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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q



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(Mark One)

|x | Quarterly Report Pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2007



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number: 333-135607



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Canyon Bancorp

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 20-4346215                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

1711 East Palm Canyon Drive, Palm Springs, CA 92264

(Address of principal executive offices)

(760) 325-4442

(Registrants telephone number, including area code)



---

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated file, an
accelerated file, or a non-accelerated file. See definition of Accelerated File and Large Accelerated File in Rule 12b-2 of the Exchange Act. (check one):

Large Accelerated Filer ̈Accelerated Filer ̈Non-accelerated Filer  x

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

Number of shares outstanding of common stock, as of May 7, 2007 is 2,338,747.

Transitional Small Business Disclosure Format (check
one):    Yes ̈No  x



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##### Table of Contents

TABLE OF CONTENTS



|                               |  |         |  |                                                                                       |  |   
|------------------------------ |  | ------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I  FINANCIAL INFORMATION |  | 2      
|                               |  | ITEM 1  |  | Financial Statements                                                                  |  | 2 
|                               |  |         |  | Consolidated Balance Sheets (Unaudited)                                               |  | 3 
|                               |  |         |  | Consolidated Statements of Operations (Unaudited)                                     |  | 4 
|                               |  |         |  | Consolidated Statements of Cash Flows (Unaudited)                                     |  | 5 
|                               |  |         |  | Consolidated Statements of Comprehensive Income (Unaudited)                           |  | 6 
|                               |  |         |  | Notes to Unaudited Financial Statements                                               |  | 7 
|                               |  | ITEM 2  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 10
|                               |  | ITEM 3  |  | Quantitative and Qualitative Disclosure about Market Risk                             |  | 29
|                               |  | ITEM 4  |  | Controls and Procedures                                                               |  | 29
|PART II  OTHER INFORMATION    |  | 30     
|                               |  | ITEM 1  |  | Legal Procedures                                                                      |  | 30
|                               |  | ITEM 1a |  | Risk Factors                                                                          |  | 30
|                               |  | ITEM 2  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 30
|                               |  | ITEM 3  |  | Defaults upon Senior Securities                                                       |  | 30
|                               |  | ITEM 4  |  | Submission of Matters to a Vote of Security Holders                                   |  | 30
|                               |  | ITEM 5  |  | Other Information                                                                     |  | 30
|                               |  | ITEM 6  |  | Exhibits                                                                              |  | 30
|SIGNATURES                     |  | 31     



1



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##### Table of Contents

Part I - Financial Information

Item 1 - Financial Statements

The following interim financial statements of Canyon Bancorp (the
Company) are as of March 31, 2007 and December 31, 2006. The Company is a bank holding company that was incorporated on January 18, 2006, under the laws of the State of California for the purpose of becoming the holding
company for Canyon National Bank (the Bank). Shareholders of the Bank approved a one-bank holding company reorganization which was consummated on June 30, 2006, pursuant to a Plan of Reorganization entered into on February 14,
2006. All outstanding shares of the Banks common stock were exchanged for shares of the Company on a one-for-one basis. Additionally, the Bank issued 100 shares of common stock to the Company. Therefore, the Company owns one hundred percent of
the Bank as of June 30, 2006. In addition, each outstanding stock option granted previously to purchase the Banks common stock was converted into an option to purchase the Companys common stock. Prior to the reorganization, the
Company did not conduct any business operations.

Financial statements for March 31, 2007 and December 31, 2006 and for the three
months ended March 31, 2007 are consolidated for the Company and the Bank. Financial statements for the three months ended March 31, 2006 are for the Bank only. These financial statements are unaudited and prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for
complete financial statements. All significant intercompany accounts and transactions have been eliminated in the consolidation. However, the financial statements reflect all adjustments (which include only normal recurring adjustments) which are,
in the opinion of Management, necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods presented and are normal and recurring.

Results for the periods as presented are not necessarily indicative of results to be expected for the year as a whole.

Unaudited Consolidated Financial Statements

Consolidated Balance Sheets

As of March 31, 2007 and December 31, 2006

Consolidated Statements of Operations

For
the three months ended March 31, 2007 and 2006

Consolidated Statements of Cash Flows

For the three months ended March 31, 2007 and 2006

Consolidated Statements of Comprehensive Income

For the three months ended March 31, 2007 and 2006

Notes to the Unaudited Consolidated Financial Statements



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CANYON BANCORP

Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)



|                                                                                                                                                                            |  |                      |         |   |                     |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------- | - | ------------------- | - | ------- | -
|                                                                                                                                                                            |  | 3/31/2007(Unaudited) |         |   | 12/31/2006(Audited) |  
|Assets                                                                                                                                                                      |  |                      |         |   |                     |   |         |  
|Cash and cash equivalents                                                                                                                                                   |  | $                    | 32,583  |   |                     | $ | 20,569  |  
|Interest-bearing deposits in other financial institutions                                                                                                                   |  |                      | 1,600   |   |                     |   | 2,000   |  
|Investment securities available for sale                                                                                                                                    |  |                      | 11,956  |   |                     |   | 14,250  |  
|Federal Home Loan Bank and Federal Reserve Bank and Pacific Coast Bankers Bank restricted stock, at cost                                                                   |  |                      | 1,573   |   |                     |   | 1,558   |  
|Loans held for sale                                                                                                                                                         |  |                      | 1,420   |   |                     |   | 752     |  
|Loans receivable, net                                                                                                                                                       |  |                      | 210,709 |   |                     |   | 202,881 |  
|Furniture, fixtures and equipment                                                                                                                                           |  |                      | 4,436   |   |                     |   | 4,548   |  
|Income tax receivable                                                                                                                                                       |  |                      |        |   |                     |   | 276     |  
|Deferred tax asset                                                                                                                                                          |  |                      | 1,706   |   |                     |   | 1,713   |  
|Other assets                                                                                                                                                                |  |                      | 1,690   |   |                     |   | 3,821   |  
|                                                                                                                                                                            |  |                      |         |   |                     |   |         |  
|Total Assets                                                                                                                                                                |  | $                    | 267,673 |   |                     | $ | 252,368 |  
|                                                                                                                                                                            |  |                      |         |   |                     |   |         |  
|Liabilities and Stockholders Equity                                                                                                                                        |  |                      |         |   |                     |   |         |  
|                                                                                                                                                                            |  |                     
|Deposits:                                                                                                                                                                   |  |                      |         |   |                     |   |         |  
|Demand deposits                                                                                                                                                             |  | $                    | 87,045  |   |                     | $ | 90,248  |  
|NOW accounts                                                                                                                                                                |  |                      | 13,102  |   |                     |   | 9,645   |  
|Savings and money market                                                                                                                                                    |  |                      | 81,553  |   |                     |   | 67,770  |  
|Time certificate of deposits                                                                                                                                                |  |                      | 58,228  |   |                     |   | 58,767  |  
|                                                                                                                                                                            |  |                      |         |   |                     |   |         |  
|Total Deposits                                                                                                                                                              |  |                      | 239,928 |   |                     |   | 226,430 |  
|                                                                                                                                                                            |  |                      |         |   |                     |   |         |  
|Other Liabilities                                                                                                                                                           |  |                      | 1,938   |   |                     |   | 1,515   |  
|                                                                                                                                                                            |  |                      |         |   |                     |   |         |  
|Total Liabilities                                                                                                                                                           |  |                      | 241,866 |   |                     |   | 227,945 |  
|                                                                                                                                                                            |  |                      |         |   |                     |   |         |  
|Commitments and contingencies                                                                                                                                               |  |                      |        |   |                     |   |        |  
|                                                                                                                                                                            |  |                      |         |   |                     |   |         |  
|Stockholders Equity:                                                                                                                                                       |  |                      |         |   |                     |   |         |  
|Preferred stock, $5.00 par value; authorized 10,000,000 shares; none issued or outstanding                                                                                  |  |                      |        |   |                     |   |        |  
|Common stock, no par value; authorized 10,000,000 shares; 2,338,627 and 2,316,627 shares issued and outstanding as of of March 31, 2007
and December 31, 2006, respectively |  |                      | 21,103  |   |                     |   | 20,803  |  
|Accumulated other comprehensive income unrealized (loss) on investment securities available-for-sale                                                                        |  |                      | (93     | ) |                     |   | (106    | )
|Retained earnings                                                                                                                                                           |  |                      | 4,797   |   |                     |   | 3,726   |  
|                                                                                                                                                                            |  |                      |         |   |                     |   |         |  
|Total Stockholders Equity                                                                                                                                                  |  |                      | 25,807  |   |                     |   | 24,423  |  
|                                                                                                                                                                            |  |                      |         |   |                     |   |         |  
|Total Liabilities and Stockholders Equity                                                                                                                                  |  | $                    | 267,673 |   |                     | $ | 252,368 |  
|                                                                                                                                                                            |  |                      |         |   |                     |   |         |  

See accompanying notes to financial statements.



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CANYON BANCORP

Consolidated Statement of Operations

(Unaudited)

For the three months ended March 31, 2007 and 2006

(Dollars in thousands, except per share amounts)



|                                                          |  |           |           |           |   |          
|--------------------------------------------------------- |  | --------- | --------- | --------- | - | ---------
|                                                          |  | 3/31/2007 |           | 3/31/2006
|Interest income:                                          |  |           |           |           |   |          
|Loans receivable                                          |  | $         | 4,820     |           | $ | 3,866    
|Federal funds sold                                        |  |           | 179       |           |   | 180      
|Interest bearing deposits in other financial institutions |  |           | 17        |           |   | 38       
|Investment securities available for sale                  |  |           | 141       |           |   | 234      
|                                                          |  |           |           |           |   |          
|Total Interest Income                                     |  |           | 5,157     |           |   | 4,318    
|                                                          |  |          
|Interest expense on deposits                              |  |           | 1,343     |           |   | 803      
|                                                          |  |           |           |           |   |          
|Net Interest Income                                       |  |           | 3,814     |           |   | 3,515    
|                                                          |  |          
|Provision for loan losses                                 |  |           | 90        |           |   | 225      
|                                                          |  |           |           |           |   |          
|Net Interest Income After                                 |  |           |           |           |   |          
|Provision for Loan Losses                                 |  |           | 3,724     |           |   | 3,290    
|                                                          |  |           |           |           |   |          
|Noninterest income:                                       |  |           |           |           |   |          
|Service charges and fees                                  |  |           | 166       |           |   | 136      
|Loan related fees                                         |  |           | 178       |           |   | 166      
|Lease administration fees                                 |  |           | 222       |           |   | 310      
|Automated teller machine fees                             |  |           | 163       |           |   | 145      
|                                                          |  |           |           |           |   |          
|Total Noninterest Income                                  |  |           | 729       |           |   | 757      
|                                                          |  |           |           |           |   |          
|Noninterest expenses:                                     |  |           |           |           |   |          
|Salaries and employee benefits                            |  |           | 1,429     |           |   | 1,315    
|Occupancy and equipment expense                           |  |           | 372       |           |   | 328      
|Professional fees                                         |  |           | 70        |           |   | 93       
|Data processing                                           |  |           | 144       |           |   | 124      
|Marketing and advertising expense                         |  |           | 115       |           |   | 104      
|Director and shareholder expense                          |  |           | 112       |           |   | 110      
|Other operating expense                                   |  |           | 409       |           |   | 377      
|                                                          |  |           |           |           |   |          
|Total Noninterest Expenses                                |  |           | 2,651     |           |   | 2,451    
|                                                          |  |           |           |           |   |          
|Earnings before income taxes                              |  |           | 1,802     |           |   | 1,596    
|Income Tax Expense                                        |  |           | 731       |           |   | 650      
|                                                          |  |           |           |           |   |          
|Net earnings                                              |  | $         | 1,071     |           | $ | 946      
|                                                          |  |           |           |           |   |          
|Earnings Per Share:                                       |  |           |           |           |   |          
|Basic                                                     |  | $         | 0.46      |           | $ | 0.42     
|                                                          |  |           |           |           |   |          
|Diluted                                                   |  | $         | 0.44      |           | $ | 0.39     
|                                                          |  |           |           |           |   |          
|Weighted Average Shares Outstanding:                      |  |           |           |           |   |          
|                                                          |  |           |           |           |   |          
|Basic                                                     |  |           | 2,323,023 |           |   | 2,271,542
|                                                          |  |           |           |           |   |          
|Diluted                                                   |  |           | 2,422,504 |           |   | 2,401,437
|                                                          |  |           |           |           |   |          

See accompanying notes to financial statements.



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CANYON BANCORP

Consolidated Statement of Cash Flows

(Unaudited)

For the three months ended March 31, 2007 and 2006

(Dollars in thousands)



|                                                                                   |  |         |        |   |         |   |        |  
|---------------------------------------------------------------------------------- |  | ------- | ------ | - | ------- | - | ------ | -
|                                                                                   |  | 3/31/07 |        |   | 3/31/06 |  
|Operating Activities:                                                              |  |         |        |   |         |   |        |  
|Net earnings                                                                       |  | $       | 1,071  |   |         | $ | 946    |  
|Adjustment to reconcile net earnings to net cash provided by operating activities: |  |         |        |   |         |   |        |  
|Amortization of deferred loan origination fees                                     |  |         | (251   | ) |         |   | (295   | )
|Depreciation of fixed assets                                                       |  |         | 150    |   |         |   | 131    |  
|Amortization of premium/discounts on investment securities, net                    |  |         | 1      |   |         |   | (39    | )
|Net loss on disposition of fixed assets                                            |  |         |       |   |         |   | 2      |  
|FHLB stock dividends received                                                      |  |         | (15    | ) |         |   | (11    | )
|Provision for loan losses                                                          |  |         | 90     |   |         |   | 225    |  
|Increase in other assets                                                           |  |         | 2,131  |   |         |   | 2,037  |  
|Net increase/(decrease) in loans held for sale                                     |  |         | (667   | ) |         |   | 473    |  
|Decrease in incomes tax receivable                                                 |  |         | 493    |   |         |   | 69     |  
|Increase in other liabilities                                                      |  |         | 423    |   |         |   | 740    |  
|Excess tax benefit from share-based payment arrangements                           |  |         | (217   | ) |         |   | (51    | )
|                                                                                   |  |         |        |   |         |   |        |  
|Net cash provided by operating activities                                          |  |         | 3,209  |   |         |   | 4,227  |  
|                                                                                   |  |         |        |   |         |   |        |  
|Investing Activities:                                                              |  |         |        |   |         |   |        |  
|Net (increase)/decrease in loans                                                   |  |         | (7,668 | ) |         |   | 2,238  |  
|Purchase of investment securities available for sale                               |  |         |       |   |         |   | (3,606 | )
|Proceeds from maturing/called investment securities available for sale             |  |         | 2,000  |   |         |   | 4,000  |  
|Principal repayment of investment securities available for sale                    |  |         | 313    |   |         |   | 337    |  
|Decrease in interest bearing deposits in other financial institutions              |  |         | 400    |   |         |   |       |  
|Purchases of premises and equipment                                                |  |         | (38    | ) |         |   | (238   | )
|                                                                                   |  |         |        |   |         |   |        |  
|Net cash (used in)/provided by investing activities                                |  |         | (4,993 | ) |         |   | 2,731  |  
|                                                                                   |  |         |        |   |         |   |        |  
|Financing Activities:                                                              |  |         |        |   |         |   |        |  
|Net increase/(decrease) in deposits non-term deposits                              |  |         | 14,037 |   |         |   | (8,510 | )
|Net increase/(decrease) in time certificates of deposit                            |  |         | (538   | ) |         |   | 8,512  |  
|Proceeds for exercise of stock options                                             |  |         | 82     |   |         |   | 29     |  
|Excess tax benefit from shared-based payment arrangements                          |  |         | 217    |   |         |   | 51     |  
|                                                                                   |  |         |        |   |         |   |        |  
|Net cash provided by financing activities                                          |  |         | 13,798 |   |         |   | 82     |  
|                                                                                   |  |         |        |   |         |   |        |  
|Net Increase in Cash and Cash Equivalents                                          |  |         | 12,014 |   |         |   | 7,040  |  
|                                                                                   |  |        
|Cash and Cash Equivalents at the Beginning of the Period                           |  |         | 20,569 |   |         |   | 27,576 |  
|                                                                                   |  |         |        |   |         |   |        |  
|Cash and Cash Equivalents at the End of the Period                                 |  | $       | 32,583 |   |         | $ | 34,616 |  
|                                                                                   |  |         |        |   |         |   |        |  
|Supplemental Disclosure of Cash Flow Information:                                  |  |         |        |   |         |   |        |  
|Interest Paid                                                                      |  | $       | 1,327  |   |         | $ | 764    |  
|                                                                                   |  |         |        |   |         |   |        |  
|Taxes Paid                                                                         |  | $       |       |   |         | $ | 89     |  
|                                                                                   |  |         |        |   |         |   |        |  
|Non-Cash Investing Activities:                                                     |  |         |        |   |         |   |        |  
|Change in unrealized loss on investment securities available-for-sale              |  | $       | 21     |   |         | $ | (1     | )
|                                                                                   |  |         |        |   |         |   |        |  

See accompanying notes to financial statements.



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CANYON BANCORP

Consolidated Statement of Comprehensive Income

(Unaudited)

For the three months ended
March 31, 2007 and 2006

(Dollars in Thousands)



|                                                                                                                        |  |         |       |         |   |    
|----------------------------------------------------------------------------------------------------------------------- |  | ------- | ----- | ------- | - | ---
|                                                                                                                        |  | 3/31/07 |       | 3/31/06
|Net earnings                                                                                                            |  | $       | 1,071 |         | $ | 946
|Other comprehensive income:                                                                                             |  |         |       |         |   |    
|Unrealized gain on investment securities available-for-sale, net of related income tax expense of $8 for March 31, 2007 |  |         | 13    |         |   |   
|                                                                                                                        |  |         |       |         |   |    
|Comprehensive Income                                                                                                    |  | $       | 1,084 |         | $ | 946
|                                                                                                                        |  |         |       |         |   |    

See accompanying notes to financial statements.



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Notes to the Unaudited Financial Statements



| | 1. | The Board of Directors has declared the following stock dividends since the beginning of the periods covered by this report.
| | -- | ----------------------------------------------------------------------------------------------------------------------------



|                  |  |                  |  |                   |  |                  
|----------------- |  | ---------------- |  | ----------------- |  | -----------------
|Declaration Date  |  | Record Date      |  | Payment Date      |  | Rate/Type        
|November 28, 2006 |  | December 8, 2006 |  | December 22, 2006 |  | 5% stock dividend

All share and per share amounts have been restated to reflect the increased number of shares
outstanding.



| | 2. | Current Accounting Pronouncements
| | -- | ---------------------------------

FAIR VALUE
OPTIONS: On February 15, 2007 FASB issued SFAS No. 159, Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure many financial instruments and certain other items at
fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the FASBs long-term measurement objectives for accounting for financial instruments. This statement also establishes
presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective as of the beginning of an
entitys first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of
SFAS No. 157, Fair Value Measurements.

POSTRETIREMENT PLANS: Also in September 2006, FASB issued Statement of
Financial Accounting Standards (SFAS) No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, which improves financial reporting by requiring an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur
through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date
of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after December 15, 2006. The Company, which is an employer without publicly traded equity securities, is required to recognize the funded status of a defined benefit postretirement plan and to
provide the required disclosures as of the end of the fiscal year ending after June 15, 2007.

FAIR VALUE MEASUREMENTS: In
September 2006 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, FASB
having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for the fiscal year, including financial statements for an interim period within that fiscal year.

ACCOUNTING FOR SERVICING OF FINANCIAL ASSETS: Effective January 1, 2007, the Company adopted Financial Accounting Standards
Board (FASB) SFAS No. 156, Accounting for Servicing of Financial Assets- an amendment of FASB Statement No. 140. SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes
an obligation to service a financial asset by entering into a servicing contract in specific situations. Additionally, the servicing asset or servicing liability shall be initially measured at fair value; however, an entity may elect the
amortization method or fair value method for subsequent balance sheet reporting periods. This SFAS does not have a material impact on the financial condition, results of operations, or liquidity of the Company.



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ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS: Effective January 1, 2007 the Company
adopted FASB SFAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140. SFAS No. 155 simplifies accounting for certain hybrid instruments currently governed by
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, by allowing fair value remeasurement of hybrid instruments that contain an embedded derivative that otherwise would require bifurcation. SFAS No. 155
also eliminates the guidance in SFAS No. 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets, which provides such beneficial interests are not subject to SFAS
No. 133. SFAS No. 155 amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilitiesa Replacement of FASB Statement No. 125, by eliminating the restriction on
passive derivative instruments that a qualifying special-purpose entity may hold. This SFAS does not have a material impact on the financial condition, results of operations, or liquidity of the Company.

ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES: In July 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement 109. FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken
on a tax return, including a decision whether to file or not to file in a particular jurisdiction. FIN 48 is effective for fiscal years beginning after December 15, 2006. If there are changes in net assets as a result of application of FIN 48
these will be accounted for as an adjustment to retained earnings. Management has determined that FIN 48 will not have a significant impact on its consolidated position and results of operations.



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| | 3. | Share Based Compensation
| | -- | ------------------------

The following table presents the
activity related to options for the three months ended March 31, 2007 and 2006.



|                                   |  |                |   |                |                               |       |                                          |           |                                    |   |        |  |         |                               |  |                                          |      |                                    |           |  |   |    
|---------------------------------- |  | -------------- | - | -------------- | ----------------------------- | ----- | ---------------------------------------- | --------- | ---------------------------------- | - | ------ |  | ------- | ----------------------------- |  | ---------------------------------------- | ---- | ---------------------------------- | --------- |  | - | ---
|                                   |  | March 31, 2007 |   | March 31, 2006
|                                   |  | Shares         |   |                | Weighted-AverageExercisePrice |       | Weighted-AverageRemainingContractualTerm |           | AggregateIntrinsicValue (in $000s) |   | Shares |  |         | Weighted-AverageExercisePrice |  | Weighted-AverageRemainingContractualTerm |      | AggregateIntrinsicValue (in $000s)
|Outstanding, beginning of year     |  | 197,733        |   |                | $                             | 8.71  |                                          |           |                                    |   |        |  | 248,778 |                               |  | $                                        | 8.08 |                                    |           |  |   |    
|Granted                            |  |               |   |                |                               |      |                                          |           |                                    |   |        |  |        |                               |  |                                          |     |                                    |           |  |   |    
|Cancelled                          |  | (449           | ) |                |                               | 24.40 |                                          |           |                                    |   |        |  |        |                               |  |                                          |     |                                    |           |  |   |    
|Exercised                          |  | (22,000        | ) |                |                               | 3.73  |                                          |           |                                    |   |        |  | (6,903  | )                             |  |                                          | 4.10 |                                    |           |  |   |    
|                                   |  |                |   |                |                               |       |                                          |           |                                    |   |        |  |         |                               |  |                                          |      |                                    |           |  |   |    
|Outstanding, end of period         |  | 175,284        |   |                |                               | 9.29  |                                          | 4.6 Years |                                    | $ | 591    |  | 241,875 |                               |  |                                          | 8.19 |                                    | 5.0 Years |  | $ | 713
|                                   |  |                |   |                |                               |       |                                          |           |                                    |   |        |  |         |                               |  |                                          |      |                                    |           |  |   |    
|Options exercisable, end of period |  | 175,284        |   |                | $                             | 9.29  |                                          | 4.6 Years |                                    | $ | 591    |  | 241,875 |                               |  | $                                        | 8.19 |                                    | 5.0 Years |  | $ | 713
|                                   |  |                |   |                |                               |       |                                          |           |                                    |   |        |  |         |                               |  |                                          |      |                                    |           |  |   |    



| | 4. | Reclassifications
| | -- | -----------------

Certain reclassifications were made to
prior year presentations to conform to the current year. These reclassifications are of a normal recurring nature.



9



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Introduction

The Company is a bank holding company with a single banking subsidiary. The Company was
incorporated on January 18, 2006, for the purpose of acquiring Canyon National Bank. Effective June 30, 2006, the Company acquired all of the stock of the Bank pursuant to a Plan of Reorganization dated February 14, 2006 between the
Company and the Bank. Pursuant to the Plan of Reorganization, the shares of the Banks common stock were exchanged for shares of the common stock of the Company on a share-for-share basis. As a result, upon the consummation of the
reorganization on June 30, 2006, the Bank became a wholly-owned subsidiary of the Company and the shareholders of the Bank became the shareholders of the Company. The Bank is a national banking association which was organized on March 6,
1998, and is headquartered in Palm Springs, California. Palm Springs is located in the Coachella Valley, which is located within Riverside County in Southern California. The Bank received its charter to commence the business of banking from the
Office of the Comptroller of the Currency (OCC) on July 10, 1998. Concurrent with OCC approval, FDIC deposit insurance became effective and began insuring depositors accounts up to $100,000. In July 1998, the Bank opened for
business and commenced banking operations at its main office located at 1711 East Palm Canyon Drive, Palm Springs, California. In addition to its main office, the Bank has three branch offices, one in Palm Springs and two in Palm Desert. The
Banks most recently opened branch, located at 77-933 Las Montanas Road, Palm Desert, California, commenced operations on March 23, 2006.

As of May 7, 2007, the Companys 2,338,747 shares of Common Stock are held by 298 shareholders of record. Common Stock of the Company is traded on the OTC Bulletin Board under the symbol CYBA.

Forward Looking Statements

This Form 10-Q includes
forward-looking statements that involve inherent risks and uncertainties. Words such as expects, anticipates, believes, projects, and estimates or variations of such words and similar
expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed, forecast in, or implied by such forward looking statements.

A variety of factors
could have a material adverse impact on the Companys financial condition or results of operations, and should be considered when evaluating the potential future financial performance of the Bank. These include, but are not limited to, the
possibility of deterioration in economic conditions in the Coachella Valley, the Companys service area; risks associated with fluctuations in interest rates; liquidity risks; asset/liability matching risks; the competitive environment in which
the Company operates and its impact upon the Companys net interest margin; increases in non-performing assets and net credit losses that could occur, particularly in times of weak economic conditions or rising interest rates; and risks
associated with the many current and future laws and regulations to which the Company is subject.

Critical Accounting Policies

The Companys accounting policies are integral to understanding the results reported. Most complex accounting policies require managements
judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. The Company has established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied
consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of current accounting policies
involving significant management valuation judgments.

Allowance for Loan Losses

The allowance for loan losses represents managements best estimate of losses inherent in the existing loan portfolio. The allowance for loan losses
is increased by the provision for loan losses charged to expense and reduced by loans charged-off, net of recoveries.

Management evaluates
the allowance for loan losses on a monthly basis. Management believes that the allowance for loan losses is a critical accounting estimate because it is based upon managements assessment of



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##### Table of Contents

various factors affecting the collectibility of the loans, including current and projected economic conditions, past credit experience, delinquency status,
the value of the underlying collateral, if any, and a continuing review of the portfolio of loans and commitments.

The Company determines
the appropriate level of the allowance for loan losses, primarily based on an analysis of the various components of the loan portfolio, including all significant credits on an individual basis. The loan portfolio is segmented into components. Each
component would normally have similar characteristics, such as risk classification, type of loan, or collateral. The following components of the portfolio are analyzed and an allowance for loan losses is provided for:



| |  |  | All significant credits on an individual basis that are classified doubtful or substandard.
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | All other significant credits reviewed individually. If no allocation can be determined for such credits on an individual basis, they shall be provided for as part
of an appropriate pool.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All other loans that are not included by the credit grading system in the population of loans reviewed individually, but are delinquent or are classified or
designated special mention (e.g., pools of smaller delinquent, special mention and classified commercial and industrial, real estate loans).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Homogenous loans that have not been reviewed individually, or are not delinquent, classified, or designated as special mention (e.g., pools of real estate
mortgages).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All other loans that have not been considered or provided for elsewhere (e.g., pools of commercial and industrial loans that have not been reviewed, classified, or
designated special mention, standby letters of credit, and other off-balance sheet commitments to lend).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Although
Management believes the level of the allowance at March 31, 2007 is adequate to absorb losses inherent in the loan portfolio, a decline in the regional economy may result in increasing losses that cannot reasonably be predicted at this time.
For further information regarding the allowance for loan losses, see Financial ConditionAllowance for Loan Losses.

Available for Sale
Securities

SFAS 115 requires that available for sale securities be carried at fair value. The Company believes this is a critical
accounting estimate in that the fair value of a security is based on quoted market prices or if quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments. Adjustments to the fair value
of available for sale securities impact the consolidated financial statements by increasing or decreasing assets and stockholders equity.

Deferred Tax Assets

Deferred income taxes reflect the estimated future tax effects of temporary differences between the
reported amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. The Company uses an estimate of future earnings to support our position that the benefit of our deferred tax assets
will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and net income will be reduced.

Financial Condition

At March 31, 2007, total
assets were $267.7 million compared to $252.4 million at December 31, 2006, resulting in a $15.3 million or 6.1% increase in total assets over the three-month period. Over this same three-month period, net loans receivable increased by $7.8
million or 3.9%, investment securities available for sale and interest bearing deposits in other financial institutions decreased by $2.7 million or 15.0% and cash and cash equivalents increased by $12.0 million or 58.4%. At March 31, 2007 and
December 31, 2006, net loans receivable comprised 78.7% and 80.4%, respectively, of total assets and represented 87.8% and 89.6%, respectively, of deposits.

Loan Portfolio

The increase in loans receivable from year-end 2006 to March 31, 2007 is primarily the result of an
increase of non-construction real estate loans. Non-construction real estate loans are primarily secured by commercial real estate properties. From year-end 2006, gross loans increased by $7.8 million to $214.9 million at March 31, 2007. The
largest loan category at March 31, 2007 is real estate loansexcluding construction loanswhich constitutes



11



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##### Table of Contents

58.1% of gross loans. The next largest loan concentration is construction loans (24.4% of gross loans) and commercial loans (14.9% of gross loans) secured by
non-real estate assets or made on an unsecured basis. Loans to consumers (that are not secured by real estate), including vehicle and unsecured personal loans, make up the smallest category of loans held by the Company (2.6% of gross loans). With
the exception of loans to Native Americans, a majority of the Companys loans are made by borrowers residing, or doing business, within the Coachella Valley and surrounding area. When collateral is used to secure a loan, the collateral is
generally secured by property located within the Coachella Valley. Loans to Native Americans are generally located throughout the State of California.

As a market niche, the Company has strategically identified lending to Native American individuals, tribal governments, and tribal related entities. It is the Companys general policy to obtain a limited waiver
of sovereign immunity to protect collateral or an income stream when collateral or a business is located on a reservation or the business is operated by a Native American government or related entity. Total loans to Native American individuals,
governments and related entities at March 31, 2007 total $26.6 million, or 12.4% of gross loans, many of which are guaranteed by the United States Government. At that same date, loan balances of $15.8 million are guaranteed by the United States
Bureau of Indian Affairs.

The composition of the Companys loan portfolio at March 31, 2007 and December 31, 2006 is set
forth below:

Loan Portfolio Composition

(dollars in thousands)



|                                                           |  |               |         |   |                   |       |   |        |   |         |         |  |       |  
|---------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | ----- | - | ------ | - | ------- | ------- |  | ----- | -
|                                                           |  | March 31 2007 |         |   | December 31, 2006 |      
|                                                           |  | Amount        |         |   | Percent           |       |   | Amount |   |         | Percent | 
|Real estate:                                               |  |               |         |   |                   |       |   |        |   |         |         |  |       |  
|Construction                                               |  | $             | 52,432  |   |                   | 24.4  | % |        | $ | 50,305  |         |  | 24.3  | %
|Other                                                      |  |               | 124,966 |   |                   | 58.1  | % |        |   | 114,825 |         |  | 55.4  | %
|Commercial                                                 |  |               | 32,027  |   |                   | 14.9  | % |        |   | 36,217  |         |  | 17.5  | %
|Consumer                                                   |  |               | 5,491   |   |                   | 2.6   | % |        |   | 5,793   |         |  | 2.8   | %
|                                                           |  |               |         |   |                   |       |   |        |   |         |         |  |       |  
|Gross loans                                                |  |               | 214,916 |   |                   | 100.0 | % |        |   | 207,140 |         |  | 100.0 | %
|                                                           |  |               |         |   |                   |       |   |        |   |         |         |  |       |  
|Deferred loan origination fees and costs                   |  |               | (845    | ) |                   |       |   |        |   | (837    | )       |  |       |  
|Allowance for loan losses                                  |  |               | (3,362  | ) |                   |       |   |        |   | (3,422  | )       |  |       |  
|                                                           |  |               |         |   |                   |       |   |        |   |         |         |  |       |  
|Net loans                                                  |  | $             | 210,709 |   |                   |       |   |        | $ | 202,881 |         |  |       |  
|                                                           |  |               |         |   |                   |       |   |        |   |         |         |  |       |  
|Loans held for sale                                        |  | $             | 1,420   |   |                   |       |   |        | $ | 752     |         |  |       |  
|                                                           |  |               |         |   |                   |       |   |        |   |         |         |  |       |  
|Principal balance guaranteed by federally insured programs |  | $             | 15,847  |   |                   |       |   |        | $ | 15,952  |         |  |       |  
|                                                           |  |               |         |   |                   |       |   |        |   |         |         |  |       |  
|Principal balance outstanding to Native American entities  |  | $             | 26,631  |   |                   |       |   |        | $ | 26,014  |         |  |       |  
|                                                           |  |               |         |   |                   |       |   |        |   |         |         |  |       |  

The weighted average interest rate on the loan portfolio at March 31, 2007, is 8.58%. At
March 31, 2007, eighty-nine percent (89%) or $191.4 million of loan principal balances incorporate variable rate terms that reference an interest rate index such as Prime Rate, or a United States Treasury instrument. Seventy-seven percent
(77%) or $166.8 million of variable rate loans are indexed to Prime Rate. The principal balance outstanding of fixed rate loans with maturity dates five years or more into the future total approximately $7.6 million and $7.1 million at
March 31, 2007 and December 31, 2006, respectively.



12



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##### Table of Contents

Commercial Real Estate Loans

In December 2006, the OCC, Board of Governors of the Federal Reserve System; and FDIC (the Agencies) issued final joint Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management
Practices (the Guidance). This Guidance applies to national banks and state chartered banks and was developed to reinforce sound risk management practices for institutions with high and increasing concentrations of commercial real estate
loans on their balance sheets.

For purposes of this Guidance, commercial real estate (CRE) loans are exposures secured by raw land, land
development and construction (including 1-4 family residential construction, multi-family property, and nonresidential property) where the primary or significant source of repayment is derived from rental income associated with the property or the
proceeds of the sale, refinancing, or permanent financing of the property.

Banks with CRE concentrations should have in place risk
management practices consistent with this Guidance to mitigate the increased risks associated with such concentrations. The Guidance sets forth the following criteria to determine whether a concentration in CRE lending warrants the use of heightened
risk management practices: (i) total loans for construction, land development, and other land represent one hundred percent (100%) or more of the Banks total capital; or (ii) total loan secured by multifamily proprieties,
nonresidential properties, construction, land development, and other land represents three hundred percent (300%) or more of total capital.

Banks exceeding the threshold would be deemed to have a concentration in CRE loans and should have heightened risk management practices appropriate to the degree of CRE concentration risk of these loans in their portfolios and consistent
with the Guidance. The Agencies have excluded loans secured by owner-occupied properties from the CRE definition because their risk profiles are less influenced by the condition of the general CRE market.

At March 31, 2007, the Company exceeded the Guidance threshold for construction and land loans with these loan balances comprising 239% of total
capital. The Companys ratio of total CRE loans to total capital was 338% at March 31, 2007 and also exceeded the Guidance threshold at that date. The Company believes it has adequate risk management practices in place in that it:



| | a) | has secured United States Government guarantees on certain loans to mitigate potential losses, and
| | -- | --------------------------------------------------------------------------------------------------



| | b) | has instituted an extensive funds control process to disburse construction loan proceeds, and
| | -- | ---------------------------------------------------------------------------------------------



| | c) | has capital levels in excess of the well-capitalized amounts required by federal banking authorities to support possible future losses, and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------



| | d) | has experienced no significant historical CRE loan charge-offs since inception of the Company,
| | -- | ----------------------------------------------------------------------------------------------



| | e) | has modified its minimum underwriting standards in response to slower growth of real estate values and a general slowing in the local and national economies, and,
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f) | has instituted a reporting process to the Board of Directors to monitor concentrations.
| | -- | ---------------------------------------------------------------------------------------



13



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##### Table of Contents

The table on the following page sets forth the amount of total loans outstanding as of March 31,
2007 for real estate loans by sub category and occupancy type.



|                            |  |                                             |        |                   |   |         |  |   |        
|--------------------------- |  | ------------------------------------------- | ------ | ----------------- | - | ------- |  | - | -------
|                            |  | As of March 31, 2007 (Dollars in thousands)
|                            |  | OwnerOccupied                               |        | Non OwnerOccupied |   | Total  
|Real Estate Loans           |  |                                             |        |                   |   |         |  |   |        
|Construction                |  |                                             |        |                   |   |         |  |   |        
|1 to 4 family residential   |  | $                                           | 5,513  |                   | $ | 38,530  |  | $ | 44,043 
|Multifamily                 |  |                                             |       |                   |   | 682     |  |   | 682    
|Commercial                  |  |                                             | 2,349  |                   |   | 3,702   |  |   | 6,051  
|Land Improvements           |  |                                             |       |                   |   | 1,656   |  |   | 1,656  
|Other                       |  |                                             |        |                   |   |         |  |   |        
|1 to 4 Family Residential   |  |                                             | 12,328 |                   |   | 4,125   |  |   | 16,453 
|Home Equity Lines of Credit |  |                                             | 1,168  |                   |   | 4,057   |  |   | 5,225  
|Multifamily                 |  |                                             |       |                   |   | 3,533   |  |   | 3,533  
|Commercial                  |  |                                             | 48,247 |                   |   | 36,300  |  |   | 84,547 
|Land                        |  |                                             |       |                   |   | 15,208  |  |   | 15,208 
|                            |  |                                             |        |                   |   |         |  |   |        
|Total Real Estate Loans     |  | $                                           | 69,605 |                   | $ | 107,793 |  | $ | 177,398
|                            |  |                                             |        |                   |   |         |  |   |        

Off-Balance Sheet Arrangements

During the ordinary course of business, the Company provides various forms of credit facilities to meet the financing needs of its clients. These
commitments to provide credit represent an obligation of the Company to its clients, which is not represented within the Companys balance sheets. At March 31, 2007 and December 31, 2006, the Company had $62.8 million and $60.4
million, respectively, of off-balance sheet commitments to fund certain loans. The composition of unfunded off-balance sheet loan commitments at March 31, 2007 is 37.1% undisbursed construction loans, 47.4% unused lines of credit, 6.0% unused
home equity lines of credit, and 9.5% obligations under letters of credit. These commitments represent a credit risk and potential future obligation of the Company.

The effect on the Companys revenues, expenses, cash flows and liquidity from the unused portion of loan commitments to provide credit cannot be reasonably predicted because there is no assurance that the lines
of credit or other commitments will ever be used. However, unfunded commitments related to undisbursed construction loans are generally predictable in that disbursements on these loan types are used to facilitate the completion of construction of
residential or commercial properties.

Non-performing Assets

Non-performing assets are comprised of loans on non-accrual status, loans restructured where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal, and other real
estate owned (OREO). Loans are generally placed on non-accrual status when they become 90 days past due unless Management believes the loan is adequately collateralized and is in the process of collection. Loans may be restructured by
Management when a borrower has experienced some change in financial status, causing an inability to meet the original repayment terms, and where the Company believes the borrower will eventually overcome those circumstances and repay the loan in
full. OREO consists of properties acquired by foreclosure or similar means that Management intends to offer for sale.

Managements
classification of a loan as non-accrual is an indication that there is reasonable doubt as to the full collectibility of principal or interest on the loan; at this point, the Company stops recognizing income from the interest on the loan and may
provide an allowance for uncollected interest that had been accrued but unpaid if it is determined uncollectible or the collateral is inadequate to support such accrued interest amount. These loans may or may not be collateralized, but collection
efforts are pursued.

The table on the following page sets forth non-performing assets as of March 31, 2007, and 2006 and
December 31, 2006, as well as adversely classified loans as of these dates. Loans classified as nonperforming may also be adversely classified, resulting in the principal balance reported in both categories.

The allowance for loan losses as a percentage of gross loans was 1.56% at March 31, 2007 and 1.65% at December 31, 2006.



14



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##### Table of Contents

At March 31, 2007, the outstanding principal balance of nonaccrual loans totaled $1.8 million which
consisted of two loans secured by residential real estate property and one business loan guaranteed by the United States Bureau of Indian Affairs. Management estimates the loan to value ratios of the real estate secured loans to be sufficient to
repay the debt without a significant loss. The Company has initiated foreclosure procedures on the properties in question. The Company also does not expect to incur a significant loss from the loan guaranteed by the United States Bureau of Indian
Affairs.

One major residential real estate loan (outstanding principal balance of $1.5 million) was accounted for on a nonaccrual basis
and was adversely classified at both March 31, 2007 and December 31, 2006 due to the borrowers inability to make timely periodic payments. This one loan makes up for a substantial portion of nonaccrual loans and adversely classified
loans at those dates. One year earlier, or at March 31, 2006, this one loan was accounted for on an accrual basis but was adversely classified. Subsequent to March 31, 2007, the Company collected the delinquent payments and the foreclosure
process was delayed. One year earlier, on March 31, 2006, one loan, secured by unimproved land with an outstanding principal balance of $1.5 million, was accounted for on a nonaccrual basis and was adversely classified. This land loan was fully
repaid during the fourth quarter of 2006 with the Company incurring no loss of principal or interest.



15



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##### Table of Contents

Non-performing Assets

(dollars in thousands)



|                                                                 |  |          |       |   |                  |   |       |   |  |   |       |  
|---------------------------------------------------------------- |  | -------- | ----- | - | ---------------- | - | ----- | - |  | - | ----- | -
|                                                                 |  | March 31 |       |   | December 31 2006 |  
|                                                                 |  | 2007     |       |   | 2006             |   |      
|Other real estate owned                                          |  | $        |      |   |                  | $ |      |   |  | $ |      |  
|Nonaccrual loans1                                                |  |          |       |   |                  |   |       |   |  |   |       |  
|Real Estate:                                                     |  |          |       |   |                  |   |       |   |  |   |       |  
|Construction                                                     |  |          |      |   |                  |   |      |   |  |   |      |  
|Other                                                            |  |          | 1,544 |   |                  |   | 1,856 |   |  |   | 1,794 |  
|Commercial                                                       |  |          | 223   |   |                  |   |      |   |  |   |      |  
|Consumer                                                         |  |          |      |   |                  |   |      |   |  |   |      |  
|Loans 90 days or more past due & still accruing                  |  |          |      |   |                  |   |      |   |  |   |      |  
|                                                                 |  |          |       |   |                  |   |       |   |  |   |       |  
|Total Nonperforming assets:                                      |  |          | 1,767 |   |                  |   | 1,856 |   |  |   | 1,794 |  
|                                                                 |  |          |       |   |                  |   |       |   |  |   |       |  
|Adversely classified loans:1                                     |  |          |       |   |                  |   |       |   |  |   |       |  
|Substandard                                                      |  |          |       |   |                  |   |       |   |  |   |       |  
|Real estate                                                      |  |          |       |   |                  |   |       |   |  |   |       |  
|Construction                                                     |  |          |      |   |                  |   |      |   |  |   |      |  
|Other                                                            |  |          | 2,066 |   |                  |   | 3,387 |   |  |   | 2,074 |  
|Commercial                                                       |  |          | 24    |   |                  |   | 202   |   |  |   | 125   |  
|Consumer                                                         |  |          |      |   |                  |   | 5     |   |  |   |      |  
|                                                                 |  |          |       |   |                  |   |       |   |  |   |       |  
|Total substandard                                                |  |          | 2,090 |   |                  |   | 3,594 |   |  |   | 2,199 |  
|                                                                 |  |          |       |   |                  |   |       |   |  |   |       |  
|Doubtful                                                         |  |          |       |   |                  |   |       |   |  |   |       |  
|Real estate                                                      |  |          |       |   |                  |   |       |   |  |   |       |  
|Construction                                                     |  |          |      |   |                  |   |      |   |  |   |      |  
|Other                                                            |  |          |      |   |                  |   |      |   |  |   |      |  
|Commercial                                                       |  |          |      |   |                  |   |      |   |  |   |      |  
|Consumer                                                         |  |          |      |   |                  |   |      |   |  |   |      |  
|                                                                 |  |          |       |   |                  |   |       |   |  |   |       |  
|Total doubtful                                                   |  |          |      |   |                  |   |      |   |  |   |      |  
|                                                                 |  |          |       |   |                  |   |       |   |  |   |       |  
|Total adversely classified loans                                 |  | $        | 2,090 |   |                  | $ | 3,594 |   |  | $ | 2,199 |  
|                                                                 |  |          |       |   |                  |   |       |   |  |   |       |  
|Ratio of adversely classified loans to gross loans at period end |  |          | 1.0   | % |                  |   | 2.1   | % |  |   | 1.1   | %
|Ratio of allowance for loan losses to nonperforming loans2       |  |          | 190.3 | % |                  |   | 171.9 | % |  |   | 190.7 | %
|Ratio of allowance for loan losses to adversely classified       |  |          | 160.9 | % |                  |   | 88.8  | % |  |   | 155.6 | %

---

|1 | Nonaccrual loan balances are generally included with adversely classified assets.
|- | ---------------------------------------------------------------------------------

|2 | Nonperforming loans is defined as other real estate owned, nonaccrual loans and loans 90 days or more
past due and still accruing.
|- | ----------------------------------------------------------------------------------------------------------------------------------



16



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##### Table of Contents

Allowance for Loan Losses

The Company maintains an allowance for loan losses at a level it considers adequate to cover the inherent risk of loss associated with its loan portfolio under prevailing economic conditions. In determining the
adequacy of the allowance for loan losses, Management takes into consideration growth trends in the portfolio, examination by financial institution supervisory authorities, prior loan charge-offs, net of recoveries, experience of the Companys
lending staff, concentrations of credit risk, delinquency trends, general economic conditions, the interest rate environment, and internal and external credit reviews.

The Company assesses the adequacy of the allowance on a monthly basis. This assessment is comprised of: (i) reviewing the adversely classified loans; (ii) estimating the loss potential for adversely
classified loans; and (iii) applying a risk factor to segregate loan portfolios that have similar risk characteristics.

To determine
the adequacy of the allowance for loan losses, Management employs a two-dimensional model that segregates loans into categories with similar risk profiles. Major loan categories include speculative construction and land loans, owner-occupied
residential construction loans, residential and commercial real estate loans, commercial loans, and consumer loans. Loan balances are further segregated into outstanding principal balance and unfunded commitment amounts. To address the risk
associated with certain loans, Risk Classes are established to identify the level of risk posed by a particular loan or group of loans. Risk Classes are (in order from least to greatest risk) Exceptional, Very Good, Satisfactory, Acceptable,
Watch/Special Mention, Substandard, Doubtful, and Loss. For loans adversely classified (Substandard, Doubtful or Loss), Management estimates a specific allowance amount. For loans that are not adversely classified, a Risk Factor is applied to each
loan category for each Risk Class. As the risk of loss increases, the associated Risk Factor increases accordingly.

The process of
providing for loan losses involves judgmental discretion, and eventual losses may therefore differ from even the most recent estimates. Due to these limitations, the Company assumes that there are losses inherent in the current loan portfolio which
will be sustained, but have not yet been identified. The Company therefore attempts to maintain the allowance at an amount sufficient to cover such unknown but inherent losses.

There can be no assurance that future economic or other factors will not adversely affect borrowers, or collateral securing loans, or that the
Companys asset quality may not deteriorate through rapid growth, failure to identify and monitor potential problem loans or for other reasons, thereby causing increases to the allowance.

The table below summarizes the three-months ended March 31, 2007 and 2006, and the year ended December 31, 2006, loan balances at the end of
such periods and the daily average balances for the respective periods; changes in the allowance for loan losses arising from loans charged off, recoveries on loans previously charged off, additions to the allowance which have been charged against
earnings, and certain ratios related to the allowance for loan losses.



17



---

##### Table of Contents

Allowance for Loan Losses

(dollars in thousands)



|                                                                                  |  |                                      |         |   |                                |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | -
|                                                                                  |  | For the Three Months Ended
March 31, |         |   | For the Year EndedDecember 31, |  
|                                                                                  |  | 2007                                 |         |   | 2006                           |   |         | 2006 | 
|Balances:                                                                         |  |                                      |         |   |                                |   |         |      |  |   |         |  
|Average gross loans outstanding during period                                     |  | $                                    | 214,845 |   |                                | $ | 176,711 |      |  | $ | 189,228 |  
|Total gross loans outstanding at end of period                                    |  |                                      | 214,916 |   |                                |   | 173,796 |      |  |   | 207,140 |  
|                                                                                  |  |                                      |        
|Allowance for loan losses:                                                        |  |                                      |         |   |                                |   |         |      |  |   |         |  
|Balance at beginning of period                                                    |  |                                      | 3,422   |   |                                |   | 2,939   |      |  |   | 2,939   |  
|Provision for loan losses                                                         |  |                                      | 90      |   |                                |   | 225     |      |  |   | 525     |  
|Loan charge-offs                                                                  |  |                                      |         |   |                                |   |         |      |  |   |         |  
|Real Estate - Construction                                                        |  |                                      |        |   |                                |   |        |      |  |   |        |  
|Real Estate - Other                                                               |  |                                      |        |   |                                |   |        |      |  |   |        |  
|Commercial                                                                        |  |                                      | (143    | ) |                                |   |        |      |  |   | (42     | )
|Consumer                                                                          |  |                                      | (7      | ) |                                |   | (26     | )    |  |   | (62     | )
|                                                                                  |  |                                      |         |   |                                |   |         |      |  |   |         |  
|Total loan charge-offs                                                            |  |                                      | (150    | ) |                                |   | (26     | )    |  |   | (104    | )
|                                                                                  |  |                                      |         |   |                                |   |         |      |  |   |         |  
|Recoveries                                                                        |  |                                      |         |   |                                |   |         |      |  |   |         |  
|Real Estate - Construction                                                        |  |                                      |        |   |                                |   |        |      |  |   |        |  
|Real Estate - Other                                                               |  |                                      |        |   |                                |   |        |      |  |   |        |  
|Commercial                                                                        |  |                                      |        |   |                                |   | 51      |      |  |   | 53      |  
|Consumer                                                                          |  |                                      |        |   |                                |   | 2       |      |  |   | 9       |  
|                                                                                  |  |                                      |         |   |                                |   |         |      |  |   |         |  
|Total recoveries                                                                  |  |                                      |        |   |                                |   | 53      |      |  |   | 62      |  
|                                                                                  |  |                                      |         |   |                                |   |         |      |  |   |         |  
|Net loan (charge-offs)/recoveries                                                |  |                                      | (150    | ) |                                |   | 27      |      |  |   | (42     | )
|                                                                                  |  |                                      |         |   |                                |   |         |      |  |   |         |  
|Balance at end of period                                                          |  | $                                    | 3,362   |   |                                | $ | 3,191   |      |  | $ | 3,422   |  
|                                                                                  |  |                                      |         |   |                                |   |         |      |  |   |         |  
|                                                                                  |  |                                      |        
|Ratios:                                                                           |  |                                      |         |   |                                |   |         |      |  |   |         |  
|Net loan charge-offs/(recoveries) to average loans1                              |  |                                      | 0.28    | % |                                |   | -0.06   | %    |  |   | 0.02    | %
|Allowance for loan losses to gross loans at the end of the period                 |  |                                      | 1.56    | % |                                |   | 1.84    | %    |  |   | 1.65    | %
|Net loan charge-offs/(recoveries) to allowance for loan losses at end of period1 |  |                                      | 17.85   | % |                                |   | -3.38   | %    |  |   | 1.23    | %
|Net loan charge-offs/(recoveries) to provision for loan losses                   |  |                                      | 166.67  | % |                                |   | -12.00  | %    |  |   | 8.00    | %

---

|1 | Interim periods annualized
|- | --------------------------

The Company intends to continue to concentrate the majority of its earning assets in commercial and real estate loans.
In all forms of lending there are inherent risks. Further, the Company does not engage in subprime lending.

While the Company believes
that its underwriting criteria are prudent, outside factors, such as recession in Southern California in the early 1990s, the Los Angeles earthquake of 1994, or slowdown in the Southern California economy in line with the slowdown
immediately following the September 11 terrorist attacks, could adversely impact credit quality. A repeat of these types of events could cause deterioration in the Companys loan portfolio.

The Company attempts to mitigate collection problems by supporting its loans by collateral. The Company also utilizes outside credit review processes to
independently monitor loan quality. A loan sample group is reviewed periodically at which time new loans, large loans and delinquent loans receive special attention. The use of the independent credit review process provides the Company with an
objective review of Managements identification of risk classification. To supplement Managements internal risk classification system, loans criticized during the credit review process or in conjunction with a regulatory examination, are
downgraded with appropriate allowances added, if needed.



18



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##### Table of Contents

Although Management believes the allowance for loan losses at March 31, 2007 is adequate to absorb
losses from known and inherent risks in the portfolio, no assurance can be given that economic conditions, which adversely affect the Companys service areas or other circumstances, will not result in increased losses in the loan portfolio in
the future.

Investment Security and Interest Bearing Deposits at Other Financial Institutions

The fair value of the investment security portfolio available for sale at March 31, 2007 is $12.0 million with a 3.60% yield. This compares to a fair
value of $14.2 million at December 31, 2006 with a 3.65% yield. The unrealized loss on available for sale investment securities at March 31, 2007 is $157,000 ($93,000 net of related income taxes) or 1.3% of amortized cost.

During the first three months of 2007, principal repayments and maturities of investment securities available for sale totaled $2.3 million. During 2006,
the Company initiated a plan to purchase income tax-free debt securities to take advantage of their income tax advantaged status. The portfolio of tax-free securities has a 6.2 years average life compared to an average life of approximately 3.0
years for the entire investment portfolio.

The following table summarizes the amortized cost and fair value of the Companys
available for sale investment security portfolio at March 31, 2007 and December 31, 2006. The Company has no securities classified as held to maturity or trading.



|                           |                 |                      |            |  |                         |        |  |           |   |  |                 |   |            |   |         |  |   |           |  |     |   |  |      |  
|-------------------------- | --------------- | -------------------- | ---------- |  | ----------------------- | ------ |  | --------- | - |  | --------------- | - | ---------- | - | ------- |  | - | --------- |  | --- | - |  | ---- | -
|                           |                 | As of March 31, 2007 |            |  | As of December 31, 2006 |       
|                           | Amortized Costs |                      | Fair Value |  | Percent                 |        |  | Yield (1) |   |  | Amortized Costs |   | Fair Value |   | Percent |  |   | Yield (1) | 
|US agencies                |                 | $                    | 4,000      |  | $                       | 3,981  |  | 33        | % |  | 3.05            | % |            | $ | 6,000   |  | $ | 5,968     |  | 42  | % |  | 3.29 | %
|Mortgage-backed securities |                 |                      | 4,771      |  |                         | 4,640  |  | 39        | % |  | 4.03            | % |            |   | 5,086   |  |   | 4,948     |  | 35  | % |  | 4.06 | %
|State and municipal bonds  |                 |                      | 3,342      |  |                         | 3,335  |  | 28        | % |  | 3.66            | % |            |   | 3,342   |  |   | 3,334     |  | 23  | % |  | 3.66 | %
|                           |                 |                      |            |  |                         |        |  |           |   |  |                 |   |            |   |         |  |   |           |  |     |   |  |      |  
|Total                      |                 | $                    | 12,113     |  | $                       | 11,956 |  | 100       | % |  | 3.60            | % |            | $ | 14,428  |  | $ | 14,250    |  | 100 | % |  | 3.65 | %
|                           |                 |                      |            |  |                         |        |  |           |   |  |                 |   |            |   |         |  |   |           |  |     |   |  |      |  

---

|1 | Yield on state and municipal
bonds is stated on a tax equivalent basis
|- | ----------------------------------------------------------------------

Deposits

Total deposits at March 31, 2007 were $239.9 million compared to $226.4 million at December 31, 2006. The largest category of deposit accounts at March 31, 2007, is non-interest bearing demand deposits
which make up 36.3% of total deposits. Thirty-four percent of total deposits are savings and money market accounts. At March 31, 2007 and December 31, 2006, the weighted average term to maturity of certificate of deposits was 6.7 months
and 6.1 months, respectively. The weighted average interest rates paid on time deposits was 4.63% and 4.52% at March 31, 2007 and December 31, 2006, respectively.

The table below reflects the major categories of deposits as a percentage of total deposits as of March 31, 2007 and December 31, 2006.

Deposits

(dollars in
thousands)



|                                   |  |                |         |         |                   |   |        |   |         |  |       |  
|---------------------------------- |  | -------------- | ------- | ------- | ----------------- | - | ------ | - | ------- |  | ----- | -
|                                   |  | March 31, 2007 |         |         | December 31, 2006 |  
|                                   |  | Amount         |         | Percent |                   |   | Amount |   | Percent | 
|Demand deposits                    |  | $              | 87,045  |         | 36.3              | % |        | $ | 90,248  |  | 39.9  | %
|NOW Accounts                       |  |                | 13,102  |         | 5.5               | % |        |   | 9,645   |  | 4.3   | %
|Savings and money market           |  |                | 81,553  |         | 34.0              | % |        |   | 67,770  |  | 29.9  | %
|Time deposits $100,000 and greater |  |                | 44,609  |         | 18.6              | % |        |   | 46,114  |  | 20.4  | %
|Time deposits less than $ 100,000  |  |                | 13,619  |         | 5.7               | % |        |   | 12,653  |  | 5.6   | %
|                                   |  |                |         |         |                   |   |        |   |         |  |       |  
|Total Deposits                     |  | $              | 239,928 |         | 100.0             | % |        | $ | 226,430 |  | 100.0 | %
|                                   |  |                |         |         |                   |   |        |   |         |  |       |  



19



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##### Table of Contents

Results of Operations

The net earnings during the three-month period ended March 31, 2007 were $1,071,000 or $.44 per diluted share compared to net earnings of $946,000 or $.39 per diluted share for the same quarter in 2006. Higher
net earnings in the quarter ending March 31, 2007 are primarily attributable to (i) a 9% increase in net interest income, offset by (ii) a 4% decrease in noninterest income, and (iii) an 8% increase in noninterest expense.

Net Interest Income and Net Interest Margin

Net interest income, the principal source of earnings, represents the difference between interest and fees earned from lending and investing activities and the interest paid on deposits used to fund those activities. Variations in the
pricing, volume, and mix of loans, investments and deposits and their relative sensitivity to movements in interest rates influence net interest income.

The yield earned on interest earning assets for the quarter ended March 31, 2007 was 8.57% compared to 7.87% for the quarter ended March 31, 2006. Interest bearing deposit costs for the first quarter of 2007
were 3.73% compared to 2.49% for the first quarter of 2006. The net interest margin or net interest income divided by average interest earning assets for the first quarter of 2007 and 2006 was 6.34% and 6.40%, respectively.

Loan, federal funds sold and investment security yields generally increased from 2006 to 2007 primarily due to: a) repricing of these assets at higher
yields, and b) higher interest rates charged on new assets. While interest yields increased from 2006 to 2007, deposit costs also increased significantly in 2007.

The Rate Volume Analysis tables set forth the changes in net interest income and disaggregates the effects that volume, or average balances, and interest rates have on the Companys interest earning assets and
interest bearing liabilities. For the three-months ended March 31, 2007, the increase in net interest income over the same prior year period is primarily attributable to the volume growth within the loan portfolio combined with increases in
loan yields. Higher interest rates paid on deposit accounts and an increase in the volume of time certificates of deposit offset the increases in interest income.



20



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##### Table of Contents

The table set forth below presents the dollar amount of changes in interest income and interest expense
for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the increase or decrease related to: (i) changes in balances, and (ii) changes in interest rates. For each category of
interest-earning assets and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (i.e., changes in volume multiplied by the old rate), and (ii) changes in rate (i.e., changes in rate
multiplied by old volume).

Rate Volume Analysis

For the three months ended March 31, 2007 compared to March 31, 2006

(dollars in thousands)



|                              |          |                                         |      |        |  |   |       |   |  |   |      |  
|----------------------------- | -------- | --------------------------------------- | ---- | ------ |  | - | ----- | - |  | - | ---- | -
|                              |          | Increases (Decreases) Due toChanges in: |     
|                              | Volume 1 |                                         |      | Rate 1 |  |   | Total |  
|Interest earning assets       |          |                                         |      |        |  |   |       |   |  |   |      |  
|Loans2                        |          | $                                       | 862  |        |  | $ | 92    |   |  | $ | 954  |  
|Federal funds sold            |          |                                         | (14  | )      |  |   | 13    |   |  |   | (1   | )
|Investment securities         |          |                                         | (108 | )      |  |   | (6    | ) |  |   | (114 | )
|                              |          |                                         |      |        |  |   |       |   |  |   |      |  
|Total interest income         |          |                                         | 740  |        |  |   | 99    |   |  |   | 839  |  
|                              |          |                                         |      |        |  |   |       |   |  |   |      |  
|                              |          |                                         |     
|Interest bearing liabilities  |          |                                         |      |        |  |   |       |   |  |   |      |  
|NOW accounts                  |          | $                                       | 6    |        |  | $ | 41    |   |  | $ | 47   |  
|Savings and money market      |          |                                         | (45  | )      |  |   | 218   |   |  |   | 173  |  
|Time certificates of deposits |          |                                         | 191  |        |  |   | 129   |   |  |   | 320  |  
|                              |          |                                         |      |        |  |   |       |   |  |   |      |  
|Total interest expense        |          |                                         | 152  |        |  |   | 388   |   |  |   | 540  |  
|                              |          |                                         |      |        |  |   |       |   |  |   |      |  
|                              |          |                                         |     
|Net interest income           |          | $                                       | 588  |        |  | $ | (289  | ) |  | $ | 299  |  
|                              |          |                                         |      |        |  |   |       |   |  |   |      |  

---

|1 | Changes in the interest earned and interest paid due to both the rate and volume have been allocated to
the change due to volume and the change due to rate in proportion to the relationship of the absolute dollar amounts of the changes in each.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | Loans are net of the allowance for loan losses, deferred fees and related direct costs.
|- | ---------------------------------------------------------------------------------------

For the first quarter, the primary reason for the increase in net interest income from 2006 to 2007 is the increase in
average interest earning assets and liabilities partially offset by higher interest costs paid on deposit accounts.



21



---

##### Table of Contents

The table set forth below shows the Companys average balances of interest-earning assets,
interest-earning liabilities, interest income and expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated:

Distribution, Yield and Rate Analysis of Net Income

(dollars in thousands)



|                                           |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|------------------------------------------ | -------------- | --------------------------------- | ---------------------- |  | --------------------------------- | ----- |  | -------------- | - | ---------------------- | - | ------------ |  | - | ----- |  | ---- | -
|                                           |                | Three-months ended March 31, 2007 |                        |  | Three-months ended March 31, 2006 |      
|                                           | AverageBalance |                                   | InterestIncome/Expense |  | Yield/Cost 1                      |       |  | AverageBalance |   | InterestIncome/Expense |   | Yield/Cost 1 | 
|Interest earning assets                    |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|Loans2                                     |                | $                                 | 214,569                |  | $                                 | 4,820 |  | 9.11           | % |                        | $ | 176,129      |  | $ | 3,866 |  | 8.90 | %
|Federal funds sold                         |                |                                   | 15,167                 |  |                                   | 196   |  | 5.24           | % |                        |   | 16,381       |  |   | 180   |  | 4.46 | %
|Investment securities                      |                |                                   | 14,253                 |  |                                   | 141   |  | 4.01           | % |                        |   | 30,118       |  |   | 272   |  | 3.66 | %
|                                           |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|Total interest-earning assets              |                |                                   | 243,989                |  |                                   | 5,157 |  | 8.57           | % |                        |   | 222,628      |  |   | 4,318 |  | 7.87 | %
|                                           |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|Non-interest earning assets                |                |                                   | 17,120                 |  |                                   |       |  |                |   |                        |   | 18,877       |  |   |       |  |      |  
|                                           |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|Total assets                               |                | $                                 | 261,109                |  |                                   |       |  |                |   |                        | $ | 241,505      |  |   |       |  |      |  
|                                           |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|                                           |                |                                   |                        |  |                                   |      
|Interest bearing liabilities               |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|NOW deposits                               |                | $                                 | 12,264                 |  | $                                 | 54    |  | 1.79           | % |                        | $ | 8,097        |  | $ | 8     |  | 0.40 | %
|Savings deposits and money market          |                |                                   | 75,397                 |  |                                   | 631   |  | 3.39           | % |                        |   | 83,292       |  |   | 457   |  | 2.23 | %
|Time deposits                              |                |                                   | 58,372                 |  |                                   | 658   |  | 4.57           | % |                        |   | 39,578       |  |   | 338   |  | 3.46 | %
|                                           |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|Total interest-bearing liabilities         |                |                                   | 146,033                |  |                                   | 1,343 |  | 3.73           | % |                        |   | 130,967      |  |   | 803   |  | 2.49 | %
|                                           |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|Demand deposits                            |                |                                   | 87,921                 |  |                                   |       |  |                |   |                        |   | 88,696       |  |   |       |  |      |  
|Non-interest-bearing liabilities           |                |                                   | 1,956                  |  |                                   |       |  |                |   |                        |   | 1,668        |  |   |       |  |      |  
|                                           |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|Total liabilities                          |                |                                   | 235,910                |  |                                   |       |  |                |   |                        |   | 221,331      |  |   |       |  |      |  
|                                           |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|Stockholders equity                       |                |                                   | 25,199                 |  |                                   |       |  |                |   |                        |   | 20,174       |  |   |       |  |      |  
|                                           |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|Total liabilities and stockholders equity |                | $                                 | 261,109                |  |                                   |       |  |                |   |                        | $ | 241,505      |  |   |       |  |      |  
|                                           |                |                                   |                        |  |                                   |       |  |                |   |                        |   |              |  |   |       |  |      |  
|                                           |                |                                   |                        |  |                                   |      
|Net interest spread3                       |                |                                   |                        |  | $                                 | 3,814 |  | 4.84           | % |                        |   |              |  | $ | 3,515 |  | 5.38 | %
|Net interest margin4                       |                |                                   |                        |  |                                   |       |  | 6.34           | % |                        |   |              |  |   |       |  | 6.40 | %

---

|1 | Interest rates for interim
periods have been annualized
|- | -------------------------------------------------------

|2 | Excludes allowance for loan
losses
|- | ----------------------------------

|3 | Represents the average rate
earned on interest-earning assets less the average rate paid on interest-bearing liabilities
|- | ------------------------------------------------------------------------------------------------------------------------

|4 | Represents net interest income
as a percentage of average interest-earning assets
|- | ---------------------------------------------------------------------------------



22



---

##### Table of Contents

Non-interest income

Non-interest income for the three months ended March 31, 2007 totaled $729,000 compared to $757,000 for the three months ended March 31, 2006. All major categories of non-interest income revenues, with the
exception of lease administration fees, increased in the first quarter 2007 over the same quarter last year. Lease administration fees declined by $88,000 during this period due to lower transaction volume. Lease administration fees are collected
under a subcontract with the Agua Caliente Band of Cahuilla Indians, a principal shareholder of the Company, for certain allocated reservation land transfers. ATM fee revenues are generated primarily from servicing ATMs owned by others, for
whom the Company performs settlement, monitoring, claims processing, and related services.

Loan related fees are made up of two primary
revenue drivers: mortgage banking fees and fees earned on servicing government guaranteed loans, primarily Section 184 fees as discussed below. Mortgage banking activity generated fee revenues of $25,800 during the first quarter of 2007
compared to $81,100 generated during the first quarter of the prior year. Higher interest rates in 2007 contributed to the decline in mortgage banking revenues from the prior year. In 2005, the Company expanded its tribal services division by
offering loans pursuant to the U.S. Department of Housing and Urban Developments Indian Home Loan Guarantee Program (Section 184). Congress established this program in 1994 and it was designed to offer home ownership, property rehabilitation,
and new construction opportunities for eligible Native American tribes, Native American authorities, and Native American individuals. To qualify for a loan under this program, borrowers and properties must meet pre-established criteria. The Company
acts as a broker in originating HUD Section 184 loans in eight Western states. The Company does not retain or service loans originated under this program. During the first quarter of 2007, the Company earned $139,700 in Section 184 fees,
compared to $71,600 during the first quarter of 2006.

In addition to mortgage banking fees and Section 184 fees, the Company also
generates loan related fees for loan servicing activities on loan participations sold to others and servicing fees derived from certain loans guaranteed by the Bureau of Indian Affairs.

Non-interest Expense

For the quarter ended March 31, 2007 and 2006 noninterest expenses totaled
$2,651,000 and $2,451,000, respectively. Increases in salaries and employee benefits, marketing and advertising, and other operating expense is primarily attributed to personnel merit and performance increases, expansion of facilities and equipment,
and additional personnel employed to service the Companys larger loan/deposit portfolios and products. Non-interest expenses related to the new branch opened in the first quarter 2006 were $159,000 for the first quarter 2007 while much lower
($61,000) for the first quarter 2006. Also contributing to higher general and administrative expenses in 2007 are personnel additions in the Tribal Services division of the Company.



23



---

##### Table of Contents

The table below reflects noninterest income, noninterest expense, and net noninterest expense.

Noninterest Income and Noninterest Expense

(dollars in thousands)



|                                                                             |        |                              |       |           |  |     |        |  |   |           |   |  |     |  
|---------------------------------------------------------------------------- | ------ | ---------------------------- | ----- | --------- |  | --- | ------ |  | - | --------- | - |  | --- | -
|                                                                             |        | Three-months Ended March 31, |      
|                                                                             | 2007   |                              |       | 2006      | 
|                                                                             | Amount |                              |       | % ofTotal |  |     | Amount |  |   | % ofTotal |  
|Noninterest income:                                                          |        |                              |       |           |  |     |        |  |   |           |   |  |     |  
|Service charges and fees                                                     |        | $                            | 166   |           |  | 23  | %      |  | $ | 136       |   |  | 18  | %
|Loan related fees                                                            |        |                              | 178   |           |  | 24  | %      |  |   | 166       |   |  | 21  | %
|Lease administration fees                                                    |        |                              | 222   |           |  | 30  | %      |  |   | 310       |   |  | 41  | %
|Automated teller machine fees                                                |        |                              | 163   |           |  | 22  | %      |  |   | 145       |   |  | 19  | %
|                                                                             |        |                              |       |           |  |     |        |  |   |           |   |  |     |  
|Total noninterest income                                                     |        |                              | 729   |           |  | 100 | %      |  |   | 757       |   |  | 100 | %
|                                                                             |        |                              |       |           |  |     |        |  |   |           |   |  |     |  
|                                                                             |        |                              |       |           |  | .   |        |  |   |           |   |  |     |  
|Noninterest expenses:                                                        |        |                              |       |           |  |     |        |  |   |           |   |  |     |  
|Salaries and employee benefits                                               |        |                              | 1,429 |           |  | 54  | %      |  |   | 1,315     |   |  | 54  | %
|Occupancy and equipment expense                                              |        |                              | 372   |           |  | 14  | %      |  |   | 328       |   |  | 13  | %
|Professional fees                                                            |        |                              | 70    |           |  | 3   | %      |  |   | 93        |   |  | 4   | %
|Data processing                                                              |        |                              | 144   |           |  | 5   | %      |  |   | 124       |   |  | 5   | %
|Marketing and advertising expense                                            |        |                              | 115   |           |  | 4   | %      |  |   | 104       |   |  | 4   | %
|Directors and shareholders expense                                           |        |                              | 112   |           |  | 5   | %      |  |   | 110       |   |  | 5   | %
|Other operating expense                                                      |        |                              | 409   |           |  | 15  | %      |  |   | 377       |   |  | 15  | %
|                                                                             |        |                              |       |           |  |     |        |  |   |           |   |  |     |  
|Total noninterest expenses:                                                  |        |                              | 2,651 |           |  | 100 | %      |  |   | 2,451     |   |  | 100 | %
|                                                                             |        |                              |       |           |  |     |        |  |   |           |   |  |     |  
|                                                                             |        |                              |       |          
|Net noninterest expense                                                      |        | $                            | 1,922 |           |  |     |        |  | $ | 1,694     |   |  |     |  
|                                                                             |        |                              |       |           |  |     |        |  |   |           |   |  |     |  
|                                                                             |        |                              |       |          
|Net noninterest expense as a percentage of average total assets (annualized) |        |                              | 2.94  | %         |  |     |        |  |   | 2.81      | % |  |     |  

Provision for Loan Losses

For the quarter ended March 31, 2007, the provision for loan losses the Company charged against current period earnings was $90,000 compared to $225,000 for the prior years same quarter. Management believes
that the credit quality of its loan portfolio remains relatively stable. The composition of its loan portfolio has also changed, with an increase in volume of secured real estate loans and a decrease in volume of unsecured commercial and consumer
loans. As a result, management deemed the level of its allowance for loan losses to be adequate and the provision charged against current period earnings to be adequate as well.

Provisions for loan losses are made monthly in anticipation of credit risks, which are inherent in the business of making loans. The Company sets aside
an allowance for loan losses through charges to earnings. The charges are reflected in the income statement as provision for loan losses. The provision for loan losses represents the amount charged against current period earnings to achieve an
allowance for loan losses that in Managements judgment is adequate to absorb losses inherent in the Companys loan portfolio. The procedures for monitoring the adequacy of the allowance, as well as detailed information concerning the
allowance itself, are included above under Allowance for Loan Losses.



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Liquidity

At March 31, 2007 and December 31, 2006 the Company had 17.2% and 14.6%, respectively, of total assets in cash and cash equivalents, federal funds sold, interest-bearing deposits in other financial institutions and investment
securities. Management deems this level of liquidity, combined with borrowing capacity, sufficient to support and meet the immediate and anticipated cash needs of the Company. The Companys sources of liquidity include deposits inflows,
repayments of loans and securities, sales/calls/maturities of investment securities, reduction in Federal Funds sold, and borrowing funds from correspondent banks, the Federal Reserve Bank Discount Window, the Federal Home Loan Bank of San Francisco
(FHLB-SF), or through repurchase agreement lines established. The Companys federal funds line of credit at correspondent banks is $13.0 million. In addition, as a member of the FHLB-SF, the Company may borrow funds and up to 25% of its assets.
Borrowing from the FHLB-SF must be collateralized by either qualified loans or investment securities. Uses of liquidity include funding loans, deposit outflows and the purchase of investment securities and fixed assets.

Provision for Income Taxes

The provision for income
taxes was $731,000 and $650,000 for the quarter ended March 31, 2007 and 2006, respectively. The increase in the income tax provision is commensurate with growth in pre-tax income. The Companys effective tax rate was 40.6% for the first
quarter of 2007 and 40.7% for the first quarter of 2006.

Asset Liability Management and Interest Rate Sensitivity

Interest Rate Risk

The principal objective of
interest rate risk management is to manage the financial components of the Companys assets and liabilities so as to optimize net income under varying interest rate environments. The focus of this process (often referred to as
asset/liability management) is the development, analysis, implementation and monitoring of earnings enhancement strategies that provide stable earnings and capital levels during periods of changing interest rates.

The Company manages the balance between rate-sensitive assets and rate-sensitive liabilities being repriced in any given period with the objective of
stabilizing net interest income during periods of fluctuating interest rates. The Company considers its rate-sensitive assets to be those which either contain a provision to adjust the interest rate periodically or mature within one year. These
assets include certain loans, certain investment securities and federal funds sold. Rate-sensitive liabilities are those which allow for periodic interest rate changes and include time certificates, certain savings and interest-bearing demand
deposits. The difference between the aggregate amount of assets and liabilities that are repricing at various time frames is called the interest rate sensitivity gap. Generally, if repricing assets exceed repricing liabilities in any
given time period the Company would be deemed to be assetsensitive for that period. If repricing liabilities exceed repricing assets in a given time period the Company would be deemed to be liability-sensitive for that
period. The Company intends to seek to maintain a balanced position over the period of one year in which it has no significant asset or liability sensitivity to ensure net interest margin stability in times of volatile interest rates. This will be
accomplished by maintaining a significant level of loans and deposits available for repricing within one year.

The change in net interest
income may not always follow the general expectations of an asset-sensitive or liability-sensitive balance sheet during periods of changing interest rates. This possibility results from interest rates earned or paid changing
by differing increments and at different time intervals for each type of interest-sensitive asset and liability.

Net interest income
simulation. As of March 31, 2007, the Company used a simulation model to measure the estimated changes in net interest income that would result over the next 12 months from increasing and decreasing interest rates. This model is an interest
rate management tool and the results are not necessarily an indication of our future net interest income. This model has inherent limitations and these results are based on a given set of rate changes and assumptions at one point in time. The model
assumes no growth in either the Companys interest-sensitive assets or liabilities over the next 12 months; therefore, the results reflect an interest rate shock to a static balance sheet.

This analysis calculates the difference between net interest income forecasted using both increasing and decreasing interest rate scenarios and net
interest income forecasted using a base market interest rate. In order to



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arrive at the base case, the Companys balance sheet at March 31, 2007 was extended one year and any assets and liabilities that would
contractually reprice or mature during that period were repriced using the products pricing as of March 31, 2007. Changes that may vary significantly from these assumptions include loan and deposit growth or contraction, changes in the
mix of earning assets or funding sources, and future asset/liability management decisions, all of which may have significant effects on the Companys net interest income.

The simulation results indicate the Companys interest rate risk position was asset sensitive as the simulated impact of an upward movement in
interest rates would result in increases in net interest income over the next 12 month period while a downward movement in interest rates would result in a decrease in net interest income over the next 12 months.

Market Value of Equity

The Company measures the
impact of market interest rate changes on the net present value of estimated cash flows from its assets, liabilities and off-balance sheet items, defined as market value of equity, using a simulation model. This simulation model assesses the changes
in the market value of the Companys interest-sensitive financial instruments that would occur in response to an immediate and sustained increase or decrease in market rates of 50, 100, 150 and 200 basis points. This analysis assigns
significant value to noninterest-bearing deposit balances. The projections are by their nature forward-looking and therefore inherently uncertain, and include various assumptions regarding cash flows and interest rates. This model in an interest
rate risk management tool and the results are not necessarily an indication of the Companys actual future results. Actual results may vary significantly from model results. Loan prepayments and deposit attrition, changes in the mix of earning
assets or funding sources, and future asset/liability management decisions, among others, may vary significantly from our assumptions.

The
results of the market value of equity model indicate that an increase in interest rates would decrease the Companys market value of equity from the base case while a decrease in interest rates would increase the market value of equity.

Gap Analysis

As part of the interest
rate management process, the Company uses a gap analysis. A gap analysis provides information about the volume and repricing characteristics and relationship between the amounts of interest-sensitive assets and interest-bearing liabilities at a
particular point in time. An effective interest rate strategy attempts to match the volume of interest-sensitive assets and interest-bearing liabilities repricing over different time intervals. The table on the next page illustrates the volume and
repricing characteristics of the Companys balance sheet at March 31, 2007 over the indicated time intervals.



26



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##### Table of Contents

Interest Rate Sensitivity Analysis

as of March 31, 2007

(dollars in thousands)



|                                                                       |  |                                     |         |   |             |   |        |           |  |   |               |   |  |       |        |   |  |   |        
|---------------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ----------- | - | ------ | --------- |  | - | ------------- | - |  | ----- | ------ | - |  | - | -------
|                                                                       |  | Amounts Subject to Repricing Within |         |   |            
|                                                                       |  | 3 months and less                   |         |   | 3-12 months |   |        | 1-5 years |  |   | After 5 years |   |  | Total
|Interest-earning assets                                                |  |                                     |         |   |             |   |        |           |  |   |               |   |  |       |        |   |  |   |        
|Gross loans1                                                           |  | $                                   | 101,104 |   |             | $ | 32,720 |           |  | $ | 68,907        |   |  | $     | 11,839 |   |  | $ | 214,570
|Certificates of deposit                                                |  |                                     | 1,600   |   |             |   |       |           |  |   |              |   |  |       |       |   |  |   | 1,600  
|Investments2                                                           |  |                                     | 3,981   |   |             |   | 1,716  |           |  |   | 3,237         |   |  |       | 3,022  |   |  |   | 11,956 
|Federal funds sold                                                     |  |                                     | 20,085  |   |             |   |       |           |  |   |              |   |  |       |       |   |  |   | 20,085 
|                                                                       |  |                                     |         |   |             |   |        |           |  |   |               |   |  |       |        |   |  |   |        
|Total                                                                  |  |                                     | 126,770 |   |             |   | 34,436 |           |  |   | 72,144        |   |  |       | 14,861 |   |  |   | 248,211
|                                                                       |  |                                     |         |   |             |   |        |           |  |   |               |   |  |       |        |   |  |   |        
|                                                                       |  |                                     |         |   |            
|Interest-bearing liabilities                                           |  |                                     |         |   |             |   |        |           |  |   |               |   |  |       |        |   |  |   |        
|NOW accounts                                                           |  |                                     | 13,102  |   |             |   |       |           |  |   |              |   |  |       |       |   |  |   | 13,102 
|Savings and money market                                               |  |                                     | 81,553  |   |             |   |       |           |  |   |              |   |  |       |       |   |  |   | 81,553 
|Time deposits of $100,000 or more                                      |  |                                     | 22,884  |   |             |   | 18,085 |           |  |   | 3,640         |   |  |       |       |   |  |   | 44,609 
|Other deposits                                                         |  |                                     | 4,689   |   |             |   | 6,952  |           |  |   | 1,978         |   |  |       |       |   |  |   | 13,619 
|                                                                       |  |                                     |         |   |             |   |        |           |  |   |               |   |  |       |        |   |  |   |        
|Total                                                                  |  | $                                   | 122,228 |   |             | $ | 25,037 |           |  | $ | 5,618         |   |  | $     |       |   |  | $ | 152,883
|                                                                       |  |                                     |         |   |             |   |        |           |  |   |               |   |  |       |        |   |  |   |        
|                                                                       |  |                                     |         |   |            
|Interest rate sensitivity gap                                          |  | $                                   | 4,542   |   |             | $ | 9,399  |           |  | $ | 66,526        |   |  | $     | 14,861 |   |  | $ | 95,328 
|Cumulative interest rate sensitivity gap                               |  |                                     | 4,542   |   |             |   | 13,941 |           |  |   | 80,467        |   |  |       | 95,328 |   |  |   |        
|Cumulative interest rate sensitivity gap ratio (based on total assets) |  |                                     | 1.7     | % |             |   | 5.2    | %         |  |   | 30.1          | % |  |       | 35.6   | % |  |   |        

---

|1 | Excludes non-accrual loans.
|- | ---------------------------

|2 | Excludes investments in equity
securities which has no stated maturity.
|- | -----------------------------------------------------------------------

Capital Resources and Adequacy

Shareholders equity was $25.8 million or 9.64% of total assets at March 31, 2006. The ratio of shareholders equity to total assets at
December 31, 2006 was 9.68%. The decrease in the equity to asset ratio is due to asset growth (6.1%) outpacing capital growth (5.7%). The Banks capital level exceeded the regulatory defined minimum capital requirement of Tier 1 and
Tier 2 capital to total assets and/or risk-weighted assets at March 31, 2007 and December 31, 2006. Furthermore, all capital ratios exceed the regulatory minimum requirements for a Well Capitalized institution. The Prompt
Corrective Action Guidelines to the FDIC Improvement Act (FDICIA) requires a Well Capitalized financial institution to maintain a Leverage Capital Ratio of 5.0% or greater; a Tier 1 Risk-Based Capital Ratio of 6% or greater;
and a Total Risk-Based Capital Ratio of 10.0% or greater, provided that such institution is not subject to a regulatory order, agreement or directive to meet and maintain a specified capital level.



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##### Table of Contents

The Banks actual capital amounts and ratios as of March 31, 2007 and December 31, 2006
are presented in the following table:

Regulatory Capital

(dollars in thousands)



|                                                |                |                   |        |                            |  |        |                    |  |        |  
|----------------------------------------------- | -------------- | ----------------- | ------ | -------------------------- |  | ------ | ------------------ |  | ------ | -
|                                                |                | March 31, 2007    |       
|                                                | Tier 1 Capital |                   |        | Tier 1 Risk- Based Capital |  |        | Risk-Based Capital | 
|Actual capital:                                 |                |                   |        |                            |  |        |                    |  |        |  
|Amount                                          |                | $                 | 25,144 |                            |  | 25,144 |                    |  | 27,826 |  
|Ratio                                           |                |                   | 9.6    | %                          |  | 11.8   | %                  |  | 13.0   | %
|                                                |                |                   |        |                            |  |        |                    |  |        |  
|FDICIA well capitalized required capital:       |                |                   |        |                            |  |        |                    |  |        |  
|Amount                                          |                | $                 | 13,055 |                            |  | 12,820 |                    |  | 21,367 |  
|Ratio                                           |                |                   | 5.0    | %                          |  | 6.0    | %                  |  | 10.0   | %
|                                                |                |                   |        |                            |  |        |                    |  |        |  
|FDICIA adequately capitalized required capital: |                |                   |        |                            |  |        |                    |  |        |  
|Amount                                          |                | $                 | 10,444 |                            |  | 8,547  |                    |  | 17,094 |  
|Ratio                                           |                |                   | 4.0    | %                          |  | 4.0    | %                  |  | 8.0    | %
|                                                |                |                   |        |                            |  |        |                    |  |        |  
|                                                |               
|                                                |                | December 31, 2006 |       
|                                                | Tier 1 Capital |                   |        | Tier 1 Risk- Based Capital |  |        | Risk-Based Capital | 
|Actual capital:                                 |                |                   |        |                            |  |        |                    |  |        |  
|Amount                                          |                | $                 | 24,045 |                            |  | 24,045 |                    |  | 26,575 |  
|Ratio                                           |                |                   | 9.3    | %                          |  | 11.9   | %                  |  | 12.6   | %
|                                                |                |                   |        |                            |  |        |                    |  |        |  
|FDICIA well capitalized required capital:       |                |                   |        |                            |  |        |                    |  |        |  
|Amount                                          |                | $                 | 12,879 |                            |  | 12,081 |                    |  | 20,134 |  
|Ratio                                           |                |                   | 5.0    | %                          |  | 6.0    | %                  |  | 10.0   | %
|                                                |                |                   |        |                            |  |        |                    |  |        |  
|FDICIA adequately capitalized required capital: |                |                   |        |                            |  |        |                    |  |        |  
|Amount                                          |                | $                 | 10,303 |                            |  | 8,054  |                    |  | 16,107 |  
|Ratio                                           |                |                   | 4.0    | %                          |  | 4.0    | %                  |  | 8.0    | %
|                                                |                |                   |        |                            |  |        |                    |  |        |  

The following table reconciles the Banks capital in accordance with generally accepted
accounting principles to its Tier 1 leveraged, Tier 1 risk-based and risk-based capital as of March 31, 2007 and December 31, 2006:

Regulatory Capital

(dollars in thousands)



|                                                                                                                            |  |                |        |   |                   |   |        |  
|--------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------ | -
|                                                                                                                            |  | March 31, 2007 |        |   | December 31, 2006 |  
|Capital in accordance with generally accepted accounting principles                                                         |  | $              | 25,050 |   |                   | $ | 23,939 |  
|Adjustments for Tier 1 capital and Tier 1 risk based capital -unrealized (loss) on investment securities available for sale |  |                | (94    | ) |                   |   | (106   | )
|                                                                                                                            |  |                |        |   |                   |   |        |  
|Total Tier 1 capital and Tier 1 risk-based capital                                                                          |  |                | 25,144 |   |                   |   | 24,045 |  
|Adjustments for risk-based capital - allowance for credit losses 1                                                          |  |                | 2,682  |   |                   |   | 2,530  |  
|                                                                                                                            |  |                |        |   |                   |   |        |  
|Total risk-based capital                                                                                                    |  | $              | 27,826 |   |                   | $ | 26,575 |  
|                                                                                                                            |  |                |        |   |                   |   |        |  

---

|1 | Limited to 1.25% of
risk-weighted assets.
|- | -----------------------------------------

The Company is a small bank holding company under the Federal Reserve Boards guidelines, and
thus qualifies for an exemption from the consolidated risk-based and leverage capital adequacy guidelines applicable to bank holding companies with assets of $500 million or more. However, while not required to do so under the Federal Reserve
Boards capital adequacy guidelines, the Company still maintained levels of capital on a consolidated basis which qualified it as well capitalized as of March 31, 2007.



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|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|------- | ---------------------------------------------------------

Please see the section above titled Asset/Liability Management and Interest Rate Sensitivity in Item 2. Managements Discussion or Plan of Operations which provides an update to the Companys quantitative
and qualitative disclosure about market risk. This analysis should be read in conjunction with text under the caption Interest Rate Risk Management in the Companys Annual Report on Form 10-KSB for the year ended December 31,
2006, which text is incorporated here by reference. This analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Item 2 regarding such forward-
looking information.



|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

The Companys Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the
Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report (the Evaluation Date), have concluded that as of the Evaluation Date, the
Companys disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this
quarterly report was being prepared. There were no significant changes in the Companys internal controls over financial reporting during the quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially
affect, the Companys internal controls over financial reporting.

Disclosure controls and procedures are designed to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no significant changes in the Companys internal controls over financial
reporting that occurred in the first quarter of 2007 that have materially affected, or are reasonably likely to materially affect the Companys internal control over financial reporting.



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##### Table of Contents

Part II- Other Information

Item 1 - Legal Proceedings

As of March 31, 2007, the Company was not a party to any significant
legal proceedings.

Item 1a -Risk Factors

There have been no material changes with respect to the risk factors described in
Item 1 to the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006, which Item 1 is incorporated herein by reference.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item 3 - Defaults upon Senior Securities

Not applicable

Item 4 - Submission of Matters to a Vote of Security Holders

Not applicable

Item 5 - Other Information

Not applicable

Item 6 - Exhibits



| | 31.1 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| | ---- | --------------------------------------------------------------------------------------------------



| | 31.2 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| | ---- | --------------------------------------------------------------------------------------------------



| | 32.1 | Certification of Chief Executive Officer and 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 Exchange Act, the Company has caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.



|                   |  |                                          
|------------------ |  | -----------------------------------------
|                   |  | Canyon Bancorp                           
|                   |  | (Registrant)                             
|                   | 
|Date: May 11, 2007 |  | /s/ Stephen G. Hoffmann                  
|                   |  | Stephen G. Hoffmann                      
|                   |  | President and Chief Executive Officer    
|                   | 
|                   |  | /s/ Jonathan J. Wick                     
|                   |  | Jonathan J. Wick                         
|                   |  | Executive Vice President, Chief Operating
|                   |  | Officer and Chief Financial Officer      



31