UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-KSB





[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
fiscal year ended December 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 333-141453





BELVEDERE
SOCAL


(Name of
small business issuer as specified in its charter)




State
      of California
            20-8356735(State or other
      jurisdiction of employee incorporation or organization)
            (I.R.S. Employer
      Identification No.)One
      Maritime Plaza, Suite 825, San Francisco
            California
      94111(Address of
      principal executive offices)
            (Zip
      Code)





Issuer’s
telephone number (415)
434-1236





Securities
registered under Section 12(b) of the Act: None





Securities
registered under Section 12(g) of the Act:






Title of each
      class
            Name
      of each exchange on which registeredCommon Stock, (no
      par value)
            None




Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.  [   ]





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 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
[   ]





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB  [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]





Registrant’s
revenues for 2007 were $1.9 million.





The
aggregate market value of the voting common stock held by non-affiliates of the
Registrant at March 21, 2008 was $10,382,606.





As of
March 21, 2008, the Registrant had 3,325,803 shares of Common Stock
outstanding.





Transitional
Small Business Disclosure Format (check one)  Yes [
  ]    No[X]









TABLE
OF CONTENTS











PART IItem 1.
            Description of
      Business
            3Item 2.
            Description of
      Property
            29Item 3.
            Legal
      Proceedings
            29Item 4.
            Submission of
      Matters to a Vote of Security Holders
            29PART IIItem 5.
            Market for Common
      Equity and Related Stockholder Matters
            30Item 6.
            Management’s
      Discussion and Analysis or Plan of Operations
            31Item 7.
            Financial
      Statements
            49Item 8.
            Changes in and
      Disagreements With Accountants on Accounting and
      Financial Disclosure
            105Item
8A(T).
            Controls and
      Procedures
            105Item 8B.
            Other
      Information
            106PART IIIItem 9.
            Directors, Executive
      Officers, Promoters, Control Persons and
      Corporate Governance; Compliance with Section 16(a)of
      the Exchange Act
            106Item 10.
            Executive
      Compensation
            106Item 11.
            Security Ownership
      of Certain Beneficial Owners and Management,
      and Related Stockholder Matters
            107Item 12.
            Certain
      Relationships and Related Transactions, and Director Independence
            107Item 13.
            Exhibits
            108Item 14.
            Principal Accountant
      Fees and Services
            108




2




PART
I




ITEM
1. DESCRIPTION OF BUSINESS.
 
 GENERAL
 
 Belvedere
SoCal (“SoCal”) is a bank holding company formed in 2007 with the vision of
becoming Southern California’s premier provider of financial services for small
businesses.  Through its focus on small business customers,
experienced management and staff, disciplined credit policies, and emphasis on
the customer experience, SoCal intends to grow rapidly by attracting highly
talented employees, opening new branch offices and making strategic
acquisitions.
 
 History.  As
part of its acquisition strategy, SoCal has completed two acquisitions that fit
with its growth model.  Each of these acquisitions brings a low-cost
deposit base, a footprint in markets with attractive growth potential, and a
talented employee base with a strong emphasis on customer service.
 
 On
November 23, 2007, SoCal completed the merger of Professional Business Bank with
a subsidiary of SoCal.  Professional Business Bank has demonstrated
that it has an excellent platform from which to organically grow and to support
additional acquisitions.  As of September 30, 2007, Professional
Business Bank had assets of $214.1 million, net loans of $188.5 million,
deposits of $180.9 million and shareholders’ equity of $20.2
million.
 
 On
January 31, 2008, SoCal completed the acquisition of Spectrum Bank a California
state charted bank headquartered in Irvine, California.  The
consideration paid in the transaction consisted of $22 million in cash and $15
million of trust preferred securities issued to certain former Spectrum Bank
shareholders.  Spectrum Bank has branch offices in Montebello and
Huntington Beach, California.  As of December 31, 2007, Spectrum Bank
had assets of $157.2 million, net loans of $79.7 million, deposits of $143.4
million and shareholders’ equity of $12.7 million.  This low ratio of
loans to deposits presents an opportunity for Spectrum Bank to grow its loan
portfolio by actively pursuing deeper business relationships with its current
customer base and gives Spectrum Bank the flexibility to pursue new customers by
leading with loan products.
 
 SoCal is
currently structured as a two bank holding company and the two subsidiary banks
collectively are referred to in this 10-KSB as the “Subsidiary
Banks.”  It is anticipated that the Subsidiary Banks will enter
into a merger agreement in the second quarter whereby Spectrum Bank will be
merged into Professional Business Bank.  Such merger will be subject
to regulatory approval and is anticipated to close in July 2008.
 
 Relationship
with Belvedere
Capital.Following the recently
completed acquisition of Spectrum Bank, 73.0% of SoCal’s common stock is owned
by Belvedere Capital Fund II L.P. (the “Fund”).
 
 Based in
San Francisco, CA, Belvedere Capital has established itself as one of the
leading private equity investors in community banks and related financial
services in the U.S.  Since 1994, Belvedere Capital has purchased or
invested in 18 financial services companies and partnered with strong management
teams to build profitable, growing franchises and deliver excellent returns to
its investors.  Belvedere Capital’s principals have decades of
experience investing in and operating financial institutions and will work with
SoCal to enhance growth, operating performance and strategic
positioning.
 
 The Fund
is a Delaware limited partnership formed in 2002 by Belvedere Capital. It is a
private investment fund with 30 limited partners and one general partner. Both
the Fund and its general partner are registered bank holding companies. Two of
the Fund’s principals were the original founders of the successful first
Belvedere Capital fund, California Community Financial Institutions Fund,
L.P.
 
 Trading and
Disclosure.  SoCal’s common stock is currently quoted on the
OTC Bulletin Board under the symbol “BLVE.”  Since the shares of SoCal
common stock issued in the merger with Professional Business Bank were
registered with the SEC, SoCal will file periodic reports (such as quarterly
reports on form 10-Q), and make other required filings with the SEC pursuant to
the Securities Exchange Act of 1934 until at least December 31, 2008.
Whether or not it will continue to file reports thereafter will depend on the
number of SoCal shareholders and other factors.  No assurances can be
given that SoCal will continue to file reports with the SEC after that
date.





3





BUSINESS
PLAN




SoCal
intends to cause the Subsidiary Banks to provide responsive, personalized
financial products and services to small- and medium-sized businesses,
professionals, and high net worth individuals in Southern California. Upon
completion of the two recent mergers, both Subsidiary Banks continued to offer
substantially the same products and services previously offered by
them.  To accomplish its goal of becoming Southern California’s
premier business banking franchise, SoCal intends to deepen and expand its
relationships with business customers, maintain its strong credit culture, and
pursue both organic growth and growth through opportunistic
acquisitions.
 
 Business Banking
Strategy.  Due to the high number of small- and medium-sized
businesses in Southern California, and the attractive economics associated with
business-banking, SoCal believes that there is an excellent opportunity to build
a business-focused community bank throughout Southern California.  The
Subsidiary Banks will focus intensely on these business customers, their
employees, and associated high net worth individuals by serving them with a full
suite of community banking products that are tailored to each customer’s
individual need.  SoCal believes that this market opportunity is large
enough that its exclusive focus on these customers will present significant
opportunities for improved profitability.
 
 SoCal
will devote significant resources to continuing to strengthen the Subsidiary
Banks’ low-cost deposit bases by pursuing customers with the most attractive
deposit characteristics.  In some cases, the Subsidiary Banks will use
their lending products as a means to capturing the deposit business from these
customers.
 
 Credit
Culture.  Over the past five years, the Subsidiary Banks have
had loss ratios that are among the best in their industry through their
conservative lending profiles, focus on their local communities, and emphasis on
establishing deep relationships with each of their customers.  SoCal
intends to build on these strong credit cultures through a vigorous loan
approval process that includes careful underwriting and pricing of
risk.  The Subsidiary Banks will balance their strict adherence
to conservative underwriting standards while retaining their most
profitable customers.  The Subsidiary Banks have not historically
engaged in, and do not intend to engage in, any meaningful subprime or single
family residence lending. Despite these factors, a further weakening of the
economy and softening of the real estate market could cause SoCal to experience
increased losses in our loan portfolio, which would affect earnings and
adversely affect the capital ratios of the Subsidiary Banks.
 
 OrganicGrowth
Strategy. SoCal’s organic growth strategy has two components
–  hiring of additional staff and adding branch offices. SoCal will
seek to grow its balance sheet by hiring highly talented Relationship Managers
(“RMs”) throughout Southern California.  Through the personal networks
of SoCal’s Executive Chairman and the Chief Executive Officer, existing staff,
the Fund’s connections and management recruiters, the Subsidiary Banks will seek
to identify and attract top performers.




4




SoCal
believes that its aggressive growth strategy will be a meaningful differentiator
for potential RMs versus SoCal’s competition.  This difference will be
accentuated in the current market environment when many of SoCal’s competitors
are distracted by loan problems and thereby tightening their lending standards,
restricting RM loan production and their corresponding
compensation.  Due to its strong credit culture, SoCal believes that
it will be able to focus on its growth strategy.
 
 SoCal
uses an RM compensation system that attempts to closely align employee
incentives with those of shareholders, offering a pay-for-performance package
with significant upside and work flexibility for top performers. This
compensation package combines a competitive base salary with uncapped upside,
enabling SoCal RMs and potential hires to earn more with SoCal than they could
at other local institutions.
 
 Furthermore, the Subsidiary Banks will
promote a work environment embracing flexibility for employees and a productive,
positive relationship between the RMs and other key segments of the institution.
This environment can be a significant non-monetary differentiator for potential
employees when comparing the Subsidiary Banks to its larger competitors. SoCal
expects its organic growth strategy, in particular the hiring of RMs, will be
expensive. However, SoCal also believes this investment in personnel and
infrastructure is critical for its long term profitability.
 
 Although there are no specific branches
yet planned, the Subsidiary Banks will open branches in new geographies to
support the needs of newly hired RMs and their customers. These branches will
offer the Subsidiary Banks’ traditional products and services and also provide
marketing support as the Subsidiary Banks enter new geographies in Southern
California.
 
 Acquisition
Strategy.  In addition to organic growth, SoCal believes that
an opportunity exists to grow the franchise throughout Southern California with
several opportunistic acquisitions. These acquisitions are expected to range in
asset size from $100 million to $1 billion and will provide personnel, customers
and geographic access complementary to SoCal’s existing franchise. Cost synergy
may also help to make SoCal more profitable. While the Fund and SoCal
continually are presented with and seek out acquisition opportunities to enhance
SoCal’s value, at this time, SoCal has no specific plans, arrangements or
understandings to make any acquisitions.
 
 SoCal believes that acquisition
opportunities will result from an increasing willingness to sell by community
banks as well as SoCal’s attractive model for combinations. In the increasingly
competitive bank environment, SoCal believes that many bank owners and operators
will find it more difficult than ever to grow profitably. SoCal believes it is
reasonable to expect a number of Southern California community banks to partner
with other institutions.
 
 SoCal expects that its model for
acquisitions will be very attractive to potential sellers, as many shareholders
would like their equity to participate in the future growth of their institution
post-transaction and that opportunity will be offered to them by SoCal. SoCal
expects to offer these shareholders an experienced management team and strong
underlying platform.
 
 Capitalization
Strategy.SoCal intends to operate above the
“well-capitalized” thresholds of Federal and State regulatory
bodies.  SoCal’s and its Subsidiary Banks’ regulatory capital
obligations will increase as SoCal executes on its growth plan.  At
the Subsidiary Bank level, SoCal intends to satisfy these obligations through
internally generated profits.  At the holding company level, capital
will be augmented through payment of dividends from the Subsidiary
Banks.  To the extent the Subsidiary Banks’ profits are insufficient
to pay dividends that will allow SoCal to satisfy its ongoing obligations and
provide sufficient retained earnings to satisfy its capital needs, SoCal will
undertake outside capital raises in the form of senior and subordinated debt,
trust preferred, non-cumulative perpetual preferred and common
equity.
 
 Loan Services of
Our Subsidiary Banks.Through our
Subsidiary Banks we offer commercial loans, lines of credit, certain consumer
and installment loans, commercial and residential construction loans, commercial
real estate loans, as well as certain specialized products such as SBA and
CalCAP loans. Through outsourcing or referring loans to other lenders in return
for fee income, we are able to assist our customers to procure certain loans not
maintained in our portfolio, such as long term real estate loans.
 
 We offer
loans to eligible small businesses that are guaranteed by the United States
Small Business Administration, as well as loans primarily for real
estate-related projects under Section 504 of the Small Business
Administration Act of 1953, such as for purchasing land and improvements,
construction, modernizing or converting existing facilities and purchasing
certain machinery and equipment. SBA loans are written at variable rates of
interest which generally are limited by SBA guidelines.






5




Like many other government programs,
the SBA lending programs are federal government programs authorized by
legislation and uncertainties surround the SBA programs due to reliance on the
U.S. Congress. The level of funding for SBA loan programs is subject to the
federal budgeting process for each fiscal year. Discontinuation, elimination or
a significant reduction of one or more programs in which we participate could
adversely affect our plans for SBA lending.
 
 We offer loans to small- and
medium-sized businesses under the CalCAP program. Under the CalCAP program, the
borrower, CalCAP and Professional Business Bank contribute funds to a loss
reserve account, or CalCAP reserve, that we hold in an interest-bearing demand
account. Losses on loans originated under the CalCAP program will be charged to
the CalCAP reserve account after notification to CalCAP. Although there is no
plan to leave the CalCAP program, if that event were to occur, any excess funds
in the CalCAP reserve account, after all loans have been repaid and there are no
pending claims for reimbursement, will be distributed to CalCAP and us based on
contributions to the CalCAP reserve account. The allowance for loan losses
allocated to the CalCAP loans takes into consideration the credit support
provided by the CalCAP reserve account. At December 31, 2007, the balance of
loans outstanding under the CalCAP program totaled $29.9 million on commitments
of $35.0 million.
 
 We also offer a variety of consumer
loans, including home equity loans, home improvement loans and auto loans.
Although consumer loans comprise a proportionately smaller portion of our
overall loan portfolio, such loans are important in terms of servicing customer
needs in our target market area, as well as to assist us in meeting our
Community Reinvestment Act responsibilities.
 
 Deposit Services
of Our Subsidiary Banks. Through our Subsidiary
Banks we offer personal and business checking, money market, savings account,
certificates of deposit, and IRA accounts, all of which can be incorporated into
a comprehensive banking package. Depositors have the option of subscribing for a
wide range of electronic services including online banking, ATM and debit cards,
and telebanking. We believe that this inventory of integrated account-management
products supports our customer loan-related balance requirements and
asset-liability management practices. The types and terms of our deposit
accounts are on competitive terms. The interest rates payable by banks on the
various types of deposit instruments (except for commercial demand deposits) are
a function of a number of factors, including rates paid by competition, the need
for liquidity for lending operations and monetary policy of the Board of
Governors of the Federal Reserve System (the “Federal Reserve”).
 
 In addition to our more traditional
deposit services, we offer specialized deposit services for title and escrow
company clients that move substantial amounts of funds in and out of deposit
accounts as escrows for the purchase of real estate and other types of
transactions open and close.  In addition, Spectrum Bank offers
specialized deposit services for ACH payment processors, who, like title and
escrow companies, move substantial amounts of funds in and out of accounts in
processing ACH payments.
 
 Online Banking
Services of Our Subsidiary Banks.Our Subsidiary
Banks’ websites (www.probizbank.com
and www.spectrumbank.com)
offer a complete on-line banking solution for our customers. On these websites,
customers are able to check their balances, transfer funds, review past
transactions, and contact us online. In addition, we recently added online bill
payment.
 
 Management by the
Fund. SoCal,
Professional Business Bank and the Fund entered into a management agreement
under which the Fund will provide to SoCal and Professional Business Bank
certain management support for a fee. A new management agreement is currently
under consideration by the SoCal board of directors that would include SoCal,
Professional Business Bank and Spectrum Bank.  In addition the Fund
will work with SoCal in identifying, structuring, negotiating and completing
acquisitions. See “Factors that May Affect our Performance” beginning on page 19
for a more complete discussion of the risks involved with SoCal’s growth
strategy and the Fund’s continuing role in the management of SoCal.





6




EMPLOYEES
 
 At
December 31, 2007, we had 43 full-time employees and 3 part-time employees.
Following the acquisition of Spectrum Bank on January 31, 2008, we increased to
76 full-time employees and 5 part-time employees.  Our employees are
not represented by a union or other collective bargaining agreement and we
consider our relations with our employees to be
satisfactory.
  CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE





SoCal has
had no disagreements with its accountants on accounting or financial
disclosure.





COMPETITION





The
banking and financial services industry in California generally, and in our
market areas specifically, is highly competitive. The increasingly competitive
environment is a result primarily of changes in laws and regulation, changes in
technology and product delivery systems, and the accelerating pace of
consolidation among financial services providers. Our primary market area is
dominated by a relatively small number of major banks that have many offices
operating over a wide geographical area. We compete for loans, deposits, and
customers with other commercial banks, savings and loan associations, securities
and brokerage companies, mortgage companies, insurance companies, finance
companies, money market funds, credit unions, and other non-bank financial
service providers. Many of these competitors are much larger in total assets and
capitalization, have greater access to capital markets and offer a broader range
of financial services. Nondepository institutions can be expected to increase
the extent to which they act as financial intermediaries. Furthermore, the
geographic constraints on portions of the financial services industry can be
expected to erode. In addition, many of the major commercial banks operating in
our primary market area offer services, such as trust and securities brokerage
services, which are not offered directly by us and, by virtue of their greater
total capitalization, such banks have substantially higher lending
limits.




To
compete with other financial institutions in our primary market area, we rely
principally upon personal contact by our officers, directors and employees and
providing, through third parties, specialized services such as messenger,
accounting and other related services. For clients whose loan demands exceed our
legal lending limit, we may arrange for such loans on a participation basis with
other financial institutions and intermediaries. We also assist clients
requiring other services not offered by us in obtaining such services from other
providers. Additional services offered by us include a night depository, courier
service, bank-by-mail services, merchant windows, direct deposits, and notary
services.




7




EFFECT
OF GOVERNMENT POLICIES AND RECENT LEGISLATION





Banking
is a business that depends on rate differentials. In general, the difference
between the interest rate we pay on our deposits and other borrowings and the
interest rate we receive on loans extended to our customers and securities held
in our portfolio comprise the major portion of our earnings. These rates are
highly sensitive to many factors that are beyond our control. Accordingly, our
earnings and growth are subject to the influence of domestic and foreign
economic conditions, including inflation, recession and
unemployment.




The
commercial banking business is not only affected by general economic conditions
but is also influenced by the monetary and fiscal policies of the federal
government and the policies of regulatory agencies, particularly the Federal
Reserve.  The Federal Reserve implements national monetary policies
(with objectives such as curbing inflation and combating recession) by its
open-market operations in United States Government securities, by adjusting the
required level of reserves for financial institutions subject to its reserve
requirements and by varying the discount rates applicable to borrowings by
depository institutions. The actions of the Federal Reserve in these areas
influence the growth of bank loans, investments and deposits and also affect
interest rates charged on loans and paid on deposits. The nature and impact on
us of any future changes in monetary policies cannot be predicted.




From time
to time, legislation is enacted which has the effect of increasing the cost of
doing business, limiting or expanding permissible activities or affecting the
competitive balance between banks and other financial institutions. Proposals to
change the laws and regulations governing the operations and taxation of banks,
bank holding companies and other financial institutions are frequently made in
Congress, in the California legislature and before various bank regulatory and
other professional agencies.




SUPERVISION
AND REGULATION




We are
extensively regulated under federal and state law. These laws and regulations
are primarily intended to protect depositors rather than shareholders. The
discussion below describes and summarizes certain statutes and regulations.
These descriptions and summaries are qualified in their entirety by reference to
the particular statute or regulation. Changes in applicable laws or regulations
may have a material effect on our business and prospects. Our operations may
also be affected by changes in the policies of banking and other government
regulators. We cannot accurately predict the nature or extent of the possible
future effects on our business and earnings of changes in fiscal or monetary
policies, or new federal or state laws and regulations.




The
following discussion is only intended to provide summaries of significant
statutes and regulations that affect the banking industry and is therefore not
complete. Changes in applicable laws or regulations, and in the policies of
regulators, may have a material effect on our business and prospects. We cannot
accurately predict the nature or extent of the effects on our business and
earnings that fiscal or monetary policies, or new federal or state laws, may
have in the future.




8




Oversight.We
are regularly reviewed to assess our safety and soundness and our compliance
with applicable laws and regulations by the Federal Reserve, and our Bank
Subsidiaries are reviewed by their state regulatory agency – the California
Department of Financial Institutions (“DFI”) - and their primary federal
regulator - the Federal Deposit Insurance Corporation (“FDIC”).  We
believe that we materially comply with all of the laws and regulations
applicable to our operations.




Federal Bank
Holding Company Regulation.SoCal  is a registered
bank holding company as defined in the Bank Holding Company Act of 1956, as
amended, or the Bank Holding Company Act, and is therefore subject to
regulation, supervision and examination by the Federal Reserve. In general, the
Bank Holding Company Act limits the business of bank holding companies that are
not financial holding companies to owning or controlling banks and engaging in
other activities closely related to banking. SoCal must file reports with the
Federal Reserve and must provide any additional information as
required.




The
Federal Reserve may require SoCal to terminate an activity or terminate control
or liquidate or divest certain subsidiaries, affiliates or investments when the
Federal Reserve believes the activity or the control of the subsidiary or
affiliates constitutes a significant risk to the financial safety, soundness or
stability of any of its Banking Subsidiaries.




The
Federal Reserve also has the authority to regulate provisions of certain bank
holding company debt, including the authority to impose interest ceilings and
reserve requirements on such debt. Under certain circumstances, SoCal must file
written notice and obtain Federal Reserve approval prior to purchasing or
redeeming its equity securities. Additionally, SoCal is required by the Federal
Reserve to maintain certain levels of capital. See “Capital Adequacy” below in
this section for a discussion of the applicable federal capital
requirements.




Financial Holding
Company Status.Under the Financial Services Modernization Act of 1999, a bank holding
company may apply to the Federal Reserve to become a financial holding company,
and thereby engage (directly or through a subsidiary) in certain activities
deemed financial in nature. SoCal is not currently designated as a financial
holding company, but may seek such designation in the
future.  However, the Fund and its general partner are financial
holding companies.




If we
chose to be designated as a financial holding company, SoCal would be able to
affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature or are incidental or complementary to
activities that are financial in nature. Activities that are financial in nature
include:




•
            Securities
      underwriting;




•
            Dealing
      and market making;




•
            Sponsoring
      mutual funds and investment
companies;




•
            Insurance
      underwriting and brokerage;




•
            Merchant
      banking; and




•
            Activities
      that the Federal Reserve, in consultation with the Secretary of the
      Treasury, determines from time-to-time to be so closely related to banking
      or managing or controlling banks as to be a proper incident
      thereto.




9




In order
to remain a financial holding company, our Subsidiary Banks would need to be
well capitalized, well managed, and, except in limited circumstances, in
satisfactory compliance with the Community Reinvestment Act. Failure to sustain
compliance with such requirements or correct any noncompliance within a fixed
time period could lead to divesture of our Subsidiary Banks or require us to
conform all of our activities to those permissible for a bank holding company as
described above.




Holding Company
Bank Ownership.The Bank Holding Company Act requires every bank holding company to
obtain the prior approval of the Federal Reserve before:




(1)
            Acquiring,
      directly or indirectly, ownership or control of any voting shares of
      another bank or bank holding company if, after such acquisition, it would
      own or control more than 5% of such
shares;


(2)
            Acquiring
      all or substantially all of the assets of another bank or bank holding
      company; or


(3)
            Merging
      or consolidating with another bank holding
  company.




Holding Company
Control of Nonbanks.With some exceptions, the Bank Holding Company Act also prohibits a bank
holding company that is not a financial holding company from acquiring or
retaining direct or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank or bank holding company, or from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve regulation or order, have been
identified as activities closely related to the business of banking or of
managing or controlling banks.




Transactions with
Affiliates.Subsidiary banks of a bank holding company are subject to restrictions
imposed by the Federal Reserve Act on extensions of credit to the holding
company or its other subsidiaries, on investments in their securities, and on
the use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit SoCal’s ability to obtain funds from
Professional Business Bank and/or Spectrum Bank for its cash needs, including
funds for payment of dividends, interest and operational expenses.




Tying
Arrangements.We
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, sale or lease of property or furnishing of services.
For example, with certain exceptions, neither SoCal nor Professional Business
Bank or Spectrum Bank may condition an extension of credit to a customer on
either (1) a requirement that the customer obtain additional services
provided by us; or (2) an agreement by the customer to refrain from
obtaining other services from a competitor.




Support of
Subsidiary Banks.Under Federal Reserve policy, SoCal is expected to act as a source of
financial and managerial strength to Professional Business Bank and Spectrum
Bank. This means that SoCal is required to commit, as necessary, resources to
support Professional Business Bank and Spectrum Bank. Any capital loans that a
bank holding company makes to its subsidiary banks are subordinate to deposits
and to certain other indebtedness of those subsidiary banks.




State Law
Restrictions.As
a California corporation, SoCal is subject to certain limitations and
restrictions under applicable California corporate law. For example, state law
restrictions in California include limitations and restrictions relating to
indemnification of directors, maintenance of books, records and minutes, and
observance of certain corporate formalities.




10




Federal
and State Regulation of Professional Business Bank and Spectrum
Bank




Professional
Business Bank and Spectrum Bank are FDIC-insured, state-chartered banking
corporations and are subject to various statutory requirements and rules and
regulations promulgated and enforced primarily by the DFI and the FDIC. These
statutes, rules, and regulations relate to insurance of deposits, required
reserves, allowable investments, loans, mergers, consolidations, issuance of
securities, payment of dividends, establishment of branches and other aspects of
the business of Professional Business Bank and Spectrum Bank. The FDIC has broad
authority in prohibiting unsafe or unsound banking practices. In addition,
federal law imposes a number of restrictions on state-chartered, FDIC-insured
banks, and their subsidiaries. These restrictions range from prohibitions
against engaging as a principal in certain activities to the requirement of
prior notification of branch closings.




Lending
Limits.California state banking law generally limits the amount of funds that a
bank may lend to a single borrower to 15% of shareholders’ equity, allowance for
loan and lease losses, capital notes, and debentures of the bank for unsecured
loans and 25% of such amounts for secured loans.




Liability of
Commonly Controlled Institutions.Under federal law,
institutions insured by the FDIC may be liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with the default
of commonly controlled FDIC-insured depositary institutions or any assistance
provided by the FDIC to commonly controlled FDIC-insured depositary institutions
in danger of default.  Because SoCal controls each of Professional
Business Bank and Spectrum Bank, the banks are commonly controlled for purposes
of these provisions of federal law.




Control of
Financial Institutions.California
banking law provides that no person may acquire control of a California bank
without the prior approval of the Commissioner of the DFI. A person who has the
power to vote 10% or more of the voting stock of a California bank is presumed
to control the bank.




Community
Reinvestment.The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their jurisdiction, a bank’s
primary federal regulator evaluate the record of the financial institution in
meeting the credit needs of its local communities, including low- and
moderate-income neighborhoods, consistent with the safe and sound operation of
the institution. These factors are also considered in evaluating mergers,
acquisitions and applications to open a branch or facility.




Insider Credit
Transactions.Banks are also subject to certain Federal Reserve restrictions on
extensions of credit to executive officers, directors, principal shareholders,
or any related interests of such persons (commonly referred to as insiders).
Extensions of credit (1) must be made on substantially the same terms and
pursuant to the same credit underwriting procedures as those for comparable
transactions with persons who are neither insiders nor employees; and
(2) must not involve more than the normal risk of repayment or present
other unfavorable features. Banks are also subject to certain lending limits and
restrictions on overdrafts to insiders. A violation of these restrictions may
result in regulatory sanctions on the bank or its insiders.




Regulation of
Management.Federal law sets forth circumstances under which officers or directors of
a bank may be removed by the institution’s federal supervisory agency. Federal
law also prohibits management personnel of a bank from serving as a director or
in a management position of another financial institution whose assets exceed a
specified amount or which has an office within a specified geographic
area.




11




Safety and
Soundness Standards.Federal law imposes upon banks certain non-capital safety and soundness
standards. These standards cover internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation and benefits. Additional standards apply to
asset quality, earnings and stock valuation. An institution that fails to meet
these standards must develop a plan acceptable to its regulators, specifying the
steps that the institution will take to meet the standards. Failure to submit or
implement such a plan may subject the institution to regulatory sanctions. Under
California state law, the DFI Commissioner is authorized to take possession and
control of a bank if the Commissioner finds that the bank is in such an unsafe
or unsound condition that it is or will become unable to meet the anticipated
demands of the depositors.




Dividends.SoCal as a non-banking
California corporation is subject to the restrictions under Section 500 of
the California General Corporation Law on its ability to pay dividends to
shareholders. Generally, a California corporation may not pay dividends
unless:





·
            the
      retained earnings of the corporation immediately prior to the distribution
      exceeds the amount of the
distribution;





·
            the
      assets of the corporation exceed 11/4
      times its liabilities; or





·
            the
      current assets of the corporation exceed its current liabilities, but if
      the average pre-tax earnings of the corporation before interest expenses
      for the two years preceding the distribution was less than the average
      interest expenses of the corporation for those years, the current assets
      of the corporation must exceed 11/4
      times its current liabilities.




A primary
source of SoCal’s future cash reserves will be dividends received from its
Subsidiary Banks. Under California law, the directors of California
state-licensed banks may declare distributions to shareholders (which include
cash dividends), subject to the restriction that the amount available for the
payment of cash dividends shall be the lesser of retained earnings of the bank
or the bank’s net income for its last three fiscal years (less the amount of any
distributions to shareholders made during such period). If the above test is not
met, distributions to shareholders may be made only with the prior approval of
the DFI Commissioner in an amount not exceeding the greatest of a bank’s
retained earnings, a bank’s net income for its last fiscal year, or a bank’s net
income for its current fiscal year. If the Commissioner finds that the
shareholders' equity of a bank is not adequate, or that the making by a bank of
a distribution to shareholders would be unsafe or unsound for the bank, the
Commissioner can order a bank not to make any distribution to
shareholders.




Notwithstanding
the availability of funds for dividends, however, the FDIC may prohibit the
payment of any dividends if the agency determines such payment would constitute
an unsafe or unsound practice.




In
addition, a bank may not pay cash dividends if doing so would reduce its capital
below minimum applicable federal capital requirements. See “Capital Adequacy”
below in this section for a discussion of the applicable federal capital
requirements.




Predatory
Lending.The term “predatory lending,” much like the terms
“safety and soundness” and “unfair and deceptive practices,” is far-reaching and
covers a potentially broad range of behavior. As such, it does not lend itself
to a concise or a comprehensive definition. But predatory lending typically
involves at least one, and perhaps all three, of the following
elements:




12




•
            Making
      unaffordable loans based on the assets of the borrower rather than on the
      borrower’s ability to repay an obligation, or asset-based
      lending;




•
            Inducing
      a borrower to refinance a loan repeatedly in order to charge high points
      and fees each time the loan is refinanced, or loan flipping;
      and




•
            Engaging
      in fraud or deception to conceal the true nature of the loan obligation
      from an unsuspecting or unsophisticated
  borrower.




Federal
Reserve regulations aimed at curbing such lending significantly widened the pool
of high-cost home-secured loans covered by the Home Ownership and Equity
Protection Act of 1994, a federal law that requires extra disclosures and
consumer protections to borrowers. The following triggers coverage under the
Home Ownership and Equity Protection Act of 1994:




•
            Interest
      rates for first lien mortgage loans in excess of 8 percentage points above
      comparable U.S. Treasury
securities;




•
            Subordinate-lien
      loans of 10 percentage points above U.S. Treasury securities;
      and




•
            Fees,
      such as optional insurance and similar debt protection costs paid in
      connection with the credit transaction, when combined with points and fees
      if deemed excessive.




In
addition, the Home Ownership and Equity Protection Act of 1994 bars “loan
flipping” by the same lender or loan servicer within a year. Lenders also will
be presumed to have violated the law, which states loans should not be made to
those that are unable to repay them, unless documentation is maintained proving
that the borrower has the ability to repay the loan. Lenders that violate these
regulations face cancellation of loans and penalties equal to the finance
charges paid. We do not expect these rules and potential state action in this
area to have a material impact on our financial condition or results of
operations.




Privacy.Federal
banking laws limit the ability of banks and other financial institutions to
disclose nonpublic information about consumers to nonaffiliated third parties.
Pursuant to these rules, financial institutions must provide:




•
            Initial
      notices to customers about their privacy policies, describing the
      conditions under which they may disclose nonpublic personal information to
      nonaffiliated third parties and
affiliates;




•
            Annual
      notices of their privacy policies to current customers;
  and




•
            A
      reasonable method for customers to opt out of disclosures to nonaffiliated
      third parties.




These
privacy provisions affect how consumer information is transmitted through
diversified financial companies and conveyed to outside vendors. We have
implemented privacy policies in accordance with the laws.




13




Interstate
Banking and Branching.The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, or the Interstate Act, generally authorizes
interstate branching. Currently, bank holding companies may purchase banks in
any state, and banks may merge with banks in other states, as long as the home
state of neither merging bank has opted out under the legislation. The
Interstate Act requires regulators to consult with community organizations
before permitting an interstate institution to close a branch in a low-income
area.




The State
of California has enacted “opting in” legislation authorizing interstate mergers
pursuant to the Interstate Act. The California statute permits out-of-state
banks and bank holding companies meeting certain requirements to maintain and
operate the California branches of a California bank with which the out-of-state
company engaged in an interstate combination. An out-of-state depository without
a branch in California, or an out-of-state holding company without a depository
institution in California, must first acquire the California institution itself
or its charter, before it can establish a de novo branch or acquire a California
branch through merger.




Deposit
Insurance.The Subsidiary Banks’ deposits are
currently insured to a maximum of $100,000 per depositor by the FDIC except for
certain retirement accounts which are insured up to $250,000. Each bank is
required to pay deposit insurance premiums. The premium amount is based upon a
risk classification system established by the FDIC. Banks with higher levels of
capital and a low degree of supervisory concern are assessed lower premiums than
banks with lower levels of capital or a higher degree of supervisory
concern.  Effective January 1, 2007 the FDIC adopted a new rule for
the insurance assessment on deposits. Under the new rule the charge for annual
insurance deposit assessments will range from a minimum of 5 basis points to a
maximum of 43 basis points per $100 of insured deposits depending upon the risk
assessment category into which the institution falls. Insured institutions are
not all allowed to disclose their risk assessment classification and no
assurance can be given as to what the future level of premiums will
be.




Under the
Federal Deposit Insurance Reform Act of 2005, one of the Subsidiary Banks
received a one-time initial assessment credit to recognize its past
contributions to the insurance fund. Professional Business Bank did not receive
an assessment credit because of its relatively recent
formation.  Spectrum Bank received a one-time assessment credit of $84
thousand.   This credit can be used by the respective bank to
offset assessments until exhausted.  Spectrum Bank’s assessment credit
will be fully used by June 30, 2008.




In
addition to the assessment for deposit insurance, institutions are required to
make payments on bonds issued in the late 1980’s by the Financing Corporation to
recapitalize a predecessor deposit insurance fund.  This payment is
established quarterly and during the year ending December 31, 2007 averaged 1.16
basis points of assessable deposits for Professional Business Bank and 1.16
basis points of assessable deposits for Spectrum Bank.




The FDIC
has authority to increase insurance assessments.  A significant
increase in insurance premiums could have an adverse effect on the operating
expenses and results of operations of SoCal.   Management cannot
predict what insurance assessment rates will be in the future.




The FDIC
is authorized to terminate a depository institution's deposit insurance upon a
finding by the FDIC that the institution's financial condition is unsafe or
unsound or that the institution has engaged in unsafe or unsound practices or
has violated any applicable rule, regulation, order or condition enacted or
imposed by the institution's regulatory agency.




14




Capital
Adequacy




Regulatory
Capital Guidelines.Federal bank regulatory agencies use capital adequacy guidelines in the
examination and regulation of bank holding companies and banks. The guidelines
are risk-based, meaning that they are designed to make capital requirements more
sensitive to differences in risk profiles among banks and bank holding
companies.




Tier I and Tier
II Capital.Under the capital adequacy guidelines, the capital of an institution is
divided into two broad categories, Tier I capital and Tier II capital. Tier I
capital generally consists of common stockholders’ equity, surplus and undivided
profits. Tier II capital generally consists of the allowance for loan losses,
hybrid capital instruments, and subordinated debt. The sum of Tier I capital and
Tier II capital represents an institution’s total capital. The guidelines
require that at least 50% of an institution’s total capital consist of Tier I
capital.




Risk-based
Capital Ratios.The adequacy of an institution’s capital is gauged primarily with
reference to the institution’s risk-weighted assets. The guidelines assign risk
weightings to an institution’s assets in an effort to quantify the relative risk
of each asset and to determine the minimum capital required to support that
risk. These risk-weighted assets are then compared with Tier I capital and total
capital to arrive at a Tier I risk-based ratio and a total risk-based ratio,
respectively. The guidelines provide that an institution must have a minimum
Tier I risk-based ratio of 4%, and a minimum total risk-based ratio of
8%.




In March
2005, the Board of Governors of the Federal Reserve adopted a final rule that
allows the continued inclusion of trust preferred securities in the Tier I
capital of bank holding companies, subject to stricter quantitative limits and
qualitative standards. Under the final ruling, qualifying mandatory preferred
securities may be included in Tier I capital, subject to a limit of 25% of all
core capital. Amounts of restricted core capital elements in excess of this
limit generally may be included in Tier II capital. The quantitative limits
become effective on March 31, 2009, after a four-year transition period. As
of December 31, 2007, Belvedere SoCal had no trust preferred securities
outstanding.  However, as part of the Spectrum Bank acquisition a
total of $15.0 million of trust preferred securities were issued by a subsidiary
of Belvedere SoCal, and a corresponding amount of junior subordinated debentures
were issued by SoCal.  In addition, Belvedere SoCal sold $20 million
of non-cumulative perpetual preferred stock to the Fund on December 10,
2007.   The trust preferred securities and the non-cumulative
perpetual preferred stock are included in Tier I capital for regulatory capital
purposes, and the trust preferred securities are subject to the quantitative
limits discussed above.




Leverage
Ratio.The
guidelines also employ a leverage ratio, which is Tier I capital as a percentage
of total assets less intangibles, to be used as a supplement to risk-based
guidelines. The principal objective of the leverage ratio is to constrain the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum leverage ratio is 3%; however, for all but the most
highly-rated bank holding companies and for bank holding companies seeking to
expand, regulators generally expect a ratio of 5% or more.




Prompt Corrective
Action.Under
the guidelines, an institution is assigned to one of five capital categories
depending on its total risk-based capital ratio, Tier I risk-based capital
ratio, and leverage ratio, together with certain subjective factors. The
categories range from “well capitalized” to “critically undercapitalized.”
Institutions that are deemed to be “undercapitalized,” depending on the category
to which they are assigned, are subject to certain mandatory supervisory
corrective actions. SoCal was “well capitalized” at December 31,
2007.  Professional Business Bank’s Tier 1 risk-based capital ratio
and leverage ratio exceeded the “well capitalized” regulatory requirements and
its total risk-based capital ratio exceeded the “adequately capitalized”
regulatory capital requirement at December 31, 2007.  Subsequent to
December 31, 2007, Belvedere SoCal made additional capital contributions to
Professional Business Bank in the amount of $4.0 million, raising Professional
Business Bank’s total risk-based capital ratio above the “well capitalized”
threshold.




15




The FDIC
and Federal Reserve Board risk-based capital guidelines are based upon the 1988
capital accord of the Basel Committee on Banking Supervision (the “BIS”). The
BIS is a committee of central banks and bank supervisors/regulators from the
major industrialized countries that develops broad policy guidelines that each
country’s supervisors can use to determine the supervisory policies they apply.
The BIS has been working for a number of years on revisions to the 1988 capital
accord and in June 2004 released the final version of its proposed new capital
framework, with an update in November 2005 (“BIS II”). BIS II provides two
approaches for setting capital standards for credit risk—an internal
ratings-based approach tailored to individual institutions’ circumstances (which
for many asset classes is itself broken into a “foundation” approach and an
“advanced” or “A-IRB” approach, the availability of which is subject to
additional restrictions) and a standardized approach that bases risk weightings
on external credit assessments to a much greater extent than permitted in
existing risk-based capital guidelines. BIS II also would set capital
requirements for operational risk and refine the existing capital requirements
for market risk exposures.




The U.S.
banking and thrift agencies are developing proposed revisions to their existing
capital adequacy regulations and standards based on BIS II. In September 2006,
the agencies issued a notice of proposed rulemaking setting forth a definitive
proposal for implementing BIS II in the United States that would apply only to
internationally active banking organizations—defined as those with consolidated
total assets of $250 billion or more or consolidated on-balance sheet foreign
exposures of $10 billion or more—but that other U.S. banking organizations could
elect but would not be required to apply. In December 2006 the agencies issued a
notice of proposed rulemaking describing proposed amendments to their existing
risk-based capital guidelines to make them more risk-sensitive, generally
following aspects of the standardized approach of BIS II. These latter proposed
amendments, often referred to as “BIS I-A”, would apply to banking organizations
that are not internationally active banking organizations subject to the A-IRB
approach for internationally active banking organizations and do not “opt in” to
that approach. The comment periods for both of the agencies’ notices of proposed
rulemakings expired on March 26, 2007. The agencies have indicated their intent
to have the A-IRB provisions for internationally active U.S. banking
organizations first become effective in March 2009 and that those provisions and
the BIS I-A provisions for others will be implemented on similar
timeframes.




SoCal is
not an internationally active banking organization and has not made a
determination as to whether, as a stand-alone institution, it would opt to apply
the A-IRB provisions applicable to internationally active U.S. banking
organizations once they become effective.




Corporate
Governance and Accounting Legislation




Sarbanes-Oxley
Act of 2002.On
July 30, 2002, the Sarbanes-Oxley Act of 2002, or SOX, was signed into law
to address corporate and accounting fraud. SOX establishes a new accounting
oversight board that enforces auditing standards and restricts the scope of
services that accounting firms may provide to their public company audit
clients. Among other things, SOX also:




(i)
            Requires
      chief executive officers and chief financial officers to certify to the
      accuracy of periodic reports filed with the
SEC;




(ii)
            Imposes
      new disclosure requirements regarding internal controls, off-balance-sheet
      transactions and pro forma (non-GAAP)
  disclosures;




(iii)
            Accelerates
      the time frame for reporting of insider transactions and periodic
      disclosures by public companies;
and




(iv)
            Requires
      companies to disclose whether or not they have adopted a code of ethics
      for senior financial officers and whether the audit committee includes at
      least one audit committee financial
expert.




16




Under
SOX, the SEC is required to regularly and systematically review corporate
filings, based on certain enumerated factors. To deter wrongdoing,
SOX:




(i)
            Subjects
      bonuses issued to top executives to disgorgement if a restatement of a
      company’s financial statements was due to corporate
      misconduct;




(ii)
            Prohibits
      an officer or director from misleading or coercing an
    auditor;




(iii)
            Prohibits
      insider trades during pension fund “blackout
  periods”;




(iv)
            Imposes
      new criminal penalties for fraud and other wrongful acts;
    and




(v)
            Extends
      the period during which certain securities fraud lawsuits can be brought
      against a company or its officers.




As a
public reporting company, we are subject to the requirements of SOX and related
rules and regulations issued by the SEC. We have incurred, and anticipate that
we will continue to incur, additional expense as a result of SOX, but we do not
expect that such compliance will have a material impact on our business. In
addition, other non-interest expense items, including professional expenses and
other costs related to compliance with the reporting requirements of the
securities laws have also significantly increased, and will be expected to
continue to increase.




Anti-terrorism
Legislation




USA Patriot Act
of 2001.In
October 2001, the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism of 2001 was
signed.  The USA PATRIOT Act of 2001 (the “USA Patriot Act”)
substantially broadened the scope of United States anti-money laundering laws
and regulations by imposing significant new compliance and due diligence
obligations, creating new crimes and penalties and expanding the
extra-territorial jurisdiction of the United States. The United States Treasury
Department has issued and, in some cases proposed, a number of regulations that
apply various requirements of the USA Patriot Act to financial institutions.
These regulations impose obligations on financial institutions to maintain
appropriate policies, procedures and controls to detect, prevent and report
money laundering and terrorist financing and to verify the identity of their
customers. Certain of those regulations impose specific due diligence
requirements on financial institutions that maintain correspondent or private
banking relationships with non-U.S. financial institutions or persons. On
March 9, 2006, the President signed the USA Patriot Improvement and
Reauthorization Act, which extended and modified the original USA Patriot Act.
Failure of a financial institution to maintain and implement adequate programs
to combat money laundering and terrorist financing, or to comply with all of the
relevant laws or regulations, could have serious legal and reputation-related
consequences for the institution.




Bank Secrecy
Act.The Financial Recordkeeping and Reporting of Currency and
Foreign Transactions Act of 1970 (the “Bank Secrecy Act”) is a disclosure law
that forms the basis of the U.S. Federal Government’s framework to prevent and
detect money laundering and to deter other criminal enterprises. Following the
September 11, 2001 terrorist attacks, an additional purpose was added to
the Bank Secrecy Act: “To assist in the conduct of intelligence or
counter-intelligence activities, including analysis, to protect against
international terrorism.” Under the Bank Secrecy Act, financial institutions
such as Professional Business Bank and Spectrum Bank are required to maintain
certain records and file certain reports regarding domestic currency
transactions and cross-border transportations of currency. This, in turn, allows
law enforcement officials to create a paper trail for tracing illicit funds that
resulted from drug trafficking or other criminal activities.




17




Legislative
Initiatives.From
time-to-time, various legislative and regulatory initiatives are introduced in
Congress and state legislatures, as well as by regulatory agencies. Such
initiatives may include proposals to expand or contract the powers of bank
holding companies and depository institutions or proposals to substantially
change the financial institution regulatory system. Such legislation could
change banking statutes and our operating environment in substantial and
unpredictable ways. If enacted, such legislation could increase or decrease the
cost of doing business, limit or expand permissible activities or affect the
competitive balance among banks, savings associations, credit unions, and other
financial institutions. We cannot predict whether any such legislation will be
enacted, and, if enacted, the effect that it, or any implementing regulations,
would have on our financial condition or results of operations. A change in
statutes, regulations or regulatory policies applicable to SoCal or any of its
subsidiaries could have a material effect on our business.




Commercial Real
Estate Lending. On
December 6, 2006, the federal bank regulatory agencies released final guidance
on “Concentrations in Commercial Real Estate Lending” (the “Final Guidance”),
largely consistent with the proposed guidance they released on January 10,
2006.  This guidance defines commercial real estate (“CRE”) loans as
exposures secured by raw land, land development and construction (including 1-4
family residential construction), multi-family property, and non-farm
nonresidential property where the primary or a 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.  Loans
on owner occupied CRE are generally excluded.




The Final
Guidance requires that appropriate processes be in place to identify, monitor
and control risks associated with real estate lending
concentrations.  This could include enhanced strategic planning, CRE
underwriting policies, risk management, internal controls, portfolio stress
testing and risk exposure limits as well as appropriately designed compensation
and incentive programs.  Higher allowances for loan losses and higher
capital levels may also be required.  The Final Guidance is triggered
when one of the following CRE loan concentration measures is
exceeded:





·
            Total
      reported loans for construction, land development, and other land of 100%
      or more of a bank’s total capital;
or


·
            Total
      reported loans secured by multifamily and nonfarm nonresidential
      properties and loans for construction, land development, and other land of
      300% or more of a bank’s total
capital.





Management of SoCal believes that
the Final Guidance may apply to the company’s CRE lending activities due to the
concentration in construction and land development loans in the Subsidiary
Banks. The Subsidiary Banks have always had meaningful exposures to loans
secured by commercial real estate due to the nature of their markets and the
loan needs of both retail and commercial customers.  SoCal believes
its Subsidiary Banks’ long-term experience in CRE lending, underwriting
policies, internal controls, and other policies currently in place are generally
appropriate in managing its concentrations as required under the Final
Guidance.  Furthermore, SoCal has adopted additional enhancements to
its analysis and review of CRE concentrations consistent with many of the
requirements found in the Final Guidance.




18


FACTORS
THAT MAY AFFECT OUR PERFORMANCE





The
material risks and uncertainties that management believes may affect our
business are described below. The risks and uncertainties described below are
not the only ones facing our business. Additional risks and uncertainties that
management is not aware of or focused on or that management currently deems
immaterial may also impair our business operations.  If any of the
following risks actually occur, our financial condition and results of
operations could be materially and adversely affected.





I.
RISKS RELATED TO AN INVESTMENT IN OUR SHARES





The
current changing economic environment poses significant challenges for
us.




We are
operating in a challenging and uncertain economic environment, including
generally uncertain national and local conditions.  Financial
institutions continue to be affected by the softening of the real estate market
and constrained financial markets.  While we have very limited direct
exposure to the residential real estate market and while we have no sub-prime
residential loans or securities backed by such loans on our books, we are
nevertheless affected by these events.  Continued declines in real
estate values, home sales volumes and financial stress on borrowers as a result
of the uncertain economic environment, including job losses, interest rate
resets on adjustable rate mortgage loans and other factors could have adverse
effects on our borrowers which would adversely affect our financial condition
and results of operations.  This deterioration in economic conditions
coupled with a possible national economic recession could drive losses beyond
that which is provided for in our allowance for loan losses and result in the
following other consequences:





·
            Loan
      delinquencies, problem assets and foreclosures may
    increase;





·
            Demand
      for our products and services may
decline;





·
            Low
      cost or non-interest bearing deposits may
  decrease;





·
            Collateral
      for our loans, especially real estate, may decline in value, in turn
      reducing customers’ borrowing power, and reducing the value of assets and
      collateral associated with our existing loans;
  and





·
            Increased
      regulatory scrutiny.





SoCal
has a very limited operating history and cannot assure future
results.




SoCal was
formed specifically for the acquisition of Professional Business Bank and to be
the platform for the Fund’s expansion into the Southern California financial
services market. The acquisition of Professional Business Bank closed on
November 23, 2007, and SoCal has had very limited operations to date. SoCal’s
business is subject to the risks inherent in the establishment of any new
business enterprise in addition to the special risks of starting a new bank
holding company and implementing the business plan proposed by the Fund,
including anticipated losses for the first several years of operations and the
need to integrate multiple acquisitions. No assurances can be given that we will
succeed, when we will achieve profitability, or as to the level of return, if
any, which holders of our common stock will receive on their
investment.




19




SoCal
incurred significant costs and debt associated with the acquisition of
Professional Business Bank and Spectrum Bank.




SoCal
incurred transaction costs totaling approximately $1.6 million associated with
the acquisition of Professional Business Bank. It also incurred approximately $1
million in additional transaction costs for the Spectrum Bank acquisition, which
closed on January 31, 2008. There is no assurance that the combined company will
not incur additional material charges in subsequent quarters to reflect
additional costs associated with the acquisitions, including charges associated
with the impairment of any goodwill booked in connection with the
acquisitions.




In
connection with the Professional Business Bank acquisition, the Fund contributed
$11.4 million in new equity and purchased $20.0 million in non-cumulative
perpetual preferred stock for the following purposes in the approximate amounts
indicated:


·
              $26.1
      million to pay the cash portion of the merger
    consideration;
 
 ·
              $1.0
      million to pay a transaction fee to the
Fund;
 
 ·
              $0.4
      million fee paid to the Fund related to the purchase of non-cumulative
      perpetual preferred stock;
 
 ·
              $0.6
      million to reimburse the Fund and its general partner’s expenses;
      and
 
 ·
              $3.3
      million to service debt and cover operating
  expenses.


In
connection with the Spectrum Bank acquisition, SoCal financed a portion of the
cash needed to pay the Spectrum Bank shareholders and to fund the further growth
of the Surviving Bank through the issuance of trust preferred securities of
SoCal in the aggregate amount of $15.0 million.




In
addition, SoCal recently borrowed an aggregate of $8 million in the form of a
secured loan that it intends to use for general corporate
purposes.  The loan is secured by the stock of the Subsidiary
Banks.




The
interest payments on the secured loan and trust preferred securities will have
an adverse effect on SoCal’s profitability and will contribute to the yearly
losses that it expects to incur for the next several years. In turn, these
losses will adversely impact book value per share as well as income per share,
return on equity and other measures of profitability.




Our
future operations and the implementation of our growth plans require that we
have sufficient cash flows and access to capital at SoCal.




To
service SoCal’s obligations under the secured loan, non-cumulative perpetual
preferred stock, and trust preferred securities SoCal must have adequate
available cash.  This is in turn dependent in large part on the
ability of the Subsidiary Banks to generate earnings in sufficient amounts to
both support their own growth and to allow dividends to be paid to SoCal, which
can be used to fund SoCal’s various obligations.  If the Subsidiary
Banks sustain prolonged losses, their ability to support their own growth and
legally pay dividends to SoCal will be compromised.  Moreover, even if
our Subsidiary Banks are profitable enough to support their own growth, and to
pay dividends to SoCal, there is no guarantee that the amount of dividends that
may legally be paid to SoCal will be adequate to satisfy its
obligations.  In such an event, SoCal may need to seek more capital in
order to fund its obligations, which may be dilutive to our
shareholders.  In addition, the success of SoCal’s growth strategy is
dependent upon SoCal having access to, or being able to raise, additional
capital to fund future acquisitions and/or to support growth of the Subsidiary
Banks.  The persistence of a troubled credit market in the United
States may materially impact the availability of capital on reasonable
terms.  Either sustained losses at our Subsidiary Banks or continued
disruption of capital markets could have a material adverse effect on SoCal’s
operations and ability to implement its growth plans.




20




Shares
of SoCal common stock have no established trading value, the prices at which
they will trade is unknown, and an investment in SoCal common stock may be
illiquid and holders may find it difficult to sell their shares.




As a
condition of the Professional Business Bank acquisition, SoCal was obligated to
take, and has taken, all required action to have its common stock quoted on the
OTC Bulletin Board, and to maintain eligibility for quotation on the OTC
Bulletin Board.




SoCal’s
common stock has only recently begun quotation on the OTC Bulleting Board.
Accordingly, it has a very limited established trading value. We can provide no
assurance as to the prices at which SoCal’s common stock will trade in the
future, nor the volume of any such trading.




The
limited trading market for our common stock may cause fluctuations in the market
value of our common stock to be exaggerated, leading to price volatility in
excess of that which would occur in a more active trading of our common stock.
In addition, even if a more active market in our common stock develops, we
cannot assure you that such a market will continue or that you will be able to
sell your shares.




SoCal’s
business plan is focused on building long-term shareholder value which will
likely have an adverse impact in the trading value of its common stock in the
near term.




SoCal’s
organic growth plan focuses on a significant expansion of the balance sheet
intended to enhance the long-term value of an investment in SoCal stock. In the
first several years, the costs of this balance sheet expansion, reflected in
significant increases in non-interest expense coupled with the expense from
interest payments on trust preferred securities issued to fund acquisitions
or to fund future expansion, and the interest expense to service our secured
debt, are expected to result in yearly losses. In turn, these losses are likely
to have an adverse impact on the trading value of shares of SoCal common
stock.




Concentrated
ownership of our common stock creates a risk of sudden changes in our share
price.




The Fund
beneficially owned 73.0% of our outstanding common stock at January 31, 2008
after giving effect to the Spectrum Bank acquisition.  Our other
shareholders may be subject to certain risks due to the concentrated ownership
of our common stock. The sale by the Fund of a significant portion of its
respective holdings could have a material adverse effect on the market price of
our common stock.




Since the
Fund controls more than a majority of our outstanding common stock, the Fund has
the ability to control or influence the outcome of matters to be decided by a
vote of our shareholders. As such, it may be able to cause SoCal to enter into
corporate transactions that may not be perceived as being in the best interests
of the other shareholders. In addition, it may be able to delay or prevent a
change in control of us, even when a change in control may be in the best
interests of our other shareholders. The Fund could also forego acquisition
opportunities in the event that its control position would be
jeopardized.




The
Fund’s general partner provides management services and oversight to SoCal and
Professional Business Bank, in addition to being general partner of the
controlling shareholder, which may present a conflict between the interest of
the Fund and SoCal’s other shareholders.




SoCal and
Professional Business Bank have entered into a Management Agreement with the
Fund and the Fund’s general partner, under which the Fund’s general partner will
provide certain management services to SoCal and Professional Business Bank for
a yearly fee. The fee will be equal to 5% of the Subsidiary Banks’ pre-tax
income but in no event shall such yearly fee be less than $100,000 or more than
$500,000. A new management agreement is currently under consideration by the
SoCal board of directors that would include SoCal, Professional Business Bank
and Spectrum, and would increase the yearly fees.  The execution of
our business plan will be, in some ways, dependent on the management expertise
of the Fund in pursuing the use of SoCal and the Subsidiary Banks as its
platform for expansion into the financial services market in Southern
California. The Fund’s agreements with the Subsidiary Banks and SoCal, related
fees, participation in management of SoCal, and its controlling interest in
SoCal may present conflicts of interest between the Fund and SoCal’s other
shareholders.




21




We
have no present intention of paying dividends on our common stock in the future,
and even if we determine to pay dividends our future ability to pay dividends is
subject to restrictions. As a result, capital appreciation, if any, of our
common stock may be your sole source of gains in the future.




We have
no present intention to pay dividends to our shareholders of our common stock in
the foreseeable future. In addition, since we are a holding company with no
significant assets other than the Subsidiary Banks, we will depend upon
dividends from them for a substantial portion of our revenues. Our ability to
pay dividends is also subject to the restrictions of the California Corporations
Code.




The
ability of our Subsidiary Banks to pay dividends or make other capital
distributions to us will be subject to the regulatory authority of the FDIC and
the California Department of Financial Institutions, or the DFI.




In
addition, we have issued certain long term debt and corresponding junior
subordinated deferrable interest debentures and perpetual non-cumulative
preferred stock in connection with the acquisitions of Professional Business
Bank and Spectrum Bank, which contain provisions limiting our ability to declare
and pay dividends on our common stock in certain events.  One of the
agreements executed in connection with the secured loan borrowed by SoCal also
contains certain restrictions on the ability of our Subsidiary Banks to pay
dividends for purposes other than to service such debt.




On a
stand-alone basis, we will rely on dividends from the Subsidiary Banks as our
sole source of liquidity.




Anti-takeover
provisions and federal law may limit the ability of another party to acquire us,
which could cause our stock price to decline.




Various
provisions of our articles of incorporation and by-laws could delay or prevent a
third-party from acquiring us, even if doing so might be beneficial to our
shareholders. These provisions provide for, among other things, advance notice
requirements for director nominations, a supermajority approval of certain
matters by the shareholders or board members, and the authorization to issue
“blank check” preferred stock by action of the board of directors acting alone,
thus without obtaining shareholder approval. The Bank Holding Company Act of
1956, as amended, and the Change in Bank Control Act of 1978, as amended,
together with federal regulations, require that, depending on the particular
circumstances, either FDIC approval must be obtained or notice must be furnished
to the FDIC and not disapproved prior to any person or entity acquiring
“control” of an FDIC insured bank, such as Professional Business Bank or
Spectrum Bank. These provisions may prevent a merger or acquisition that would
be attractive to shareholders and could limit the price investors would be
willing to pay in the future for our common stock.




The
Fund may also seek to deploy its assets into investments in the financial
services industry through vehicles other than SoCal.




The
growth component of the business plan is dependent, in part, on the ability of
the Fund to support additional growth through acquisitions, by providing
additional capital to SoCal.  The Fund has limited capital resources
and may choose not to invest additional capital in SoCal, but rather utilize its
capital to pursue other opportunities which it may consider, in its sole
discretion, to be more advantageous to the Fund.




22




II.
RISKS RELATING TO OUR BUSINESS PLAN




Failure
to successfully execute our business plan will adversely affect our
performance.




Our
financial performance and profitability as well as the value of our stock depend
on our ability to execute our business plan. The Fund intends to use SoCal as
the platform for an expansion into Southern California. Our business plan
includes plans for aggressive organic growth and growth by acquisition, which,
among other things requires the following:




•
            
            hiring
      additional officers and employees to attract new business and meet the
      service needs of new customers;




•
            
            opening
      additional branch offices; and




•
            
            seeking
      opportunistic acquisition
candidates.




Such a
strategy presents a number of risks, including, most significantly, our
over-estimating the amount of business that we will be able to generate as a
result of organic growth and future acquisition activity. Additionally,
substantial expenses for leases, furniture, fixtures, leasehold improvements,
personnel, and acquisition costs will be incurred as we expand our franchise.
These increased expenses along with interest payments on trust preferred
securities and senior debt used to finance our expansion will adversely affect
our profitability and we currently anticipate that the implementation of these
plans will delay our profitability for the first several years of operations. We
may be unsuccessful in implementing our strategy, or our strategy may not
produce growth and/or profits. Moreover, continued growth may present operating
and other problems that could adversely affect our business, financial condition
and results of operations.




A
component of our business strategy is to expand by acquiring other financial
institutions. We may not be able to successfully implement this part of our
business strategy, and therefore our market value and profitability may
suffer.




Growth
through acquisitions of banks represents a key component of our business
strategy. Any future acquisitions will be accompanied by the risks commonly
encountered in acquisitions. These risks include, among other
things:




•
            
            Difficulty
      in finding attractive acquisition candidates in the Southern California
      market at acceptable prices;




•
            
            Difficulty
      of integrating the operations and personnel of acquired banks and
      branches, including but not limited to the integration of Spectrum Bank
      into Professional Business Bank at such time as the Subsidiary Banks are
      merged together;




•
            
            Potential
      disruption of our ongoing business;




•
            
            Inability
      of our management to maximize our financial and strategic position by the
      successful implementation of uniform product offerings and the
      incorporation of uniform technology into our product offerings and control
      systems; and




•
            
            Inability
      to maintain uniform standards, controls, procedures and policies and the
      impairment of relationships with employees and customers as a result of
      changes in management.




23




We cannot
assure you that we will be successful in overcoming these risks or any other
problems encountered in connection with acquisitions. In addition, recent
accounting changes that will become effective in 2009 may significantly increase
the costs of acquiring other financial institutions.  Moreover, our
inability to improve the operating performance of acquired banks or to integrate
their operations successfully could have a material adverse effect on our
business, financial condition, results of operations and cash flows. We could
incur substantial expenses, including the expenses of integrating the businesses
of the acquired banks with our existing business.




We expect
that competition for additional acquisition candidates may be significant. We
may compete with other banks or financial service companies with similar
acquisition strategies, many of which may be larger or have greater financial
and other resources than we have. The purchase price of banks that might be
attractive acquisition candidates for us may significantly exceed the fair
values of their net assets. As a result, material goodwill and other intangible
assets would be required to be recorded. We cannot assure you that we will be
able to successfully identify and acquire suitable banks on acceptable terms and
conditions.




Depending
upon the structure of an acquisition and the consideration we may utilize, we
may not seek shareholder approval. Further, acquisitions may be structured to
include cash consideration that may result in the depletion of a substantial
portion of our available cash or result in increasing our borrowings and
interest payments.




Further,
our growth may place a strain on our administrative, operational and financial
resources and increase demands on our systems and controls. We anticipate our
business growth may require continued enhancements to and expansion of our
operating and financial systems and controls and may strain or significantly
challenge them. The process of implementing the strategic integration of any
acquired businesses may take a significant amount of time. It may also place
additional strain on our resources and could subject us to additional expenses.
We cannot assure you that we will be able to integrate these businesses
successfully or in a timely manner. In addition, we cannot assure you that our
existing operating and financial control systems and infrastructure will be
adequate to maintain and effectively monitor future growth.




The
following risks, associated with our growth, could have a material adverse
effect on our business, financial condition, results of operations and cash
flows:




·
            Our
      inability to raise the capital necessary to finance any future
      acquisition;




·
            Our
      inability to continue to upgrade or maintain effective operating and
      financial control systems




·
            Our
      inability to recruit and hire necessary personnel or to successfully
      integrate new personnel into our
operations




·
            Our
      inability to integrate successfully the operations of acquired businesses
      or to manage our growth effectively,
or




·
            Our
      inability to respond promptly or adequately to the emergence of unexpected
      expansion difficulties.




Future
issuances or sales of shares of our common stock could have an adverse effect on
our common stock price.




2,011,343
shares of our common stock were outstanding following the acquisition of
Professional Business Bank. In addition, 1.5 million shares of our common
stock are reserved for future issuance to directors, officers, employees and
consultants under the Belvedere SoCal 2007 Equity Incentive
Plan.  There were no options granted under this plan as of December
31, 2007, however options under this plan were granted in February and March
2008. In addition, 179,312 shares of our common stock are reserved for future
issuance pursuant to the warrants that were issued in connection with the
acquisition of Professional Business Bank.  Any sales of substantial
amounts of common stock, including shares issued upon the exercise of
outstanding options or warrants, may cause the market price of our common stock
to decline.




24




We issued
1,313,432 shares of our common stock to the Fund in connection with the Spectrum
Bank transaction.  Additionally, our business plan of expansion will
likely require the issuance of additional shares of common stock in mergers or
otherwise. Future sales of our common stock, or even the perception that such
sales could occur, could adversely affect prevailing market prices for the
shares of our common stock and be dilutive to our shareholders. Such sales also
might make it more difficult for us to sell equity securities in the future at a
time and at a price that we deem appropriate. Our inability to raise funds and
capital through the issuance of equity securities could adversely affect our
business or our ability to implement our business plan.




III.
RISKS RELATING TO THE BANKING BUSINESS




SoCal
is dependent on key personnel and the loss of one or more of those key personnel
may materially and adversely affect its prospects.




Competition
for qualified employees and personnel in the banking industry is intense and
there are a limited number of qualified persons with knowledge of and experience
in the California community banking industry. The process of recruiting
personnel with the combination of skills and attributes required to carry out
our strategies will often be lengthy. SoCal’s success depends to a significant
degree upon its ability to attract and retain qualified management, loan
origination, administrative, marketing and technical personnel and upon the
continued contributions of its management and personnel. In particular, SoCal’s
success will be highly dependent on retaining certain of the existing management
personnel at Professional Business Bank and Spectrum Bank, as well as on
attracting and retaining the RMs which are key to our organic growth plan. In
addition, SoCal’s success will be highly dependent on retaining the current
executive management team of SoCal, which includes William Baribault, Chief
Executive Officer, and Alan Lane, Executive Chairman, who will work directly
with the management team of Professional Business Bank and Spectrum Bank to
implement the strategic direction of SoCal’s board of directors. We believe this
management team, comprised principally of California natives or long-time
residents who have worked in the banking industry for a number of years, is
integral to implementing our business plan. The loss of the services of any one
of them could have a material adverse effect on our business, financial
condition, results of operations and cash flows.




Our
business is subject to interest rate risk and variations in interest rates may
negatively affect our financial performance.




Changes
in the interest rate environment may reduce our net interest income. A
substantial portion of our income, as with our Subsidiary Banks, will be derived
from the differential or “spread” between the interest earned on loans,
securities and other interest-earning assets, and interest paid on deposits,
borrowings and other interest-bearing liabilities. Because of the differences in
the maturities and repricing characteristics of interest-earning assets and
interest-bearing liabilities, we anticipate that changes in interest rates will
not produce equivalent changes in interest income earned on interest-earning
assets and interest paid on interest-bearing liabilities. Accordingly,
fluctuations in interest rates could adversely affect our interest rate spread
and, in turn, our profitability. In addition, loan volumes are affected by
market interest rates on loans; rising interest rates generally are associated
with a lower volume of loan originations while lower interest rates are usually
associated with higher loan originations. Conversely, in rising interest rate
environments, loan repayment rates will decline and in falling interest rate
environments, loan repayment rates will increase. We cannot assure you that we
can minimize our interest rate risk. In addition, an increase in the general
level of interest rates may adversely affect the ability of certain borrowers to
pay the interest on and principal of their obligations. Interest rates will also
affect how much money we can lend. When interest rates rise, the cost of
borrowing increases. Accordingly, changes in levels of market interest rates
could materially and adversely affect our net interest spread, asset quality,
loan origination volume, business, financial condition, results of operations
and cash flows.




25




We
will face strong competition from financial service companies and other
companies that offer banking services which could hurt our
business.




We plan
to conduct our banking operations exclusively in Southern California. Increased
competition in our markets may result in reduced loans and deposits. Ultimately,
we may not be able to compete successfully against current and future
competitors. Many competitors offer the banking services that we plan to offer
in our planned service areas. These competitors include national banks, regional
banks and other community banks. We will also face competition from many other
types of financial institutions, including savings and loan associations,
finance companies, brokerage firms, insurance companies, credit unions, mortgage
banks and other financial intermediaries. In particular, our competitors will
include several major financial companies whose greater resources may afford
them a marketplace advantage by enabling them to maintain numerous locations and
mount extensive promotional and advertising campaigns. Additionally, banks and
other financial institutions with larger capitalization and financial
intermediaries not subject to bank regulatory restrictions may have larger
lending limits which would allow them to serve the credit needs of larger
customers. Areas of competition include interest rates for loans and deposits,
efforts to obtain loan and deposit customers and a range in quality of products
and services provided, including new technology-driven products and services.
Technological innovation continues to contribute to greater competition in
domestic and international financial services markets as technological advances
enable more companies to provide financial services. We also face competition
from out-of-state financial intermediaries that have opened loan production
offices or that solicit deposits in our market areas. If we are unable to
attract and retain banking customers, we may be unable to achieve appropriate
loan growth and level of deposits and our business, financial condition, results
of operations and cash flows may be adversely affected.




The
types of loans in our Subsidiary Banks’ portfolio have a higher degree of risk
than other loans and a downturn in our real estate markets could, therefore,
hurt our business.




A
downturn in our real estate markets could hurt our business because many of our
Subsidiary Banks’ loans are secured by real estate. Real estate values and real
estate markets are generally affected by changes in national, regional or local
economic conditions, fluctuations in interest rates and the availability of
loans to potential purchasers, changes in tax laws and other governmental
statutes, regulations and policies and acts of nature. If real estate prices
decline, the value of real estate collateral securing our loans could be
reduced. Our ability to recover on defaulted loans by foreclosing and selling
the real estate collateral would then be diminished and we would be more likely
to suffer losses on defaulted loans. As of December 31, 2007, approximately
70.2% of the book value of Professional Business Bank’s loan portfolio consisted
of loans collateralized by various types of real estate. As of December 31,
2007, approximately 74% of the book value of Spectrum Bank’s loan portfolio
consisted of loans collateralized by various types of real
estate.  All of our Subsidiary Banks’ real property collateral is
located in California. If there is a significant decline in real estate values,
especially in California, the collateral for our loans will provide less
security. Real estate values could be affected by, among other things,
earthquakes and national disasters particular to California. Any such downturn
could have a material adverse effect on our business, financial condition,
results of operations and cash flows. Professional Business Bank and Spectrum
Bank do not engage in “subprime” or “Alt-A” lending.




26




In
addition, federal banking regulators recently issued final guidance regarding
commercial real estate lending. This guidance suggests that institutions that
are potentially exposed to significant commercial real estate concentration risk
will be subject to increased regulatory scrutiny. Institutions that have
experienced rapid growth in commercial real estate lending, have notable
exposure to a specific type of commercial real estate lending, or are
approaching or exceed certain supervisory criteria that measure an institution’s
commercial real estate portfolio against its capital levels, may be subject to
such increased regulatory scrutiny. Our commercial real estate portfolio may be
viewed as falling within one or more of the foregoing categories, and
accordingly we may become subject to increased regulatory scrutiny because of
our commercial real estate portfolio. If it is determined by our regulator that
we have an undue concentration in commercial real estate lending, we may be
required to maintain increased levels of capital and/or be required to reduce
our concentration in commercial real estate loans.  See, “ -
Supervision and Regulation” on page 18 for a more detailed discussion of the
regulatory guidance on commercial real estate lending.




If
we cannot attract deposits, our growth may be inhibited.




We plan
to increase significantly the level of our assets, including our loan portfolio.
Our ability to increase our assets depends in large part on our ability to
attract additional deposits at competitive rates. We intend to seek additional
deposits by offering deposit products that are competitive with those offered by
other financial institutions in our markets and by establishing personal
relationships with our customers. We cannot assure you that these efforts will
be successful. Our inability to attract additional deposits at competitive rates
could have a material adverse effect on our business, financial condition,
results of operations and cash flows.




Our
allowance for loan losses may not be adequate to cover actual
losses.




A
significant source of risk arises from the possibility that losses could be
sustained because borrowers, guarantors, and related parties may fail to perform
in accordance with the terms of their loans and leases. The underwriting and
credit monitoring policies and procedures that our Subsidiary Banks have adopted
to address this risk, and that we will utilize in part, may not prevent
unexpected losses that could have a material adverse effect on our business,
financial condition, results of operations and cash flows. Unexpected losses may
arise from a wide variety of specific or systemic factors, many of which are
beyond our ability to predict, influence, or control.




Like all
financial institutions, our Subsidiary Banks maintain an allowance for
loan losses to provide for loan defaults and non-performance. Our allowance
for loan losses may not be adequate to cover actual loan losses, and future
provisions for loan losses could materially and adversely affect our
business, financial condition, results of operations and cash flows. The
allowance for loan losses reflects our estimate of the probable losses in
our loan portfolio at the relevant balance sheet date. Our allowance for
loan losses is based on prior experience, as well as an evaluation of the
known risks in the current portfolio, composition and growth of the
loan portfolio and economic factors. The determination of an appropriate
level of loan loss allowance is an inherently difficult process and is
based on numerous assumptions. The amount of future losses is susceptible to
changes in economic, operating and other conditions, including changes in
interest rates, that may be beyond our control and these losses may exceed
current estimates. Federal regulatory agencies, as an integral part of their
examination process, review our loans and allowance for loan losses.
While we believe that our allowance for loan losses is adequate to cover
current losses, we cannot assure you that we will not increase the allowance for
loan losses further, or that regulators will not require us to increase
this allowance. Either of these occurrences could materially adversely affect
our business, financial condition, results of operations and cash
flows.




27




We
will rely on communications, information, operating and financial control
systems technology from third-party service providers, and we may suffer an
interruption in or break of those systems that may result in lost
business.




We will
rely heavily on third-party service providers for much of our communications,
information, operating and financial control systems technology, including
customer relationship management, general ledger, deposit, servicing and loan
origination systems. Any failure or interruption or breach in security of these
systems could result in failures or interruptions in our customer relationship
management, general ledger, deposit, servicing and/or loan origination systems.
We cannot assure you that such failures or interruptions will not occur or, if
they do occur, that they will be adequately addressed by us or the third parties
on which we rely. The occurrence of any failures or interruptions could have a
material adverse effect on our business, financial condition, results of
operations and cash flows. If any of our third-party service providers
experience financial, operational or technological difficulties, or if there is
any other disruption in our relationships with them, we may be required to
locate alternative sources of such services, and we cannot assure you that we
could negotiate terms that are as favorable to us, or could obtain services with
similar functionality as found in the existing systems utilized by our
Subsidiary Banks without the need to expend substantial resources, if at all.
Any of these circumstances could have a material adverse effect on our business,
financial condition, results of operations and cash flows. Additionally, the
core operating platforms of our Subsidiary Banks are different, which will
require a conversion of two operating systems if we choose to consolidate such
systems. Such conversions often involve significant expense, significant
utilization of staff time and other uncertainties and risks inherent in the
conversion process.




We
will be exposed to risk of environmental liabilities with respect to properties
to which we take title.




In the
course of our business, we may foreclose and take title to real estate, and
could be subject to environmental liabilities with respect to these properties.
We may be held liable to a governmental entity or to third parties for property
damage, personal injury, investigation and clean-up costs incurred by these
parties in connection with environmental contamination, or may be required to
investigate or clean up hazardous or toxic substances, or chemical releases at a
property. The costs associated with investigation or remediation activities
could be substantial. In addition, if we are the owner or former owner of a
contaminated site, we may be subject to common law claims by third parties based
on damages and costs resulting from environmental contamination emanating from
the property. If we become subject to significant environmental liabilities, our
business, financial condition, results of operations and cash flows could be
materially adversely affected.




If
we fail to maintain an effective system of internal and disclosure controls, we
may not be able to accurately report our financial results or prevent fraud. As
a result, shareholders could lose confidence in our financial reporting, which
would harm our business and the trading price of our securities.




Effective
internal and disclosure controls are necessary for us to provide reliable
financial reports and effectively prevent fraud and to operate successfully as a
public company. If we cannot provide reliable financial reports or prevent
fraud, our reputation and operating results would be harmed. As part of our
ongoing monitoring of internal controls we may discover material weaknesses or
significant deficiencies in our internal control as defined under standards
adopted by the Public Company Accounting Oversight Board, or PCAOB, that require
remediation. Under the PCAOB standards, a “material weakness” is a significant
deficiency or combination of significant deficiencies, that results in more than
a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. A “significant
deficiency” is a control deficiency or combination of control deficiencies, that
is less severe than a material weakness, yet important enough to merit attention
by those responsible for oversight of a company’s financial
reporting.




28




As a
result of weaknesses that may be identified in our internal controls, we may
also identify certain deficiencies in some of our disclosure controls and
procedures that we believe require remediation. If we discover weaknesses, we
will make efforts to improve our internal and disclosure controls. However,
there is no assurance that we will be successful. Any failure to maintain
effective controls or timely effect any necessary improvement of our internal
and disclosure controls could harm operating results or cause us to fail to meet
our reporting obligations. Ineffective internal and disclosure controls could
also cause investors to lose confidence in our reported financial information,
which would likely have a negative effect on the trading price of our
securities.




SoCal
and the Subsidiary Banks will be subject to extensive government regulation.
These regulations may hamper our ability to increase assets and earnings, and
could result in a decrease in the value of your shares.




Our
operations and those of the Subsidiary Banks will continue to be subject to
extensive regulation by federal, state and local governmental authorities and
subject to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of our operations. Because our
business is highly regulated, the laws, rules and regulations applicable to us
are subject to regular modification and change. There are various currently
proposed laws, rules and regulations that, if adopted, would impact our
operations. We cannot assure you that these proposed laws, rules and regulations
or any other laws, rules or regulations will not be adopted in the future, which
could make compliance much more difficult or expensive, restrict our ability to
originate, broker or sell loans, further limit or restrict the amount of
commissions, interest or other charges earned on loans originated or sold by us
or otherwise adversely affect our business, financial condition, results of
operations or cash flows.





ITEM
2.  DESCRIPTION OF PROPERTY.





Currently,
SoCal operates out of leased offices at One Maritime Plaza, Suite 825, San
Francisco, California.  Professional Business Bank operates out of
leased offices at 199 South Los Robles, Suite 130, Pasadena, California; 250
North Orange Street, Glendale, California; and 7110 North Fresno Street, Suite
340, Fresno, California.  Spectrum Bank operates out of owned offices
located at 2417 West Whittier Blvd., Montebello, California and out of leased
offices located at 15615 Alton Parkway, Irvine, California and 6094 Warner
Avenue, Huntington Beach, California.




We
consider our premises adequate for our needs.  In management’s
opinion, we have sufficient insurance to cover our interests in the premises we
occupy.




ITEM
3.  LEGAL PROCEEDINGS.





There are
no material pending legal proceedings to which we are a party.  There
are no material proceedings known to us to be contemplated by any governmental
authority.  We are involved in a variety of litigation matters in the
ordinary course of our business and anticipate that we will become involved in
new litigation matters from time to time in the future.




ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





There
were no matters submitted to a vote of shareholders in the fourth quarter of
2007.




29




PART
II





ITEM
5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.





MARKET
INFORMATION





Our
common stock is listed on the OTC Bulletin Board under the symbol “BLVE” and
only began quotation as of January 2008.





Because
there were no trades of our common stock in 2007, in the following table we
present the high and low bid prices of our common stock for the period from
January 1, 2008 through February 29, 2008.








Bid
      PricesMonth
            
            Low
            
            
            HighJanuary
            
            $
            16.25
            
            
            $
            21.60February
            
            $
            15.00
            
            
            $
            17.10





The foregoing bid prices are
over-the-counter market quotations as reported by the OTC BB that reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. The
limited trading market for our common stock may cause fluctuations in the market
value of our common stock to be exaggerated, leading to price volatility in
excess of that which would occur in a more active trading of our common
stock.





SHAREHOLDERS
AND SHARES OUTSTANDING





As of
December 31, 2007, there were approximately 260 shareholders of record of our
common stock.  At December 31, 2007, our directors and principal
officers owned approximately 5% of our outstanding shares, including options
exercisable within 60 days of that date.  As of January 31, 2008, the
Fund held 73.0% of the shares of SoCal, giving effect to the acquisition of
Spectrum Bank.





There are
no other classes of common equity outstanding.





DIVIDENDS





Shareholders
of our common stock are entitled to receive dividends when and as declared by
our Board of Directors, out of funds legally available therefore, subject to a
variety of regulatory restrictions.  In addition, we have issued
certain long term debt and corresponding junior subordinated deferrable interest
debentures and perpetual non-cumulative preferred stock in connection with the
acquisitions of Professional Business Bank and Spectrum Bank, which contain
provisions limiting our ability to declare and pay dividends on our common stock
in certain events.   One of the agreements executed in connection
with the secured loan borrowed by SoCal also contains potential
restrictions on the ability of our Subsidiary Banks to pay dividends for
purposes other than to service such debt.  We have paid no cash
dividends to our common shareholders since our inception and we have no present
intent to commence the payment of dividends to our common shareholders in the
foreseeable future.  In addition, the California Financial Code and
various other regulatory provisions restrict our ability to currently pay cash
dividends.





Whether
or not dividends, either cash or stock, will be paid in the future will be
determined by our Board of Directors after consideration of various
factors.  Our profitability and regulatory capital ratios, in addition
to other financial conditions and regulatory restrictions, will be key factors
considered by the Board of Directors in making such determinations regarding the
payment of dividends.





SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS





We have
one Plan, the Belvedere SoCal 2007 Equity Incentive Plan, that provides for
grants of both incentive stock options and non-qualified stock options to our
employees and directors.  The plan originally allocated 1.5 million
shares of our common stock.  Other than substitute options issued in
the acquisition of Professional Business Bank, there were no options granted
under this plan as of December 31, 2007, however options under this plan were
granted in February and March 2008.




30




Belvedere
SoCal assumed all outstanding options of Professional Business Bank at the
acquisition date. These options were converted to SoCal options and are
summarized in the table below:




Plan
      category
              
              Number
      of securities to be issued upon exercise of options
              
              
              Weighted
      average exercise price of outstanding options
              
              
              Number
      of securities remaining available for future issuanceEquity
      compensation plans approved by security holders
              
              
              135,041
              
              
              $
              15.21
              
              
              
              -Equity
      compensation plans not approved by security holders
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              
              135,041
              
              
              $
              15.21
              
              
              
              -







ITEM
6.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS.





CAUTIONARY
NOTES





Certain
statements contained in this document,  including, without limitation,
statements containing the words “believes”, “anticipates”, “intends”, “expects”,
and words of similar import, constitute “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.  Such forward looking statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements.  Such factors include, among others, the
following: our inability to successfully implement our business strategy,
general economic and business conditions in those areas in which we operate,
demographic changes, competition, fluctuations in interest rates, changes in
business strategy or development plans, changes in governmental regulation,
credit quality, the availability of capital to fund the expansion of our
business, and other risk factors referenced in “Item 1. Business – Factors that
May Affect our Performance” and elsewhere in this document.  The risk
factors and other cautionary statements made in this document should be read and
understood as being applicable to all forward-looking statements wherever they
appear in this document.  We disclaim any obligation to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.





The following includes discussion and
analysis of the financial position at December 31, 2007, and results for the
period ended December 31, 2007.




KEY FACTORS IN EVALUATING THE FINANCIAL CONDITION AND OPERATING
PERFORMANCE




SoCal
acquired Professional Business Bank on November 23, 2007.  Prior to
such date, SoCal had no significant operations.  Accordingly, the
discussion of the results of operations and financial condition for periods
subsequent to November 23, 2007 are for SoCal.  Periods prior to
November 23, 2007 relate to Professional Business Bank
only.  Management believes the information is comparable since the
sole subsidiary of SoCal through and including December 31, 2007 was
Professional Business Bank.




The
primary factor in evaluating SoCal’s performance for 2007 was the
completion of the acquisition of Professional Business Bank on the close of
business November 23, 2007.  This acquisition was SoCal’s first step
in implementing its plan for expansion in the southern California market, and
added $246.6 million in assets and $195.9 million in liabilities to
SoCal.  SoCal incurred a consolidated net loss of $374 thousand, or
$(2.45) basic and diluted earnings per share for 2007.  The net loss
includes results of operations of Professional Business Bank from November 24,
2007 through December 31, 2007.




TRENDS
AND DEVELOPMENTS IMPACTING THE COMPANY’S RESULTS




On
January 31, 2008, SoCal completed the acquisition of Spectrum Bank, which
currently operates as a separate wholly-owned subsidiary of
SoCal.  This acquisition added approximately $188.8 million in
assets and $150.7 million in liabilities and further
expanded  SoCal’s presence in southern California.  In
connection with that acquisition, SoCal issued $15.0 million in trust preferred
securities to certain former shareholders of Spectrum Bank.




On
December 10, 2007, SoCal issued $20.0 million of its Series A Non-Cumulative
Perpetual Preferred Stock to the Fund.  The proceeds of this issuance
were used for general corporate purposes and to payoff a short term loan that
had been used to fund a portion of the acquisition of Professional Business
Bank.




On March
18, 2008, SoCal borrowed $8.0 million from Pacific Coast Bankers Bank through a
loan secured by the stock of the Subsidiary Banks.




31


EARNINGS
SUMMARY




For
comparative analysis, Professional Business Bank’s net loss of $843 thousand for
the period January 1, 2007 through November 23, 2007 (pre-acquisition) is
combined with Professional Business Bank's net income of $99 thousand for
the period from November 24, 2007 to December 31,
2007, Belvedere SoCal’s loss for 2007 of $473 thousand and a
$143 thousand (net of tax) pro forma adjustment for additional amortization of
the Professional Business Bank core deposit intangible for a total pro forma
combined loss of $1.4 million, or $(0.68), basic and diluted earnings per
share.  Financial data for 2006 includes the results of Professional
Business Bank only.




The
following unaudited pro forma financial information is presented for information
purposes only and you should not assume that the combined company would have
achieved the pro forma results if the had actually been combined at the
beginning of the period presented.
  UNAUDITED
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
 FOR
THE YEAR ENDED DECEMBER 31, 2007
 (Dollars
in Thousands Except Share and Per Share Data)
 Professional
      Business Bank
                      
                      
                      Belvedere
      SoCalJanuary
      1 - November 23, 2007
                      
                      
                      November
      24 - December 31, 2007
                      
                      
                      January
      17 (inception) - December 31, 2007
                      
                      
                      Combined
                      
                      
                      Pro
      Forma Adjustments
                      
                      
                      Pro
      Forma
                        CombinedInterest
      Income:Interest
      and Fees on Loans
                      
                      $
                      13,369
                      
                      
                      $
                      1,769
                      
                      
                      $
                      -
                      
                      
                      $
                      15,138
                      
                      
                      $
                      -
                      
                      
                      $
                      15,138Interest
      on Investments
                      
                      
                      589
                      
                      
                      
                      46
                      
                      
                      
                      
                      
                      
                      
                      635
                      
                      
                      
                      
                      
                      
                      
                      635Other
      interest income
                      
                      
                      519
                      
                      
                      
                      40
                      
                      
                      
                      
                      
                      
                      
                      559
                      
                      
                      
                      
                      
                      
                      
                      559Total
      interest income
                      
                      
                      14,477
                      
                      
                      
                      1,855
                      
                      
                      
                      -
                      
                      
                      
                      16,332
                      
                      
                      
                      -
                      
                      
                      
                      16,332Interest
      expense:Interest
      on NOW, Savings and Money Market
                      
                      
                      2,369
                      
                      
                      
                      121
                      
                      
                      
                      
                      
                      
                      
                      2,490
                      
                      
                      
                      
                      
                      
                      
                      2,490Interest
      on Time Deposits Less than $100,000
                      
                      
                      1,030
                      
                      
                      
                      194
                      
                      
                      
                      
                      
                      
                      
                      1,224
                      
                      
                      
                      
                      
                      
                      
                      1,224Interest
      on Time Deposits $100,000 and over
                      
                      
                      671
                      
                      
                      
                      140
                      
                      
                      
                      
                      
                      
                      
                      811
                      
                      
                      
                      
                      
                      
                      
                      811Interest
      on Other Borrowings
                      
                      
                      358
                      
                      
                      
                      23
                      
                      
                      
                      170
                      
                      
                      
                      551
                      
                      
                      
                      
                      
                      
                      
                      551Total
      interest expense
                      
                      
                      4,428
                      
                      
                      
                      478
                      
                      
                      
                      170
                      
                      
                      
                      5,076
                      
                      
                      
                      -
                      
                      
                      
                      5,076Net
      Interest Income
                      
                      
                      10,049
                      
                      
                      
                      1,377
                      
                      
                      
                      (170
                      )
                      
                      
                      11,256
                      
                      
                      
                      -
                      
                      
                      
                      11,256Provision
      for loan losses
                      
                      
                      1,903
                      
                      
                      
                      351
                      
                      
                      
                      -
                      
                      
                      
                      2,254
                      
                      
                      
                      -
                      
                      
                      
                      2,254Net
      interest income after provision for loan losses
                      
                      
                      8,146
                      
                      
                      
                      1,026
                      
                      
                      
                      (170
                      )
                      
                      
                      9,002
                      
                      
                      
                      -
                      
                      
                      
                      9,002Service
      charges and fees
                      
                      
                      388
                      
                      
                      
                      44
                      
                      
                      
                      -
                      
                      
                      
                      432
                      
                      
                      
                      -
                      
                      
                      
                      432Other
      income
                      
                      
                      1
                      
                      
                      
                      3
                      
                      
                      
                      -
                      
                      
                      
                      4
                      
                      
                      
                      -
                      
                      
                      
                      4Total
      non-Interest income
                      
                      
                      389
                      
                      
                      
                      47
                      
                      
                      
                      -
                      
                      
                      
                      436
                      
                      
                      
                      -
                      
                      
                      
                      436Non-interest
      expenseSalaries
      and employee benefits
                      
                      
                      5,355
                      
                      
                      
                      530
                      
                      
                      
                      37
                      
                      
                      
                      5,922
                      
                      
                      
                      -
                      
                      
                      
                      5,922Occupancy
      and equipment expenses
                      
                      
                      603
                      
                      
                      
                      78
                      
                      
                      
                      
                      
                      
                      
                      681
                      
                      
                      
                      -
                      
                      
                      
                      681Professional
      fees
                      
                      
                      1,716
                      
                      
                      
                      72
                      
                      
                      
                      568
                      
                      
                      
                      2,356
                      
                      
                      
                      -
                      
                      
                      
                      2,356Office
      and administrative expenses
                      
                      
                      724
                      
                      
                      
                      95
                      
                      
                      
                      30
                      
                      
                      
                      849
                      
                      
                      
                      -
                      
                      
                      
                      849Loan
      origination expenses
                      
                      
                      30
                      
                      
                      
                      1
                      
                      
                      
                      
                      
                      
                      
                      31
                      
                      
                      
                      -
                      
                      
                      
                      31Other
      expenses
                      
                      
                      1,309
                      
                      
                      
                      128
                      
                      
                      
                      
                      
                      
                      
                      1,437
                      
                      
                      
                      242
                      
                      
                      
                      1,679Total
      non-interest expense
                      
                      
                      9,737
                      
                      
                      
                      904
                      
                      
                      
                      635
                      
                      
                      
                      11,276
                      
                      
                      
                      242
                      
                      
                      
                      11,518Income
      (loss) before tax expense (benefit)
                      
                      
                      (1,202
                      )
                      
                      
                      169
                      
                      
                      
                      (805
                      )
                      
                      
                      (1,838
                      )
                      
                      
                      (242
                      )
      A
                      
                      
                      (2,080
                      )Income
      tax expense (benefit)
                      
                      
                      (359
                      )
                      
                      
                      70
                      
                      
                      
                      (332
                      )
                      
                      
                      (621
                      )
                      
                      
                      (99
                      )
                      
                      
                      (720
                      )Net
      income (loss)
                      
                      $
                      (843
                      )
                      
                      
                      99
                      
                      
                      
                      (473
                      )
                      
                      $
                      (1,217
                      )
                      
                      $
                      (143
                      )
                      
                      $
                      (1,360
                      )Net
      loss per share - basic
                      
                      $
                      (0.42
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      -
                      
                      
                      $
                      (0.68
                      )Net
      loss per share - diluted
                      
                      
                      n/a
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      n/aWeighted
      average shares - basic
                      
                      
                      1,998,199
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,011,343
 (A)  Represents
amortization of Professional Business Bank core deposit
intangible




32




The
combined net loss of $1.4 million compared to Professional Business Bank’s $1.3
million net income in 2006 reflected a $1.6 million, or 44.2%, increase in
interest expense on deposits and borrowings, $1.1 million in merger related
expenses, a $1.3 million, or 26.8%, increase in personnel related expenses and a
$2.2 million increase in provision for loan losses, reflecting the 51.5% growth
in, and changes in the product mix of, the loan
portfolio.  Additionally, the holding company incurred $568 thousand
in legal and professional fees largely related to acquisition transactions that
were not pursued, $170 thousand in interest expenses and $68 thousand in
personnel and administrative costs.  The increased costs were offset
by a $3.8 million, or 30.8 %, increase in interest income on loans and
investments and a $721 thousand decrease in income tax expense.




BALANCE
SHEET SUMMARY




As of
December 31, 2007 total assets were $270.1 million, an increase of $96.8
million, or 55.9%, from total assets of $173.3 million at December 31, 2006. The
majority of this growth was funded by deposits and was invested in loans, which
increased $73.0 million, or 51.6%, to $214.6 million at December 31, 2007 from
$141.6 million at December 31, 2006.




SoCal
experienced a 22.1% growth in average earnings assets, increasing from
$158.9 million in 2006 to $194.0 million in 2007 and an increase in our net
interest margin from 5.64% in 2006 to 5.80% in 2007.




Shareholders’
equity increased $35.0 million for year ended December 31, 2007 primarily due to
the issuance of common stock in connection with the acquisition and issuance
of preferred stock to the Fund, partially offset by the net loss for
the year.




The
following table sets forth several key operating ratios:




Year
      Ended December 31,2007
              
              
              2006Return
      on Average Assets
              
              
              -0.59
              %
              
              
              0.79
              %Return
      on Average Equity
              
              
              -4.45
              %
              
              
              7.47
              %Average
      Shareholders' Equityto
      Average Total Assets
              
              
              13.30
              %
              
              
              10.57
              %






CRITICAL
ACCOUNTING POLICIES




This
discussion and analysis is based upon SoCal’s financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
SoCal’s management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, and expenses and related disclosure of
contingencies. A summary of the more significant accounting policies of SoCal
can be found in Note 1 to the audited financial statements included
herein.




33




Our
accounting policies are integral to understanding the results
reported.  Our most complex accounting policies require management’s
judgment to ascertain the valuation of assets, liabilities, commitments and
contingencies.  We have 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 the significant 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. The
provision for loan losses is determined based on management’s assessment of
several factors: reviews and evaluation of specific loans, changes in the nature
and volume of the loan portfolio, current economic conditions and the related
impact on specific borrowers and industry groups, historical loan loss
experiences, the level of classified and nonperforming loans and the results of
regulatory examinations.




Loans are
considered impaired if, based on current information and events, it is probable
that we will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate
stipulated in the loan agreement, except that all collateral-dependent loans are
measured for impairment based on the fair value of the collateral. In measuring
the fair value of the collateral, management uses assumptions and methodologies
consistent with those that would be utilized by unrelated third
parties.




Changes
in the financial condition of individual borrowers, in economic conditions, in
historical loss experience and in the condition of the various markets in which
collateral may be sold may all affect the required level of the allowance for
loan losses and the associated provision for loan losses.




Goodwill and
Other Intangibles. Net assets of entities acquired in
purchase transactions are recorded at fair value at the date of acquisition. The
historical cost basis of individual assets and liabilities are adjusted to
reflect their fair value. Identified intangibles are amortized on a
straight-line basis over the period benefited. Goodwill is not amortized for
book purposes, although it will be reviewed for potential impairment on an
annual basis, or if events or circumstances indicate a potential impairment. The
impairment test is performed in two phases. The first step of the goodwill
impairment test compares the fair value of the reporting unit with its carrying
amount, including goodwill. If the fair value of the reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not impaired;
however, if the carrying amount of the reporting unit exceeds its fair value, an
additional procedure must be performed. That additional procedure compares the
implied fair value of the reporting unit’s goodwill (as defined in
SFAS No. 142, Goodwill and Other Intangible Assets) with the carrying
amount of that goodwill. An impairment loss is recorded to the extent that the
carrying amount of goodwill exceeds its implied fair value.




34




Other
intangible assets subject to amortization are evaluated for impairment in
accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. An impairment loss will be recognized if the
carrying amount of the intangible asset is not recoverable and exceeds fair
value. The carrying amount of the intangible is considered “not recoverable” if
it exceeds the sum of the undiscounted cash flows expected to result from the
use of the asset.





DISTRIBUTION
OF ASSETS, LIABILITIES, AND SHAREHOLDERS’ EQUITY




The
following tables present, for the periods indicated, the distribution of average
assets, liabilities and shareholders’ equity, as well as the total dollar
amounts of interest income and the resultant yields, and the dollar amounts of
interest expense and resultant rates. Loan fees, which are not material, are
included in interest earned on loans (dollar amounts in thousands).




35




For
      the Year Ended December 31,2007
                  
                  
                  2006Average
                  
                  
                  
                  
                  
                  
                  
                  
                  AverageInterest
                  
                  
                  Yield
      or
                  
                  
                  
                  
                  
                  Interest
                  
                  
                  Yield
      orAverage
                  
                  
                  Earned
                  
                  
                  Rate
                  
                  
                  Average
                  
                  
                  Earned
                  
                  
                  RateBalance
                  
                  
                  or
      Paid
                  
                  
                  Paid
                  
                  
                  Balance
                  
                  
                  or
      Paid
                  
                  
                  PaidAssetsInterest-Earning
      Assets:Investment
      Securities
                  
                  $
                  13,394
                  
                  
                  $
                  635
                  
                  
                  
                  4.74
                  %
                  
                  $
                  15,122
                  
                  
                  $
                  672
                  
                  
                  
                  4.44
                  %Certificates
      of Deposits
                  
                  
                  2,021
                  
                  
                  
                  154
                  
                  
                  
                  7.62
                  %
                  
                  
                  4,785
                  
                  
                  
                  278
                  
                  
                  
                  5.81
                  %Federal
      Funds Sold
                  
                  
                  7,935
                  
                  
                  
                  406
                  
                  
                  
                  5.12
                  %
                  
                  
                  12,867
                  
                  
                  
                  629
                  
                  
                  
                  4.89
                  %Loans
                  
                  
                  170,658
                  
                  
                  
                  15,138
                  
                  
                  
                  8.87
                  %
                  
                  
                  126,094
                  
                  
                  
                  10,903
                  
                  
                  
                  8.65
                  %Total
      Interest-Earning Assets
                  
                  
                  194,008
                  
                  
                  
                  16,333
                  
                  
                  
                  8.42
                  %
                  
                  
                  158,868
                  
                  
                  
                  12,482
                  
                  
                  
                  7.86
                  %Non
      Interest-Earning AssetsCash
      and Due from Bank
                  
                  
                  6,953
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  5,316Premises
      and Equipment
                  
                  
                  461
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  353Accrued
      Interest and Other Assets
                  
                  
                  6,976
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,817Allowance
      for Loan Losses
                  
                  
                  ( 2,609
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  ( 1,711
                  )Total
      Assets
                  
                  $
                  205,789
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  165,643Liabilities
      and Shareholders' EquityInterest-Bearing
      Liabilities:Money
      Market, Savings and NOW
                  
                  $
                  74,306
                  
                  
                  
                  2,491
                  
                  
                  
                  3.35
                  %
                  
                  $
                  62,417
                  
                  
                  
                  2,216
                  
                  
                  
                  3.55
                  %Time
      Deposits under $100,000
                  
                  
                  23,817
                  
                  
                  
                  1,225
                  
                  
                  
                  5.14
                  %
                  
                  
                  16,618
                  
                  
                  
                  781
                  
                  
                  
                  4.70
                  %Time
      Deposits of $100,000 or More
                  
                  
                  15,672
                  
                  
                  
                  810
                  
                  
                  
                  5.17
                  %
                  
                  
                  8,118
                  
                  
                  
                  322
                  
                  
                  
                  3.97
                  %Other
      Borrowings
                  
                  
                  7,802
                  
                  
                  
                  551
                  
                  
                  
                  7.06
                  %
                  
                  
                  4,300
                  
                  
                  
                  200
                  
                  
                  
                  4.65
                  %Total
      Interest-Bearing Liabilities
                  
                  
                  121,597
                  
                  
                  
                  5,077
                  
                  
                  
                  4.18
                  %
                  
                  
                  91,453
                  
                  
                  
                  3,519
                  
                  
                  
                  3.85
                  %Noninterest-Bearing
      Liabilities:Demand
      Deposits
                  
                  
                  55,471
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  55,763Other
      Liabilities
                  
                  
                  1,359
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  918Shareholders'
      Equity
                  
                  
                  27,362
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  17,509Total
      Liabilities and Shareholders' Equity
                  
                  $
                  205,789
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  165,643Net
      Interest Income
                  
                  
                  
                  
                  
                  $
                  11,256
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  8,963Net
      Yield on Interest-Earning
      Assets (Net Interest Margin)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  5.80
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  5.64
                  %





36




EARNINGS
ANALYSIS




NET
INTEREST INCOME




A
significant component of earnings is net interest income which is the difference
between the interest earned on loans and investments and the interest paid on
deposits and other interest-bearing liabilities.




SoCal’s
net interest income is affected by changes in the amount and mix of our
interest-earning assets and interest-bearing liabilities, referred to as a
“volume change.” It is also affected by changes in the yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a “rate change.”




The
following table sets forth changes in interest income and interest expense for
each major category of interest-earning asset and interest-bearing liability,
and the amount of change attributable to volume and rate changes for the years
indicated. Changes not solely attributable to rate or volume have been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the changes in each (dollar amounts in
thousands).




Year
      Ended December 31, 2007versusYear
      Ended December 31, 2006Increase
      (Decrease) DueTo
      Change inVolume
              
              
              Rate
              
              
              TotalInterest-Earning
      Assets:Investment
      Securities
              
              $
              ( 87
              )
              
              $
              50
              
              
              $
              ( 37
              )Certificates
      of Deposit
              
              
              ( 225
              )
              
              
              101
              
              
              
              ( 124
              )Federal
      Funds Sold
              
              
              ( 253
              )
              
              
              30
              
              
              
              ( 223
              )Loans
              
              
              3,944
              
              
              
              291
              
              
              
              4,235Total
      Interest Income
              
              
              3,378
              
              
              
              473
              
              
              
              3,851Interest-Bearing
      Liabilities:Money
      Market, Savings and NOW
              
              
              386
              
              
              
              ( 111
              )
              
              
              275Time
      Deposits under $100,000
              
              
              363
              
              
              
              81
              
              
              
              444Time
      Deposits of $100,000 or More
              
              
              355
              
              
              
              133
              
              
              
              488Other
      Borrowings
              
              
              202
              
              
              
              149
              
              
              
              351Total
      Interest Expense
              
              
              1,306
              
              
              
              252
              
              
              
              1,558Net
      Interest Income
              
              $
              2,072
              
              
              $
              221
              
              
              $
              2,293




Net
interest income was $11.3 million and $9.0 million for the years ended December
31, 2007 and 2006, respectively. The increase of $2.3 million, or 25.6%, was
primarily due to the increase in average interest-earning assets in 2007 over
2006. The net interest margin was 5.80% and 5.64% for 2007 and 2006,
respectively. Theincrease
in net interest margin is due to the yields on interest-earning assets rising
faster than the cost of interest-bearing liabilities.




Interest
income was $16.3 million and $12.5 million for 2007 and 2006, respectively. The
year over year increase of $3.8 million, or 30.8%, was due to the increase in
average interest-earning assets and the increase in period over period market
interest rates which are reflected in the average yield. The average balance of
interest-earning assets increased $35.1 million, or 22.1%, from $158.9 million
to $194.0 million for 2006 and 2007, respectively, and the yield on
interest-earning assets increased 56 basis points from 7.86% to 8.42% for 2006
and 2007, respectively, due to an
increase in average market rates year over year, along with a change in the mix
of interest earning assets, with the composition more heavily weighted towards
loans, the highest yielding component of interest-earning
assets.




37




Interest
expense was $5.1 million and $3.5 million for the years ended December 31, 2007
and 2006, respectively. The increase of $1.6 million, or 44.2%, was due to the
increase in average interest-bearing liabilities and, to a lesser extent, the
increase in period over period market interest rates which are reflected in the
overall average rate paid.  Additionally, SoCal incurred interest
expense of $170 thousand during 2007 on notes payable.  The average
balance of interest-bearing liabilities increased $30.1 million, or 33.0%, from
$91.5 million to $121.6 million for 2006 and 2007, respectively, and the average
rate paid on interest-bearing liabilities increased 33 basis points from 3.85%
to 4.18% for 2006 and 2007, respectively.




NONINTEREST
INCOME




Noninterest
income consists primarily of service charges on deposit accounts and gains on
loan sales. Noninterest income was $436 thousand for 2007 compared to
$658 thousand for 2006.




The
decrease in noninterest income of $222 thousand, or 33.7%, for 2007 compared to
2006 was primarily due to a decrease in gain on sales of loans and SBA packaging
and referral fee income offset by increases in service charges and fees
resulting from increased deposit accounts and an increase in the amount charged
deposit customers for negative account balances and for checks that were not
honored due to insufficient funds in customer account balances. There were no
loans sold during 2007. Gain on sales of loans was $188 thousand for 2006.
SBA packaging and referral fee income decreased $181 thousand, 2007 compared to
2006. Service charges and fees increased $149 thousand, or 49.7%, 2007 compared
to 2006.




NONINTEREST
EXPENSE




Noninterest
expense reflects SoCal’s costs of products and services related to systems,
facilities, personnel, and administration. The following are the major
components of noninterest expense for the years ended December 31, 2007 and 2006
(dollar amounts in thousands):




Year
      Ended December 31,2007
              
              
              2006Salaries
      and Employee Benefits
              
              $
              5,922
              
              
              $
              4,672Occupancy
      and Equipment Expenses
              
              
              681
              
              
              
              588Professional
      Fees
              
              
              2,356
              
              
              
              832Office
      and Administrative Expenses
              
              
              849
              
              
              
              965Other
      Expenses
              
              
              1,710
              
              
              
              1,050Total Noninterest Expense
              
              $
              11,518
              
              
              $
              8,107


The
increase of $3.4 million, or 42.1%, for 2007 over 2006 was primarily due to the
following:




•
            
            Salaries
      and benefits increased $1.3 million, or 26.8%, due to an increase in the
      number of higher compensated business development officers, an increase in
      stock-based compensation costs, and annual salary increases for
      employees.




38





•
            
            Professional
      fees increased $1.5 million, or 183.2%, primarily due to the expensing of
      $568 thousand of professional fees related to potential acquisitions that
      were not consummated  and the expensing of $1.1 million of
      merger related legal and consulting fees by Professional Business
      Bank.




•
            
            Office
      and administrative expenses decreased $116 thousand, or 12.0%, primarily
      due to a $199 thousand decrease in operating cost reimbursements paid
      to title and escrow customers as a result of decreased average account
      balances, offset by an increase in telephone expenses and administrative
      expenses incurred by the holding
company.





•
            
            Other
      expenses increased $660 thousand, or 62.9%, primarily due to a $142
      thousand increase in electronic data processing expenses as a result of
      increased transaction volumes and the introduction of new products, a $114
      thousand increase in FDIC and California Department of Financial
      Institutions assessments, a $66 thousand increase to travel, dues and
      membership costs and $242 thousand in pro forma amortization of the core
      deposit intangible.




As a
percentage of average assets, noninterest expense was 5.60% and 4.89% in 2007
and 2006, respectively. The increase of 71 basis points was due to merger
related expenses incurred in 2007 along with the lag between the time when new
business development officers are employed and when they generate new loans and
deposits.




INCOME
TAXES




The
income tax (benefit) expense was $(720) thousand, or an effective rate
of (34.6)%, and $1 thousand for 2007 and 2006, respectively. The income tax
benefit for 2007 was due primarily to the 2007 acquisition that occurred
during the year and the related impact on operations and Management’s
belief that it is more likely than not that the net operating loss carryforwards
will be utilized in future periods, resulting in the elimination
of the valuation allowance of $532 thousand previously recorded. Tax
expense of $1 thousand was recorded for 2006, the minimum franchise tax for the
State of California less prior year refunds received. As of December 31,
2007, SoCal has net operating loss carry forwards of approximately $120 thousand
for federal income tax and $166 thousand for California franchise tax purposes.
Federal net operating loss carry forwards, to the extent not used, will expire
in 2027. California net operating loss carry forwards, to the extent not used,
will expire in 2017.




39


BALANCE
SHEET ANALYSIS
 INVESTMENT
PORTFOLIO
  All
investment securities are classified as available-for-sale. The following table
summarizes the amounts and distribution of investment securities held as of the
dates indicated (dollar amounts in thousands):


December
      31, 2007
              
              
              December
      31, 2006Weighted
              
              
              
              
              
              
              
              
              WeightedAmortized
              
              
              Market
              
              
              Average
              
              
              Amortized
              
              
              Market
              
              
              AverageCost
              
              
              Value
              
              
              Yield
              
              
              Cost
              
              
              Value
              
              
              YieldAvailable-for-Sale
      SecuritiesU.S.
      Government AgenciesWithin
      One Year
              
              $
              2,004
              
              
              $
              2,002
              
              
              
              4.24%
              
              
              $
              5,990
              
              
              $
              5,950
              
              
              
              3.79%One
      to Five Years
              
              
              2,024
              
              
              
              2,024
              
              
              
              5.42%
              
              
              
              3,988
              
              
              
              3,995
              
              
              
              4.87%Total
      Available for Sale
              
              
              4,028
              
              
              
              4,026
              
              
              
              
              
              
              
              9,978
              
              
              
              9,945Mortgage-Backed
      SecuritiesWithin
      One Year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              48
              
              
              
              48
              
              
              
              5.01%One
      to Five Years
              
              
              1,230
              
              
              
              1,231
              
              
              
              4.11%
              
              
              
              1,574
              
              
              
              1,527
              
              
              
              4.16%After
      Five Years to Ten Years
              
              
              558
              
              
              
              559
              
              
              
              5.22%
              
              
              
              4,178
              
              
              
              4,181
              
              
              
              4.98%After
      Ten Years
              
              
              2,953
              
              
              
              2,970
              
              
              
              4.78%Total
      Mortgage-Backed
              
              
              4,741
              
              
              
              4,760
              
              
              
              
              
              
              
              5,800
              
              
              
              5,756Total
      Securities
              
              $
              8,769
              
              
              $
              8,786
              
              
              
              
              
              
              $
              15,778
              
              
              $
              15,701




LOAN
PORTFOLIO




The
following table sets forth the components of total net loans outstanding in each
category at the date indicated (dollar amounts in thousands):




December
      31,2007
              
              
              2006LoansCommercial
              
              $
              56,791
              
              
              $
              27,082Real
      Estate - Construction
              
              
              37,566
              
              
              
              17,392Real
      Estate - Other
              
              
              113,123
              
              
              
              91,250Consumer
              
              
              7,127
              
              
              
              5,898Net
      Deferred Loan Fees
              
              
              ( 273
              )
              
              
              ( 251
              )Total
      Loans
              
              
              214,334
              
              
              
              141,371Allowance
      for Loan Losses
              
              
              ( 4,077
              )
              
              
              ( 1,869
              )Net
      Loans
              
              $
              210,257
              
              
              $
              139,502CommitmentsLetters
      of Credit
              
              $
              769
              
              
              $
              603Undisbursed
      Loans andCommitments
      to Grant Loans
              
              
              62,459
              
              
              
              50,829Total
      Commitments
              
              $
              63,228
              
              
              $
              51,432







At
December 31, 2007 and 2006, more than 50% of the loan portfolio was comprised of
real estate—other loans. Real estate-other loans consist primarily of loans
secured by owner-occupied and investor commercial real estate.




40


In an
effort to diversify its loan portfolio, in 2006 Professional Business Bank
became an approved lender under the California Pollution Control Financing
Authority’s California Capital Access Program (“CalCAP”) under which
$21.7 million and $5.9 million of commercial loans were outstanding
at December 31, 2007 and 2006, respectively. The outstanding balances of
real estate loans originated under the CalCAP program were $8.2 million
and  $1.9 million at December 31, 2007 and 2006, respectively. Under
the CalCAP program, the borrower, CalCAP and Professional Business Bank
contribute funds (generally 2%, 4% and 2%, respectively, of the loan commitment
amount) to a CalCAP reserve account that is held in an interest-bearing demand
account at Professional Business Bank. Professional Business Bank’s
contributions to the CalCAP reserve account have been recorded as a receivable
and are included in Accrued Interest and Other Assets. The allowance for loan
losses allocated to the CalCAP loans takes into consideration the credit support
provided by the CalCAP reserve account. If Professional Business Bank were to
formally withdraw from the program, the remaining balance in the CalCAP reserve
account after all loans have been repaid and there are no pending claims for
reimbursement and the California Pollution Control Financing Authority withdraws
its pro rata portion (based on total contributions) of the account balance will
be paid to Professional Business Bank as repayment of the previously recorded
receivable.


The following table sets forth the
maturity distribution of loans outstanding at December 31, 2007. In addition,
the table shows the distribution of such loans between those loans with
predetermined (fixed) interest rates and those with variable (floating) interest
rates. Floating rates generally fluctuate with changes in the national prime
rate or other interest rate indices. Variable rate loans where the interest rate
has fallen below contractual minimums are classified in the following chart as
fixed rate loans (dollar amounts in thousands):




Over
      OneYear
      ButLess
      Than
              
              
              Less
      Than
              
              
              Over
      FiveOne
      Year
              
              
              Five
      Years
              
              
              Years
              
              
              TotalCommercial
              
              $
              53,500
              
              
              $
              2,942
              
              
              $
              349
              
              
              $
              56,791Real
      Estate - Construction
              
              
              37,566
              
              
              
              -
              
              
              
              -
              
              
              
              37,566Real
      Estate - Other
              
              
              45,331
              
              
              
              49,786
              
              
              
              18,006
              
              
              
              113,123Consumer
              
              
              3,301
              
              
              
              392
              
              
              
              3,434
              
              
              
              7,127Total
              
              $
              139,698
              
              
              $
              53,120
              
              
              $
              21,789
              
              
              $
              214,607Loans
      with fixed interest rates
              
              $
              5,931
              
              
              $
              6,273
              
              
              $
              20,850
              
              
              $
              33,054Loans
      with variable interest rates
              
              
              133,767
              
              
              
              46,847
              
              
              
              939
              
              
              
              181,553Total
              
              $
              139,698
              
              
              $
              53,120
              
              
              $
              21,789
              
              
              $
              214,607




NONPERFORMING
ASSETS




Nonaccrual
loans are those loans for which we have discontinued accrual of interest because
there exists reasonable doubt as to the full and timely collection of either
principal or interest.  Loans past due 90 days will continue to accrue
interest only when the loan is both well secured and in the process of
collection.




When a
loan is placed on nonaccrual status, all interest previously accrued but
uncollected is reversed against current period operating
results.  Income on such loans is then recognized only to the extent
that cash is received and, where the ultimate collection of the carrying amount
of the loan is probable, after giving consideration to the borrower’s current
financial condition, historical repayment performance and other
factors.  Accrual of interest is resumed only when (i) principal and
interest are brought fully current, and (ii) such loan is either considered, in
management’s judgment, to be fully collectible or otherwise well secured and in
the process of collection.




At
December 31, 2007 nonaccrual loans totaled $920 thousand, which consisted of one
loan secured by commercial real estate.  If interest on that loan had
been accrued, such income would have approximated $71 thousand for 2007. There
were no nonaccrual loans at December 31, 2006.  At December 31, 2007
and 2006, SoCal had no loans that were 90 days past due that were still accruing
interest or loans that were “troubled debt restructurings”.




41








December
      31,2007
                
                
                2006Loans
      90 Days Past Due and Still Accruing
                
                $
                -
                
                
                $
                -Nonaccrual
      Loans
                
                
                920,000
                
                
                
                -Total
      Nonperforming Loans
                
                
                920,000
                
                
                
                -Other
      Real Estate Owned
                
                
                -
                
                
                
                -Total
      Nonperforming Assets
                
                $
                920,000
                
                
                $
                -Nonperforming
      Loans as aPercentage
      of Total Loans
                
                
                0.43
                %
                
                
                N/AAllowance
      for Loan Loss as a Percentageof
      Nonperforming Loans
                
                
                443.15
                %
                
                
                N/ANonperforming
      Assets as aPercentage
      of Total Assets
                
                
                0.34
                %
                
                
                N/A




PROVISION
AND ALLOWANCE FOR LOAN LOSSES




The
provision for loan losses is based on management’s assessment of the required
allowance for loan losses to ensure that the allowance is maintained at a level
that is considered adequate to provide for the loan losses inherent in the loan
portfolio. For 2007 and 2006 the provision for loan losses was $2.3 million and
$205 thousand, respectively. The increase was due to the growth in loans and the
increase in the percentage of loans categorized at higher risk
ratings.  There were $46 thousand in charge-offs in
2007.  There were no charge-offs in 2006.




Management
believes that the allowance for loan losses is adequate. Quarterly detailed
reviews are performed to identify the risks inherent in the loan portfolio,
assess the overall quality of the loan portfolio and to determine the adequacy
of the allowance for loan losses and the related provision for loan losses to be
charged to expense. These systematic reviews follow the methodology set forth by
the FDIC in its 2006 policy statement on the allowance for loan
losses.




A key
element of the methodology is the credit classification process. Significant
loans identified as less than “acceptable” are reviewed individually to estimate
the amount of probable losses that need to be included in the allowance. These
reviews include analysis of financial information as well as evaluation of
collateral securing the loan. Additionally considered is the inherent risk
present in the “acceptable” portion of the loan portfolio taking into account
the relative financial strength of each borrower, market conditions and other
relevant factors that may affect repayment of the loans in these categories. All
loans are risk rated on a scale of “1” to “10” with “10” being a loss. A loss
factor is assigned to each risk rating based on various factors, including
management’s experience, consultation with outside consultants and peer group
analysis. The sum of the products of the loss factors and the outstanding
balance of loans in each category is considered the “quantitative” portion of
the allowance for loan losses. On a quarterly basis, the appropriateness of the
loss factors is reviewed. When the loss factors are adjusted or the dollar
amount of loans in each risk category change, the allowance and provision for
loan losses are adjusted accordingly.




42





SoCal has
also elected to take external, subjective (so-called qualitative) factors into
consideration when assessing the adequacy of the allowance for loan losses.
These qualitative factors, which adjusts for the lack of seasoning of
the loan portfolio, take into account and weight by risk, among other things,
the growth and nature of the loan portfolio, concentration of credits, lending
policies, economic trends, competition and legal and regulatory
requirements. The total qualitative reserve requirement is determined by
applying the risk weights of the qualitative factors to the total amount of
loans outstanding.




The
following table summarizes the allocation of the allowance for loan losses by
loan type as of the dates indicated and the percent of loans in each category to
total loans (dollar amounts in thousands):




December
      31,2007
              
              
              2006Loan
              
              
              
              
              
              LoanAmount
              
              
              Percent
              
              
              Amount
              
              
              PercentCommercial
              
              $
              1,286
              
              
              
              26.5
              %
              
              $
              375
              
              
              
              19.1
              %Real
      Estate - Construction
              
              
              1,163
              
              
              
              17.5
              %
              
              
              277
              
              
              
              12.3
              %Real
      Estate - Other
              
              
              1,468
              
              
              
              52.7
              %
              
              
              1,094
              
              
              
              64.4
              %Consumer
              
              
              152
              
              
              
              3.3
              %
              
              
              66
              
              
              
              4.2
              %Unallocated
              
              
              8
              
              
              
              n/a
              
              
              
              57
              
              
              
              n/aTotal
              
              $
              4,077
              
              
              
              100.0
              %
              
              $
              1,869
              
              
              
              100.0
              %






The
CalCAP loans totaled $29.9 million and $7.8 million at December 31, 2007 and
2006, respectively, and are included in the Commercial and Real Estate—Other
categories in the above table. The allowance for loan losses allocated to the
CalCAP loans takes into consideration the credit support provided by the CalCAP
reserve account. The balance in the CalCAP reserve account, including amounts
due from CalCAP, was $2.2 million and $728 thousand at December 31, 2007
and 2006, respectively.




As a
percentage of total loans, the allowance for loan losses increased 58 basis
points from 1.32% at December 31, 2006 to 1.90% at December 31, 2007. The
increase is due to an increase in the percentage of loans categorized at higher
risk ratings.




43




The
following table sets forth information about the allowance for loan losses and
non-performing assets at the date indicated:


For
      the Year Ended December 31,2007
              
              
              2006Outstanding
      Loans:Average
      for the Year
              
              $
              170,658
              
              
              $
              126,094End
      of the Year
              
              $
              214,334
              
              
              $
              141,371Allowance
      For Loan Losses:Balance
      at Beginning of Year
              
              $
              1,869
              
              
              $
              1,664Actual
      Charge-Offs:CommercialConsumer
              
              
              46Real
      Estate
              
              
              -
              
              
              
              -Total
      Charge-Offs
              
              
              46
              
              
              
              -Less
      Recoveries:Commercial
              
              
              
              
              
              
              -Consumer
              
              
              -
              
              
              
              -Real
      Estate
              
              
              -
              
              
              
              -Total
      Recoveries
              
              
              -
              
              
              
              -Net
      Loans Charged-Off
              
              
              46
              
              
              
              -Provision
      for Loan Losses
              
              
              2,254
              
              
              
              205Balance
      at End of Year
              
              $
              4,077
              
              
              $
              1,869Ratios:Net
      Loans Charged-Off toAverage
      Loans
              
              
              0.03
              %
              
              
              N/AAllowance
      for Loan Losses toTotal
      Loans
              
              
              1.90
              %
              
              
              1.32
              %Net
      Loans Charged-Off to BeginningAllowance
      for Loan Losses
              
              
              2.46
              %
              
              
              N/ANet
      Loans Charged-Off toProvision
      for Loan Losses
              
              
              2.04
              %
              
              
              N/AAllowance
      for Loan Losses toNonperforming
      Loans
              
              
              443.15
              %
              
              
              N/A




44


FUNDING
  Deposits
are the primary source of funds.
  The
following table summarizes the distribution of average deposits and the average
rates paid for the period indicated (dollar amounts in
thousands):




Years
      Ended December 31,2007
              
              
              2006Average
              
              
              Average
              
              
              Average
              
              
              AverageBalance
              
              
              Rate
              
              
              Balance
              
              
              RateMoney
      Market, Savings and NOW
              
              $
              74,306
              
              
              
              3.35
              %
              
              $
              62,417
              
              
              
              3.55
              %Time
      Deposits under $100,000
              
              
              23,817
              
              
              
              5.14
              %
              
              
              16,618
              
              
              
              4.70
              %Time
      Deposits of $100,000 or More
              
              
              15,672
              
              
              
              5.17
              %
              
              
              8,118
              
              
              
              3.97
              %Total
      Interest-Bearing Deposits
              
              
              113,795
              
              
              
              3.98
              %
              
              
              87,153
              
              
              
              3.81
              %Noninterest-Bearing
      DemandDeposits
              
              
              55,471
              
              
              
              n/a
              
              
              
              55,763
              
              
              
              n/aTotal
      Average Deposits
              
              $
              169,266
              
              
              
              2.67
              %
              
              $
              142,916
              
              
              
              2.32
              %






The
average balance of money market, savings and NOW accounts increased $11.9
million, or 19.0%, from $62.4 million in 2006 to $74.3 million in 2007. The
average balance of time deposits under $100,000 increased $7.2 million, or
43.3%, from $16.6 million in 2006 to $23.8 in 2007. The
average balance of time deposits greater than $100,000 increased $7.5 million,
or 93.1%, from $8.2 million in 2006 to $15.7 million in 2007. The overall
average rate increased 35 basis points from 2.32% in 2006 to 2.67% in 2007. This
increase related primarily to a shift in the mix of total deposits, with
interest bearing deposits comprising 68% of our total deposit portfolio in 2007
as compared to 61% in 2006.




The
scheduled maturity distribution of time deposits of $100,000 or greater were as
follows (dollar amounts in thousands):




Three
      Months or Less
              
              $
              4,795Over
      Three Months to One Year
              
              
              20,485Over
      One Year to Three Years
              
              
              436Total
              
              $
              25,716







Professional
Business Bank has from time to time borrowed funds on a short-term basis from
the Federal Home Loan Bank and other financial institutions. Outstanding
borrowings totaled $18.0 million and $9.5 million at December 31, 2007 and 2006,
respectively. The interest rate was 3.8% and 5.64% on these outstanding
borrowings at December 31, 2007 and 2006, respectively. The maximum amount of
borrowings at any month-end was $18.0 million and $9.5 million in 2007 and 2006,
respectively. The average amounts outstanding totaled $7.8 million and $4.3
million and the weighted average interest rates were 4.90% and 4.69% in 2007 and
2006, respectively.




LIQUIDITY
AND INTEREST RATE SENSITIVITY




Liquidity
management for banks requires that funds always be available to pay anticipated
deposit withdrawals and maturing financial obligations promptly and fully in
accordance with their terms. The balance of the funds required is generally
provided by payments on loans, sale of loans, liquidation of assets and the
acquisition of additional deposit liabilities. One method banks utilize for
acquiring additional liabilities is through the acceptance of “brokered
deposits” (defined to include not only deposits received through deposit
brokers, but also deposits bearing interest in excess of 75 basis points over
market rates), typically attracting large certificates of deposit at higher
interest rates. At December 31, 2007 the deposit portfolio consisted of $20
million in brokered deposits.  There were no brokered deposits at
December 31, 2006.




To meet
liquidity needs, SoCal maintains a portion of its funds in cash deposits in
other banks, Federal Funds sold, and available-for-sale investment securities
(liquid assets). As of December 31, 2007 and 2006, SoCal’s liquidity ratio was
11.5% and 12.5%, respectively (defined as liquid assets as a percentage of
deposits).




45




Liquidity
may be enhanced, if necessary, through short-term borrowings. As of December 31,
2007, SoCal had short-term borrowing facilities available totaling approximately
$72 million. This consisted of $21 million in unsecured federal funds lines of
credit with three correspondent banks and approximately $51 million in a
secured line of credit with Federal Home Loan Bank.




As of
December 31, 2007, one depositor accounted for 7.8%, or $15.2 million, of total
deposits. SoCal believes it could replace these deposits in the wholesale market
or utilize its borrowing facilities to fund the cash outflow.




Interest
rate risk is the exposure of a bank’s financial condition, both earnings and the
market value of assets and liabilities, to adverse movements in interest rates.
Interest rate risk results from differences in the maturity or timing of
interest-earning assets and interest-bearing liabilities, changes in the slope
of the yield curve over time, imperfect correlation in the adjustment of rates
earned and paid on different instruments with otherwise similar characteristics
(e.g., three-month Treasury bill versus three-month LIBOR) and from
interest-rate-related options embedded in bank products (e.g. loan prepayments,
callable investment securities, early withdrawal of time deposits,
etc).




The
potential impact of interest rate risk is significant because of the liquidity
and capital adequacy consequences that reduced earnings or losses could imply.
Interest rate risks are a routine part of bank operations and will from time to
time impact profits and capital position. The objective of interest rate risk
management is to control exposure of net interest income to risks associated
with interest rate movements in the market, to achieve consistent growth in net
interest income and to profit from favorable market opportunities.




The
careful planning of asset and liability maturities and the matching of interest
rates to correspond with this maturity matching is an integral part of the
active management of an institution’s net yield. To the extent maturities of
assets and liabilities do not match in a changing interest rate environment, net
yields may be affected. Even with perfectly matched repricing of assets and
liabilities, risks remain in the form of prepayment of assets, timing lags in
adjusting certain assets and liabilities that have varying sensitivities to
market interest rates and basis risk. In an overall attempt to match assets and
liabilities, SoCal takes into account rates and maturities to be offered in
connection with certificates of deposit and variable rate loans. SoCal has
generally been able to control exposure to changing interest rates by
maintaining a large percentage of floating interest rate loans and a majority of
time certificates with relatively short maturities.




The
following table sets forth the distribution of repricing opportunities of
interest-earning assets and interest-bearing liabilities, the cumulative
interest rate sensitivity gap, which is interest rate sensitive assets less
interest rate sensitive liabilities cumulative period to period, and the
cumulative gap as a percentage of total assets and total interest-earning assets
as of December 31, 2007. The table also sets forth the time periods during which
interest-earning assets and interest-bearing liabilities will mature or may
reprice in accordance with their contractual terms. The interest rate
relationships between the repriceable assets and repriceable liabilities are not
necessarily constant and may be affected by many factors, including the actions
management might take and the behavior of customers in response to changes
in interest rates. This table should, therefore, be used only as a guide as to
the possible effect changes in interest rates might have on net interest margins
(dollars in thousands).




46




After
              
              
              After
      OneWithin
              
              
              Three
      Months
              
              
              Year
      ButThree
              
              
              But
      Within
              
              
              Within
              
              
              AfterMonths
              
              
              One
      Year
              
              
              Five
      Years
              
              
              Five
      Years
              
              
              TotalInterest-Earning
      Assets:Federal
      Funds Sold
              
              $
              9,130
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              9,130Certificates
      of Deposit
              
              
              -
              
              
              
              100
              
              
              
              -
              
              
              
              -
              
              
              
              100Investment
      Securities
              
              
              -
              
              
              
              2,002
              
              
              
              3,255
              
              
              
              3,529
              
              
              
              8,786Total
      Loans
              
              
              106,355
              
              
              
              33,344
              
              
              
              53,120
              
              
              
              21,788
              
              
              
              214,607$
              115,485
              
              
              $
              35,446
              
              
              $
              56,375
              
              
              $
              25,317
              
              
              $
              232,623Interest-Bearing
      Liabilities:Money
      Market, Savings and NOW Deposits
              
              $
              49,514
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              49,514Time
      Deposits
              
              
              32,823
              
              
              
              37,698
              
              
              
              556
              
              
              
              -
              
              
              
              71,077Other
      Borrowings
              
              
              18,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              18,000$
              100,337
              
              
              $
              37,698
              
              
              $
              556
              
              
              $
              -
              
              
              $
              138,591Interest
      Rate Sensitivity Gap
              
              $
              15,148
              
              
              $
              ( 2,252
              )
              
              $
              55,819
              
              
              $
              25,317
              
              
              $
              94,032Cumulative
      Interest Rate Sensitivity Gap
              
              $
              15,148
              
              
              $
              12,896
              
              
              $
              68,715
              
              
              $
              94,032Ratios
      Based on Total Assets:Interest
      Rate Sensitivity Gap
              
              
              5.61
              %
              
              
              ( 0.83
              %)
              
              
              20.67
              %
              
              
              9.37
              %
              
              
              34.82
              %Cumulative
      Interest Rate Sensitivity Gap
              
              
              5.61
              %
              
              
              4.77
              %
              
              
              25.44
              %
              
              
              34.82
              %Total
      Assets
              
              $
              270,080







On
December 31, 2007, SoCal had $150.9 million in assets and $138.0 million in
liabilities repricing within one year. This means that $12.9 million more of
SoCal’s interest rate sensitive assets than its interest rate sensitive
liabilities will change to the then current rate (changes occur due to the
instruments being at a variable rate or because the maturity of the instrument
requires its replacement at the then current rate). The ratio of
interest-earning assets to interest-bearing liabilities maturing or repricing
within one year at December 31, 2007 equals 109.3%. Interest income is likely to
be affected to a greater extent than interest expense for any changes in
interest rates within one year from December 31, 2007. If rates were to increase
during this period, interest income would increase by a greater amount than
interest expense and net income would increase. Conversely, if rates were to
decrease the opposite would apply.




CAPITAL
RESOURCES




Shareholders’
equity at December 31, 2007 was $55.0 million, an increase of $35.0 million from
$20.0 million at December 31, 2006. The increase was primarily due to the
issuance of common stock, offset by the net loss for 2007.




As of
December 31, 2007, Belvedere SoCal had no trust preferred securities
outstanding.  However, as part of the Spectrum Bank acquisition a
total of $15.0 million of trust preferred securities were issued by a subsidiary
of Belvedere SoCal, and a corresponding amount of junior subordinated debentures
were issued by SoCal.  In addition, Belvedere SoCal sold $20 million
of non-cumulative perpetual preferred stock to the Fund on December 10,
2007.   The trust preferred securities and the non-cumulative
perpetual preferred stock have been included in Tier I capital for regulatory
capital purposes.




47





Professional
Business Bank’s Tier 1 risk-based capital ratio and leverage ratio exceeded the
“well capitalized” regulatory requirements and its total risk-based capital
ratio exceeded the “adequately capitalized” regulatory capital requirement at
December 31, 2007.  Subsequent to December 31, 2007, Belvedere SoCal
made additional capital contributions to Professional Business Bank in the
amount of $4 million, raising Professional Business Bank’s total risk-based
capital ratio above the “well capitalized” threshold.




Under
regulatory capital adequacy guidelines, capital adequacy is measured as a
percentage of risk-adjusted assets in which risk percentages are applied to
assets and certain off-balance-sheet items, such as unused loan commitments and
standby letters of credit. The guidelines require that a portion of total
capital be core, or Tier 1, capital consisting of common shareholders’ equity
and perpetual preferred stock, less goodwill and certain deductions. Tier 2
capital consists of other elements, primarily non-perpetual preferred stock,
subordinated debt and mandatory convertible debt, plus the allowance for loan
losses, subject to certain limitations. The guidelines also evaluate the
leverage ratio, which is Tier 1 capital divided by average tangible
assets.




The
following table sets forth the regulatory standards for well-capitalized and
adequately capitalized institutions and the capital ratios for SoCal and
Professional Business Bank as of the date indicated:




SoCal




Minimum
              
              December
      31,Requirements
              
              2007Tier
      1 Capital to Average Assets
              
              4.00%
              
              10.49%Tier
      1 Capital to Risk-Weighted Assets
              
              4.00%
              
              10.03%Total
      Capital to Risk-Weighted Assets
              
              8.00%
              
              11.29%




Professional
Business Bank




Minimum
              
              Well
      Capitalized
              
              December
      31,
              
              December
      31,Requirements
              
              Standard
              
              2007
              
              2006Tier
      1 Capital to Average Assets
              
              4.00%
              
              5.00%
              
              8.82%
              
              11.22%Tier
      1 Capital to Risk-Weighted Assets
              
              4.00%
              
              6.00%
              
              8.29%
              
              11.96%Total
      Capital to Risk-Weighted Assets
              
              8.00%
              
              10.00%
              
              9.55%
              
              13.10%




EFFECTS OF
INFLATION




The
financial statements and related financial information presented herein have
been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution’s
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or same magnitude as the price of
goods and services.




48





OFF-BALANCE
SHEET ARRANGEMENTS





Off-balance
sheet arrangements are any contractual arrangement to which an unconsolidated
entity is a party, under which we have: (1) any obligation under a guarantee
contract; (2) a retained or contingent interest in assets transferred to an
unconsolidated  entity or similar arrangement that serves as credit,
liquidity or market risk support to that entity for such assets; (3) any
obligation under certain derivative instruments; or (4) any obligation under a
material variable interest held by us in an unconsolidated entity that provides
financing, liquidity, market risk or credit risk support to us, or engages in
leasing, hedging or research and development services with us.





In the
ordinary course of business, we have entered into off-balance sheet financial
instruments consisting of commitments to extend credit, commercial letters of
credit, and standby letters of credit. Such financial instruments are recorded
in the financial statement when they are funded or related fees are incurred or
received.





ITEM
7.  FINANCIAL STATEMENTS.





The financial statements called for by
this item appear in this document beginning on the following page, and include
audited consolidated financial statements for SoCal from January 17, 2007
(Inception) to December 31, 2007, and audited statements of operations and
cash flows for Professional Business Bank for the period from January 1, 2007
through November 23, 2007, and statement of financial condition at December 31,
2006 and statements of operations, changes in shareholders' equity and cash
flows for the year then ended.




INDEX TO FINANCIAL
      STATEMENTSBelvedere SoCal and
      Subsidiary
            PageReport of Independent
      Registered Public Accounting Firm
            51Consolidated Statement of
      Financial Condition
            52Consolidated Statement of
      Operations
            53Consolidated Statement of
      Changes in Shareholders' Equity
            54Consolidated Statement of Cash
      Flows
            55Notes
            56Professional Business
      BankIndependent Auditor's
      Reports
            81Statement of Financial
      Condition
            82Statement of
      Operations
            83Statement of Changes in
      Shareholders' Equity
            84Statement of Cash
      Flows
            85Notes
            86




49















REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM











The
Shareholders and Board of Directors


Belvedere
SoCal and Subsidiary








We have
audited the accompanying consolidated balance sheet of Belvedere SoCal and
subsidiary as of December 31, 2007 and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for the period
from January 17, 2007 (inception) to December 31, 2007.  These
consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audit provides a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Belvedere SoCal
and subsidiary as of December 31, 2007, and the consolidated results of their
operations and their cash flows for the period from January 17, 2007 (inception)
to December 31, 2007, in conformity with accounting principles generally
accepted in the United States of America.




















March 31,
2008








50




BELVEDERE
SoCAL AND SUBSIDIARY





CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION





December
31, 2007





ASSETSCash and due from
      banks
            
            $
            4,401,632Federal Funds
      sold
            
            
            9,130,000Total cash and cash
      equivalents
            
            
            13,531,632Interest-bearing deposits in other
      financial institutions
            
            
            100,000Investment securities available
      for sale
            
            
            8,786,293Loans:Commercial
            
            
            56,791,314Real Estate –
      Construction
            
            
            37,566,205Real Estate –
      Other
            
            
            113,123,251Consumer
            
            
            7,126,720Total loans
            
            
            214,607,490Deferred loan fees, net of
      costs
            
            
            (273,115
            )Allowance for loan
      losses
            
            
            (4,077,213
            )Net loans
            
            
            210,257,162Premises and equipment,
      net
            
            
            461,760Goodwill
            
            
            29,459,78Other intangible asset,
      net
            
            
            2,368,172Federal Home Loan Bank stock, at
      cost
            
            
            916,300Accrued interest and other
      assets
            
            
            4,198,740Total
assets
            
            $
            270,079,842LIABILITIES AND SHAREHOLDERS'
      EQUITYDeposits:Noninterest-bearing
      demand
            
            $
            73,358,729NOW, savings and money market
      accounts
            
            
            49,514,411Time deposits under
      $100,000
            
            
            45,460,646Time deposits $100,000 and
      over
            
            
            25,715,811Total
    deposits
            
            
            194,049,597Federal Home Loan Bank
      advances
            
            
            18,000,000Accrued interest and other
      liabilities
            
            
            3,044,416Total
      liabilities
            
            
            215,094,013Commitments and contingencies
      (Notes 5 and 10)
            
            
            -Shareholders'
      equity:Preferred stock – non-cumulative,
      perpetual, no par value; authorized 20,000,000shares; 806,666 Series A shares
      issued and outstanding
            
            
            19,766,650Common stock – no par value;
      authorized 20,000,000 shares;2,011,343 shares issued and
      outstanding
            
            
            35,749,587Accumulated
      deficit
            
            
            (540,408
            )Accumulated other comprehensive
      income – net unrealizedgain on available-for-sale
      securities, net of taxes of $7,000
            
            
            10,000Total shareholders'
      equity
            
            
            54,985,829Total liabilities and
      shareholders' equity
            
            $
            270,079,842






The
accompanying notes are an integral part of these consolidated financial
statements.





51





BELVEDERE
SoCAL AND SUBSIDIARY
 
 CONSOLIDATED
STATEMENT OF OPERATIONS
 
 For
the Period from January 17, 2007 (Inception) to December 31, 2007
 
 
 Interest
      income:Interest
      and fees on loans
              
              $
              1,769,077Interest
      on investment securities
              
              
              45,919Other
      interest income
              
              
              40,132Total
      interest income
              
              
              1,855,128Interest
      expense:Interest
      on NOW, savings and money market accounts
              
              
              121,230Interest
      on time deposits less than $100,000
              
              
              194,281Interest
      on time deposits $100,000 and over
              
              
              139,502Interest
      on other borrowings
              
              
              192,670Total
      interest expense
              
              
              647,683Net
      interest income
              
              
              1,207,445Provision
      for loan losses
              
              
              350,859Net
      interest income after provision for loan losses
              
              
              856,586Non-interest
      income:Service
      charges and fees
              
              
              43,720Other
      income
              
              
              2,962Total
      non-interest income
              
              
              46,682Non-interest
      expense:Salaries
      and employee benefits
              
              
              566,418Occupancy
      and equipment expenses
              
              
              77,704Professional
      fees
              
              
              640,627Data
      processing
              
              
              55,392Marketing
      and business promotion
              
              
              12,550Office
      and administrative expenses
              
              
              124,455Other
      expenses
              
              
              61,769Total
      non-interest expense
              
              
              1,538,915Loss
      before income tax benefit
              
              
              (635,647
              )Income
      tax benefit
              
              
              (261,889
              )Net
      loss
              
              $
              (373,758
              )Net
      loss per share – basic and diluted
              
              $
              (2.45
              )










The
accompanying notes are an integral


part of
these consolidated financial statements.





52




BELVEDERE
SoCAL AND SUBSIDIARY





CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY





For
the Period from January 17, 2007 (Inception) to December 31, 2007







AccumulatedOtherPreferred Stock
              
              
              Common Stock
              
              
              Comprehensive
              
              
              Accumulated
              
              
              ComprehensiveShares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Loss
              
              
              Deficit
              
              
              IncomeCommon
      stock issued
              
              
              
              
              
              
              
              
              1,128,839
              
              
              $
              11,500,000Series
      A non-cumulative perpetual preferred stock issued, net of
      issuance costs
              
              
              800,000
              
              
              $
              19,600,000Common
      stock issued for acquisition ofProfessional
      Business Bank, net ofissuance
      costs
              
              
              
              
              
              
              
              
              
              
              885,804
              
              
              
              24,249,587Comprehensive
      loss:Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (373,758
              )
              
              $
              (373,758
              )Unrealized
      gain on available-for-salesecurities,
      net of tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,000
              
              
              
              
              
              
              $
              10,000Total
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (363,758
              )Series
      A preferred stock dividend declared
              
              
              6,666
              
              
              
              166,650
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (166,650
              )Balance,
      December 31, 2007
              
              
              806,666
              
              
              $
              19,766,650
              
              
              
              2,011,343
              
              
              $
              35,749,587
              
              
              
              
              
              
              $
              (540,408
              )
              
              $
              10,000














The
accompanying notes are an integral


part of
these consolidated financial statements.





53




BELVEDERE
SoCAL AND SUBSIDIARY





CONSOLIDATED
STATEMENT OF CASH FLOWS





For
the Period from January 17 (Inception) to December 31, 2007








Operating
      activities:Net
      loss
              
              $
              (373,758
              )Adjustments
      to reconcile net income to net cash used inoperating
      activities:Depreciation
      and amortization
              
              
              61,874Provision
      for loan losses
              
              
              350,859Net
      increase in accrued interest and other assets
              
              
              (1,117,401
              )Net
      decrease in accrued interest and other liabilities
              
              
              (61,329
              )Net
      cash used in operating activities
              
              
              (1,139,755
              )Investing
      activities:Proceeds
      from maturities and principal paydowns ofavailable-for-sale
      investment securities
              
              
              1,575,806Increase
      in loans
              
              
              (21,126,708
              )Purchases
      of premises and equipment
              
              
              (10,788
              )Cash
      paid in connection with the acquisition
    of ProfessionalBusiness
      Bank, net of cash received
              
              
              (15,735,981
              )Net
      cash used in investing activities
              
              
              (35,297,671
              )Financing
      activities:Net
      increase in demand and savings deposits
              
              
              2,903,866Net
      decrease in time deposits
              
              
              (298,308
              )Proceeds
      from borrowings
              
              
              16,500,000Proceeds
      from issuance of common stock
              
              
              11,500,000Proceeds
      from issuance of preferred stock
              
              
              19,600,000Stock
      issuance costs paid
              
              
              (236,500
              )Net
      cash provided by financing activities
              
              
              49,969,058Increase
      in cash and cash equivalents
              
              
              13,531,632Cash
      and cash equivalents, beginning of period
              
              
              -Cash
      and cash equivalents, end of year
              
              $
              13,531,632Noncash
      financing activities:Fair
      value of common stock, options and warrants issued inacquisition
      of Professional Business Bank
              
              $
              24,596,087Preferred
      stock dividend declared
              
              $
              166,650Supplemental
      Disclosures of Cash Flow Information:Interest
      paid
              
              $
              62,264Taxes
      paid
              
              $
              155,000














The
accompanying notes are an integral


part of
these consolidated financial statements.





54
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS








1.           
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Belvedere
SoCal ("Belvedere") is a bank holding company incorporated in 2007 in the state
of California.  Belvedere was formed by its majority shareholder,
Belvedere Capital Fund II L.P. (the “Fund”), a Delaware limited partnership
formed in 2002, specifically to acquire Professional Business Bank (the "Bank"),
which occurred on November 23, 2007, and to be the platform for acquiring other
banks in southern California.  Belvedere closed the acquisition of
Spectrum Bank on January 31, 2008, further expanding its market
presence.  See Note 17 for further information regarding the
Spectrum acquisition.
 
 At
December 31, 2007 and January 31, 2008 (subsequent to the acquisition of
Spectrum Bank), the Fund owned 55.5% and 73.0%, respectively, of the outstanding
common stock of Belvedere and all of the outstanding Series A non-cumulative
perpetual preferred stock.  Significant related party transactions for
the period ended December 31, 2007 include the reimbursement by Belvedere of the
Fund’s merger-related expenses in connection with the acquisition of
Professional Business Bank and the payment of transaction fees to the Fund of $1
million in connection with the acquisition and $400,000 in connection with the
issuance of the Series A preferred stock.  In addition, Belvedere and
the Bank entered into a management agreement with the Fund and the Fund's
General Partner on November 2, 2007 under which the Fund’s general partner will
provide certain management services to the Bank for an annual fee equal to 5% of
the Bank’s pre-tax income, but not less than $100,000 nor more than
$500,000.  The first payment under this agreement is due January 1, 2008.
 In management’s opinion, these transactions are on the same terms as those
for comparable transactions with unrelated parties.


The
consolidated financial statements include the accounts of Belvedere since its
inception and the accounts of the Bank, its wholly owned subsidiary, from the
date of acquisition.  The Bank is chartered by the California
Department of Financial Institutions and its deposit accounts are insured by the
Federal Deposit Insurance Corporation up to the maximum amounts under the terms
allowed by federal regulations.  The Bank conducts its financial
services primarily in Los Angeles County and occasionally other areas of
California.  References in these notes to the "Company" refer to
Belvedere and its consolidated subsidiary.





The
accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America and within the
banking industry.





The
following are descriptions of the more significant of these
policies:





Principles of
Consolidation





The
consolidated financial statements include the accounts of Belvedere and the
Bank.  All material intercompany accounts and transactions have been
eliminated.





Use of Estimates in the
Preparation of Financial Statements





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.


55
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





1.            SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)




Cash and Cash
Equivalents
 
 For
purposes of reporting cash flows, cash and cash equivalents include cash, due
from banks and federal funds sold.  Generally, federal funds are sold
for one-day periods.
 
 Cash and Due From
Banks
 
 Banking
regulations require that banks maintain a percentage of their deposits as
reserves in cash or on deposit with the Federal Reserve Bank.  The
Bank was in compliance with its reserve requirements as of December 31,
2007.
 
 The
Company maintains amounts due from banks which exceed federally insured limits.
The Company has not experienced any losses in such
accounts.


Investment
Securities





Bonds,
notes, and debentures for which the Company has the positive intent and ability
to hold to maturity are reported at cost, adjusted for premiums and discounts
that are recognized in interest income using the interest method over the period
to maturity.





The
Company classifies as held-to-maturity those debt securities that it has the
intent and ability to hold to maturity.  Securities classified as
trading are those securities that are bought and held principally for the
purpose of selling them in the near term.





Investments
not classified as trading securities nor as held-to-maturity securities are
classified as available-for-sale securities and recorded at fair value.
Unrealized gains or losses on available-for-sale securities are excluded from
net income and reported as an amount net of applicable taxes as a separate
component of other comprehensive income included in shareholders' equity.
Premiums or discounts on held-to-maturity and available-for-sale securities are
amortized or accreted into income using the interest method. Realized gains or
losses on sales of held-to-maturity or available-for-sale securities are
recorded using the specific identification method.





Declines
in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other-than-temporary result in write-downs
of the individual securities to their fair value.  The related
write-downs are included in earnings as realized losses.  In
estimating other-than-temporary impairment losses, management considers the
length of time and the extent to which the fair value has been less than cost,
the financial condition and near-term prospects of the issuer, and the intent
and ability of the Company to retain its investment in the issuer for a period
of time sufficient to allow for any anticipated recovery in fair
value.





Loans





Loans
receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge-offs or specific valuation
accounts and net of any deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans.





Loan
origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related
loan.  Amortization of deferred loan fees is discontinued when a loan
is placed on nonaccrual status.





56
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





1.           SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)





Loans
(Continued)





Loans on
which the accrual of interest has been discontinued are designated as nonaccrual
loans.  The accrual of interest on such loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due, based on the contractual terms of the note.  When interest
accrual is discontinued, all unpaid accrued interest is reversed. Interest
income is subsequently recognized only to the extent cash payments are received
and the loan's principal balance is deemed collectible. Interest accruals are
resumed on such loans only when the loan is brought current with respect to
interest and principal and when, in the judgment of management, the loans are
estimated to be fully collectible as to all principal and interest.





The Bank
considers a loan to be impaired when it is probable that the Bank will be unable
to collect all amounts due (principal and interest) according to the contractual
terms of the loan agreement in accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 114,
Accounting by Creditors for
Impairment of a Loan, as amended by SFAS No. 118. Measurement of
impairment is based on the expected future cash flows of an impaired loan, which
are to be discounted at the loan's effective interest rate, or measured by
reference to an observable market value, if one exists, or the fair value of the
collateral for a collateral-dependent loan.  The Bank selects the
measurement method on a loan-by-loan basis except that collateral-dependent
loans for which foreclosure is probable are measured at the fair value of the
collateral.  The Bank recognizes interest income on impaired loans
based on its existing methods of recognizing interest income on nonaccrual
loans.





The
Company has adopted SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities.The
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of
liabilities.  Under this Statement, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished.





Gains and
losses on loan sales are recognized at the time of sale and are calculated based
on the difference between the selling price and the fair value of servicing
assets or liabilities and the allocated carrying value of the retained portion
of the loan, the interest-only strip and the sold portion of the loan, based on
the relative fair value of each portion.  As a result of the relative
fair value allocation, the carrying value of the retained portion is discounted,
with the discount accreted to interest income over the life of the
loan.  That portion of the excess servicing fees that represent
contractually specified servicing fees (contractual servicing) are reflected as
a servicing asset which is amortized over an estimated life using a method
approximating the level yield method; in the event future prepayments exceed
management's estimates and future expected cash flows are inadequate to cover
the unamortized servicing asset, additional amortization would be
recognized.  The portion of excess servicing fees in excess of the
contractual servicing fees is reflected as interest-only (I/O) strips
receivable, which are classified as interest-only strips receivable available
for sale and are carried at fair value.





57
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





1.           SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)





Allowance for Loan
Losses





The
allowance for loan losses is maintained to provide for losses related to
impaired loans and other losses that can be expected to occur in the normal
course of business.  The determination of the allowance is based on
estimates made by management, to include consideration of the character of the
loan portfolio, specifically identified problem loans, potential losses inherent
in the portfolio taken as a whole and economic conditions in the Company's
service area.





Loans
determined to be impaired or classified are individually evaluated by management
for specific risk of loss. In addition, reserve factors are assigned to
currently performing loans based on management's assessment of the following for
each identified loan type: (1) inherent credit risk, (2) historical losses
and, (3) where the Company has not experienced losses, the loss experience of
peer banks.  Management also recorded expected loss reserves of
$141,400 for off-balance-sheet commitments at December 31,
2007.  These reserves are included in accrued interest payable and
other liabilities on the balance sheet.  These estimates are
particularly susceptible to changes in the economic environment and market
conditions.





The
Company's Board of Directors reviews the adequacy of the allowance for loan
losses and reserves for off-balance-sheet commitments quarterly, to include
consideration of the relative risks in the portfolio and current economic
conditions.  The balances are adjusted based on that review if, in the
judgment of the Board of Directors and management, changes are
warranted.





The
allowance is established through a provision for loan losses which is charged to
expense.  Additions to the allowance are expected to maintain the
adequacy of the total allowance after credit losses and loan
growth.  The allowance for loan losses at December 31, 2007 and
2006 reflects management's estimate of possible losses in the
portfolio.





Premises and
Equipment





Premises
and equipment are carried at cost less accumulated depreciation and
amortization.  Depreciation is computed using the straight-line method
over the estimated useful lives, which ranges from three to ten years for
furniture and equipment. Leasehold improvements are amortized using the
straight-line method over the estimated useful lives of the improvements or the
remaining lease term (including option periods if more likely than not to be
exercised), whichever is shorter.  Expenditures for betterments or
major repairs are capitalized and those for ordinary repairs and maintenance are
charged to operations as incurred.





58
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





1.           SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)





Goodwill and Intangible
Assets





The
Company has recorded a premium related to the acquisition of Professional
Business Bank.  The premium is recorded as intangible assets in the
form of goodwill  and a core deposit intangible.  In
accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets, goodwill is not being amortized whereas the core deposit
intangible is being amortized by the straight-line method over an expected life
of seven years.  In accordance with the standard, the Company will
test goodwill for impairment on an annual basis beginning in 2008.





Advertising
Costs





The
Company expenses the costs of advertising in the year incurred.





Income
Taxes





Deferred
income taxes are computed using the asset and liability method, which recognizes
a liability or asset representing the tax effects, based on current tax law, of
future deductible or taxable amounts attributable to events that have been
recognized in the consolidated financial statements.  A valuation
allowance is established to reduce the deferred tax asset to the level at which
it is "more likely than not" that the tax asset or benefits will be
realized.  Realization of tax benefits of deductible temporary
differences and operating loss carry forwards depends on having sufficient
taxable income of an appropriate character within the carry forward
periods.





The
Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes ("FIN 48").  FIN 48 clarifies the accounting for
uncertainty in tax positions taken or expected to be taken on a tax return and
provides that the tax effects from an uncertain tax position can be recognized
in the financial statements only if, based on its merits, the position is more
likely than not to be sustained on audit by the taxing
authorities.  Management believes that all tax positions taken to date
are highly certain and, accordingly, no accounting adjustment has been made to
the financial statements.





Comprehensive
Income





SFAS
No. 130, Reporting
Comprehensive Income, requires the disclosure of comprehensive income and
its components.  For the period ended December 31, 2007, changes in
unrealized gain or loss on available-for-sale investment securities, net of
applicable income taxes, is the only component of other comprehensive income for
the Company.





Off-Balance-Sheet Financial
Instruments





In the
ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, commercial
letters of credit, and standby letters of credit as described in Note
10.  Such financial instruments are recorded in the financial
statements when they are funded or related fees are incurred or
received.





59
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





1.           SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)





Earnings Per Share
(EPS)





Basic EPS
excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period.  Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.  However, diluted earnings
per share is not presented when a net loss occurs because the conversion of
potential common stock is anti-dilutive.





Fair Values of Financial
Instruments





SFAS
No. 107 specifies the disclosure of the estimated fair value of financial
instruments.  The Company's estimated fair value amounts have been
determined using available market information and appropriate valuation
methodologies.





However,
considerable judgment is required to develop the estimates of fair
value.  Accordingly, the estimates are not necessarily indicative of
the amounts the Company could have realized in a current market
exchange.  The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.





Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the balance sheet date
and, therefore, current estimates of fair value may differ significantly from
the amounts presented in the accompanying notes.





Stock-Based
Compensation





The
Company has adopted SFAS No. 123(R), Shared-Based
Payment.  This Statement requires entities to recognize the
cost of employee services received in exchange for awards of stock options, or
other equity instruments, based on the grant-date fair value of those
awards.  This cost is recognized over the period which an employee is
required to provide services in exchange for the award, generally the vesting
period.





The
Company has one stock-based compensation plan, the Belvedere SoCal 2007 Equity
Incentive Plan (the "Plan"), which, among other things, permits the grant of
stock options and stock purchase rights.  The Plan is designed
primarily to attract and retain personnel and provide additional incentives to
employees, directors and consultants to promote the success of the Company's
business.  The maximum aggregate number of shares that may be issued
under the Plan is 1,500,000.  The amount, frequency and terms of
share-based awards are subject to all applicable terms and conditions of the
Plan and such other terms and conditions as prescribed by a Committee of the
Board of Directors.  New shares are issued upon the exercise of
options.  To date, the Company has not granted stock options or stock
purchase rights.  However, certain options held by directors and
employees of Professional Business Bank were converted to options of the Company
under the terms of the merger agreement.





60
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





1.           SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)





Stock-Based
Compensation (Continued)





The Plan
requires that the option or share price may not be less than the fair market
value of the stock on the grant date, except for options granted in substitution
for options outstanding under the Professional Business Bank Stock Option Plan,
and that the stock be paid in full at the time the option is
exercised.  All options vest on a date determined by the Committee,
but not later than ten years from the date of grant.





Management
estimates the fair value of each option award as of the date of grant using a
Black-Scholes-Merton option pricing model.  Expected volatility is
based on historical volatility of similar entities over a preceding period
commensurate with the expected term of the option because the Company's common
stock has been publicly traded for a shorter period than the expected term of
the options.  The expected term represents the period that the
stock-based awards are expected to be outstanding.  The risk free
interest rate for the expected term of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.  Expected dividend yield
was not considered in the option pricing formula because the Company has not
previously paid cash dividends.  In addition to these assumptions,
management makes estimates regarding pre-vesting forfeitures that will impact
total compensation expense recognized under the Plan.





Impact of New Financial
Accounting Standards





Fair
Value Measurements





In September 2006, the FASB issuedSFASNo. 157,Fair Value
Measurements.  SFAS No. 157 defines
fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurement.  SFAS No. 157 also
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement, and sets out a fair value hierarchy with the highest priority being
quoted prices in active markets.  Under SFAS No. 157, fair value
measurements are disclosed by level within that hierarchy.  This
Statement is effective for fiscal years beginning after November 15,
2007.  The Company adoptedSFAS No. 157on January 1, 2008 and its adoption did
nothave a material impact
on the Company'sconsolidatedfinancial position, results of
operations or cash flows.





The
Fair Value Option for Financial Assets and Financial Liabilities





In February 2007, the FASB issuedSFASNo.  159,The Fair Value
Option for Financial Assets and Financial Liabilities.  SFAS No. 159 permits
companies to elect to follow fair value accounting for certain financial assets
and liabilities in an effort to mitigate volatility in earnings without having
to apply complex hedge accounting provisions.  The standard also
establishes presentation and disclosure requirements designed to facilitate
comparison between entities that choose different measurement attributes for
similar types of assets and liabilities.  SFAS No. 159 is
effective for fiscal years beginning after November 15,
2007.The
Company adoptedSFAS
No. 159on January 1,
2008 and management did not elect the fair value option for any of the Company's
financial instruments.





61
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





1.           SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)





Impact of New Financial
Accounting Standards (Continued)





Accounting
for Business Combinations





In December 2007, the FASB issued
SFAS No.141 (revised 2007),Business
Combinations.SFAS No. 141(R), among other
things, establishes principles and requirements for how the acquirer in a
business combination (i) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquired business, (ii) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination.SFAS No.141R is effective for fiscal years
beginning on or after December 15, 2008, with early adoption
prohibited.  The Company is required to adopt SFAS No. 141(R) for all
business combinations for which the acquisition date is on or after
January 1, 2009.  This standard will change the Company's
accounting treatment for business combinations on a prospective
basis.





Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements





In September 2006, the FASB ratified the
Emerging Issues Task Force ("EITF") conclusion under EITF No. 06-4,Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements,
("EITF 06-4").  EITF 06-4 requires that endorsement
split-dollar life insurance arrangements which provide a postretirement benefit
to an employee be recorded in accordance with FASB Statement No. 106,Employer's
Accounting for Postretirement Benefits Other Than Pensions,or APB Opinion No. 12,Omnibus
Opinion—1967, based on the
substance of the agreement with the employee.  Under the provisions of
these Statements, if the employer has effectively agreed to maintain a life
insurance policy during the employee's retirement, the cost of the insurance
policy during postretirement periods should be accrued in accordance with either
Statement 106 or Opinion 12.  Similarly, if the employer has
effectively agreed to provide the employee with a death benefit, the employer
should accrue, over the service period, a liability for the actuarial present
value of the future death benefit as of the employee's expected retirement date,
in accordance with either Statement 106 or
Opinion 12.  EITF 06-4 is effective for fiscal years
beginning after December 15, 2007.  The effects of adopting
EITF 06-4 can be recorded either as (i) a change in accounting
principle through a cumulative-effect adjustment to retained earnings or to
other components of equity as of the beginning of the year of adoption, or
(ii) a change in accounting principle through retrospective application to
all prior periods.The Company adopted EITF No. 06-4
on January 1, 2008 and its adoption is not expected to have a material impact on
the Company's consolidated financial position, results of operations or cash
flows.








62
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





2.           ACQUISITION





As of the
close of business November 23, 2007, the Company completed its previously
announced acquisition of Professional Business Bank.  Concurrent with
the acquisition, Professional Business Bank was merged with and into a newly
formed bank which assumed the name Professional Business Bank at the closing of
the acquisition.  The Company made this acquisition to expand its
market presence in Southern California.  In exchange for 100% of the
outstanding common stock of Professional Business Bank, shareholders received
$24,478,000 in cash and 885,804 shares of Company common stock with a fair value
of $24,596,000.  Capitalized direct transaction costs totaled
$1,605,000.  Professional Business Bank shareholders also received
44,729 warrants to purchase additional shares of Company common stock at $0.01
per share.  The Company assumed all outstanding options which were
converted to options to acquire Company common stock at a rate of 0.87 Company
shares for each share of Professional Business Bank with a converted exercise
price equal to the original exercise price divided by .87.





The
acquisition was accounted for under the purchase method of accounting and,
accordingly, the operating results of the Bank have been included in the
consolidated financial statements from the date of acquisition.





A summary
of the preliminary purchase price allocations for the acquisition
follows.  These purchase price allocations are based on estimates of
fair values and are subject to change as more information becomes
available.






Assets
      acquired:Cash
      and due from banks
              
              $
              2,306,660Federal
      funds sold
              
              
              8,040,000Interest
      bearing deposits in other financial institutions
              
              
              100,000Investment
      securities available for sale
              
              
              10,345,963Loans,
      net
              
              
              189,403,821Premises
      and equipment
              
              
              477,660Federal
      Home Loan Bank stock, at cost
              
              
              916,300Goodwill
              
              
              29,459,783Other
      intangible assets, net
              
              
              2,402,493Accrued
      interest and other assets
              
              
              3,165,831Total
      assets acquired
              
              
              246,618,511Liabilities
      assumed:Noninterest-bearing
      deposits
              
              
              60,698,022Interest
      bearing deposits
              
              
              130,746,017Borrowed
      funds
              
              
              1,500,000Accrued
      interest payable and other liabilities
              
              
              2,995,745Total
      liabilities assumed
              
              
              195,939,784Total
      consideration paid
              
              $
              50,678,727





63
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





2.           ACQUISITION
(Continued)





The
consolidated financial statements include the accounts of Professional Business
Bank since November 24, 2007.  The following supplemental pro forma
information discloses selected financial information for the year ended
December 31, 2007 as though the Professional Business Bank merger had been
completed as of the beginning of the period.  Dollars are in
thousands, except per share data.  The unaudited pro forma net loss
includes non-recurring merger expenses incurred by Professional Business Bank
for legal, accounting and other professional fees, net of tax, totaling
$672,000.




Revenue
      (net interest income plus non-interest income)
              
              $
              11,856Net
      loss
              
              $
              (1,360
              )Basic
      loss per share
              
              $
              (0.68
              )








3.
            INVESTMENT
      SECURITIES AVAILABLE FOR SALE





Debt
securities have been classified in the statement of condition according to
management's intent.  The carrying amount of available-for-sale
securities and their fair values at December 31, 2007, were as
follows:




Gross
              
              
              GrossAmortized
              
              
              Unrealized
              
              
              Unrealized
              
              
              FairCost
              
              
              Gains
              
              
              Losses
              
              
              ValueU.S.
      Government and agencysecurities
              
              $
              4,028,321
              
              
              $
              -
              
              
              $
              (2,158
              )
              
              $
              4,026,163Mortgage-backed
      securities
              
              
              4,740,972
              
              
              
              19,158
              
              
              
              -
              
              
              
              4,760,130$
              8,769,293
              
              
              $
              19,158
              
              
              $
              (2,158
              )
              
              $
              8,786,293





The
scheduled maturities of available-for-sale securities at December 31, 2007 were
as follows.  Actual maturities may differ from contractual maturities
because some investment securities may allow the right to call or prepay the
obligation with or without call or prepayment penalties:






Amortized
              
              
              FairCost
              
              
              ValueDue
      in one year or less
              
              $
              2,004,351
              
              
              $
              2,002,500Due
      from one year to five years
              
              
              3,253,552
              
              
              
              3,255,108Due
      from five to ten years
              
              
              558,495
              
              
              
              558,759Due
      after ten years
              
              
              2,952,895
              
              
              
              2,969,926Total
              
              $
              8,769,293
              
              
              $
              8,786,293


As of
December 31, 2007, the Company had pledged all of its investment securities
to secure borrowings and for other purposes.





64
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





3.
            INVESTMENT SECURITIES AVAILABLE
      FOR SALE (Continued)





At
December 31, 2007, the gross unrealized loss and related estimated fair value of
U.S. Government and agency securities that have been in a continuous loss
position for less than twelve months totaled $2,158 and $4,028,321,
respectively.  The unrealized losses on the Company's investments in
direct obligations of U.S. Government agencies were caused by interest rate
increases.  Because the decline in market value is attributable to
changes in interest rates and not credit quality, and because the Company has
the ability and intent to hold those investments until a recovery of fair value,
which may be maturity, the Company does not consider those investments to be
other-than-temporarily impaired at December 31, 2007.





4.
            LOANS





The
Bank's loan portfolio consists primarily of loans to borrowers within the
communities surrounding Pasadena and Glendale, California.  The Bank
also purchases loan participations from other banks that include borrowers
throughout California.  Although the Bank seeks to avoid
concentrations of loans to a single industry or based upon a single class of
collateral, real estate and real estate associated businesses are among the
principal industries in the Bank's market area and, as a result, the Bank's loan
and collateral portfolios are, to some degree, concentrated in those
industries.





Transactions
in the allowance for loan losses are summarized as follows:




Beginning
      balance, at acquisition date
              
              $
              3,726,354Additions
      to the allowance charged to expense
              
              
              350,859Total
              
              $
              4,077,213





The
allowance for off-balance sheet credit exposure relates to commitments to extend
credit, letters of credit and undisbursed funds on lines of
credit.  The Company evaluates credit risk associated with off-balance
sheet commitments at the same time it evaluates credit risk associated with the
loan portfolio.  As of December 31, 2007, the balance in this reserve
was $141,400.





Loans on
which accrual of interest had been discontinued amounted to $920,000 at December
31, 2007.  If interest on that loan had been accrued, such income
would have approximated $71,000 for 2007.  There were no loans more
than 90 days past due and still accruing interest at December 31,
2007.





The Bank
also originates SBA loans which it periodically sells to institutional
investors. At December 31, 2007, the Bank was servicing approximately
$11,737,000 in loans previously sold or participated.  The Bank has
recorded servicing assets related to these loans totaling $141,511 as of
December 31, 2007, which approximates fair value.  The Bank may
also receive a portion of subsequent interest collections on loans sold that
exceed the contractual servicing fee. In that case, the Bank records an
interest-only strip based on the relative fair market value of it and the other
components of the loan.  The Bank had interest-only strips of $21,227
as of December 31, 2007, which approximated fair value.  Fair
value is estimated by discounting estimated future cash flows from the
interest-only strips using assumptions similar to those used in valuing
servicing assets.





65
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4.
            LOANS
      (Continued)





Fair
value is estimated by discounting estimated future cash flows from the servicing
assets using discount rates that approximate current market rates over the
expected lives of the loans being serviced. Management has estimated the
expected life of these loans to be approximately 20% to 30% of the remaining
contractual life at the time of sale.  For purposes of measuring
impairment, the Bank has identified each servicing asset and interest-only strip
with the underlying loan being serviced.  The only loans that are sold
and serviced by the Bank are government guaranteed loans. The risk
characteristics of these underlying assets are considered when the discount
rates are determined for purposes of impairment testing.  A valuation
allowance is recorded where the fair value is below the carrying amount of the
asset.  At December 31, 2007, the estimated fair value of the
servicing asset and the interest-only strip approximated the carrying amount, so
no valuation account has been established.





A summary
of the changes in the related servicing assets and interest-only strips are as
follows:




Servicing
assets





Balance,
      at acquisition date
              
              $
              142,940Amortization
      charged to income
              
              
              (1,429
              )Balance,
      end of year
              
              $
              141,511Interest-Only Strips
      ReceivableBalance,
      at acquisition date
              
              $
              21,489Amortization
      charged to income
              
              
              (262
              )Balance,
      end of year
              
              $
              21,227





Included
in total loans are discounts related to the retained unguaranteed portion of SBA
loans of approximately $253,000 at December 31, 2007.





The Bank
has been approved by the California Pollution Control Financing Authority
("CalCAP") to originate loans to qualified small businesses.  Under
the CalCAP program, the borrower, CalCAP and the Bank contribute funds to a loss
reserve account, or CalCAP reserve account, that is held in an interest-bearing
demand account at the Bank.  The balance in the CalCAP reserve
account, including amounts due from CalCAP, was $2.2 million at December 31,
2007.  Losses on loans originated under the CalCAP program will be
charged to the CalCAP reserve account after notification to
CalCAP.  In the event that the Bank leaves the CalCAP program, any
excess funds in the CalCAP reserve account, after all loans have been repaid and
there are no pending claims for reimbursement, will be distributed ratably to
CalCAP and the Bank based on contributions to the CalCAP reserve
account.  The allowance for loan losses allocated to the CalCAP loans
takes into consideration the credit support provided by the CalCAP reserve
account.  The Bank records its contributions to the CalCAP reserve
account as a receivable, which is included in accrued interest and other assets
on the consolidated balance sheet.  To date, the Bank's contributions
to the CalCAP reserve account total $560,100.





66
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5.
            PREMISES
      AND EQUIPMENT





A summary
of premises and equipment as of December 31, 2007 follows:





Leasehold
      improvements
              
              $
              146,043Furniture
      and equipment
              
              
              176,601Computer
      equipment
              
              
              165,804488,448Less
      accumulated depreciation andamortization
              
              
              (26,688
              )Total
              
              $
              461,760





The
Pasadena branch is leased under an operating lease that expires on
January 31, 2009.  The lease provides for an additional five-year
option to renew. The Glendale branch is leased under an operating lease that
expires on June 30, 2013.  The lease provides for two five-year
options to renew as well as increases in base rent based on changes in the
Consumer Price Index.





At
December 31, 2007, the future minimum rental payments under these lease
commitments are as follows:





Year
    Ending2008
              
              $
              352,7132009
              
              
              103,6062010
              
              
              58,1762011
              
              
              58,1762012
              
              
              58,176Thereafter
              
              
              29,088$
              659,935





The
minimum rental payments shown above are given for the existing lease
obligations, including annual rent adjustments, and are not a forecast of future
rental expense. In addition, the Company is responsible for its pro rata share
of common area expenses on the Pasadena lease.





Total
rent expense, including common area expenses, was approximately $38,000 for the
period ended December 31, 2007.





6.
            GOODWILL
      AND OTHER INTANGIBLE ASSET





The
acquisition of the Bank in November 2007 gave rise to a core deposit intangible
of $2.4 million, an amortizable intangible asset, and $29.5 million in
goodwill.  The amortization period for the core deposit intangible
approximates 6 years.





67
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6.
            GOODWILL AND OTHER INTANGIBLE
      ASSET (Continued)





During
2007, approximately $34,000 of amortization was recorded related to the core
deposit intangible.





The
estimated amortization expense for future years follows:




Year
      Ending2008
              
              $
              412,0002009
              
              
              412,0002010
              
              
              412,0002011
              
              
              412,0002012
              
              
              412,0002013
              
              
              308,000





There was
no change in the carrying amount of goodwill for the period ending
December 31, 2007.





7.
            DEPOSITS





At
December 31, 2007, the scheduled maturities of time deposits are as
follows:




Due
      in one year
              
              $
              50,620,000Due
      in from one to three years
              
              
              10,557,000Due
      after three years
              
              
              10,099,000Total
              
              $
              71,176,000


As of
December 31, 2007, the Bank had one depositor that accounted for 7.8% of total
deposits.





8.
            OTHER
      BORROWING ARRANGEMENTS





As of
December 31, 2007, the Bank had an $18 million advance outstanding from the
Federal Home Loan Bank ("FHLB") with interest payable at 3.8% which will mature
on January 2, 2008.  The Bank has pledged investment securities
of approximately $7.8 million, loans of approximately $120 million and FHLB
stock as collateral for these advances as well as potential future
borrowings.  The Bank's excess borrowing capacity with FHLB was
approximately $32.6 million at December 31, 2007.





The
Company may also borrow up to $21 million overnight on an unsecured basis from
correspondent banks.  As of December 31, 2007, no amounts were
outstanding under these arrangements.








68
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9.           INCOME
TAXES





Deferred
taxes are a result of differences between income tax accounting and generally
accepted accounting principles with respect to income and expense
recognition.  The following is a summary of the components of the net
deferred tax assets at December 31, 2007:




Deferred
      tax assets:Operating
      loss carryforwards
              
              $
              59,000Depreciation
      differences
              
              
              16,000Allowance
      for loan losses due to tax limitations
              
              
              1,802,000Stock-based
      compensation
              
              
              133,000Cash
      basis of accounting
              
              
              449,000Other
              
              
              120,000Total
      deferred tax assets
              
              
              2,579,000Deferred
      tax liabilities:Market
      value adjustment on investment securities
              
              
              (7,000
              )Core
      deposit intangible, net
              
              
              (1,062,000
              )Deferred
      loan costs
              
              
              (132,000
              )Future
      liability of State deferred tax assets
              
              
              (120,000
              )Total
      deferred tax liabilities
              
              
              (1,321,000
              )Net
      deferred tax assets
              
              $
              1,258,000




The
provision for income taxes consists of the following:




Current:Federal
              
              $
              -State
              
              
              -Total
              
              
              -DeferredFederal
              
              
              (194,583
              )State
              
              
              (67,306
              )Total
              
              $
              (261,889
              )





Federal
      income tax rate
              34.0%State
      franchise tax rate, net of federal tax effect
              7.2%Effective
      income tax rate
              41.2%
 
 The
Company files income tax returns in the United States and California
jurisdictions.  The Company will file tax returns for the period ended
December 31, 2007 which will be open to audit by U.S. federal and state tax
authorities.  The Company is also a successor to Professional Business
Bank, which had filed tax returns that are open to audit by U.S. federal tax
authorities for tax years ended on or after December 31, 2003 and subject to
examination by California tax authorities for years ended on or after December
31, 2002.


69
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9.            
INCOME TAXES
(Continued)





The
Company has federal net operating loss carryforwards (NOLs) of $120,000 which
expire in 2027 and California NOLs of $166,000 that will expire in
2017.
 
 A
valuation allowance is provided to reduce deferred tax assets to a level which,
more likely than not, will be realized.  Management has determined
that a valuation allowance is not required as of December 31, 2007.
 
 The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, on January 17, 2007.  The Company
had no tax reserve for uncertain positions at December 31, 2007.  In
accordance with FIN 48, the Company has elected to record interest accrued and
penalties related to unrecognized tax benefits in tax expense.  During
the year ended December 31, 2007, the Company did not have an accrual for
interest or penalties associated with uncertain tax positions.


10.
            COMMITMENTS
      AND CONTINGENCIES





In the
ordinary course of business, the Bank enters into financial commitments to meet
the financing needs of its customers.  These financial commitments
include commitments to extend credit and standby letters of
credit.  Those instruments involve to varying degrees, elements of
credit and interest rate risk not recognized in the Bank's financial
statements.





The
Bank's exposure to loan loss in the event of nonperformance on commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments.  The Bank uses the same credit policies
in making commitments as it does for loans reflected in the financial
statements.





As of
December 31, 2007, the Bank had the following outstanding financial
commitments whose contractual amount represents credit risk:




Commitments
      to extend credit
              
              $
              62,459,000Standby
      letters of credit
              
              
              769,000Total
              
              $
              63,228,000





Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Since many of
the commitments are expected to expire without being drawn upon, the total
amounts do not necessarily represent future cash requirements.  The
Bank evaluates each client's credit worthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Bank is based on
management's credit evaluation of the customer.  The majority of the
Bank's commitments to extend credit and standby letters of credit are secured by
real estate.





The
Company is involved in various litigation matters, which have arisen in the
ordinary course of its business.  In the opinion of management, the
disposition of such pending litigation will not have a material effect on the
Company's financial position or results of operations.





11.
            COMPANY
      401(K) PLAN





The
Company has established a deferred compensation plan for all eligible
employees.  The employees may defer a portion of their compensation
subject to certain limits based on federal tax laws.  The Company may
elect to make matching contributions to the plan. Matching contributions vest to
the employee equally over a five-year period.  The Company's
contribution to the plan for 2007 was approximately $17,000.








70
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 (Continued)





12.
            LOSS
      PER SHARE





A summary
of net loss and the number of shares used to compute loss per share is as
follows:




WeightedAverageNumberNet
                
                of
      Shares
                
                Per
      ShareLoss
                
                Outstanding
                
                AmountBasic
      loss per share:Net
      loss
                
                $
                (373,758
                )Preferred
      stock dividend
                
                
                (166,650
                )Net
      loss available to commonshareholders
                
                $
                (540,408
                )
                220,520
                
                $
                (2.45
                )





13.
            STOCK
      OPTION PLAN





Upon
acquisition of Professional Business Bank, the outstanding options under the
Professional Business Bank 2001 Incentive and Nonqualified Stock Option Plan
became fully vested and were converted to options of the Company at a rate of
..87 of an option for each option outstanding.





There
were no other options issued under the Plan and, therefore, no stock-based
compensation expense has been recognized.





A summary
of the status of the Company's Plan at December 31, 2007 is presented
below:





WeightedWeighted
              
              AverageAverage
              
              RemainingExercise
              
              ContractualShares
              
              
              Price
              
              TermOutstanding
      at acquisition date
              
              
              135,041
              
              
              $
              15.21Outstanding
      at end of year
              
              
              135,041
              
              
              $
              15.21
              
              6.06 yearsOptions
      exercisable at end of year
              
              
              135,041
              
              
              $
              15.21
              
              6.06
years




At
December 31, 2007, there was no unrecognized compensation cost related to the
outstanding stock options.





The
aggregate intrinsic value of options outstanding and exercisable at December 31,
2007 was $1,516,500.








71
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14.
            SHAREHOLDERS'
      EQUITY





Dividend
Restrictions





The
Company's ability to pay cash dividends is dependent on dividends paid to it by
the Bank and limited by California law.  Under California law, the
holders of common stock of the Company are entitled to receive dividends when
and as declared by the Board of Directors, out of funds legally available,
subject to certain restrictions. California General Corporation Law prohibits
the Company from paying dividends on its common stock unless: (i) its retained
earnings, immediately prior to the dividend payment, equals or exceeds the
amount of the dividend or (ii) immediately after giving effect to the
dividend, the sum of the Company's assets (exclusive of goodwill and deferred
charges) would be at least equal to 125% of its liabilities (not including
deferred taxes, deferred income and other deferred liabilities) and the current
assets of the Company would be at least equal to its current liabilities, or, if
the average of its earnings before taxes on income and before interest expense
for the two preceding fiscal years was less than the average of its interest
expense for the two preceding fiscal years, at least equal to 125% of its
current liabilities.  The Company has no formal dividend policy for
its common shares, and dividends are paid solely at the discretion of the Board
of Directors subject to compliance with the above regulations.





Dividends
from the Bank to the Company are restricted under certain federal laws and
regulations governing banks.  In addition, California law restricts
the total dividend payments of any bank to the lesser of the bank’s retained
earnings or the bank’s net income for the latest three fiscal years, less
dividends previously paid during that period, without the prior approval of the
California Department of Financial Institutions.  As of
December 31, 2007, the maximum amount available for dividend distributions
by the Bank to the Company under these restrictions was approximately
$99,500.





Preferred
Stock





The
Company is authorized to issue 20,000,000 shares of preferred stock and
designated 2,000,000 shares as Series A Non-Cumulative Perpetual Preferred Stock
(the "Preferred Stock") on December 7, 2007 at a price of $25.00 per
share.  Holders of the Preferred Stock are entitled to receive, when
declared by the Board of Directors, non-cumulative dividends at an annual rate
of 15% of the sales price of the Preferred Stock.  Dividends shall be
paid, at the option of the Company, in cash or in additional shares of the
Preferred Stock.  Dividends accrue from the date of original issuance
and are payable quarterly, in arrears, on the first day of January, April, July
and October of each year, with the first dividend being payable on January 1,
2008.  If the full accrued dividends have not been paid or declared,
the Company may not declare or pay dividends or other distributions on any
shares of the capital stock of the Company.  The shares of Preferred
Stock may be redeemed at any time at the option of the Company for cash of
$25.00 per share plus unpaid dividends.  The holders of the Preferred
Stock have no voting rights.





72
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 (Continued)





14.
            SHAREHOLDERS'
      EQUITY(Continued)





Preferred Stock
(Continued)





On
December 10, 2007, the Company sold 800,000 shares of the Preferred Stock to
Belvedere Capital Fund II L.P., the majority owner of the Company's common
stock, at a purchase price of $25.00 per share.  In addition, the
Company paid the purchaser a fee of $400,000, or 2% of the purchase
price.  In accordance with the terms of the Series A preferred stock,
the Board of Directors declared the first dividend payable January 1, 2008 and
elected to pay the dividend in shares of the Series A preferred
stock.  The dividend totaled $166,650, which represented 6,666 shares
of the Series A preferred stock.





Warrants





The
merger agreement between Belvedere SoCal and Professional Business Bank included
the issuance of warrants at a strike price of $0.01 per share as
follows:  shareholders of Professional Business Bank that continued as
shareholders of the Company were issued 44,729 warrants, Belvedere Capital Fund
II L.P., the majority owner of the Company's common stock, was issued 133,413
warrrants and 1,170 warrants were issued to an executive officer of the Company.
All such warrants remain outstanding at December 31, 2007.





Regulatory
Matters





Belvedere
and the Bank are subject to various regulatory capital requirements administered
by the federal banking agencies.  Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements.  The
regulations require Belvedere and the Bank to meet specific capital guidelines
that involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices.  Belvedere and the Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.





Quantitative
measures established by regulation to ensure capital adequacy require Belvedere
and the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined).  As of December 31, 2007, that the Company
and the Bank meet all capital adequacy requirements.





73
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14.
            SHAREHOLDERS'
      EQUITY(Continued)





Regulatory Matters
(Continued)





As of
December 31, 2007, the most recent measurement date the FDIC categorized the
Bank as adequately capitalized under the regulatory framework for prompt
corrective action (there are no conditions or events since that notification
that management believes have changed the Bank's category).  Prompt
corrective action does not apply to bank holding companies.  To be
categorized as adequately capitalized, the Bank must maintain minimum ratios as
set forth in the table below.  The following table also sets forth the
Bank's actual capital amounts and ratios as well as the minimum ratios to be
categorized as well capitalized (dollar amounts in thousands).




Amount
              
              
              RatioLeverage
      RatioBelvedere
      SoCal and Subsidiary
              
              $
              24,109
              
              
              
              10.0
              %Minimum
      regulatory requirement
              
              $
              9,612
              
              
              
              4.0
              %Professional
      Business Bank
              
              $
              19,921
              
              
              
              8.8
              %Minimum
      requirement for "Well-Capitalized" institution
              
              $
              11,300
              
              
              
              5.0
              %Minimum
      regulatory requirement
              
              $
              9,000
              
              
              
              4.0
              %Tier 1 Risk-Based
      Capital RatioBelvedere
      SoCal
              
              $
              24,109
              
              
              
              10.5
              %Minimum
      regulatory requirement
              
              $
              9,612
              
              
              
              4.0
              %Professional
      Business Bank
              
              $
              19,921
              
              
              
              8.3
              %Minimum
      requirement for "Well-Capitalized" institution
              
              $
              14,400
              
              
              
              6.0
              %Minimum
      regulatory requirement
              
              $
              9,600
              
              
              
              4.0
              %Total Risk-Based
      Capital RatioBelvedere
      SoCal
              
              $
              27,128
              
              
              
              11.3
              %Minimum
      regulatory requirement
              
              $
              19,225
              
              
              
              8.0
              %Professional
      Business Bank
              
              $
              22,940
              
              
              
              9.5
              %Minimum
      requirement for "Well-Capitalized" institution
              
              $
              24,000
              
              
              
              10.0
              %Minimum
      regulatory requirement
              
              $
              19,200
              
              
              
              8.0
              %





15.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS





The fair
value of a financial instrument is the amount at which the asset or obligation
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale.  Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instrument.  These estimates do not reflect any
premium or discount that could result from offering for sale at one time the
entire holdings of a particular financial instrument.  Because no
market value exists for a significant portion of the financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors.  These estimates are
subjective in nature, involve uncertainties and matters of judgment and,
therefore, cannot be determined with precision.  Changes in
assumptions could significantly affect the estimates.





74
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 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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15.
            FAIR VALUE OF FINANCIAL
      INSTRUMENTS (Continued)





Fair
value estimates are based on financial instruments both on and off the balance
sheet without attempting to estimate the value of anticipated future business
and the value of assets and liabilities that are not considered financial
instruments.  Additionally, tax consequences related to the
realization of the unrealized gains and losses can have a potential effect on
fair value estimates and have not been considered in many of the
estimates.





The
following methods and assumptions were used to estimate the fair value of
significant financial instruments:





Financial
Assets





The
carrying amounts of cash and short-term investments are considered to
approximate fair value.  Short-term investments include federal funds
sold, securities purchased under agreements to resell, commercial paper and
interest bearing deposits with banks.  The fair values of investment
securities, including available-for-sale, are generally based on quoted market
prices.  The fair value of loans are estimated using a combination of
techniques, including discounting estimated future cash flows and quoted market
prices of similar instruments where available.





Financial
Liabilities





The
carrying amounts of deposit liabilities payable on demand, and short-term FHLB
advances are considered to approximate fair value.  For fixed maturity
deposits, fair value is estimated by discounting estimated future cash flows
using currently offered rates for deposits of similar remaining
maturities.  The fair value of long-term debt is based on rates
currently available to the Bank for debt with similar terms and remaining
maturities.





Off-Balance Sheet Financial
Instruments





The fair
value of commitments to extend credit and standby letters of credit is estimated
using the fees currently charged to enter into similar
agreements.  The fair value of these financial instruments is not
material.





75
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SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





15.
            FAIR VALUE OF FINANCIAL
      INSTRUMENTS (Continued)





The
estimated fair value of financial instruments as of December 31, 2007 is
summarized as follows (dollar amounts in thousands):





Carrying
              
              
              FairAmount
              
              
              ValueFinancial
      assets:Cash
      and due from banks
              
              $
              4,402
              
              
              $
              4,402Federal
      funds sold
              
              
              9,130
              
              
              
              9,130Deposits
      – other financial institutions
              
              
              100
              
              
              
              100Investment
      securities
              
              
              8,786
              
              
              
              8,786Loans
              
              
              210,257
              
              
              
              210,290FHLB
      stock
              
              
              916
              
              
              
              916Accrued
      interest receivable
              
              
              1,110
              
              
              
              1,110Financial
      liabilities:Deposits
              
              $
              194,050
              
              
              $
              193,751FHLB
      advances
              
              
              18,000
              
              
              
              18,000Accrued
      interest and other liabilities
              
              
              415
              
              
              
              415








76
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TO CONSOLIDATED FINANCIAL STATEMENTS
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16.
            PARENT
      COMPANY ONLY CONDENSED FINANCIAL
STATEMENTS





The
condensed parent company financial statements of Belvedere follow:






CONDENSED
      BALANCE SHEETDecember
      31, 2007ASSETSCash
      and cash equivalents
              
              $
              3,948,093Investment
      in subsidiary
              
              
              50,798,154Other
      assets
              
              
              803,528Total
      assets
              
              $
              55,549,775LIABILITIES
      ANDSHAREHOLDERS'
      EQUITYOther
      liabilities
              
              $
              563,946Shareholders'
      equity
              
              
              54,985,829Total
      liabilities and shareholders' equity
              
              $
              55,549,775CONDENSED
      STATEMENT OF OPERATIONSFor
      the Period from January 17 (Inception) to December 31,
2007Interest
      and other expenses
              
              $
              (805,468
              )Loss
      before income tax benefit and equity inundistributed
      earnings of subsidiary
              
              
              (805,468
              )Income
      tax benefit
              
              
              (332,283
              )Loss
      before equity in undistributed earnings ofsubsidiary
              
              
              (473,185
              )Equity
      in undistributed earnings of subsidiary
              
              
              99,427Net
      loss
              
              $
              (373,758
              )





77
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SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





16.
            PARENT
      COMPANY ONLY CONDENSED FINANCIAL
STATEMENTS





CONDENSED
      STATEMENT OF CASH FLOWSFor
      the Period from January 17 (Inception) to December 31,
2007Operating
      activities:Net
      loss
              
              $
              (373,758
              )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Undistributed
      net income of subsidiary
              
              
              (99,427
              )Net
      increase in other assets
              
              
              (713,528
              )Net
      increase in other liabilities
              
              
              453,946Net
      cash used in operating activities
              
              
              (732,967
              )Investing
      activities:Increase
      in interest-bearing deposits
              
              
              (100,000
              )Cash
      paid in connection with the acquisition of ProfessionalBusiness
      Bank
              
              
              (26,082,640
              )Net
      cash used by investing activities
              
              
              (26,182,640
              )Financing
      activities:Proceeds
      from issuance of common stock
              
              
              11,500,000Proceeds
      from issuance of preferred stock, net of issuance costs
              
              
              19,600,000Stock
      issuance costs paid
              
              
              (236,500
              )Net
      cash provided by financing activities
              
              
              30,863,500Increase
      in cash and cash equivalents
              
              
              3,948,093Cash
      and cash equivalents at beginning of period
              
              
              -Cash
      and cash equivalents at end of year
              
              $
              3,948,093Noncash
      financing activities:Fair
      value of common stock, options and warrants issuedin
      the acquisition of Professional Business Bank
              
              $
              24,596,087Preferred
      stock dividend declared
              
              $
              166,650





78
 BELVEDERE
SoCAL AND SUBSIDIARY
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)





17.
            SUBSEQUENT
      EVENT





Effective
January 31, 2008, the Company acquired all of the common stock of Spectrum Bank,
a California state-chartered bank with total assets of $163 million
headquartered in Irvine, California with branch offices in Huntington Beach and
Montebello, California.  All the outstanding Spectrum Bank shares were
exchanged for $22 million in cash and $15 million in trust preferred
securities.  The acquisition will be accounted for in accordance with
SFAS No. 141, Business
Combinations.  Accordingly, the net assets will be recorded at
their estimated fair values, and the operating results will be included in the
financial statements from the date of acquisition.  Goodwill is
projected to be approximately $29 million and a core deposit intangible of
$722,000 will be recorded which will be amortized over approximately seven
years.  Capitalized direct transaction costs were estimated to be $1
million.  The preliminary allocation of the purchase price to the
assets and liabilities acquired will be finalized no later than fourth quarter
2008, as we obtain more information regarding asset valuations, liabilities
assumed and revisions of preliminary estimates of fair values made at the date
of purchase.  The purchase price has been allocated on a preliminary
basis, using information currently available as presented below:





Assets
      acquired:Cash
      and due from banks
              
              $
              4,283,000Federal
      funds sold
              
              
              17,080,000Interest-bearing
      deposits in other financial institutions
              
              
              2,608,000Investment
      securities available for sale
              
              
              41,475,000Loans,
      net
              
              
              79,451,000Premises
      and equipment
              
              
              4,947,000Goodwill
              
              
              29,338,000Other
      intangible assets, net
              
              
              722,000Accrued
      interest and other assets
              
              
              8,852,000Total
      assets acquired
              
              
              188,756,000Liabilities
      assumed:Total
      deposits
              
              
              142,011,000Accrued
      interest and other liabilities
              
              
              8,733,000Total
      liabilities assumed
              
              
              150,744,000Total
      consideration paid
              
              $
              38,012,000







79


INDEPENDENT AUDITOR'S
REPORT
 
 
 
 To the
Board of Directors
 Professional
Business Bank
 
 
 We have audited the accompanying
statements of operations and cash flows of Professional Business Bank (the
"Bank") for the period from January 1, 2007 to November 23, 2007 (the date the
acquisition of the Bank by Belvedere SoCal was completed as discussed in Note
2).  These financial statements are the responsibility of the Bank's
management.  Our responsibility is to express an opinion on these
financial statements based on our audit.
 
 We conducted our audit in accordance
with the auditing standards generally accepted in the United States of
America.  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audit provides a reasonable basis for our opinion.
 
 In our opinion, the financial
statements referred to above present fairly, in all material respects, the
results of operations and cash flows of Professional Business Bank for the
period from January 1, 2007 to November 23, 2007 in conformity with accounting
principles generally accepted in the United States of America.
 
 
 
 
 
 /s/
Perry-Smith LLP
 Sacramento,
California
 March 31,
2008
 
 80
 
 INDEPENDENT
AUDITORS' REPORT
 
 Board of
Directors and Shareholders of
 Professional
Business Bank
 
 We have
audited the accompanying statement of financial condition of Professional
Business Bank as of December 31, 2006, and the related statement of operations,
changes in shareholders' equity, and cash flows for the year ended December 31,
2006.  These financial statements are the responsibility of the Bank's
management.  Our responsibility is to express an opinion on these
financial statements based on our audit.
 
 We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America.  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Professional Business Bank as of
December 31, 2006, and the results of its operations and its cash flows for the
year ended December 31, 2006, in conformity with accounting principles generally
accepted in the United States of America.
 
 
 /s/ Vavrinek, Trine, Day
& Co., LLP
 
 Laguna
Hills, California
 May 24,
2007


81
 PROFESSIONAL
BUSINESS BANK
 
 STATEMENT
OF FINANCIAL CONDITION
 
 December
31, 2006
 ASSETS
 
 Cash
      and due from banks
                
                $
                5,273,852Federal
      Funds sold
                
                
                4,410,000Total
      cash and cash equivalents
                
                
                9,683,852Interest-bearing
      deposits in other financial institutions
                
                
                4,899,000Available-for-sale
      investment securities
                
                
                15,700,993Loans:Commercial
                
                
                27,082,053Real
      Estate – Construction
                
                
                17,392,180Real
      Estate – Other
                
                
                91,250,141Consumer
                
                
                5,898,260Total
      loans
                
                
                141,622,634Deferred
      loan fees, net of costs
                
                
                (251,917
                )Allowance
      for loan losses
                
                
                (1,869,100
                )Net
      loans
                
                
                139,501,617Premises
      and equipment
                
                
                403,555Federal
      Home Loan Bank stock, at cost
                
                
                699,200Accrued
      interest and other assets
                
                
                2,433,107Total
      assets
                
                $
                173,321,324LIABILITIES
      AND SHAREHOLDERS' EQUITYDeposits:Noninterest-bearing
      demand
                
                $
                51,630,293NOW,
      savings and money market accounts
                
                
                65,494,737Time
      deposits under $100,000
                
                
                18,214,853Time
      deposits $100,000 and over
                
                
                7,290,107Total
      deposits
                
                
                142,629,990Federal
      Home Loan Bank advances
                
                
                9,500,000Accrued
      interest and other liabilities
                
                
                1,173,314Total
      liabilities
                
                
                153,303,304Commitments
      and contingencies (Notes 5 and 8)Shareholders'
      equity:Preferred
      stock – no par value; authorized 10,000,000 shares; none
      issuedCommon
      stock – no par value; authorized 10,000,000 shares; issued and
      outstanding, 1,991,634
                
                
                21,014,193Additional
      paid-in capital
                
                
                417,679Accumulated
      deficit
                
                
                (1,368,852
                )Accumulated
      other comprehensive loss, net unrealized loss on available-for-sale
      securities, net of taxes of $32,000
                
                
                (45,000
                )Total
      shareholders' equity
                
                
                20,018,020Total
      liabilities and shareholders' equity
                
                $
                173,321,324
 
 The
accompanying notes are an integral part of these financial
statements.
 82
  PROFESSIONAL
BUSINESS BANK
 
 STATEMENT
OF OPERATIONS
 
 For
the Period from January 1, 2007 to November 23, 2007 and
 for
the Year Ended December 31, 2006
 
 2007
                
                
                2006Interest
      income:Interest
      and fees on loans
                
                $
                13,369,177
                
                
                $
                10,903,273Interest
      on investment securities
                
                
                588,952
                
                
                
                672,477Other
      interest income
                
                
                519,374
                
                
                
                906,566Total
      interest income
                
                
                14,477,503
                
                
                
                12,482,316Interest
      expense:Interest
      on NOW, savings and money market accounts
                
                
                2,369,458
                
                
                
                2,217,837Interest
      on time deposits less than $100,000
                
                
                1,030,312
                
                
                
                780,563Interest
      on time deposits $100,000 and over
                
                
                670,983
                
                
                
                321,758Interest
      on other borrowings
                
                
                358,165
                
                
                
                199,274Total
      interest expense
                
                
                4,428,918
                
                
                
                3,519,432Net
      interest income
                
                
                10,048,585
                
                
                
                8,962,884Provision
      for loan losses
                
                
                1,902,741
                
                
                
                205,100Net
      interest income after provision for loan losses
                
                
                8,145,844
                
                
                
                8,757,784Non-interest
      income:Service
      charges and fees
                
                
                388,200
                
                
                
                288,450Gain
      on sale of loans
                
                
                
                
                
                
                187,558Other
      income
                
                
                759
                
                
                
                181,525Total
      non-interest income
                
                
                388,959
                
                
                
                657,533Non-interest
      expense:Salaries
      and employee benefits
                
                
                5,355,358
                
                
                
                4,671,830Occupancy
      and equipment
                
                
                603,198
                
                
                
                587,810Professional
      fees
                
                
                1,715,568
                
                
                
                831,557Data
      processing
                
                
                495,328
                
                
                
                408,320Marketing
      and business promotion
                
                
                123,902
                
                
                
                133,279Customer
      expenses
                
                
                142,540
                
                
                
                135,964Office
      and administrative expenses
                
                
                724,504
                
                
                
                964,797Other
      expenses
                
                
                577,041
                
                
                
                373,468Total
      non-interest expense
                
                
                9,737,439
                
                
                
                8,107,025(Loss)
      income before income tax (benefit) expense
                
                
                (1,202,636
                )
                
                
                1,308,292Income
      tax (benefit) expense
                
                
                (359,464
                )
                
                
                598Net
      (loss) income
                
                $
                (843,172
                )
                
                $
                1,307,694Net
      (loss) income per share – basic
                
                $
                (0.42
                )
                
                $
                0.70Net
      income per share – diluted
                
                
                
                
                
                $
                0.67
 The
accompanying notes are an integral part of these financial
statements.
  83
 PROFESSIONAL
BUSINESS BANK
 
 STATEMENT
OF CHANGES IN SHAREHOLDERS' EQUITY
 
 For
the Year Ended December 31, 2006
  Common
      Stock
                
                
                Additional
                  Paid-In
                
                
                Comprehensive
                
                
                Accumulated
                
                
                Accumulated
                  Other
                  ComprehensiveShares
                
                
                Amount
                
                
                Capital
                
                
                Income
                
                
                Deficit
                
                
                LossBalance,
      January 1, 2006
                
                
                1,836,566
                
                
                $
                19,015,788
                
                
                $
                117,829
                
                
                
                
                
                $
                (2,676,546
                )
                
                $
                (88,000
                )Exercise
      of warrants
                
                
                108,201
                
                
                
                1,406,613Exercise
      of options, including tax benefits of $106,505
                
                
                46,867
                
                
                
                591,792Stock-based
      compensation
                
                
                
                
                
                
                
                
                
                
                299,850Comprehensive
      income:Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                1,307,694
                
                
                
                1,307,694Change
      in unrealized loss on available-for-sale securities, net of taxes of
      $29,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                43,000
                
                
                
                
                
                
                
                43,000Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                1,350,694Balance,
      December 31, 2006
                
                
                1,991,634
                
                
                $
                21,014,193
                
                
                $
                417,679
                
                
                
                
                
                
                $
                (1,368,852
                )
                
                $
                (45,000
                )
 
 
 
 
 The
accompanying notes are an integral part of these financial
statements.
  84
  PROFESSIONAL
BUSINESS BANK
 
 STATEMENT
OF CASH FLOWS
 
 For
the Period from January 1, 2007 to November 23, 2007 and
 for
the Year Ended December 31, 2006
 
 2007
                
                
                2006Operating
      activities:Net
      (loss) income
                
                $
                (843,172
                )
                
                $
                1,307,694Adjustments
      to reconcile net (loss) income to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                156,706
                
                
                
                154,055Provision
      for loan losses
                
                
                1,902,741
                
                
                
                205,100Stock-based
      compensation
                
                
                484,749
                
                
                
                299,850Gain
      on sale of loans
                
                
                
                
                
                
                (187,558
                )Other
      items
                
                
                193,721
                
                
                
                46,321Net
      cash provided by operating activities
                
                
                1,894,745
                
                
                
                1,825,462Investing
      activities:Decrease
      (increase) in deposits in other financial institutions
                
                
                4,799,000
                
                
                
                (499,000
                )Purchases
      of available-for-sale investment securities
                
                
                
                
                
                
                (6,440,995
                )Proceeds
      from maturities and principal paydowns of available-for-sale
      investments
                
                
                5,492,364
                
                
                
                4,745,947Increase
      in Federal Home Loan Bank stock
                
                
                (217,100
                )
                
                
                (115,000
                )Net
      increase in loans
                
                
                (51,804,945
                )
                
                
                (38,596,929
                )Proceeds
      from sale of loans
                
                
                
                
                
                
                3,329,006Purchases
      of premises and equipment
                
                
                (230,811
                )
                
                
                (204,793
                )Net
      cash used in investing activities
                
                
                (41,961,492
                )
                
                
                (37,781,764
                )Financing
      activities:Net
      increase in demand and savings deposits
                
                
                2,844,244
                
                
                
                18,978,945Net
      change in time deposits
                
                
                45,573,753
                
                
                
                2,499,167Net
      change in other borrowings
                
                
                (8,000,000
                )
                
                
                3,000,000Proceeds
      from exercise of warrants
                
                
                
                
                
                
                1,406,613Proceeds
      from exercise of options
                
                
                311,558
                
                
                
                485,287Net
      cash provided by financing activities
                
                
                40,729,555
                
                
                
                26,370,012Increase
      (decrease) in cash and cash equivalents
                
                
                662,808
                
                
                
                (9,586,290
                )Cash
      and cash equivalents, beginning of year
                
                
                9,683,852
                
                
                
                19,270,142Cash
      and cash equivalents, end of period
                
                $
                10,346,660
                
                
                $
                9,683,852Supplemental
      Disclosures of Cash Flow Information:Interest
      paid
                
                $
                4,241,536
                
                
                $
                3,545,287Taxes
      paid
                
                $
                394,000
                
                
                $
                800Non-cash
      investing activities:Net
      change in unrealized (losses) gain on available-for-sale investment
      securities
                
                $
                115,000
                
                
                $
                72,000
 
 
 The
accompanying notes are an integral part of these financial
statements.
 85
 PROFESSIONAL
BUSINESS BANK
 
 NOTES
TO FINANCIAL STATEMENTS
  1.           SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
 
 Nature of
Operations
 
 The Bank
has been organized as a single operating segment and operates full-service
offices in Pasadena and Glendale, California.  The Bank's primary
source of revenue is providing loans to customers, who are predominately small
and middle-market businesses and individuals.  Banking services are
also provided by telephone, automated teller machines and the
Internet.
 
 Financial Statement
Presentation
 
 The
audited statements of operations and cash flows for the period from January 1,
2007 to November 23, 2007 (the date the acquisition of the Bank by Belvedere
SoCal was completed as discussed in Note 2) are presented solely to comply with
Rule 3-05 of Regulation S-X of the Securities and Exchange Commission in
connection with the preparation of the unaudited pro forma statement of
operations for Belvedere SoCal and Professional Business Bank for the year ended
December 31, 2007 included in management's discussion and analysis of Belvedere
SoCal appearing in its annual report on Form 10-K.
 
 Use of Estimates in the
Preparation of Financial Statements
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
 
 Cash and Cash
Equivalents
 
 For
purposes of reporting cash flows, cash and cash equivalents include cash, due
from banks and federal funds sold.  Generally, federal funds are sold
for one-day periods.
 
 Cash and Due From
Banks
 
 Banking
regulations require that banks maintain a percentage of their deposits as
reserves in cash or on deposit with the Federal Reserve Bank.  The
Bank was in compliance with its reserve requirements as of December 31,
2006.
 
 The Bank
maintains amounts due from banks, which exceed federally insured limits. The
Bank has not experienced any losses in such accounts.
 
 Investment
Securities
 
 Bonds,
notes, and debentures for which the Bank has the positive intent and ability to
hold to maturity are reported at cost, adjusted for premiums and discounts that
are recognized in interest income using the interest method over the period to
maturity.
  86
 PROFESSIONAL
BUSINESS BANK
 
 NOTES
TO FINANCIAL STATEMENTS
 (Continued)
 
 1.           SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
 
 Investment Securities
(Continued)
 
 The Bank
classifies as held-to-maturity those debt securities that it has the intent and
ability to hold to maturity.  Securities classified as trading are
those securities that are bought and held principally for the purpose of selling
them in the near term.
 
 Investments
not classified as trading securities nor as held-to-maturity securities are
classified as available-for-sale securities and recorded at fair value.
Unrealized gains or losses on available-for-sale securities are excluded from
net income and reported as an amount net of applicable taxes as a separate
component of other comprehensive income included in shareholders' equity.
Premiums or discounts on held-to-maturity and available-for-sale securities are
amortized or accreted into income using the interest method. Realized gains or
losses on sales of held-to-maturity or available-for-sale securities are
recorded using the specific identification method.
 
 Declines
in the fair value of individual held-to-maturity and available-for-sale
investment securities below their cost that are other-than-temporary result in
write-downs of the individual securities to their fair value.  The
related write-downs are included in earnings as realized losses.  In
estimating other-than-temporary impairment losses, management considers the
length of time and the extent to which the fair value has been less than cost,
the financial condition and near-term prospects of the issuer, and the intent
and ability of the Bank to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair
value.
 
 Loans
 
 Loans
receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge-offs or specific valuation
accounts and net of any deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans.
 
 Loan
origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related
loan.  Amortization of deferred loan fees is discontinued when a loan
is placed on nonaccrual status.
 
 Loans on
which the accrual of interest has been discontinued are designated as nonaccrual
loans.  The accrual of interest on impaired loans is discontinued
when, in management's opinion, the borrower may be unable to meet payments as
they become due, based on the contractual terms of the note.  When the
accrual of interest is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received and the loan's principal balance is deemed collectible. Interest
accruals are resumed on such loans only when they are brought current with
respect to interest and principal and when, in the judgment of management, the
loans are estimated to be fully collectible as to all principal and
interest.
  87
 PROFESSIONAL
BUSINESS BANK
 
 NOTES
TO FINANCIAL STATEMENTS
 (Continued)
  1.           SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
 
 Loans
(Continued)
 
 The Bank
considers a loan to be impaired when it is probable that the Bank will be unable
to collect all amounts due (principal and interest) according to the contractual
terms of the loan agreement in accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 114,
Accounting by Creditors for
Impairment of a Loan, as amended by SFAS No. 118. Measurement of
impairment is based on the expected future cash flows of an impaired loan, which
are to be discounted at the loan's effective interest rate, or measured by
reference to an observable market value, if one exists, or the fair value of the
collateral for a collateral-dependent loan.  The Bank selects the
measurement method on a loan-by-loan basis except that collateral-dependent
loans for which foreclosure is probable are measured at the fair value of the
collateral.  The Bank recognizes interest income on impaired loans
based on its existing methods of recognizing interest income on nonaccrual
loans.
 
 The Bank
has adopted SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities.The
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of
liabilities.  Under this Statement, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished.
 
 Gains and
losses are recognized at the time of sale and are calculated based on the
difference between the selling price and the fair value of servicing assets or
liabilities and the allocated carrying value of the retained portion of the
loan, the interest-only strip and the sold portion of the loan, based on the
relative fair value of each portion.  As a result of the relative fair
value allocation, the carrying value of the retained portion is discounted, with
the discount accreted to interest income over the life of the
loan.  That portion of the excess servicing fees that represent
contractually specified servicing fees (contractual servicing) are reflected as
a servicing asset which is amortized over anestimated life
using a method approximating the level yield method; in the event future
prepayments exceed Management's estimates and future expected cash flows are
inadequate to cover the unamortized servicing asset, additional amortization
would be recognized.  The portion of excess servicing fees in excess
of the contractual servicing fees is reflected as interest-only (I/O) strips
receivable, which are classified as interest-only strips receivable available
for sale and are carried at fair value.
 
 Allowance for Loan
Losses
 
 The
allowance for loan losses is maintained to provide for losses related to
impaired loans and other losses that can be expected to occur in the normal
course of business.  The determination of the allowance is based on
estimates made by management, to include consideration of the character of the
loan portfolio, specifically identified problem loans, potential losses inherent
in the portfolio taken as a whole and economic conditions in the Bank's service
area.
  88
 PROFESSIONAL
BUSINESS BANK
 
 NOTES
TO FINANCIAL STATEMENTS
 (Continued)
   1.           
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
 
 Allowance for Loan
Losses (Continued)
 
 Loans
determined to be impaired or classified are individually evaluated by management
for specific risk of loss. In addition, reserve factors are assigned to
currently performing loans based on management's assessment of the following for
each identified loan type: (1) inherent credit risk, (2) historical losses
and, (3) where the Bank has not experienced losses, the loss experience of peer
banks.  This estimate is particularly susceptible to changes in the
economic environment and market conditions.
 
 The
Bank's Board of Directors reviews the adequacy of the allowance for loan losses
quarterly, to include consideration of the relative risks in the portfolio and
current economic conditions.  The balances are adjusted based on that
review if, in the judgment of the Board of Directors and management, changes are
warranted.
 
 The
allowance is established through a provision for loan losses which is charged to
expense.  Additions to the allowance are expected to maintain the
adequacy of the total allowance after credit losses and loan
growth.  The allowance for loan losses at December 31, 2006
reflects management's estimate of possible losses in the portfolio.
 
 Premises and
Equipment
 
 Premises
and equipment are carried at cost less accumulated depreciation and
amortization.  Depreciation is computed using the straight-line method
over the estimated useful lives, which ranges from three to ten years for
furniture and equipment. Leasehold improvements are amortized using the
straight-line method over the estimated useful lives of the improvements or the
remaining lease term (including option periods if more likely than not to be
exercised), whichever is shorter.  Expenditures for betterments or
major repairs are capitalized and those for ordinary repairs and maintenance are
charged to operations as incurred.
 
 Advertising
Costs
 
 The Bank
expenses the costs of advertising in the year incurred.
 
 Income
Taxes
 
 Deferred
income taxes are computed using the asset and liability method, which recognizes
a liability or asset representing the tax effects, based on current tax law, of
future deductible or taxable amounts attributable to events that have been
recognized in the consolidated financial statements.  A valuation
allowance is established to reduce the deferred tax asset to the level at which
it is "more likely than not" that the tax asset or benefits will be
realized.  Realization of tax benefits of deductible temporary
differences and operating loss carry forwards depends on having sufficient
taxable income of an appropriate character within the carry forward
periods.
  89
 
 PROFESSIONAL
BUSINESS BANK
  NOTES
TO FINANCIAL STATEMENTS
 (Continued)
  1.           
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
 
 Income Taxes
(Continued)
 
 The Bank
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes ("FIN 48").  FIN 48 clarifies the accounting for
uncertainty in tax positions taken or expected to be taken on a tax return and
provides that the tax effects from an uncertain tax position can be recognized
in the financial statements only if, based on its merits, the position is more
likely than not to be sustained on audit by the taxing
authorities.  Management believes that all tax positions taken to date
are highly certain and, accordingly, no accounting adjustment has been made to
the financial statements.
 
 Comprehensive
Income
 
 SFAS
No. 130, Reporting
Comprehensive Income, requires the disclosure of comprehensive income and
its components.  Changes in unrealized gain or loss on
available-for-sale securities net of applicable income taxes is the only
component of accumulated other comprehensive income for the Bank.
 
 Off-Balance Sheet Financial
Instruments
 
 In the
ordinary course of business, the Bank has entered into off-balance sheet
financial instruments consisting of commitments to extend credit, commercial
letters of credit, and standby letters of credit as described in Note
8.  Such financial instruments are recorded in the financial
statements when they are funded or related fees are incurred or
received.
 
 (Loss) Earnings Per
Share
 
 Basic
(loss) earnings per share excludes dilution and is computed by dividing (loss)
income available to common shareholders by the weighted-average number of common
shares outstanding for the period.  Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity.  Diluted earnings per share is not presented when a net loss
occurs because the conversion of potential common stock is
anti-dilutive.
 
 Fair Values of Financial
Instruments
 
 SFAS
No. 107 specifies the disclosure of the estimated fair value of financial
instruments.  The Bank's estimated fair value amounts have been
determined using available market information and appropriate valuation
methodologies.
 
 However,
considerable judgment is required to develop the estimates of fair
value.  Accordingly, the estimates are not necessarily indicative of
the amounts the Bank could have realized in a current market
exchange.  The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
  90
 
 PROFESSIONAL
BUSINESS BANK
  NOTES
TO FINANCIAL STATEMENTS
 (Continued)
  1.          
 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
 
 Fair Values of Financial
Instruments (Continued)
 
 Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the balance sheet date
and, therefore, current estimates of fair value may differ significantly from
the amounts presented in the accompanying notes.
 
 Stock-Based
Compensation
 
 The Bank
adopted SFAS No. 123 (R) on January 1, 2006 using the "modified
prospective method."  Under this method, compensation expense is
recognized using the fair-value method for all new stock option awards as well
as any existing awards that are modified, repurchased or cancelled after
January 1, 2006 and prior periods are not restated.  In addition,
the unvested portion of previously awarded options outstanding as of
January 1, 2006 are recognized as expense over the requisite service period
based on the fair value of those options as previously calculated at the grant
date under the pro-forma disclosures of SFAS No. 123.  The fair
value of each grant is estimated using the Black-Scholes option pricing
model.  During 2007 and 2006, the Bank recognized pre-tax stock-based
compensation expense of $484,749 and $299,850, respectively, as a result of
adopting SFAS No. 123 (R).
 
 Prior to
the adoption of SFAS No. 123 (R), the Bank accounted for stock-based awards
using the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Accordingly, compensation cost
for stock options was measured as the excess, if any, of the quoted market price
of the Bank's stock at the date of the grant over the amount an employee must
pay to acquire the stock.  All of the Bank's stock option grants
included exercise prices equal to the Bank's current market price per share;
accordingly, no compensation expense was reported using the intrinsic value
method of APB Opinion No. 25.
 
 Reclassifications
 
 Certain
reclassifications have been made in the 2006 financial statements to conform to
the presentation used in 2007.  These reclassifications had no impact
on the Bank's previously reported results of
operations.
  91
 
 PROFESSIONAL
BUSINESS BANK
  NOTES
TO FINANCIAL STATEMENTS
 (Continued)
  2.
              ACQUISITION
 
 At the
close of business on November 23, 2007, Belvedere SoCal (the "Company")
completed the previously announced acquisition of the
Bank.  Concurrent with the acquisition, the former Professional
Business Bank was merged with and into a newly-formed bank which assumed the
name Professional Business Bank at the closing of the
acquisition.  The Company made this acquisition to expand its market
presence in Southern California.  In exchange for 100% of the
outstanding common stock of Professional Business Bank, shareholders received
approximately $24,478,000 in cash and 885,804 shares of Company common stock
with a fair value of approximately $24,596,000.  Capitalized direct
transaction costs totaled $1,605,000.  Professional Business Bank
shareholders also received 24,478 warrants to purchase additional shares of
Company common stock at $0.01 per share.  The Company assumed all
outstanding options which were converted to options to acquire Company common
stock at a rate of 0.87 Company shares for each share of Professional Business
Bank with a converted exercise price equal to the original exercise price
divided by .87.
 
 3.
              INVESTMENT
      SECURITIES
 
 Debt and
equity securities have been classified in the statement of condition according
to management's intent.  The carrying amount of available-for-sale
securities and their approximate fair values at December 31, 2006 were as
follows:
  Amortized
                  Cost
                
                
                Gross
                  Unrealized
                  Gains
                
                
                Gross
                  Unrealized
                  Losses
                
                
                Fair
                  ValueU.S.
      Government and agency securities
                
                $
                9,977,992
                
                
                $
                7,912
                
                
                $
                (41,213
                )
                
                $
                9,944,691Mortgage-backed
      securities
                
                
                5,800,001
                
                
                
                3,681
                
                
                
                (47,380
                )
                
                
                5,756,302$
                15,777,993
                
                
                $
                11,593
                
                
                $
                (88,593
                )
                
                $
                15,700,993
 
 There
were no sales or transfers of available-for-sale investment securities for the
period from January 1, 2007 to November 23, 2007 and for the year ended December
31, 2006.
 
 The
schedule maturities of available-for-sale investment securities at December 31,
2006 were as follows.  Actual maturities may differ from contractual
maturities because some investment securities may allow the right to call or
prepay the obligation with or without call or prepayment penalties:
  Amortized
                  Cost
                
                
                Fair
                  ValueDue
      in one year or less
                
                $
                6,037,837
                
                
                $
                5,998,470Due
      from one year to five years
                
                
                5,562,680
                
                
                
                5,521,627Due
      from five to ten years
                
                
                691,946
                
                
                
                692,548Due
      after ten years
                
                
                3,485,530
                
                
                
                3,488,348Total
                
                $
                15,777,993
                
                
                $
                15,700,993
  92
 PROFESSIONAL
BUSINESS BANK
 
 NOTES
TO FINANCIAL STATEMENTS
 (Continued)
   3.
              INVESTMENT SECURITIES
      (Continued)
 
 The gross
unrealized loss and related estimated fair value of investment securities that
have been in a continuous loss position for less than twelve months and over
twelve months at December 31, 2006 were as follows:
 
 Less
      than 12 Months
                
                
                12
      Months or More
                
                
                TotalFair
                  Value
                
                
                Unrealized
                  Losses
                
                
                Fair
                  Value
                
                
                Unrealized
                  Losses
                
                
                Fair
                  Value
                
                
                Unrealized
                  LossesU.S.
      Government and agency securities
                
                $
                983,125
                
                
                $
                (1,863
                )
                
                $
                5,950,470
                
                
                $
                (39,350
                )
                
                $
                6,933,595
                
                
                $
                (41,213
                )Mortgage-backed
      securities
                
                
                
                
                
                
                
                
                
                
                1,504,328
                
                
                
                (47,380
                )
                
                
                1,504,328
                
                
                
                (47,380
                )Total
                
                $
                983,125
                
                
                $
                (1,863
                )
                
                $
                7,454,798
                
                
                $
                (86,730
                )
                
                $
                8,437,923
                
                
                $
                (88,593
                )
 Management evaluates investment securities for
other-than-temporary impairment taking into consideration the extent and length
of time the fair value has been less than cost, the financial condition of the
issuer and whether the Bank has the intent and ability to retain the investment
for a period of time sufficient to allow for any anticipated recovery in fair
value.  As of December 31, 2006, no declines were deemed to be other
than temporary.
 
 As of
December 31, 2006, the Bank had pledged investment securities carried at
approximately $15,701,000 to secure borrowings and for other
purposes.
 
 4.
              LOANS
 
 The
Bank's loan portfolio consists primarily of loans to borrowers within the
communities surrounding Pasadena and Glendale, California.  The Bank
also purchased loan participations from other banks that included borrowers
throughout California.  Although the Bank seeks to avoid
concentrations of loans to a single industry or based upon a single class of
collateral, real estate and real estate associated businesses were among the
principal industries in the Bank's market area and, as a result, the Bank's loan
and collateral portfolios are, to some degree, concentrated in those
industries.
 
 Transactions
in the allowance for loan losses are summarized as follows:
  2007
                
                
                2006Balance
      at beginning of year
                
                $
                1,869,100
                
                
                $
                1,664,000Additions
      to the allowance charged to expense
                
                
                1,902,741
                
                
                
                205,100Total
                
                
                3,771,841
                
                
                
                1,869,100Less
      loans charged off
                
                
                (45,487
                )
                
                
                -Total
                
                $
                3,726,354
                
                
                $
                1,869,100
  93
 
 PROFESSIONAL
BUSINESS BANK
 
 NOTES
TO FINANCIAL STATEMENTS
 (Continued)
 4.
              LOANS
      (Continued)
 
 The Bank
had no individually significant loans that were considered impaired during the
period ended November 23, 2007 and the year ended December 31,
2006.  The Bank had no individually significant nonaccrual loans at
November 23, 2007 and December 31, 2006.  There were no accruing
loans past due 90 days or more at November 23, 2007 and December 31,
2006.  Interest income on non-accrual loans is generally recognized on
a cash basis and was not material for the period ended November 23, 2007 and for
the year ended December 31, 2006.  Interest foregone on non-accrual
loans for the period ended November 23, 2007 and for the year ended December 31,
2006 were not significant.
 
 The Bank
also originated SBA loans which it periodically sells to institutional
investors. At December 31, 2006 the Bank was servicing approximately
$26,977,000 in loans previously sold or participated.  The Bank has
recorded servicing assets related to these loans totaling $261,030 as of
December 31, 2006, which approximated fair value.  The Bank may
also receive a portion of subsequent interest collections on loans sold that
exceed the contractual servicing fee. In that case, the Bank records an
interest-only strip based on the relative fair market value of it and the other
components of the loan.  The Bank had interest-only strips of $41,736
as of December 31, 2006, which approximated fair value.  Fair
value is estimated by discounting estimated future cash flows from the
interest-only strips using assumptions similar to those used in valuing
servicing assets.
 
 Fair
value is estimated by discounting estimated future cash flows from the servicing
assets using discount rates that approximate current market rates over the
expected lives of the loans being serviced. Management has estimated the
expected life of these loans to be approximately 20% to 30% of the remaining
life at the time of sale.  For purposes of measuring impairment, the
Bank has identified each servicing asset and interest-only strip with the
underlying loan being serviced.  The only loans that are sold and
serviced by the Bank are government guaranteed loans. The risk characteristics
of these underlying assets are considered when the discount rates are determined
for purposes of impairment testing.  A valuation allowance is recorded
where the fair value is below the carrying amount of the asset.  At
December 31, 2006, the estimated fair value of the servicing asset and the
interest-only strip approximated the carrying amount, so no valuation account
has been established.
 
 A summary
of the changes in the related servicing assets and interest-only strips are as
follows for the period ended November 23, 2007 and the year ended December 31,
2006:
  Servicing Assets2007
                
                
                2006Balance,
      beginning of year
                
                $
                261,030
                
                
                $
                426,796Increase
      from loan sales
                
                
                -
                
                
                
                65,631Amortization
      charged to income
                
                
                (20,388
                )
                
                
                (54,081
                )Decrease
      from loan payoffs charged to income
                
                
                (97,702
                )
                
                
                (177,316
                )Balance,
      end of year
                
                $
                142,940
                
                
                $
                261,030
  94
  PROFESSIONAL
BUSINESS BANK
 
 NOTES
TO FINANCIAL STATEMENTS
 (Continued)
  4.
              LOANS
      (Continued)
  Interest-Only Strips
    Receivable2007
                
                
                2006Balance,
      beginning of year
                
                $
                41,736
                
                
                $
                99,464Increase
      from loan sales
                
                
                -
                
                
                
                1,086Amortization
      charged to income
                
                
                (3,509
                )
                
                
                (15,012
                )Decrease
      from loan payoffs charged to income
                
                
                (16,738
                )
                
                
                (43,802
                )Balance,
      end of year
                
                $
                21,489
                
                
                $
                41,736
  Included
in total loans are discounts related to the unguaranteed portion of SBA loans of
approximately $380,000 at December 31, 2006.
 
 The Bank
has been approved by the California Pollution Control Financing Authority
("CalCAP") to originate loans to qualified small businesses.  Under
the program, the borrower, CalCAP and the Bank contribute funds to a loss
reserve account that is held in an interest-bearing demand account at a banking
institution.  The allowance for loan losses allocated to the CalCAP
loans takes into consideration the credit support provided by the CalCAP reserve
account.  The Bank has recorded its contributions to the CalCAP
reserve account as a receivable, which is included in Accrued Interest and Other
Assets.  At December 31, 2006, the Bank's total contributions to the
CalCAP reserve account were $167,100.  The funds are the property of
CalCAP; however, in the event that the Bank leaves the program any excess funds,
after all loans have been repaid and there are no pending claims for
reimbursement, will be distributed to CalCAP and the Bank based on their
contributions to the program.  As of
December 31, 2006, the Bank had $727,955 on deposit at the Bank for the loss
reserve account.
 
 5.
              PREMISES
      AND EQUIPMENT
 
 A summary
of premises and equipment as of December 31, 2006 follows:
  Leasehold
      improvements
                
                $
                278,622Furniture
      and equipment
                
                
                375,599Computer
      equipment
                
                
                318,453972,674Less
      accumulated depreciation and amortization
                
                
                (569,119
                )Total
                
                $
                403,555
  95
  PROFESSIONAL
BUSINESS BANK
 
 NOTES
TO FINANCIAL STATEMENTS
 (Continued)
  5.
              PREMISES AND EQUIPMENT
      (Continued)
 
 The Bank
leases their Pasadena branch under an operating lease that expires on
January 31, 2009.  The lease provides for an additional five-year
option to renew. The Bank leases their Glendale branch under an operating lease
that expires on June 30, 2013.  The lease provides for two
five-year options to renew as well as increases in base rent based on changes in
the Consumer Price Index.
 
 At
November 23, 2007, the future minimum rental payments under these lease
commitments were as follows:
 
 Year
      EndingDecember
      31,2008
                $
                317,5442009
                
                80,1652010
                
                58,1762011
                
                58,1762012
                
                58,176Thereafter
                
                29,088$
                601,325
 The
minimum rental payments shown above are given for the existing lease
obligations, including annual rent adjustments, and are not a forecast of future
rental expense. In addition, the Bank is responsible for its pro rata share of
common area expenses on the Pasadena lease.
 
 Total
rent expense, including common area expenses, was approximately $344,000 and
$335,000 for the period ended November 23, 2007 and the year ended
December 31, 2006,
respectively.
 
 6.
              DEPOSITS
 
 At
December 31, 2006, the scheduled maturities of time deposits were as
follows:
  Due
      in one year
                
                $
                23,544,860Due
      from one to three years
                
                
                1,860,100Due
      after three years
                
                
                100,000Total
                
                $
                25,504,960
  As of
December 31, 2006, the Bank had 26 depositors that accounted for 37% of total
deposits.
  96
  PROFESSIONAL
BUSINESS BANK
 
 NOTES
TO FINANCIAL STATEMENTS
 (Continued)
   7.
              OTHER
      BORROWING ARRANGEMENTS
 
 As of
December 31, 2006, the Bank had two advances outstanding from the Federal Home
Loan Bank ("FHLB").  One advance for $1,500,000 was due on
November 26, 2007 and includes interest payable every six months at
3.66%.  The second advance of $8,000,000 with interest payable at
5.25% matured on January 2, 2007.  The Bank had pledged
investment securities of approximately $15 million, loans of approximately $46.2
million and FHLB Stock as collateral for these advances as well as potential
future borrowings.  The Bank's excess borrowing capacity with FHLB was
approximately $36 million at December 31, 2006.
 
 The Bank
could also borrow up to $14 million overnight on an unsecured basis from
correspondent banks.  As of December 31, 2006, no amounts were
outstanding under these arrangements.
 
 8.           INCOME
TAXES
 
 Deferred
taxes are a result of differences between income tax accounting and generally
accepted accounting principles with respect to income and expense
recognition.  The following is a summary of the components of the net
deferred tax assets recognized in the accompanying statements of financial
condition at December 31, 2006:
 
 Deferred
      tax assets:Operating
      loss carryforwards
                
                $
                385,000Market
      value adjustment on investment securities
                
                
                32,000Allowance
      for loan losses due to tax limitations
                
                
                682,000Stock-based
      compensation
                
                
                61,000Other
      items
                
                
                56,000Total
      deferred tax assets
                
                
                1,216,000Valuation
      allowance
                
                
                (120,000
                )Deferred
      tax liabilities:Cash
      basis of reporting for tax purposes
                
                
                (153,000
                )Depreciation
      differences
                
                
                (18,000
                )Deferred
      loan costs
                
                
                (108,000
                )Other
      items
                
                
                (32,000
                )Total
      deferred tax liabilities
                
                
                (311,000
                )Net
      deferred tax assets
                
                $
                785,000
  The
valuation allowance was established because the Bank has not reported earnings
sufficient enough to support the full recognition of the deferred tax
assets.  At December 31, 2006, the Bank had net operating loss
carryforwards of approximately $683,000 for Federal income tax and $2,131,000
for California franchise tax purposes.  Federal net operating loss
carryforwards, to the extent not used, will expire in
2023.  California net operating loss carryforwards, to the extent not
used, will expire in 2013.
  97
 PROFESSIONAL
BUSINESS BANK
 
 NOTES
TO FINANCIAL STATEMENTS
 (Continued)
   8.           INCOME TAXES
(Continued)
 
 The
provision for income taxes consists of the following:
 
 2007
                
                
                2006Current:Federal
                
                $
                623,894
                
                
                $
                -State
                
                
                10,000
                
                
                
                (3,402
                )Total
                
                
                633,894
                
                
                
                (3,402
                )Deferred
                
                
                (993,358
                )
                
                
                4,000Total
                
                $
                (359,464
                )
                
                $
                598
 As a
result of the following items, the total tax (benefit) expense was different
from the amount computed by applying the statutory income tax rate to (loss)
earnings before income taxes:
  2007
                
                
                2006Amount
                
                
                Rate
      %
                
                
                Amount
                
                
                Rate
      %Statutory
      federal tax (benefit) expense
                
                $
                (409,000
                )
                
                
                (34.0
                )
                
                $
                445,000
                
                
                
                34.0State
      franchise tax (benefit) expense, net of federal benefit
                
                
                (47,000
                )
                
                
                (3.9
                )
                
                
                57,000
                
                
                
                4.4Change
      in valuation allowance
                
                
                (120,000
                )
                
                
                (10.0
                )
                
                
                (532,000
                )
                
                
                (40.7
                )Stock
      option expense
                
                
                16,000
                
                
                
                1.3
                
                
                
                60,000
                
                
                
                4.6Merger
      related expenses
                
                
                200,000
                
                
                
                16.6Other
      items, net
                
                
                536
                
                
                
                0.1
                
                
                
                (29,402
                )
                
                
                (2.2
                )Actual
      tax (benefit) expense
                
                $
                (359,464
                )
                
                
                (29.9
                )
                
                $
                598
                
                
                
                0.1
 
 9.
              COMMITMENTS
      AND CONTINGENCIES
 
 In the
ordinary course of business, the Bank enters into financial commitments to meet
the financing needs of its customers.  These financial commitments
include commitments to extend credit and standby letters of
credit.  Those instruments involve to varying degrees, elements of
credit and interest rate risk not recognized in the Bank's financial
statements.
 
 The
Bank's exposure to loan loss in the event of nonperformance on commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments.  The Bank uses the same credit policies
in making commitments as it does for loans reflected in the financial
statements.
   98
  PROFESSIONAL
BUSINESS BANK
 
 NOTES
TO FINANCIAL STATEMENTS
 (Continued)
  9.
              COMMITMENTS AND
      CONTINGENCIES (Continued)
 
 As of
December 31, 2006, the Bank had the following outstanding financial
commitments whose contractual amount represents credit risk:
 
 2006Commitments
      to extend credit
                
                $
                50,829,000Standby
      letters of credit
                
                
                603,000Total
                
                $
                51,432,000
 Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Since many of
the commitments are expected to expire without being drawn upon, the total
amounts do not necessarily represent future cash requirements.  The
Bank evaluates each client's credit worthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Bank is based on
management's credit evaluation of the customer.  The majority of the
Bank's commitments to extend credit and standby letters of credit are secured by
real estate.
 
 The Bank
is involved in various litigation, which has arisen in the ordinary course of
its business.  In the opinion of management, the disposition of such
pending litigation will not have a material effect on the Bank's financial
statements.
 
 10.
              RELATED
      PARTY TRANSACTIONS
 
 In the
ordinary course of business, certain officers, directors, shareholders, and
employees of the Bank have deposits with the Bank.  In management's
opinion, all deposit relationships with such parties are made on substantially
the same terms, including interest rates and maturities, as those prevailing at
the time for comparable transactions with other persons.  The balance
of these deposits at December 31, 2006 was approximately
$2,885,000.
 
 There
were no related party loans outstanding at December 31, 2006.
 
 11.
              BANK
      401(K) PLAN
 
 The Bank
has established a deferred compensation plan for all eligible
employees.  The employees may defer a portion of their compensation
subject to certain limits based on federal tax laws.  The Bank may
elect to make matching contributions to the plan. Matching contributions vest to
the employee equally over a five-year period.  The Bank's contribution
to the plan for the period ended November 23, 2007 and the year ended December
31, 2006 was approximately $78,000 and $90,000, respectively.
  99
 PROFESSIONAL
BUSINESS BANK
  NOTES
TO FINANCIAL STATEMENTS
 (Continued)
  
 12.
              (LOSS)
      EARNINGS PER SHARE
 
 A summary
of net (loss) income and the number of shares used to compute (loss) earnings
per share is as follows for the period ended November 23, 2007 and for the year
ended December 31, 2006:
  2007
                
                
                2006Net Loss
                
                
                Shares
                
                
                Net
      Income
                
                
                SharesUsed
      in basic (loss) earnings per share
                
                $
                (843,172
                )
                
                
                1,998,199
                
                
                $
                1,307,694
                
                
                
                1,878,852Dilutive
      effect of outstanding stock options and warrants
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                62,053Used
      in dilutive earnings per share
                
                
                
                
                
                
                
                
                
                $
                1,307,694
                
                
                
                1,940,905
 
 13.
              STOCK
      OPTION PLAN
 
 The Bank
sponsored one compensatory incentive and non-qualified stock option plan which
provides certain key employees and the Board of Directors with the option to
purchase shares of common stock.  On April 25, 2002, the Bank
adopted a stock option plan (the 2001 Incentive and Nonqualified Stock Option
Plan) under which up to 452,696 shares of the Bank's common stock could be
issued to directors, officers, key employees, and advisory board
members.  Option prices may not be less than 100% of the fair market
value of the stock at the date of grant.  Options vest over a period
of three to five years.  Stock options expire no later than ten years
from the date of the grant.  The Plan provided for accelerated vesting
if there is a change of control, as defined in the Plan.  The Bank
recognized stock-based compensation costs of $484,749 and $299,850 and related
tax benefits of $63,000 and $51,000, respectively, for the period ended November
23, 2007 and the year ended December 31, 2006.
 
 The fair
value of each option granted was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
  2006Risk
      free interest rate
                
                
                4.68%Estimated
      average life
                
                7
      yearsExpected
      dividend rate
                
                
                0.00%Expected
      stock volatility
                
                
                28.98%Weighted-average
      option value
                
                $
                6.89
  100
 
 PROFESSIONAL
BUSINESS BANK
  NOTES
TO FINANCIAL STATEMENTS
 (Continued)
    13.
              STOCK OPTION PLAN
      (Continued)
 
 A summary
of the status of the Bank's fixed stock option plan as of December 31, 2006, and
changes during the period ending thereon is presented below:
  Shares
                
                
                Weighted
                  Average
                  Exercise
                  Price
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Term
                
                
                Aggregate
                  Intrinsic
                  ValueOutstanding
      at beginning of year
                
                
                360,350
                
                
                $
                12.01Granted
                
                
                35,000
                
                
                $
                16.46Exercised
                
                
                (46,867
                )
                
                $
                10.35Forfeited
      or expired
                
                
                (17,358
                )
                
                $
                13.78Outstanding
      at end of year
                
                
                331,125
                
                
                $
                12.62
                
                
                
                7.7 years
                
                
                $
                1,450,100Options
      exercisable
                
                
                208,775
                
                
                $
                10.41
                
                
                
                5.7 years
                
                
                $
                1,376,213
 
 The total
intrinsic value of options exercised during the year ended December 31,
2006 was approximately $280,000.  As of December 31, 2006, there was
$559,000 of total unrecognized compensation cost related to the outstanding
stock options that will be recognized over a weighted average period of 2.2
years.
 
 14.
              REGULATORY
      MATTERS
 
 The Bank
is subject to various regulatory capital requirements administered by the
federal banking agencies.  Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements.  Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices.  The Bank's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other
factors.
 
 Quantitative
measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios (set forth in the table below) of total
and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier 1 capital (as defined) to average assets (as
defined).  Management believes, as of December 31, 2006, that the
Bank met all capital adequacy requirements to which it is subject.
   101
 
 PROFESSIONAL
BUSINESS BANK
  NOTES
TO FINANCIAL STATEMENTS
 (Continued)
    14.
              REGULATORY MATTERS
      (Continued)
 
 As of
December 31, 2006, the FDIC categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action (there are no conditions or
events since that notification that management believes have changed the Bank's
category).  To be categorized as adequately capitalized, the Bank must
maintain minimum ratios as set forth in the table below.  The
following table also sets forth the Bank's actual capital amounts and ratios
(dollar amounts in thousands).
 
 2006Amount
                
                
                RatioLeverage
      RatioProfessional
      Business Bank
                
                $
                20,037
                
                
                
                11.2
                %Minimum
      requirement for "Well-Capitalized" institution
                
                $
                8,934
                
                
                
                5.0
                %Minimum
      regulatory requirement
                
                $
                7,147
                
                
                
                4.0
                %Tier 1 Risk-Based
      Capital RatioProfessional
      Business Bank
                
                $
                20,037
                
                
                
                12.0
                %Minimum
      requirement for "Well-Capitalized" institution
                
                $
                10,038
                
                
                
                6.0
                %Minimum
      regulatory requirement
                
                $
                6,692
                
                
                
                4.0
                %Total Risk-Based
      Capital RatioProfessional
      Business Bank
                
                $
                21,813
                
                
                
                13.1
                %Minimum
      requirement for "Well-Capitalized" institution
                
                $
                16,731
                
                
                
                10.0
                %Minimum
      regulatory requirement
                
                $
                13,384
                
                
                
                8.0
                %
 The California Financial Code provides that a
bank may not make a cash distribution to its shareholders in excess of the
lesser of the Bank's undivided profits or the Bank's net income for its last
three fiscal years less the amount of any distribution made by the Bank to
shareholders during the same period.
 
 15.
              WARRANTS
 
 In
connection with the Bank's secondary stock offering, the Bank issued one warrant
to purchase additional shares of common stock for each four shares purchased,
for a total of 110,000 warrants.  These warrants were exercisable any
time during the period beginning August 1, 2006 and ending October 31,
2006.  The exercise price for these warrants was $13.00 per
share.
  102
  PROFESSIONAL
BUSINESS BANK
  NOTES
TO FINANCIAL STATEMENTS
 (Continued)
 
 16.
              FAIR
      VALUE OF FINANCIAL INSTRUMENTS
 
 The fair
value of a financial instrument is the amount at which the asset or obligation
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale.  Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instrument.  These estimates do not reflect any
premium or discount that could result from offering for sale at one time the
entire holdings of a particular financial instrument.  Because no
market value exists for a significant portion of the financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors.  These estimates are
subjective in nature, involve uncertainties and matters of judgment and,
therefore, cannot be determined with precision.  Changes in
assumptions could significantly affect the estimates.
 
 Fair
value estimates are based on financial instruments both on and off the balance
sheet without attempting to estimate the value of anticipated future business
and the value of assets and liabilities that are not considered financial
instruments.  Additionally, tax consequences related to the
realization of the unrealized gains and losses can have a potential effect on
fair value estimates and have not been considered in many of the
estimates.
 
 The
following methods and assumptions were used to estimate the fair value of
significant financial instruments:
 
 Financial
Assets
 
 The
carrying amounts of cash, short-term investments, due from customers on
acceptances, and bank acceptances outstanding are considered to approximate fair
value.  Short-term investments include federal funds sold, securities
purchased under agreements to resell, commercial paper and interest bearing
deposits with banks.  The fair values of investment securities,
including available-for-sale, are generally based on quoted market
prices.  The fair value of loans are estimated using a combination of
techniques, including discounting estimated future cash flows and quoted market
prices of similar instruments where available.
 
 Financial
Liabilities
 
 The
carrying amounts of deposit liabilities payable on demand, commercial paper, and
other borrowed funds are considered to approximate fair value.  For
fixed maturity deposits, fair value is estimated by discounting estimated future
cash flows using currently offered rates for deposits of similar remaining
maturities.  The fair value of long-term debt is based on rates
currently available to the Bank for debt with similar terms and remaining
maturities.
 
 Off-Balance-Sheet Financial
Instruments
 
 The fair
value of commitments to extend credit and standby letters of credit is estimated
using the fees currently charged to enter into similar
agreements.  The fair value of these financial instruments is not
material.
  103
 
 PROFESSIONAL
BUSINESS BANK
  NOTES
TO FINANCIAL STATEMENTS
 (Continued)
   16.
              FAIR VALUE OF FINANCIAL
      INSTRUMENTS (Continued)
 
 The
estimated fair value of financial instruments as of December 31, 2006 is
summarized as follows (dollar amounts in thousands):
 December
      31, 2006Carrying
                  Value
                
                
                Fair
                  ValueFinancial
      assets:Cash
      and due from banks
                
                $
                5,274
                
                
                $
                5,274Federal
      funds sold
                
                
                4,410
                
                
                
                4,410Deposits
      – other financial institutions
                
                
                4,899
                
                
                
                4,899Investment
      securities
                
                
                15,701
                
                
                
                15,701Loans
                
                
                139,502
                
                
                
                138,739FHLB
      stock
                
                
                699
                
                
                
                699Accrued
      interest receivable
                
                
                902
                
                
                
                902Financial
      liabilities:Deposits
                
                $
                142,630
                
                
                $
                142,706FHLB
      advances
                
                
                9,500
                
                
                
                9,493Accrued
      interest and other liabilities
                
                
                1,173
                
                
                
                1,141







104




ITEM
8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.





There are
no changes in or disagreements with accountants on accounting and financial
disclosure.





ITEM
8A(T).  CONTROLS AND PROCEDURES.




EVALUATION OF DISCLOSURE CONTROLS AND
PROCEDURES




As of the
end of the period covered by this report, our management carried out an
evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation,
our principal executive officer and principal financial officer have concluded
that our disclosure controls and procedures are, as of the date covered by this
Annual Report, effective to ensure that the 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 SEC
rules and forms.




MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




This
annual report does not include a report of management's assessment regarding
internal control over financial reporting or an attestation report of the
company's registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for newly public
companies.


105





CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING




In
connection with the evaluation of our internal control during our last fiscal
quarter, our principal executive officer and principal financial officer have
determined that there have been no changes to our internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





ITEM
8B.  OTHER INFORMATION.





There is
no required information that has not been previously reported during the
year.





PART
III





ITEM
9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT.





We have
adopted a Code of Ethics that applies to all of our employees and directors, and
complies with the SEC’s requirements for a code of ethics applicable to senior
executive officers.  A copy of the Code of Ethics is attached hereto
as exhibit 14.1





There were no material changes to the
procedures by which security holders may recommend nominees to our board of
directors during 2007.




Section 16(a) Beneficial Ownership
Reporting Compliance.  Section 16 of the Securities Exchange
Act of 1934 does not apply to SoCal because it does not have a class of security
registered under section 12 of that Act.





The balance of the information required
by this Item will be filed by amendment on or before April 29,
2008.





ITEM
10.  EXECUTIVE COMPENSATION.





See Item
5, Market for Common Equity and Related Stockholder Matters for information
regarding our equity compensation plan.  The balance of the
information required by this Item will be filed by amendment on or before
April 29, 2008.






106




ITEM
11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,
AND RELATED STOCKHOLDER MATTERS.





The information required by this
Item will be filed by amendment on or before April 29, 2008.





ITEM
12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTORS
INDEPENDENCE.





The information required by this
Item will be filed by amendment on or before April 29, 2008.




107





ITEM
13.  EXHIBITS.





Index
to Exhibits




Exhibit
              Number
            Exhibit3.1
            Articles of
      Incorporation /13.2
            Bylaws /23.3
            Certificate of
      Determination of Series A Non-Cumulative Perpetual
      Preferred Stock /34.1
            Specimen form of
      Belvedere stock certificate /24.2
            Indenture, dated as
      of January 31, 2008 /44.3
            Amended and Restated
      Declaration of Trust, dated as of January
      31, 2008 /410.1
            Management Agreement
      /210.2
            Warrant Agreement
      /210.3
            Employment Agreement
      with Alan Lane, dated February 20, 200810.4
            Employment Agreement
      with Norman Broyer, dated March
      10, 200810.5
            Business Loan
      Agreement with Pacific Coast Bankers Bank,
      dated March 18, 200810.6
            Promissory Note with
      Pacific Coast Bankers Bank, dated
      March 18, 200810.7
            Commercial Pledge
      Agreement with Pacific Coast Bankers
      Bank, dated March 18, 200810.8
            Employment Agreement
      with Michael McCall, datedDecember
      5, 2007, as amended14.1
            Belvedere SoCal Code
      of Ethics23.1
            Consent of
      Perry-Smith LLP23.2
            Consent of Vavrinek,
      Trine, Day & Co., LLP




31.1
            Certification of
      Chief Executive Officer pursuant to Rule 15d-1431.2
            Certification of
      Chief Financial Officer pursuant to Rule 15d-1432.1
            Certification
      pursuant to Rule 15d-14(b) and Section 1350 of
      Chapter 63 of Title 18 of the United States Code




________________





1           Incorporated
by reference from SoCal’s Registration Statement on Form S-4 filed with the SEC
on March 21, 2007, file number 333-141453.





2           Incorporated
by reference from SoCal’s Registration Statement on Form S-4/A filed with the
SEC on May 1, 2007, file number 333-141453.





3           Incorporated
by reference from SoCal’s Current Report on Form 8-K filed with the SEC on
December 13, 2007, file number 333-141453.





4           Incorporated
by reference from SoCal’s Current Report on Form 8-K filed with the SEC on
February 6, 2008, file number 333-141453.






ITEM
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
 The
information required by this Item will be filed by amendment on or before April
29, 2008.




108




SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the
Registrant has caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.








Belvedere
      SoCal
              
              By:/s/ William
      Baribault
              William
      Baribault
              Chief
      Executive Officer
              (Principal
      Executive Officer)By:/s/ Michael
      McCall

              Michael
      McCall
              Senior
      Vice President and
              Chief
      Financial Officer
              (Principal
      Financial Officer)
              (Chief
      Accounting Officer)




109





Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registration Statement has been signed by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.






/s/
      Alan
      Lane
            Executive Chairman
      of the
            March 31,
      2008Alan Lane
            Board,
      Director/s/
      William
      Baribault
            Chief Executive
      Officer,
            March 31,
      2008William
      Baribault
            Director/s/
      Jae H.
      Lim
            Director
            March 31,
      2008Jae H.
      Lim/s/
      Alison
      Davis
            Secretary,
      Director
            March 31,
      2008Alison
      Davis/s/
      Larry D.
      Tashjian
            Director
            March 31,
      2008Larry D.
      Tashjian





110




Exhibit
Index




Exhibit
                Number
              Exhibit Title10.3
              Employment Agreement
      with Alan Lane, dated February 20, 200810.4
              Employment Agreement
      with Norman Broyer, dated March
      10, 200810.5
              Business Loan
      Agreement with Pacific Coast Bankers Bank,
      dated March 18, 200810.6
              Promissory Note with
      Pacific Coast Bankers Bank, dated
      March 18, 200810.7
              Commercial Pledge
      Agreement with Pacific Coast Bankers
      Bank, dated March 18, 200810.8
              Employment Agreement
      with Michael McCall, datedDecember
      5, 2007, as amended14.1
              Belvedere SoCal Code
      of Ethics23.1
              Consent of
      Perry-Smith LLP23.2
              Consent of Vavrinek,
      Trine, Day & Co., LLP
 31.1
              Certification of
      Chief Executive Officer pursuant to Rule 15d-1431.2
              Certification of
      Chief Financial Officer pursuant to Rule 15d-1432.1
              Certification
      pursuant to Rule 15d-14(b) and Section 1350 of
      Chapter 63 of Title 18 of the United States Code