | **Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| ** **                                               | ** ** | **(dollars in thousands)**                                | ** ** |
| **Assets:**                                              | ** ** | ** **                                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Loans                                                    |       | $                                                                   | 204,636    |   | $ | 8,164 |   | 7.98 | % | $ | 115,616 |   | $ | 3,893 |   | 6.73 | % |
| Investment securities                                    |       | 27,956                                                              |       | $ | 518 |   | 3.71 | % | 35,133 |   | $ | 521 |   | 2.97 | % |
| Federal funds sold                                       |       | 14,143                                                              |       | 331 |   | 4.68 | % | 11,147 |   | 196 |   | 3.52 | % |
| Interest-earning deposits with  other institutions       |       | 1,608                                                               |       | 54 |   | 6.72 | % | 994 |   | 29 |   | 5.84 | % |
| Total average interest-earning assets                    |       | 248,343                                                             |       | 9,067 |   | 7.30 | % | 162,890 |   | 4,639 |   | 5.70 | % |
| Other assets                                             |       | 15,513                                                              |       | 15,765 |   |   |   |   |   |   |   |   |   |
| Less allowance for loan losses                           |       | (2,113                                                              | )          |   |   |   |   | (1,167 | ) |   |   |   |   |
| Total average assets                                     |       | $                                                                   | 261,743    |   |   |   |   |   | $ | 177,488 |   |   |   |   |   |
|                                                     |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Shareholders’ Equity:**          | ** ** | ** **                                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest Bearing  liabilities:                           |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                 |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand - NOW                            |       | $                                                                   | 2,009      |   | $ | 3 |   | 0.30 | % | $ | 4,112 |   | $ | 6 |   | 0.29 | % |
| Money Market                                             |       | 96,015                                                              |       | 1,424 |   | 2.97 | % | 66,477 |   | 686 |   | 2.06 | % |
| Savings                                                  |       | 800                                                                 |       | 2 |   | 0.50 | % | 742 |   | 1 |   | 0.27 | % |
| Time certificates of deposit                             |       | 46,869                                                              |       | 910 |   | 3.88 | % | 21,169 |   | 321 |   | 3.03 | % |
| Total average interest-bearing deposits                  |       | 145,693                                                             |       | 2,339 |   | 3.21 | % | 92,500 |   | 1,014 |   | 2.19 | % |
|                                                     |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings                                    |       | 8,997                                                               |       | 230 |   | 5.11 | % | 2,794 |   | 45 |   | 3.22 | % |
| Long-term debt                                           |       | 9,296                                                               |       | 288 |   | 6.20 | % | 6,186 |   | 186 |   | 6.01 | % |
| Total interest-bearing liabilities                       |       | 163,986                                                             |       | 2,857 |   | 3.48 | % | 101,480 |   | 1,245 |   | 2.45 | % |
|                                                     |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                          |       | 81,916                                                              |       |   |   |   |   | 64,310 |   |   |   |   |   |
| Other liabilities                                        |       | 3,689                                                               |       |   |   |   |   | 944 |   |   |   |   |   |
| Shareholders’ equity                                |       | 12,152                                                              |       |   |   |   |   | 10,754 |   |   |   |   |   |
| Total average liabilities and  shareholders’ equity |       | $                                                                   | 261,743    |   |   |   |   |   | $ | 177,488 |   |   |   |   |   |
| Net interest income                                      |       |                                                                |       | $ | 6,210 |   |   |   |   |   | $ | 3,394 |   | 4.17 | % |
| Net interest  margin                                     |       |                                                                |       |   |   | 5.00 | % |   |   |   |   |   |   |

 

Net interest incomeincreased 82.3% for the quarter ended June 30, 2006 and 83.0% for the sixmonths ended June 30, 2006 as compared to the same periods in 2005, as interestearned on higher loan volumes coupled with increases in the prime lending rate,outweighed the effect of a higher cost of funds.  The yield on interest-earning assetsincreased to 7.8% for the current quarter, as compared to 6.9% in theimmediately preceding quarter and 6.0% a year ago.  The cost of total interest-bearingliabilities increased to 3.8% for the current quarter, as compared to 3.0% inthe immediately preceding quarter and 2.7% a year ago.

Net interestmargin for the three months ended June 30, 2006 was 5.14% compared to 4.37% forthe three months ended 2005.  Thisrepresents an increase of 77 basis points or 17.6%.  Net interest margin for the six months endedJune 30, 2006 was 5.00% compared to 4.17% for the six months ended 2005.  This represents an increase of 83 basispoints or 19.9%.  This increase wasprimarily due to the increase in the prime lending rate coupled with the changein the mix of earning assets.  The tablebelow indicates a decrease in the investment portfolio from 21.6% of averageearning assets as of June 30, 2005 to 11.3% as of June 30, 2006.  The table also indicates an increase in theloan portfolio from 71.0% of average earning assets as of June 30, 2005 to82.4% as of June 30, 2006:

16

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| ** **                                         | ** ** | **(dollars in thousands)** | ** ** |
|----------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                         | ** ** | ** **                           | ** ** | **Percent of** | ** ** | ** ** | ** ** | **Percent of** | ** ** |
| ** **                                         | ** ** | **June**                             | ** ** | **Earning** | ** ** | **June** | ** ** | **Earning** | ** ** |
| ** **                                         | ** ** | **2006**                             | ** ** | **Assets** | ** ** | **2005** | ** ** | **Assets** | ** ** |
| Federal Funds  Sold                                |       | $                                    | 14,143     |   | 5.69 | % | $ | 11,147 |   | 6.84 | % |
| Gross Loans                                        |       | 204,636                              |       | 82.40 | % | 115,616 |   | 70.98 | % |
| Investments                                        |       | 27,956                               |       | 11.26 | % | 35,133 |   | 21.57 | % |
| Interest-earning deposits with  other institutions |       | 1,608                                |       | 0.65 | % | 994 |   | 0.61 | % |
| Total Average  Earning Assets                      |       | $                                    | 248,343    |   | 100.00 | % | $ | 162,890 |   | 100.00 | % |

 

                       Forthe three months ended June 30, 2006, the average prime rate was 7.89%, theaverage Fed Fund rate was 4.99%, and the yield on the investment portfolioaveraged 3.71%.  During the three monthsended June 30, 2005 the average prime rate was 5.91%, the average Fed Fund ratewas 3.30%, and the Bank’s investment portfolio posted an average yield of3.15%.  For the six months ended June 30,2006, the average prime rate was 7.66%, the average Fed Fund rate was 4.68%,and the yield on the investment portfolio averaged 3.71%.  During the six months ended June 30, 2005 theaverage prime rate was 5.67%, the average Fed Fund rate was 3.52%, and the Bank’sinvestment portfolio posted an average yield of 2.97%.  This increase was primarily due to the 200basis point increase in the prime lending rate over the past twelve months.

Interest expensefor the three months ended June 30, 2006 totaled $1.7 million, which reflectsan increase of $1.0 million or 149.1% over the like period in 2005.  Interest expense for the six months endedJune 30, 2006 totaled $2.9, which reflects an increase of $1.6 million or129.5% over the like period in 2005.  Theincrease in interest expense was due to an increase in interest bearingdeposits coupled with rising interest rates. The schedule shown below indicates that interest bearing time depositsincreased $27.7 million or 98.9% from June of 2005 to June of 2006.  During the same period, noninterest bearingdeposits decreased $12.3 million or 12.9%.

 
| ** **                     | ** ** | **(dollars in thousands)** | ** ** |
|--------------------------------|------------|--------------------------------------|------------|
| ** **                     | ** ** | **June**                             | ** ** | **June** | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                     | ** ** | **2006**                             | ** ** | **2005** | ** ** | **Variance** | ** ** | **Variance** | ** ** |
| Non-interest  bearing deposits |       | $                                    | 83,457     |   | $ | 95,802 |   | $ | (12,345 | ) | -12.89 | % |
| Interest bearing  deposits     |       | 100,116                              |       | 79,985 |   | 20,131 |   | 25.17 | % |
| Interest bearing  time         |       | 55,702                               |       | 28,012 |   | 27,690 |   | 98.85 | % |
| Total Deposits                 |       | $                                    | 239,275    |   | $ | 203,799 |   | $ | 35,476 |   | 17.41 | % |

 

The average cost offunds for the three months ended June 30, 2006 increased 112 basis points from2.65% in June of 2005 to 3.77% in June of 2006. The average cost of funds for the six months ended June 30, 2006increased 103 basis points from 2.45% in June of 2005 to 3.48% in June of2006.  The Company anticipates acontinued increase in its cost of funds during the balance of this year.

# **Noninterest Income**

Noninterest incomefor the three months ended June 30, 2006 was $808 thousand compared to $671thousand for the same period in 2005. Noninterest income for the six months ended June 30, 2006 was $1.557million compared to $1.597 million for the same period in 2005.  That represents a decrease of $40 thousand or-2.5%.

Referral fees andgain on sale of loans for the three months ended June 30, 2006 totaled $785thousand , which represents an increase of $181 thousand or 30.0% over the sameperiod in 2005.  Referral fees and gainon sale of loans for the six months ended June 30, 2006 totaled $1.454 million,which represents a decrease of $25 thousand or -1.7% over the same period in2005.

 

17

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Service chargesfee and other noninterest income for the three months ended June 30, 2006 was$25 thousand compared to $67 thousand for the same period in 2005.  Other noninterest income for the six monthsended June 30, 2006 was $123 thousand compared to $118 thousand for the sameperiod in 2005.  That represents anincrease of $5 thousand or 4.2%.

# **Operating Expenses**

Salary andemployee benefits for the three months ended June 30, 2006 totaled $1.462million, which reflects an increase of $554 thousand or 61.0% over the likeperiod in 2005.  Salary and employeebenefits for the six months ended June 30, 2006 totaled $2.890 million, whichreflects an increase of $1.0 million or 53.2% over the like period in 2005.  This increase is attributed to significant staffincreases, coupled with an increase in commission based compensation, and anincrease in benefit and other personnel expenditures.

Occupancy expensefor the three months ended June 30, 2006 totaled $107 thousand, which reflectsan increase of $21 thousand or 24.4% over the same period in 2005.  Occupancy expense for the six months endedJune 30, 2006 totaled $209 thousand, which reflects an increase of $37 thousandor 21.5% over the same period in 2005. This was primarily due to an increase in rental expenses related toadditional office space and an increase in premises depreciation expenses.

Equipment expensefor the three months ended June 30, 2006 totaled $76 thousand, which reflectsan increase of $12 thousand or 18.8% over the same period in 2005.  Equipment expense for the six months endedJune 30, 2006 totaled $149 thousand, which reflects an increase of $29 thousandor 24.2% over the same period in 2005. This was primarily due to an increase in depreciation and maintenanceexpense related to the acquisition of new IT equipment.

Professionalservices for the three months ended June 30, 2006 totaled $135 thousand, whichreflects an increase of $52 thousand or 62.7% over the same period in2005.  Professional services for the sixmonths ended June 30, 2006 totaled $292 thousand, which reflects an increase of$109 thousand or 59.6% over the same period in 2005.  This was primarily due to the increased scopeand coverage of the Company’s consulting and third party audit assignments.

Data processing expensefor the three months ended June 30, 2006 totaled $91 thousand, which reflectsan increase of $10 thousand or 12.3% from the same period in 2005.  Data processing expense for the six monthsended June 30, 2006 totaled $170 thousand, which reflects an increase of $24thousand or 16.4% from the same period in 2005. This was primarily due to an increase in core processing fees coupledwith the continued growth of the Bank.

Office relatedexpense for the three months ended June 30, 2006 totaled $161 thousand, whichreflects an increase of $18 thousand or 12.6% over the same period in2005.  Office related expense for the sixmonths ended June 30, 2006 totaled $295 thousand, which reflects an increase of$34 thousand or 13.0% over the same period in 2005.  This was primarily due to an increase intelephone expense and courier expenses coupled with an increase in stationaryand supplies due to the continued growth of the Bank.

Other expense forthe three months ended June 30, 2006 totaled $642 thousand, which reflects anincrease of $383 thousand or 147.9% over the same period in 2005.  Other expense for the six months ended June30, 2006 totaled $1.039 million, which reflects an increase of $637 thousand or158.5% over the same period in 2005. This increase represents an increase in several expense accounts such astravel and entertainment, third-party fees, Fed transaction fees due to thecontinued growth of the Bank, coupled with a portion of organizational expenserelated to the opening of Premier Commercial Bank Arizona.

18

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# **Loan Related Data**

The Company hastaken several positive steps over the past year to improve upon the overallcredit administration of the Bank.  TheCompany has implemented additional controls to ensure the quality of theoverall credit portfolio.  The Bank hasbeen able to increase the loan portfolio without lowering credit quality, whichhas been validated by the Bank’s outside credit review firm.  The Bank’s credit portfolio continues to bereviewed by our outside loan review firm every three months and it is theopinion of management as well as the outside credit review firm that there areno significant weaknesses in the credit portfolio.

On a comparative basis, problem loans and loan relateddata are detailed in the following tables:

 
| ** **                            | ** ** | **June** | ** ** | **December** | ** ** | **June** | ** ** |
|---------------------------------------|------------|----------|------------|--------------|------------|----------|------------|
| ** **                            | ** ** | **2006** | ** ** | **2005**     | ** ** | **2005** | ** ** |
| Charge offs                           |       | $        | —     |         | $          | —   |       | $ | — |   |
| Recoveries                            |       | —   |       | —       |       | —   |       |
| OREO                                  |       | —   |       | —       |       | —   |       |
| Nonaccrual Loans                      |       | —   |       | —       |       | —   |       |
| Accruing loans  over 90 days past due |       | 117      |       | —       |       | —   |       |
| Allowance for  Loan Loss              |       | 2,489    |       | 1,890        |       | 1,425    |       |
| Period-end Gross Loans                |       | 215,751  |       | 184,872      |       | 134,152  |       |
|                                       |            |          |            |              |            |          |            |  |  |  |

 
|                                                    | ** ** | ** ** | ** ** | ** **   | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|------------|------------|--------------|------------|------------|------------|
| ** **                                         | ** ** | **June**   | ** ** | **December** | ** ** | **June**   | ** ** |
| **Ratio comparison to Period-end Gross Loans  to** | ** ** | **2006**   | ** ** | **2005**     | ** ** | **2005**   | ** ** |
| Charge offs                                        |       | 0.00       | %          | 0.00         | %          | 0.00       | %          |
| Recoveries                                         |       | 0.00       | %          | 0.00         | %          | 0.00       | %          |
| OREO                                               |       | 0.00       | %          | 0.00         | %          | 0.00       | %          |
| Nonaccrual Loans                                   |       | 0.00       | %          | 0.00         | %          | 0.00       | %          |
| Accruing loans over 90 days  past due              |       | 0.05       | %          | 0.00         | %          | 0.00       | %          |
| Allowance for Loan Loss                            |       | 1.15       | %          | 1.02         | %          | 1.06       | %          |

 

# **Allowance for Loan Losses**

The Bank madeadditions of $0.6 million to its allowance for loan losses during the six monthperiod ended June 30, 2006.  The Bankevaluates the allowance for possible loan losses based upon an individualanalysis of specific categories of loans, specific categories of classifiedloans and individual classified assets. The adequacy of the allowance is determinable only on an approximatebasis, since estimates as to the magnitude and timing of loan losses are notpredictable because of the impact of external events.  Based on the analysis performed by the Bankand its outside loan review firm, both believe that the allowance for loan lossat June 30, 2006 is adequate.  Theallowance on that date was 1.15% of total loans, compared to 1.02% at December31, 2005 and 1.06% at June 30, 2005.

#### **NonaccrualLoans**

The Bank had one nonaccrual loan totaling $117 thousand as of June 30,2006, compared to no nonaccrual loans at June 30, 2005.  Due to the strength of our guarantor, no lossis anticipated at this time.

# **OREO**

The Bank currentlyhas no OREO property on its books.

**Trust Preferred Securities**

Effective June 30,2006, the Company issued a series of­ trust preferred securities in the amount of $3million.  Of this $3 million, the Companycontributed $1.5 million to the Bank and retained $1.5 million at the holdingcompany level.  In addition, the Companyissued $9.0 million of these securities in prior issuances. These securitiesare classified as junior subordinated debt on the balance sheet

19

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**Capital**

Total shareholders’equity at June 30, 2006 totaled $13.192 million compared to $12.177 million atDecember 31, 2005, for an increase of $1.015 million or 8.3%.  This increase is due to an increase in netincome of $947 thousand, a decrease in the market value of the investmentportfolio of $10 thousand, and change in market value on Cash Flow Hedges of$78 thousand.

The Companymaintains the Tier I Capital (to Average Assets) and Tier I Capital (to RiskWeighted Assets) capital ratios above the Federal regulatory guidelines for a “well-capitalized”bank. The Company maintains the Total Capital (to Average Assets) capital ratioslightly below the Federal regulatory guidelines for a “well-capitalized” bank.The ratios are as follows:
| ** **                                | ** ** | **Regulatory**                   | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|------------------------|------------|------------|------------|------------|------------|
| ** **                                | ** ** | **Minimum Ratio**           | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **For**                          | ** ** | **Regulatory**         | ** ** | **June**   | ** ** | **Dec.**   | ** ** |
| ** **                                | ** ** | **“Well-Capitalized”** | ** ** | **Minimum Ratio** | ** ** | **2006**   | ** ** | **2005**   | ** ** |
| Tier I Capital  (to Average Assets)       |       | 5.00                             | %          | 4.00                   | %          | 6.6        | %          | 6.8        | %          |
| Tier I Capital  (to Risk Weighted Assets) |       | 6.00                             | %          | 4.00                   | %          | 6.8        | %          | 7.2        | %          |
| Total Capital (to Risk  Weighted Assets)  |       | 10.00                            | %          | 8.00                   | %          | 9.9        | %          | 10.2       | %          |

 

The significantasset growth, led primarily by substantial loan growth in the first six monthsdecreased the Tier I Capital ratio 20 basis points to 6.6% and the TotalCapital to Risk Weighted Assets ratio 30 basis points to 9.9%. However, on July17, 2006, the Company completed a supplemental offering that raised $17.5million, net of costs.

**Liquidity**

Liquiditymanagement involves our ability to meet cash flow requirements arising fromfluctuations in deposit levels and demands of daily operations, which includefunding of securities purchases, providing for customers’ credit needs andongoing repayment of borrowings.  Ourliquidity is actively managed on a daily basis and reviewed periodically by ourALCO Committee and Board of Directors. This process is intended to ensure the maintenance of sufficient fundsto meet our needs, including adequate cash flow for off-balance sheetinstruments.

Our primarysources of liquidity are derived from financing activities that include theacceptance of customer deposits, federal fund purchase lines and a Federal HomeLoan Bank advance line.  The Bankcurrently has two federal fund lines totaling $8.0 million and two credit lineswith FHLB totaling $86.023 million. There were no advances against these lines as of June 30, 2006.

#### **InterestRate Sensitivity**

The Bank closelyfollows the maturities and repricing opportunities of both assets andliabilities to reduce gaps in interest spreads. An analysis is performed quarterly to determine the various interestsensitivity gaps, the economic value of equity and earnings at risk.  The reports indicate that the Bank is assetsensitive, meaning that when interest rates change, assets (loans) will repricefaster than short-term liabilities (deposits). Therefore, higher interest rates improve short-term profits and lowerrates decrease short-term profits.

The assetliability reports as of June 30, 2006 indicate that the Bank has an actualdollar risk exposure of $909 thousand if interest rates fall 100 basispoints.  This represents a 6.7% risk tointerest income.  The Economic Value ofEquity is 10.24% at zero basis points and 10.32% at a negative 100 basis points.

**Interest Income and Expense Under Rate Shock**
| ** **                    | ** ** | **-200bp** | ** ** | **-100bp** | ** ** | **0bp** | ** ** | **+100bp** | ** ** | **+200bp** | ** ** |
|-------------------------------|------------|------------|------------|------------|------------|---------|------------|------------|------------|------------|------------|
| **Net  Interest Income**      |       |       |       |       |       |    |       |       |       |       |       |
| Earnings at Risk  (in $1,000) |       | (1,947     | )          | (909       | )          | 0       |       | 788        |       | 1,585      |       |
| Percent of Risk               |       | -14.4      | %          | -6.7       | %          | 0.00    | %          | 5.8        | %          | 11.7       | %          |

 

20

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Assumptions areinherently uncertain and, consequently, the model cannot precisely measure netinterest income or precisely predict the impact of changes in interest rates onnet interest income.  Actual results willdiffer from simulated results due to timing, magnitude and frequency ofinterest rate changes, as well as changes in market conditions and managementstrategy.

## **Off-BalanceSheet Arrangements**

Off-balance sheetarrangements are any contractual arrangement to which an unconsolidated entityis a party, under which the Company has: (1) any obligation under a guaranteecontract; (2) a retained or contingent interest in assets transferred to anunconsolidated entity or similar arrangement that serves as credit, liquidityor market risk support to that entity for such assets; (3) any obligation undercertain derivative instruments; or (4) any obligation under a material variableinterest held by the Company in an unconsolidated entity that providesfinancing, liquidity, market risk or credit risk support to the Company, orengages in leasing, hedging or research and development services with the Company.

In the ordinarycourse of business, the Bank has entered into off-balance sheet financialinstruments consisting of commitments to extend credit, commercial letters ofcredit, and standby letters of credit, and interest rate hedges (cash flowhedges and fair value hedges). Such financial instruments are recorded in thefinancial statement when they are funded or related fees are incurred orreceived.

**CriticalAccounting Policies**

***This discussion should be read inconjunction with the unaudited consolidated financial statements of theCompany, including the notes thereto, and Management’s Discussion and Analysisof Financial Condition and Results of Operations and audited financialstatements, including the note’s thereto, and Management’s Discussion andAnalysis of Financial Condition and Results of Operations appearing in the Bank’sForm 10-KSB for the year ended December 31, 2005.***

***Our accounting policies areintegral to understanding the results reported. Our most complex accounting policies require management’s judgment toascertain the valuation of assets, liabilities, commitments andcontingencies.  We have establisheddetailed policies and control procedures that are intended to ensure valuationmethods are well controlled and applied consistently from period toperiod.  In addition, the policies andprocedures are intended to ensure that the process for changing methodologiesoccurs in an appropriate manner.  Thefollowing is a brief description of our current accounting policies involvingsignificant management valuation judgments.***

**Use of Estimates in the Preparation of Financial Statements**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of certain assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of certain revenues andexpenses during the reporting period. Actual results could differ from thoseestimates.

**Allowance for Loan Losses**

The allowance forloan losses represents management’s best estimate of losses inherent in theexisting loan portfolio. The allowance for loan losses is increased by theprovision for loan losses charged to expense and reduced by loans charged off,net of recoveries. The provision for loan losses is determined based onmanagement’s assessment of several factors: reviews and evaluation of specificloans, changes in the nature and volume of the loan portfolio, current economicconditions and the related impact on specific borrowers and industry groups,historical loan loss experiences, the level of classified and nonperformingloans and the results of regulatory examinations.

Loansare considered impaired if, based on current information and events, it isprobable that we will be unable to collect the scheduled payments of principalor interest when due according to the contractual terms of the loan agreement.The measurement of impaired loans is generally based on the present value ofexpected future cash flows discounted at the historical effective interest ratestipulated in the loan agreement, except that all collateral-dependent

21

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loans are measuredfor impairment based on the fair value of the collateral. In measuring the fairvalue of the collateral, management uses assumptions and methodologiesconsistent with those that would be utilized by unrelated third parties.

Changes in thefinancial condition of individual borrowers, in economic conditions, inhistorical loss experience and in the condition of the various markets in whichcollateral may be sold may all affect the required level of the allowance forloan losses and the associated provision for loan losses.

**Available-for-Sale Securities**

The fair value ofmost securities classified as available-for-sale are based on quoted marketprices. If quoted market prices are not available, fair values are extrapolatedfrom the quoted prices of similar instruments.

**Deferred Tax Assets**

We use an estimateof future earnings to support our position that the benefit of our deferred taxassets will be realized. If future income should prove non-existent or lessthan the amount of the deferred tax assets within the tax years to which theymay be applied, the asset may not be realized and our net income will bereduced.

**Loan Referral Fees**

The Company hasloan referral programs with several regional banks. Under these programs, theCompany solicits and underwrites loans and then refers the completed loan fileto a participating regional bank for final approval and funding. The Companyrecognizes loan referral fees into income upon funding of the loan by theregional bank. The participating regional banks establish the underwriting criteriafor the loans and the Company has no recourse liability on these loans otherthan normal industry provisions for fraud by the Company.

The Companyselects loans for inclusion in the loan referral program that it does not wantto fund internally based on several factors. Generally loans are not fundedinternally if they are long term fixed rate loans, exceed the Company’s loanlimits, pose unusual risk factors, are geographically out of the Company’sprimary service area, do not include other beneficial banking arrangements orif they would negatively impact the Company’s capital ratios, interest raterisk or concentrations of certain loan types.

**Gain on Sale of Loans**

To calculate thegain (loss) on sale of loans, Premier Commercial Bancorp’s investment in theloan is allocated among the retained portion of the loan, the servicingretained, the interest-only strip and the sold portion of the loan, based onthe relative fair market value of each portion. The gain (loss) on the soldportion of the loan is recognized at the time of sale based on the differencebetween the sale proceeds and the allocated investment. As a result of therelative fair value allocation, the carrying value of the retained portion isdiscounted, with the discount accreted to interest income over the life of theloan. That portion of the excess servicing fees that represent contractuallyspecified servicing fees (contractual servicing) are reflected as a servicingasset which is amortized over an estimated life using a method approximatingthe level yield method; in the event future prepayments exceed management’sestimates and future expected cash flows are inadequate to cover theunamortized servicing asset, additional amortization would be recognized. Theportion of excess servicing fees in excess of the contractual servicing fees isreflected as interest-only (I/0) strips receivable, which are classified asinterest-only strips receivable available for sale and are carried at fairvalue.

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**ITEM 3 — CONTROLS AND PROCEDURES**

As of the end ofthe period covered by this report, management, including the Company’s ChiefExecutive Officer and Chief Financial Officer, evaluated the effectiveness ofthe design and operation of the Company’s disclosure controls and procedureswith respect to the information generated for use in this QuarterlyReport.  Based upon, and as of the dateof that evaluation, the Company’s Chief Executive Officer and Chief FinancialOfficer concluded that the disclosures controls and procedures were effectiveto provide reasonable assurances that information required to be disclosed inthe reports the Company files or submits under the Securities Exchange Act of1934 is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms.

There was nochange in the Company’s internal controls over financial reporting during thequarter ended June 30, 2006 that has materially affected, or is reasonablylikely to materially affect, the Company’s internal controls over financial reporting.

In designing andevaluating disclosure controls and procedures, the Company’s managementrecognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable, not absolute, assurances of achievingthe desired control objectives and management necessarily was required to applyits judgment in evaluating the cost-benefit relationship of possible controlsand procedures.

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**PART II  — OTHERINFORMATION**

**ITEM6.  Exhibits**

31.1                           Certificationof Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002

31.2                           Certificationof Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002

32.1                           Certificationof Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of2002

32.2         Certification ofChief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of2002

 

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**SIGNATURES**

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

PREMIER COMMERCIAL BANCORP
| Date: August 11, 2006 |   | /s/ Kenneth J. Cosgrove                              |
|-----------------------|--------|------------------------------------------------------|
|                  |   | Kenneth J. Cosgrove                                  |
|                  |   | Chairman and Chief Executive Officer                 |
|                  |   |                                                 |
| Date: August 11, 2006 |   | /s/ Viktor R. Uehlinger                              |
|                  |   | Viktor R. Uehlinger                                  |
|                  |   | Executive Vice President and Chief Financial Officer |

 

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## **EXHIBITINDEX**

| Exhibit  Sequential  Number |       | **Description**                                                                                     |
|-----------------------------|------------|-----------------------------------------------------------------------------------------------------|
|                        |       |                                                                                                |
| 31.1                        |       | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
|                        |       |                                                                                                |
| 31.2                        | ** ** | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
|                        |       |                                                                                                |
| 32.1                        |       | Certification of Chief Executive Officer pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|                        |       |                                                                                                |
| 32.2                        |       | Certification of Chief Financial Officer pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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