**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON,D.C. 20549**

**Form10-QSB**
| **x**      | ** ** | **QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF  THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                                 |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                   |
| ** ** |       | **For the quarterly period ended September 30, 2006**                                                                                                                                                                                                                                                                                                                                                  |
| ** ** |       | ** **                                                                                                                                                                                                                                                                                                                                                                                             |
| **o**      | ** ** | **TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF  THE EXCHANGE ACT**                                                                                                                                                                                                                                                                                                                                   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                   |
|       |       | **For transition  period                                to                              ** |

 

###### **Premier Commercial Bancorp**(Exact name of small business 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 principal executive offices)

**714-978-2552**

(Issuer’s telephone number)

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes oNo x

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo x

APPLICABLE ONLY TOCORPORATE ISSUERS

Title of Class: Common Stock, no par value; sharesoutstanding as of October 31, 2006: 2,635,491

 

----

**Index**
| Part I – Financial  Information |                                                                                                                                 |
|--------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|
|                                 |                                                                                                                                 |
| Item 1.                              | Consolidated Financial  Statements (unaudited except year end)                                                                       |
|                                 | Consolidated Balance  Sheet   September 30, 2006 and December 31, 2005                                                               |   |
|                                 |                                                                                                                                 |   |
|                                 | Consolidated  Statements of Income  for three and nine months ended  September 30, 2006 and September 30, 2005                       |   |
|                                 |                                                                                                                                 |   |
|                                 | Consolidated  Statements of Cash Flows  for nine months ended   September 30, 2006 and September 30, 2005                            |   |
|                                 |                                                                                                                                 |   |
|                                 | Consolidated  Statement of Stockholders’ Equity  for nine months ended  September 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**

**Premier Commercial Bancorp**

**Consolidated Balance Sheets**

(in thousands)

 
| ** **                                                                                                                                                                       | ** ** | **30-Sep-06**   | ** ** | **31-Dec-05** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|---------------|------------|
| ** **                                                                                                                                                                       | ** ** | **(unaudited)** | ** ** | ** **    | ** ** |
| **Assets**                                                                                                                                                                       |       |            |       |          |       |
| Cash and due from banks                                                                                                                                                          |       | $               | 10,805     |          | $          | 10,773 |   |
| Federal funds sold                                                                                                                                                               |       | 35,835          |       | 45,850        |       |
| Total cash and cash  equivalents                                                                                                                                                 |       | 46,640          |       | 56,623        |       |
|                                                                                                                                                                             |       |            |       |          |       |
| Securities available for sale                                                                                                                                                    |       | 21,542          |       | 23,862        |       |
| Securities held to maturity                                                                                                                                                      |       | 5,895           |       | 6,341         |       |
| Loans, net                                                                                                                                                                       |       | 229,654         |       | 182,299       |       |
| Premises and equipment, net                                                                                                                                                      |       | 466             |       | 581           |       |
| Cash surrender value of life insurance                                                                                                                                           |       | 2,987           |       | 2,906         |       |
| Federal Reserve Bank and                                                                                                                                                         |       |            |       |          |       |
| Federal Home Loan Bank  stock, at cost                                                                                                                                           |       | 1,715           |       | 1,217         |       |
| Accrued interest and other assets                                                                                                                                                |       | 8,179           |       | 4,568         |       |
| Total Assets                                                                                                                                                                     |       | $               | 317,078    |          | $          | 278,397 |   |
|                                                                                                                                                                             |       |            |       |          |       |
| **Liabilities and Shareholders’ Equity**                                                                                                                                    |       |            |       |          |       |
| Deposits:                                                                                                                                                                        |       |            |       |          |       |
| Noninterest-bearing  demand                                                                                                                                                      |       | $               | 87,954     |          | $          | 110,514 |   |
| Interest-bearing demand  - NOW                                                                                                                                                   |       | 1,789           |       | 2,208         |       |
| Money Market                                                                                                                                                                     |       | 111,921         |       | 98,543        |       |
| Savings                                                                                                                                                                          |       | 585             |       | 819           |       |
| Time certificates of  deposit of $100,000 or more                                                                                                                                |       | 65,142          |       | 40,546        |       |
| Other time certificates                                                                                                                                                          |       | 2,244           |       | 2,025         |       |
| Total Deposits                                                                                                                                                                   |       | 269,635         |       | 254,655       |       |
| Short-term borrowings                                                                                                                                                            |       | —          |       | —        |       |
| Junior Subordinated Debt Securities                                                                                                                                              |       | 12,372          |       | 9,279         |       |
| Accrued interest and other liabilities                                                                                                                                           |       | 3,957           |       | 2,286         |       |
| Total Liabilities                                                                                                                                                                |       | 285,964         |       | 266,220       |       |
| Commitments and contingencies                                                                                                                                                    |       | —          |       | —        |       |
| Shareholders’ equity                                                                                                                                                        |       |            |       |          |       |
| Common stock - no par  value; authorized 10,000,000 shares;  Issued and outstanding, 2,635,491 shares at September 30, 2006 and 1,823,547  shares at December 31, 2005 |       | 27,459          |       | 9,808         |       |
| Retained earnings                                                                                                                                                                |       | 3,865           |       | 2,691         |       |
| Accumulated other  comprehensive income                                                                                                                                          |       | (210            | )          | (322          | )          |
| Total shareholders’  equity                                                                                                                                                 |       | 31,114          |       | 12,177        |       |
| Total liabilities and  shareholders’ equity                                                                                                                                 |       | $               | 317,078    |          | $          | 278,397 |   |

 

(see accompanying notes)

3

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**Premier Commercial Bancorp**

**Consolidated Statements of Income**

(in thousands except pershare data)

 
| ** **                                           | ** ** | **For the three month period ending** | ** ** | **For the nine month period ending** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                           | ** ** | **30-Sep-06**                                                  | ** ** | **30-Sep-05**                                                 | ** ** | **30-Sep-06** | ** ** | **30-Sep-05** | ** ** |
| ** **                                           | ** ** | **(unaudited)**                                                | ** ** | **(unaudited)**                                               | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| Interest Income                                      |       |                                                           |       |                                                          |       |   |   |   |   |
| Interest and  fees on loans                          |       | $                                                              | 4,406      |                                                          | $          | 2,470 |   | $ | 12,570 |   | $ | 6,362 |   |
| Due From &  Federal funds sold                   |       | 309                                                            |       | 293                                                           |       | 640 |   | 489 |   |
| Investment  securities                               |       | 274                                                            |       | 266                                                           |       | 791 |   | 788 |   |
| Other interest  income                               |       | 25                                                             |       | 17                                                            |       | 78 |   | 46 |   |
|                                                 |       | 5,014                                                          |       | 3,046                                                         |       | 14,079 |   | 7,685 |   |
| Interest expense                                     |       |                                                           |       |                                                          |       |   |   |   |   |
| Interest-bearing  demand deposits                    |       | 1                                                              |       | 2                                                             |       | 5 |   | 8 |   |
| Money Market                                         |       | 992                                                            |       | 455                                                           |       | 2,417 |   | 1,141 |   |
| Savings                                              |       | 1                                                              |       | 1                                                             |       | 1 |   | 2 |   |
| Time  certificates of deposit                        |       | 707                                                            |       | 229                                                           |       | 1,617 |   | 550 |   |
| Short-term  borrowings                               |       | —                                                         |       | —                                                        |       | 230 |   | 45 |   |
| Long-term debt                                       |       | 202                                                            |       | 94                                                            |       | 490 |   | 280 |   |
|                                                 |       | 1,903                                                          |       | 781                                                           |       | 4,760 |   | 2,026 |   |
|                                                 |       |                                                           |       |                                                          |       |   |   |   |   |
| Net interest  income                                 |       | 3,111                                                          |       | 2,265                                                         |       | 9,319 |   | 5,659 |   |
|                                                 |       |                                                           |       |                                                          |       |   |   |   |   |
| Provision for credit  losses                         |       | 350                                                            |       | 315                                                           |       | 950 |   | 687 |   |
| Net interest  income after provision for loan losses |       | 2,761                                                          |       | 1,950                                                         |       | 8,369 |   | 4,972 |   |
| Noninterest income                                   |       |                                                           |       |                                                          |       |   |   |   |   |
| Referral fees  and gain on loan sale                 |       | 478                                                            |       | 1,073                                                         |       | 1,932 |   | 2,552 |   |
| Gain on sale of  investment securities               |       | —                                                         |       | —                                                        |       | (20 | ) | — |   |
| Service charges,  fees and other income              |       | 92                                                             |       | 78                                                            |       | 215 |   | 196 |   |
|                                                 |       | 570                                                            |       | 1,151                                                         |       | 2,127 |   | 2,748 |   |
| Noninterest expense                                  |       |                                                           |       |                                                          |       |   |   |   |   |
| Salaries and  employee benefits                      |       | 1,661                                                          |       | 921                                                           |       | 4,550 |   | 2,807 |   |
| Occupancy                                            |       | 110                                                            |       | 89                                                            |       | 319 |   | 261 |   |
| Equipment                                            |       | 73                                                             |       | 66                                                            |       | 222 |   | 186 |   |
| Commission paid  on loan referrals                   |       | 160                                                            |       | 429                                                           |       | 754 |   | 1,143 |   |
| Professional  services                               |       | 164                                                            |       | 117                                                           |       | 455 |   | 301 |   |
| Data processing                                      |       | 86                                                             |       | 78                                                            |       | 255 |   | 224 |   |
| Office related  expenses                             |       | 193                                                            |       | 149                                                           |       | 488 |   | 410 |   |
| Other                                                |       | 525                                                            |       | 361                                                           |       | 1,534 |   | 650 |   |
|                                                 |       | 2,972                                                          |       | 2,210                                                         |       | 8,577 |   | 5,982 |   |
| Earnings before  income taxes                        |       | 359                                                            |       | 891                                                           |       | 1,919 |   | 1,738 |   |
|                                                 |       |                                                           |       |                                                          |       |   |   |   |   |
| Income taxes                                         |       | 132                                                            |       | 272                                                           |       | 745 |   | 553 |   |
|                                                 |       |                                                           |       |                                                          |       |   |   |   |   |
| Net Earnings                                         |       | $                                                              | 227        |                                                          | $          | 619 |   | $ | 1,174 |   | $ | 1,185 |   |
|                                                 |       |                                                           |       |                                                          |       |   |   |   |   |
| Per Share Data                                       |       |                                                           |       |                                                          |       |   |   |   |   |
| Net earnings - basic                                 |       | $                                                              | 0.10       |                                                          | $          | 0.34 |   | $ | 0.60 |   | $ | 0.65 |   |
| Net Earnings - diluted                               |       | $                                                              | 0.09       |                                                          | $          | 0.30 |   | $ | 0.53 |   | $ | 0.57 |   |

 

(see accompanying notes)

4

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**Premier Commercial Bancorp**

**ConsolidatedCondensed Statements of Cash Flow**

(in thousands)

 
| ** **                                                                           | ** ** | **(For the nine month period ended)** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                           | ** ** | **30-Sep-06**                                                  | ** ** | **30-Sep-05** | ** ** |
| **Cash flows from operating  activities:**                                           | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| Net earnings                                                                         |       | $                                                              | 1,174      |   | $ | 1,185 |   |
| Adjustments to  reconcile net earnings to net cash provided by operating activities: |       |                                                           |       |   |   |
| Depreciation and  amortization                                                       |       | 194                                                            |       | 162 |   |
| Provision for loan  losses                                                           |       | 950                                                            |       | 687 |   |
| Other items, net                                                                     |       | (1,934                                                         | )          | (360 | ) |
| **Net  cash provided by operating activities**                                       |       | 384                                                            |       | 1,674 |   |
|                                                                                 |       |                                                           |       |   |   |
| **Cash flows from investing  activities:**                                           | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| Proceeds from  sale and maturity of investment securities                            |       | 3,442                                                          |       | 9,287 |   |
| Purchases of  investment securities                                                  |       | (990                                                           | )          | (7,499 | ) |
| Net change in  loans                                                                 |       | (48,306                                                        | )          | (72,632 | ) |
| Purchases of  bank premises and equipment                                            |       | (79                                                            | )          | (386 | ) |
| **Net  cash used in investing activities**                                           |       | (45,933                                                        | )          | (71,230 | ) |
| ** **                                                                           | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| **Cash flows from financing  activities:**                                           | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| Net change in  deposits                                                              |       | 15,112                                                         |       | 73,028 |   |
| Proceeds from  supplemental stock offering                                           |       | 17,454                                                         |       | — |   |
| Net change in  long-term debt                                                        |       | 3,000                                                          |       | — |   |
| **Net  cash provided by financing activities**                                       |       | 35,566                                                         |       | 73,028 |   |
|                                                                                 |       |                                                           |       |   |   |
| **Net increase (decrease) in cash  and cash equivalents**                            |       | (9,983                                                         | )          | 3,472 |   |
|                                                                                 |       |                                                           |       |   |   |
| Cash and cash  equivalents at beginning of year                                      |       | 56,623                                                         |       | 30,792 |   |
| Cash and cash  equivalents at end of period                                          |       | $                                                              | 46,640     |   | $ | 34,264 |   |
| ** **                                                                           | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| **Supplemental disclosure of cash  flow information:**                               | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| Interest paid                                                                        |       | $                                                              | 4,689      |   | $ | 1,983 |   |
| Income taxes paid                                                                    |       | $                                                              | 1,911      |   | $ | 775 |   |

 

(seeaccompanying notes)

5

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**Premier Commercial Bancorp**

**Consolidated Statement ofShareholders’ Equity**

(inthousands except shares outstanding)

 
| ** **                                                                     | ** ** | **For the year 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 nine month period ending September 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                                                            |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Issued additional shares                                                       |       | 799,757                                                                                         |       | 17,454 |   |   |   |   |   |   |   |   |   |   |   |
| Stock Awards                                                                   |       | 12,187                                                                                          |       | 197 |   |   |   |   |   |   |   |   |   |   |   |
| **Comprehensive  Income:**                                                     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net earnings for  the year                                                     |       |                                                                                            |       |   |   |   |   | $ | 1,174 |   | 1,174 |   |   |   | 1,174 |   |
| Change in  unrealized gain (loss) on Cash Flow Hedge, net of tax               |       |                                                                                            |       |   |   |   |   | 1 |   |   |   | 1 |   | 1 |   |
| Change in  unrealized gain (loss) on available-for-sale securities, net of tax |       |                                                                                            |       |   |   |   |   | 111 |   |   |   | 111 |   | 111 |   |
| **Total  Comprehensive Income**                                                |       |                                                                                            |       |   |   |   |   | $ | 1,286 |   |   |   |   |   |   |   |
| **Balance at September 30, 2006**                                              |       | 2,635,491                                                                                       |       | $ | 27,459 |   | $ | — |   |   |   | $ | 3,865 |   | $ | (210 | ) | $ | 31,114 |   |

 

(see accompanying notes)

6

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# **PREMIERCOMMERCIAL BANCORP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**September30, 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 September 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 ofSeptember 30, 2006, and December 31, 2005, is as follows:
|                             | ** ** | **(in thousands)** | ** ** |
|-----------------------------|------------|-------------------------|------------|
| ** **                  | ** ** | **30-Sep-06**           | ** ** | **31-Dec-05** | ** ** |
|                        |       |                    |       |   |   |
| Real estate -  construction |       | $                       | 13,906     |   | $ | 19,461 |   |
| Real estate -  other        |       | 186,930                 |       | 136,642 |   |
| Commercial                  |       | 29,448                  |       | 27,468 |   |
| Consumer                    |       | 2,263                   |       | 1,301 |   |
| Gross Loans                 |       | 232,547                 |       | 184,872 |   |
|                        |       |                    |       |   |   |
| Deferred loan  fees         |       | (54                     | )          | (683 | ) |
| Allowance for  loan losses  |       | (2,839                  | )          | (1,890 | ) |
| Net Loans                   |       | $                       | 229,654    |   | $ | 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 singleindustry or based upon a single class of collateral, real estate and realestate associated businesses are among the principal industries in the Bank’smarket areas.  As a result, the Bank’sloan and collateral 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 1.22% as ofSeptember 30, 2006, and 1.02% as of December 31, 2005.  Management believes that the Allowance forloan losses at September 30, 2006, is adequate based upon its analysis of theloan portfolio and the methodologies used for this purpose.

7

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*Concentration of Credit Risk. *As of September 30, 2006,real estate served as the principal source of collateral with respect toapproximately 86.4% of our loan portfolio, of which, 80.4% is consideredcommercial real estate (CRE).  Within themakeup of our CRE, approximately 63.8% of our commercial term loans are grantedfor owner use, which is repaid from the cash flow of the owner’s business.  We believe that this factor coupled with thediversification of business types, location, conservative underwriting and losshistory further mitigates the risk in our CRE portfolio.  The Bank targets commercial term loans forowners 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.

A decline incurrent economic conditions or rising interest rates could have an adverseeffect 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 September 30, 2006, and September 30, 2005, amounts toapproximately $51.088 million and $30.415 million respectively, of whichapproximately $1.382 million and $1.336 million are related to standby lettersof credit, respectively.  The Bank usesthe same credit policies in these commitments as for all of its lendingactivities.  As such, the credit riskinvolved in these transactions is essentially the same as that involved inextending loan facilities to customers.

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** | ** ** | **Nine Months Ending** | ** ** |
|-----------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **30-Sep-06**                     | ** ** | **30-Sep-06**                    | ** ** |
| ** **                                    | ** ** | **Income**                        | ** ** | **Shares**                       | ** ** | **Income** | ** ** | **Shares** | ** ** |
| ** **                                    | ** ** | **(Numerator)**                   | ** ** | **(Denominator)**                | ** ** | **(Numerator)** | ** ** | **(Denominator)** | ** ** |
| Net income                                    |       | $                                 | 227        |                             |       |   | $ | 1,174 |   |   |   |
| Average shares  outstanding                   |       |                              |       | 2,218,823                        |       |   |   | 1,958,985 |   |
| **Used in Basic EPS**                         |       | 227                               |       | 2,218,823                        |       | 1,174 |   | 1,958,985 |   |
| Dilutive effect  of outstanding stock options |       |                              |       | 273,130                          |       |   |   | 273,981 |   |
| **Used in  Diluted EPS**                      |       | $                                 | 227        |                             | 2,491,953  |   | $ | 1,174 |   | 2,232,966 |   |

 

**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 nine months ended September 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 nine months ended September 30, 2005, net income and earnings per share ifthe Company had applied the fair value provisions of SFAS 123:
|                                                                                                 | ** ** | **(in thousands)** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                      | ** ** | **Nine Months**    | ** ** |
| ** **                                                                                      | ** ** | **Ending**              | ** ** |
| ** **                                                                                      | ** ** | **2005**                | ** ** |
| Net income:                                                                                     |       |                    |       |
| As reported                                                                                     |       | $                       | 1,185      |   |
| Stock-based compensation using the intrinsic value  method                                      |       | —                  |       |
| Stock-based compensation that would have been  reported using the fair value method of SFAS 123 |       | (111                    | )          |
| Pro forma net income                                                                            |       | $                       | 1,074      |   |
|                                                                                            |       |                    |       |
| Basic earnings  per share:                                                                      |       |                    |       |
| As reported                                                                                     |       | $                       | 0.65       |   |
| Pro forma                                                                                       |       | 0.59                    |       |
|                                                                                            |       |                    |       |
| Diluted earnings  per share:                                                                    |       |                    |       |
| As reported                                                                                     |       | $                       | 0.57       |   |
| Pro forma                                                                                       |       | 0.51                    |       |

 

9

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**Note 6Holding Company**

On June 25, 2004,Premier Commercial Bancorp acquired all the outstanding shares of the Bank byissuing 1,823,547 shares of common stock in exchange for the surrender of alloutstanding shares of the Bank’s common stock in a holding companyreorganization transaction.  There was nocash involved in this transaction..

**Note 7Stock Offering**

On April 19, 2006,the Bancorp’s Board of Directors  approvedthe sale of 799,757 shares of common stock. The stock offering closed on July17, 2006.

**Note 8Stock Splits**

On December 15,2004, the Bancorp’s Board of Directors approved a 5-for-4 stock split of theCompany’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 nine months ended September 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, whichreorganization was effective June 25, 2004. *Unless the context requiresotherwise, the terms “Company,” “us,” “we,” and “our” refers to PremierCommercial 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.**

This discussionshould be read in conjunction with our financial statements, including thenotes thereto, appearing elsewhere in this report.

**EXECUTIVE OVERVIEW**

## **General**

Premier CommercialBancorp (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.

The Company reported improved financial results driven by the ongoingeconomic strength in its market areas. Net income for the three months ended September 30, 2006, decreased63.3% to $227 thousand compared to $619 thousand for the comparable period in2005.  Net income for the nine monthsended September 30, 2006, decreased 0.9% to $1.174 million compared to $1.185million for the comparable period in 2005. The asset sensitivity of the balance sheet, loan growth, a 3.66%increase in the net interest margin over the comparable quarters, off-set bystart-up costs for the new Bank in Mesa, Arizona, were all factors contributingto the growth in earnings.

Non-interestincome for the three months ended September 30, 2006 decreased 50.5% to $570thousand compared to $1.151 million for the comparable period in 2005.  Non-interest income for the nine months endedSeptember 30, 2006, decreased 22.6% to $2.127 million compared to $2.748million for the comparable period in 2005.

Non-interestexpense for the three months ended September 30, 2006, increased by 34.5% or $762thousand to $2.972 million compared to the same period in 2005.  Non-interest expense for the nine monthsended September 30, 2006, increased by 43.4% or $2.595 million to $8.577million compared to the same period in 2005. Expense increases were primarily attributed to increases in salary andemployee benefits, as well as start-up expenses associated with the new Bank inMesa, Arizona.

11

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Net loansincreased $47.4 million or 26.0% during the nine months ending September 30,2006, compared to an increase of $71.947 million or 74.2% during the sameperiod in 2005.  Real Estate loansincreased $44.733 million and Commercial loans decreased $1.980 million duringthe first nine months of 2006.

Deposits increased$15.0 million or 5.9% during the first nine months of 2006 compared to anincrease of $72.1 million or 48.0% during the same period in 2005.  Non-interest bearing demand depositsdecreased $22.6 million while interest bearing deposits grew $37.5 millionduring the nine month period ending September 30, 2006.  The increase in TCD’s was primarily due tothe increase in interest rates.

12

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**SELECTED FINANCIAL INFORMATION**

 
| ** **                                          | ** ** | **(in thousands, except share data and ratios)** | ** ** | **(in thousands, except share data and ratios)** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **Unaudited**                                                                  | ** ** | **Unaudited**                                                                  | ** ** |
| ** **                                          | ** ** | **Three Months Ended**                                               | ** ** | ** **                                                                     | ** ** | **Nine Months Ended** | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | **September 30,**                                                         | ** ** | **%**                                                                          | ** ** | **September 30,** | ** ** | **%** | ** ** |
| ** **                                          | ** ** | **2006**                                                                       | ** ** | **2005**                                                                       | ** ** | **Change** | ** ** | **2006** | ** ** | **2005** | ** ** | **Change** | ** ** |
| **Summary  of Operations:**                         |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Interest Income                                     |       | $                                                                              | 5,014      |                                                                           | $          | 3,046 |   | 64.61 | % | $ | 14,079 |   | $ | 7,685 |   | 83.20 | % |
| Interest Expense                                    |       | 1,903                                                                          |       | 781                                                                            |       | 143.66 | % | 4,760 |   | 2,026 |   | 134.95 | % |
| Net Interest Income                                 |       | 3,111                                                                          |       | 2,265                                                                          |       | 37.35 | % | 9,319 |   | 5,659 |   | 64.68 | % |
| Provision for Loan Loss                             |       | 350                                                                            |       | 315                                                                            |       | 11.11 | % | 950 |   | 687 |   | 38.28 | % |
|                                                |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Net Interest Income After Provision for Loan Losses |       | 2,761                                                                          |       | 1,950                                                                          |       | 41.59 | % | 8,369 |   | 4,972 |   | 68.32 | % |
| Noninterest Income                                  |       | 570                                                                            |       | 1,151                                                                          |       | -50.48 | % | 2,127 |   | 2,748 |   | -22.60 | % |
| Noninterest Expense                                 |       | 2,972                                                                          |       | 2,210                                                                          |       | 34.48 | % | 8,577 |   | 5,982 |   | 43.38 | % |
|                                                |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Income Before Income Taxes                          |       | 359                                                                            |       | 891                                                                            |       | -59.71 | % | 1,919 |   | 1,738 |   | 10.41 | % |
| Income Taxes                                        |       | 132                                                                            |       | 272                                                                            |       | -51.47 | % | 745 |   | 553 |   | 34.72 | % |
|                                                |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Net Income                                          |       | $                                                                              | 227        |                                                                           | $          | 619 |   | -63.33 | % | $ | 1,174 |   | $ | 1,185 |   | -0.93 | % |
|                                                |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| **Per  Share Data:**                                |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Earnings Per Share - Basic                          |       | $                                                                              | 0.10       |                                                                           | $          | 0.34 |   | -70.59 | % | $ | 0.60 |   | $ | 0.65 |   | -7.69 | % |
| Earnings Per Share - Diluted                        |       | $                                                                              | 0.09       |                                                                           | $          | 0.30 |   | -70.00 | % | $ | 0.53 |   | $ | 0.57 |   | -7.02 | % |
| Book Value                                          |       | $                                                                              | 11.81      |                                                                           | $          | 6.45 |   | 83.10 | % | $ | 11.81 |   | $ | 6.45 |   | 83.10 | % |
|                                                |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| **Common  Outstanding Shares:**                     |       | 2,635,491                                                                      |       | 1,823,547                                                                      |       | 44.53 | % | 2,635,491 |   | 1,823,547 |   | 44.53 | % |
| (Adjusted for 5-for-4 stock split)                  |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
|                                                |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| **Statement  of Financial Condition Summary:**      |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Total Assets                                        |       |                                                                           |       |                                                                           |       |   |   | $ | 317,078 |   | $ | 242,184 |   | 30.92 | % |
| Total Deposits                                      |       |                                                                           |       |                                                                           |       |   |   | 269,635 |   | 222,056 |   | 21.43 | % |
| Total Net Loans                                     |       |                                                                           |       |                                                                           |       |   |   | 229,654 |   | 168,912 |   | 35.96 | % |
| Allowance for Loan Losses                           |       |                                                                           |       |                                                                           |       |   |   | 2,839 |   | 1,739 |   | 63.25 | % |
| Total Shareholders’ Equity                     |       |                                                                           |       |                                                                           |       |   |   | 31,114 |   | 11,767 |   | 164.42 | % |
|                                                |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| **Selected  Ratios:**                               |       |                                                                           |       |                                                                           |       |   |   |   |   |   |   |   |   |
| Return on Average Assets                            |       | 0.31                                                                           | %          | 1.09                                                                           | %          | -71.56 | % | 0.58 | % | 1.21 | % | -52.07 | % |
| Return on Average Equity                            |       | 4.19                                                                           | %          | 22.27                                                                          | %          | -81.19 | % | 10.19 | % | 21.96 | % | -53.60 | % |
| Net interest margin                                 |       | 4.53                                                                           | %          | 4.37                                                                           | %          | 3.66 | % | 4.83 | % | 4.20 | % | 15.00 | % |
| Average Loans as a Percentage of Average Deposits   |       | 74.53                                                                          | %          | 74.40                                                                          | %          | 0.17 | % | 71.92 | % | 77.02 | % | -6.62 | % |
| Allowance for Loan Losses to Total Loans            |       |                                                                           |       |                                                                           |       |   |   | 1.22 | % | 1.02 | % | 19.61 | % |
| Tier I Capital to Average Assets                    |       | 10.83                                                                          | %          | 5.34                                                                           | %          | 102.81 | % | 10.83 | % | 5.34 | % | 102.81 | % |
| Tier I Capital to Risk-Weighted Assets              |       | 11.14                                                                          | %          | 5.92                                                                           | %          | 88.18 | % | 11.14 | % | 5.92 | % | 88.18 | % |
| Total Capital to  Risk-Weighted Assets              |       | 12.20                                                                          | %          | 6.79                                                                           | %          | 79.68 | % | 12.20 | % | 6.79 | % | 79.68 | % |

 

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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

·                  Operating efficiency

*Returnto our shareholders. *Ourreturn to our shareholders is measured in the form of return on average equity,or ROE.  Our net income decreased 63.3%,to $227 thousand for the quarter ended September 30, 2006, from $619 thousand forthe same period in 2005.  Net incomedecreased 0.9% to $1.174 million for the nine months ended September 30, 2006from $1.185 million for the same period in 2005.  Improvement in the Company’s net interestmargin, loan growth of 26.0%, general asset sensitivity of our balance sheet,off-set by start-up expenses for the new Bank in Mesa, Arizona, were allfactors contributing to the decrease in earnings.  Basic and diluted earnings per share (EPS)for the quarter ended September 30, 2006, were $0.10, and $0.09 down from $0.34and $0.30 for the quarter ended September 30, 2005.  Basic and diluted earnings per share (EPS)for the nine months ended September 30, 2006 were $0.60, and $0.53 down from$0.65 and $0.57 for the nine months ended September 30, 2005.  The marginal decrease in EPS was a directresult of the $11.0 thousand or 0.9% decrease in net income~~.~~  ROE for the quarter ending September 30,2006, increased to 4.19% compared to 22.27% for the same period in 2005.  For the nine months ended September 30, 2006and September 30, 2005, the ROE was 10.19% and 21.96%, respectively.

*Returnon Average 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 September 30, 2006,was 0.31% compared to 1.09% for the same period in 2005.  For the nine months ended September 30, 2006,and September 30, 2005, the ROA was 0.58% and 1.21%, respectively.

*AssetQuality. *For all banksand 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 average loans.These measures are key elements in estimating the future earnings of acompany.  Non-performing loans totaled$118 thousand at September 30, 2006, compared to $0 at December 31, 2005, and$0 at September 30, 2005.  Non-performingloans as a percentage of total loans increased to 0.05% as of September 30,2006, compared to 0% at December 31, 2005, and 0% as of September 30,2005.  Net charge-offs to average loanswere 0% for the nine months ended September 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 13.9% to$317.078 million as of September 30, 2006, from $278.397 million as of December31, 2005, and $242.184 million or 30.92% as of September 30, 2005.  Total deposits increased to $296.635 millionas of September 30, 2006, compared to $254.655 million or 15.9% as of December31, 2005, and from $222.056 million or 21.43% as of September 30, 2005.  Gross loans increased to $232.493 million asof September 30, 2006, compared to $184.189 million or 26.23% as of December31, 2005, and $170.652 million or 36.24% as of September 30, 2005.

*OperatingEfficiency. *Operatingefficiency is the measure of how efficiently earnings before taxes aregenerated as a percentage of revenue. Our efficiency ratio increased (deteriorated) slightly to 74.9% for thefirst nine months of 2006 compared to 71.2% for the same period in 2005, due tothe increase in operating expenses, primary start-up expenses for the new Bankin Mesa, Arizona, which kept pace with the increase in revenue.  Net interest income before provisionincreased 64.7% to $9.3 million for the nine months ended September 30, 2006,while operating expenses increased 43.4% to $8.6 million.

14

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# **Economic Conditions**

Currenteconomic data, including financial data and earnings reports of other communitybanks located in Southern California suggests that the local economy isstable.  Based on local economicindicators, management believes the economy will continue to remain stableduring the remainder 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 following sections set forth a discussion of the significantoperating changes, business trends, financial condition, earnings, capitalposition and liquidity that occurred, in the three months ended September 30,2006, compared with the three months ended September 30, 2005, and the ninemonths ended September 30, 2006, compared to the nine months ended September30, 2005, together with an assessment, when considered appropriate, of externalfactors that may affect the Company in the future.

**RESULTS OF OPERATIONS**

**NetIncome**

Net income of $227 thousand for the threemonths ended September 30, 2006, reflects a $392 thousand or 63.3% decreaseover the like period in 2005.  Net incomeof $1.174 million for the nine months ended September 30, 2006, reflects an $11thousand or 0.9% decrease over the like period in 2005.  The decrease in net income and profitabilityfor the nine months ended September 30, 2006, was due primarily to the increasein net interest income, partially offset by a decrease in noninterest incomeand an increase in other operating expense, primary related to start-up costfor a new bank in Mesa, Arizona.

# **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,investment securities and other interest earning assets, compared to the volumeof interest bearing deposits and indebtedness, combined with the spread, produceschanges in the net interest income between periods.

The following table presents for the periodsindicated, condensed average balance sheet information for the Company,together with interest income and yields earned on average interest earningsassets, as well as interest expense and rates paid on average interest bearingliabilities.

15

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**AVERAGE BALANCE SHEET INFORMATION**
| ** **                                              | ** ** | **For the three months ended September 30,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                                                   | ** ** | **2005** | ** ** |
| ** **                                              | ** ** | **Average**                                                                | ** ** | ** ** | ** ** | **Yield/** | ** ** | **Average** | ** ** | ** ** | ** ** | **Yield/** | ** ** |
| ** **                                              | ** ** | **Balance**                                                                | ** ** | **Interest** | ** ** | **Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| ** **                                              | ** ** | **(dollars in thousands)**                                       | ** ** |
| **Assets:**                                             |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Loans                                                   |       | $                                                                          | 221,998    |   | $ | 4,406 |   | 7.94 | % | $ | 145,865 |   | $ | 2,470 |   | 6.77 | % |
| Investment securities                                   |       | 27,428                                                                     |       | 274 |   | 4.00 | % | 30,152 |   | 266 |   | 3.53 | % |
| Federal funds sold                                      |       | 23,183                                                                     |       | 309 |   | 5.33 | % | 29,989 |   | 293 |   | 3.91 | % |
| Interest-earning deposits with other institutions       |       | 1,919                                                                      |       | 25 |   | 5.21 | % | 1,205 |   | 17 |   | 5.64 | % |
| Total average interest-earning assets                   |       | 274,528                                                                    |       | 5,014 |   | 7.31 | % | 207,211 |   | 3,046 |   | 5.88 | % |
| Other assets                                            |       | 17,886                                                                     |       |   |   |   |   | 20,437 |   |   |   |   |   |
| Less allowance for loan losses                          |       | (2,616                                                                     | )          |   |   |   |   | (1,518 | ) |   |   |   |   |
| Total average assets                                    |       | $                                                                          | 289,798    |   |   |   |   |   | $ | 226,130 |   |   |   |   |   |
|                                                    |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Shareholders’ Equity:**         |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Interest Bearing  liabilities:                          |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand - NOW                           |       | $                                                                          | 2,181      |   | $ | 1 |   | 0.18 | % | $ | 2,290 |   | $ | 2 |   | 0.35 | % |
| Money Market                                            |       | 104,288                                                                    |       | 992 |   | 3.80 | % | 76,584 |   | 455 |   | 2.38 | % |
| Savings                                                 |       | 641                                                                        |       | 1 |   | 0.62 | % | 906 |   | 1 |   | 0.44 | % |
| Time certificates of deposits                           |       | 60,305                                                                     |       | 707 |   | 4.69 | % | 29,867 |   | 229 |   | 3.07 | % |
| Total average interest-bearing deposits                 |       | 167,415                                                                    |       | 1,701 |   | 4.06 | % | 109,647 |   | 687 |   | 2.51 | % |
|                                                    |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings                                   |       | —                                                                     |       | — |   | ** ** |   | — |   | — |   |   |   |
| Long-term debt                                          |       | 12,372                                                                     |       | 202 |   | 6.53 | % | 6,186 |   | 94 |   | 6.08 | % |
| Total interest-bearing liabilities                      |       | 179,787                                                                    |       | 1,903 |   | 4.23 | % | 115,833 |   | 781 |   | 2.70 | % |
|                                                    |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                         |       | 75,557                                                                     |       |   |   |   |   | 97,363 |   |   |   |   |   |
| Other liabilities                                       |       | 12,796                                                                     |       |   |   |   |   | 1,815 |   |   |   |   |   |
| Shareholders’ equity                               |       | 21,658                                                                     |       |   |   |   |   | 11,119 |   |   |   |   |   |
| Total average liabilities and shareholders’ equity |       | $                                                                          | 289,798    |   |   |   |   |   | $ | 226,130 |   |   |   |   |   |
| Net interest income                                     |       |                                                                       |       | $ | 3,111 |   |   |   |   |   | $ | 2,265 |   |   |   |
| Net interest  margin                                    |       |                                                                       |       |   |   | 4.53 | % |   |   |   |   | 4.37 | % |

 

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**AVERAGE BALANCE SHEET INFORMATION**

 
| ** **                                              | ** ** | **For the nine months ended September 30,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                                                  | ** ** | **2005** | ** ** |
| ** **                                              | ** ** | **Average**                                                               | ** ** | ** ** | ** ** | **Yield/** | ** ** | **Average** | ** ** | ** ** | ** ** | **Yield/** | ** ** |
| ** **                                              | ** ** | **Balance**                                                               | ** ** | **Interest** | ** ** | **Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| ** **                                              | ** ** | **(dollars in thousands)**                                      | ** ** |
| **Assets:**                                             |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Loans                                                   |       | $                                                                         | 210,487    |   | $ | 12,570 |   | 7.96 | % | $ | 127,400 |   | $ | 6,362 |   | 6.66 | % |
| Investment securities                                   |       | 27,778                                                                    |       | 791 |   | 3.80 | % | 32,666 |   | 788 |   | 3.22 | % |
| Federal funds sold                                      |       | 17,190                                                                    |       | 640 |   | 4.96 | % | 18,391 |   | 489 |   | 3.55 | % |
| Interest-earning deposits with other institutions       |       | 1,713                                                                     |       | 78 |   | 6.07 | % | 1,064 |   | 46 |   | 5.76 | % |
| Total average interest-earning assets                   |       | 257,168                                                                   |       | 14,079 |   | 7.30 | % | 179,521 |   | 7,685 |   | 5.71 | % |
| Other assets                                            |       | 16,152                                                                    |       |   |   |   |   | 17,823 |   |   |   |   |   |
| Less allowance for loan losses                          |       | (2,282                                                                    | )          |   |   |   |   | (1,307 | ) |   |   |   |   |
| Total average assets                                    |       | $                                                                         | 271,038    |   |   |   |   |   | $ | 196,037 |   |   |   |   |   |
|                                                    |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Shareholders’ Equity:**         |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Interest Bearing  liabilities:                          |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand - NOW                           |       | $                                                                         | 2,067      |   | $ | 5 |   | 0.32 | % | $ | 3,540 |   | $ | 8 |   | 0.30 | % |
| Money Market                                            |       | 98,803                                                                    |       | 2,417 |   | 3.26 | % | 69,987 |   | 1,141 |   | 2.17 | % |
| Savings                                                 |       | 747                                                                       |       | 1 |   | 0.18 | % | 797 |   | 2 |   | 0.33 | % |
| Time certificates of deposit                            |       | 51,398                                                                    |       | 1,617 |   | 4.19 | % | 24,812 |   | 550 |   | 2.96 | % |
| Total average interest-bearing deposits                 |       | 153,015                                                                   |       | 4,040 |   | 3.52 | % | 99,136 |   | 1,701 |   | 2.29 | % |
|                                                    |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings                                   |       | 5,965                                                                     |       | 230 |   | 5.14 | % | 1,967 |   | 45 |   | 3.05 | % |
| Long-term debt                                          |       | 10,333                                                                    |       | 490 |   | 6.32 | % | 6,186 |   | 280 |   | 6.04 | % |
| Total interest-bearing liabilities                      |       | 169,313                                                                   |       | 4,760 |   | 3.75 | % | 107,289 |   | 2,026 |   | 2.52 | % |
|                                                    |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                         |       | 79,773                                                                    |       |   |   |   |   | 76,604 |   |   |   |   |   |
| Other liabilities                                       |       | 6,597                                                                     |       |   |   |   |   | 1,351 |   |   |   |   |   |
| Shareholders’ equity                               |       | 15,355                                                                    |       |   |   |   |   | 10,793 |   |   |   |   |   |
| Total average liabilities and shareholders’ equity |       | $                                                                         | 271,038    |   |   |   |   |   | $ | 196,037 |   |   |   |   |   |
| Net interest income                                     |       |                                                                      |       | $ | 9,319 |   |   |   |   |   | $ | 5,659 |   |   |   |
| Net interest  margin                                    |       |                                                                      |       |   |   | 4.83 | % |   |   |   |   | 4.20 | % |

 

Net interest incomeincreased 37.4% for the quarter ended September 30, 2006, and 64.7% for thenine months ended September 30, 2006, as compared to the same periods in 2005,as interest earned on higher loan volumes coupled with increases in the primelending rate, outweighed the effect of a higher cost of funds.  The yield on interest-earning assetsincreased to 7.3% for the current quarter, as compared to 7.8% in theimmediately preceding quarter and 5.9% a year ago.  The cost of total interest-bearingliabilities increased to 4.2% for the current quarter, as compared to 3.8% inthe immediately preceding quarter and 2.7% a year ago.

Net interest margin forthe three months ended September 30, 2006, was 4.53% compared to 4.37% for thethree months ended 2005.  This representsan increase of 16 basis points or 3.7%. Net interest margin for the nine months ended September 30, 2006, was4.83% compared to 4.2% for the nine months ended 2005.  This represents an increase of 63 basis pointsor 15.9%.  This increase was primarilydue to the increase in the prime lending rate coupled with the change in themix of earning assets.  The table belowindicates a decrease in the investment portfolio from 18.2% of average earningassets as of September 30, 2005, to 10.8% as of September 30, 2006.  The table also indicates an increase in theloan portfolio from 71.0% of average earning assets as of September 30, 2005,to 81.9% as of September 30, 2006:

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|                                                   | ** ** | **(dollars in thousands)** | ** ** |
|---------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                        | ** ** | ** **                           | ** ** | **Percent of** | ** ** | ** ** | ** ** | **Percent of** | ** ** |
| ** **                                        | ** ** | **September**                        | ** ** | **Earning** | ** ** | **September** | ** ** | **Earning** | ** ** |
| ** **                                        | ** ** | **2006**                             | ** ** | **Assets** | ** ** | **2005** | ** ** | **Assets** | ** ** |
| Federal Funds  Sold                               |       | $                                    | 17,190     |   | 6.68 | % | $ | 18,391 |   | 10.24 | % |
| Gross Loans                                       |       | 210,487                              |       | 81.85 | % | 127,400 |   | 70.97 | % |
| Investments                                       |       | 27,778                               |       | 10.80 | % | 32,666 |   | 18.20 | % |
| Interest-earning deposits with other institutions |       | 1,713                                |       | 0.67 | % | 1,064 |   | 0.59 | % |
| Total Average  Earning Assets                     |       | $                                    | 257,168    |   | 100.00 | % | $ | 179,521 |   | 100.00 | % |

 

For the three months ended September 30, 2006, theaverage prime rate was 8.25%, the average Fed Fund rate was 6.25%, and theyield on the investment portfolio averaged 4.0%.  During the three months ended September 30,2005, the average prime rate was 5.91%, the average Fed Fund rate was 3.91%,and the Bank’s investment portfolio posted an average yield of 3.53%.  For the nine months ended September 30, 2006,the average prime rate was 6.96%, the average Fed Fund rate was 4.96%, and theyield on the investment portfolio averaged 3.80%.  During the nine months ended September 30,2005, the average prime rate was 5.55%, the average Fed Fund rate was 3.55%,and the Bank’s investment portfolio posted an average yield of 3.22%.  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 September 30, 2006, totaled $1.9 million, whichreflects an increase of $1.1 million or 143.7% over the like period in2005.  Interest expense for the ninemonths ended September 30, 2006, totaled $4.8 million, which reflects anincrease of $2.7 million or 134.9% over the like period in 2005.  The increase in interest expense was due toan increase in interest bearing deposits coupled with rising interestrates.  The schedule shown belowindicates that interest bearing deposits increased $72.9 million or 67.0% fromSeptember of 2005 to September of 2006. During the same period, noninterest bearing deposits decreased $25.3million or 22.4%.
|                                | ** ** | **(dollars in thousands)** | ** ** |
|--------------------------------|------------|--------------------------------------|------------|
| ** **                     | ** ** | **September**                        | ** ** | **September** | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                     | ** ** | **2006**                             | ** ** | **2005** | ** ** | **Variance** | ** ** | **Variance** | ** ** |
| Non-interest  bearing deposits |       | $                                    | 87,954     |   | $ | 113,265 |   | $ | (25,311 | ) | -22.35 | % |
| Interest bearing  deposits     |       | 114,295                              |       | 68,668 |   | 45,627 |   | 66.45 | % |
| Interest bearing  time         |       | 67,386                               |       | 40,123 |   | 27,263 |   | 67.95 | % |
| Total Deposits                 |       | $                                    | 269,635    |   | $ | 222,056 |   | $ | 47,579 |   | 21.43 | % |

 

The average costof funds for the three months ended September 30, 2006, increased 153 basispoints from 2.70% in September of 2005 to 4.23% in September of 2006.  The average cost of funds for the nine monthsended September 30, 2006, increased 123 basis points from 2.52% in September of2005 to 3.75% in September of 2006.  TheCompany anticipates a continued increase in its cost of funds during thebalance of this year.

# **Noninterest Income**

Noninterest incomefor the three months ended September 30, 2006, was $570 thousand compared to$1.151 million for the same period in 2005. Noninterest income for the nine months ended September 30, 2006, was$2.127 million compared to $2.748 million for the same period in 2005.  That represents a decrease of $621 thousandor -22.6%.

Referral fees andgain on sale of loans for the three months ended September 30, 2006, totaled$478 thousand, which represents a decrease of $595 thousand or -55.5% over thesame period in 2005.  Referral fees andgain on sale of loans for the nine months ended September 30, 2006, totaled$1.932 million, which represents a decrease of $625 thousand or -24.3% over thesame period in 2005. The decrease in noninterest income, in particular referralfees and gain on sale of loans was due to the election by management to retainmore loans on its books coupled with a more competitive market relative topricing.

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Service chargesfee and other noninterest income for the three months ended September 30, 2006,was $92 thousand compared to $78 thousand for the same period in 2005.  Other noninterest income for the six monthsended September 30, 2006 was $215 thousand compared to $196 thousand for thesame period in 2005.  That represents anincrease of $19 thousand or 9.7%.

# **Operating Expenses**

Salary andemployee benefits for the three months ended September 30, 2006, totaled $1.661million, which reflects an increase of $740 thousand or 80.3% over the likeperiod in 2005.  Salary and employeebenefits for the nine months ended September 30, 2006, totaled $4.550 million,which reflects an increase of $1.743 million or 62.1% over the like period in2005.  This increase is attributed tosignificant staff increases, coupled with an increase in commission basedcompensation, and an increase in benefit and other personnel expendituresrelated to the new Bank in Mesa, Arizona.

Occupancy expensefor the three months ended September 30, 2006 totaled $110 thousand, whichreflects an increase of $21 thousand or 23.6% over the same period in2005.  Occupancy expense for the ninemonths ended September 30, 2006, totaled $319 thousand, which reflects anincrease of $58 thousand or 22.2% over the same period in 2005.  This was primarily due to an increase inrental expenses related to additional office space and an increase in premisesdepreciation expenses.

Equipment expensefor the three months ended September 30, 2006, totaled $73 thousand, whichreflects an increase of $7 thousand or 10.6% over the same period in 2005.  Equipment expense for the nine months endedSeptember 30, 2006, totaled $222 thousand, which reflects an increase of $36thousand or 19.4% 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 September 30, 2006, totaled $164 thousand,which reflects an increase of $47 thousand or 40.2% over the same period in2005.  Professional services for the ninemonths ended September 30, 2006, totaled $455 thousand, which reflects anincrease of $154 thousand or 51.2% 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 aswell as other professional services related to the new Bank in Mesa, Arizona.

Data processingexpense for the three months ended September 30, 2006, totaled $86 thousand,which reflects an increase of $8 thousand or 10.3% from the same period in2005.  Data processing expense for thenine months ended September 30, 2006, totaled $255 thousand, which reflects anincrease of $31 thousand or 13.8% from the same period in 2005.  This was primarily due to an increase in coreprocessing fees coupled with the continued growth of the Bank.

Office relatedexpense for the three months ended September 30, 2006, totaled $193 thousand,which reflects an increase of $44 thousand or 29.5% over the same period in2005.  Office related expense for thenine months ended September 30, 2006, totaled $488 thousand, which reflects anincrease of $78 thousand or 19.0% over the same period in 2005.  This was primarily due to an increase in telephoneexpense and courier expenses coupled with an increase in stationary andsupplies due to the continued growth of the Bank and the new Bank in Mesa,Arizona.

Other expense forthe three months ended September 30, 2006, totaled $525 thousand, which reflectsan increase of $164 thousand or 45.4% over the same period in 2005.  Other expense for the nine months endedSeptember 30, 2006, totaled $1.534 million, which reflects an increase of $884thousand or 136% 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 the new Bank in Mesa, Arizona.

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# **Loan Related Data**

The Company has taken several positive steps over the past year toimprove upon the overall credit administration of the Bank.  The Company has implemented additionalcontrols to ensure the quality of the overall credit portfolio.  The Bank has been able to increase the loanportfolio without lowering credit quality, which has been validated by the Bank’soutside credit review firm.  The Bank’scredit portfolio continues to be reviewed by our outside loan review firm on a monthlybasis and it is the opinion of management as well as the outside credit reviewfirm that there are no significant weaknesses in the credit portfolio.

On a comparative basis, problem loans and loan relateddata are detailed in the following tables:
|                                       | ** ** | **September** | ** ** | **December** | ** ** | **September** | ** ** |
|---------------------------------------|------------|---------------|------------|--------------|------------|---------------|------------|
| ** **                            | ** ** | **2006**      | ** ** | **2005**     | ** ** | **2005**      | ** ** |
| Charge offs                           |       | $             | —     |         | $          | —        |       | $ | — |   |
| Recoveries                            |       | —        |       | —       |       | —        |       |
| OREO                                  |       | —        |       | —       |       | —        |       |
| Nonaccrual Loans                      |       | 118           |       | —       |       | —        |       |
| Accruing loans  over 90 days past due |       | 20            |       | —       |       | —        |       |
| Allowance for  Loan Loss              |       | 2,839         |       | 1,890        |       | 1,739         |       |
| Period-end Gross Loans                |       | 232,547       |       | 184,872      |       | 171,317       |       |
|                                       |            |               |            |              |            |               |            |  |  |  |

 
|                                                                                 | ** ** | **September** | ** ** | **December** | ** ** | **September** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------|------------|--------------|------------|---------------|------------|
| **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                                                                |       | 0.05          | %          | 0.00         | %          | 0.00          | %          |
| Accruing loans  over 90 days past due                                           |       | 0.01          | %          | 0.00         | %          | 0.00          | %          |
| Allowance for  Loan Loss                                                        |       | 1.22          | %          | 1.02         | %          | 1.02          | %          |

 

# **Allowance for Loan Losses**

The Bank madeadditions of $1.0 million to its allowance for loan losses during the ninemonth period ended September 30, 2006. The Bank evaluates the allowance for possible loan losses based upon anindividual analysis of specific categories of loans, specific categories ofclassified loans and individual classified assets.  The adequacy of the allowance is determinableonly on an approximate basis, since estimates as to the magnitude and timing ofloan losses are not predictable 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 September 30, 2006 is adequate.  Theallowance on that date was 1.22% of total loans, compared to 1.02% at December31, 2005, and 1.02% at September 30, 2005.

#### **NonaccrualLoans**

The Bank had one nonaccrual loan totaling $118 thousand as of September30, 2006, compared to no nonaccrual loans at September 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**

EffectiveSeptember 30, 2006, the Company issued a series of­ trust preferred securities in the amount of $3million.  Of these $3 million, theCompany contributed $1.5 million to the Bank and retained $1.5 million at theholding company level.  In addition, theCompany issued $9.0 million of these securities in prior issuances. Thesesecurities are classified as long term debt on the balance sheet

20

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**Capital**

Total shareholders’equity at September 30, 2006, totaled $31.114 million compared to $12.177million at December 31, 2005, for an increase of $18.957 million or155.5.3%.  This increase is due to asupplemental offering on July 17, 2006, that raised $17.5 million, net ofcosts, an increase in net income of $1.174 thousand, an increase in the marketvalue of the investment portfolio of $111 thousand, and change in market valueon Cash Flow Hedges of $1 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**         | ** ** | **Sep.**   | ** ** | **Dec.**   | ** ** |
| ** **                                | ** ** | **“Well-Capitalized”** | ** ** | **Minimum Ratio** | ** ** | **2006**   | ** ** | **2005**   | ** ** |
| Tier I Capital  (to Average Assets)       |       | 5.00                             | %          | 4.00                   | %          | 11.5       | %          | 6.8        | %          |
| Tier I Capital  (to Risk Weighted Assets) |       | 6.00                             | %          | 4.00                   | %          | 11.0       |       | 7.2        | %          |
| Total Capital (to Risk  Weighted Assets)  |       | 10.00                            | %          | 8.00                   | %          | 12.1       | %          | 10.2       | %          |

 

**O**nJuly 17, 2006, the Company completed a supplemental stock offering, that led tothe significant increased of the Tier I Capital ratio by 470 basis points to11.5% and the Total Capital to Risk Weighted Assets ratio by 190 basis pointsto 11.01%.

**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 $11.0 million, a revolving lineof credit with one of its correspondent banks totaling $2.0 million, and twocredit lines with FHLB totaling $86.023 million.  There were no advances against these lines asof September 30, 2006.

#### **InterestRate Sensitivity**

The Bank closelyfollows the maturities and repricing opportunities of both assets and liabilitiesto reduce gaps in interest spreads.  Ananalysis is performed quarterly to determine the various interest sensitivitygaps, 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 September 30, 2006, indicate that the Bank has anactual dollar risk exposure of $1.221 million if interest rates fall 100 basispoints.  This represents a -8.4% risk tointerest income.  The Economic Value ofEquity is 9.5% at zero basis points and 9.3% at a negative 100 basis points.

**Interest Income and Expense UnderRate Shock**

 
|                               | ** ** | **-200bp** | ** ** | **-100bp** | ** ** | **0bp** | ** ** | **+100bp** | ** ** | **+200bp** | ** ** |
|-------------------------------|------------|------------|------------|------------|------------|---------|------------|------------|------------|------------|------------|
| **Net  Interest Income**      |       |       |       |       |       |    |       |       |       |       |       |
| Earnings at Risk  (in $1,000) |       | (2,506     | )          | (1,221     | )          | 0       |       | 1,043      |       | 2,093      |       |
| Percent of Risk               |       | -17.4      | %          | -8.4       | %          | 0.00    | %          | 7.2        | %          | 14.5       | %          |

 

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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 theCompany.

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.***

***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 to period.  In addition, the policies and procedures areintended to ensure that the process for changing methodologies occurs in anappropriate manner.  The following is abrief description of our current accounting policies involving significantmanagement valuation judgments.***

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

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of certain assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of certain revenues andexpenses during the reporting period. Actual results could differ from thoseestimates.

**Allowance for Loan Losses**

Theallowance for loan losses represents management’s best estimate of lossesinherent in the existing loan portfolio. The allowance for loan losses isincreased by the provision for loan losses charged to expense and reduced byloans charged off, net of recoveries. The provision for loan losses isdetermined based on management’s assessment of several factors: reviews andevaluation of specific loans, changes in the nature and volume of the loanportfolio, current economic conditions and the related impact on specificborrowers and industry groups, historical loan loss experiences, the level ofclassified and nonperforming loans 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 loansare measured for impairment based on the fair value of the collateral. Inmeasuring the fair value of the collateral, management uses assumptions andmethodologies consistent with those that would be utilized by unrelated thirdparties.

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Changesin the financial 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**

Thefair value of most securities classified as available-for-sale are based onquoted market prices. If quoted market prices are not available, fair valuesare extrapolated from the quoted prices of similar instruments.

**Deferred Tax Assets**

Weuse an estimate of future earnings to support our position that the benefit ofour deferred tax assets will be realized. If future income should provenon-existent or less than the amount of the deferred tax assets within the taxyears to which they may be applied, the asset may not be realized and our net incomewill be reduced.

**Loan Referral Fees**

The Company has loan referral programs with severalregional banks. Under these programs, the Company solicits and underwritesloans and then refers the completed loan file to a participating regional bankfor final approval and funding. The Company recognizes loan referral fees intoincome upon funding of the loan by the regional bank. The participatingregional banks establish the underwriting criteria for the loans and theCompany has no recourse liability on these loans other than normal industryprovisions for fraud by the Company.

The Company selects loans for inclusion in the loan referral programthat it does not want to fund internally based on several factors. Generallyloans are not funded internally if they are long term fixed rate loans, exceedthe Company’s loan limits, pose unusual risk factors, are geographically out ofthe Company’s primary service area, do not include other beneficial bankingarrangements or if they would negatively impact the Company’s capital ratios,interest rate risk or concentrations of certain loan types.

**Gain on Sale of Loans**

To calculate the gain (loss) on sale of loans, PremierCommercial Bancorp’s investment in the loan is allocated among the retainedportion of the loan, the servicing retained, the interest-only strip and thesold portion of the loan, based on the relative fair market value of eachportion. The gain (loss) on the sold portion of the loan is recognized at thetime of sale based on the difference between the sale proceeds and theallocated investment. As a result of the relative fair value allocation, thecarrying value of the retained portion is discounted, with the discountaccreted to interest income over the life of the loan. That portion of theexcess servicing fees that represent contractually specified servicing fees(contractual servicing) are reflected as a servicing asset which is amortizedover an estimated life using a method approximating the level yield method; inthe event future prepayments exceed management’s estimates and future expectedcash flows are inadequate to cover the unamortized servicing asset, additionalamortization would be recognized. The portion of excess servicing fees inexcess of the contractual servicing fees is reflected as interest-only (I/0)strips receivable, which are classified as interest-only strips receivableavailable for sale and are carried at fair value.

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**ITEM 3 – CONTROLS AND PROCEDURES**

Asof the end of the period covered by this report, management, including the Company’sChief Executive Officer and Chief Financial Officer, evaluated theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures with respect to the information generated for use in thisQuarterly Report.  Based upon, and as ofthe date of that evaluation, the Company’s Chief Executive Officer and ChiefFinancial Officer concluded that the disclosures controls and procedures wereeffective to provide reasonable assurances that information required to bedisclosed in the reports the Company files or submits under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms.

Therewas no change in the Company’s internal controls over financial reportingduring the quarter ended September 30, 2006, that has materially affected, oris reasonably likely to materially affect, the Company’s internal controls overfinancial reporting.

Indesigning and evaluating disclosure controls and procedures, the Company’smanagement recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable, not absolute, assurances ofachieving the desired control objectives and management necessarily wasrequired to apply its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures.

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**PART II - OTHER INFORMATION**

**ITEM6.  Exhibits**
| 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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**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:                      | November 13,  2006 |                                                 |   | /s/ Kenneth J. Cosgrove |   |
|                       |               | Kenneth J.  Cosgrove                                 |
|                       |               | Chairman and Chief  Executive Officer                |
|                       |               |                                                 |
|                       |               |                                                 |
| Date:                      | November 13, 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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