e10vq

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-33455

ALLIANCE BANCSHARES CALIFORNIA

(Exact name of Registrant as specified in its charter)


California (State or other jurisdiction of incorporation or organization)		91-2124567 (I.R.S. Employer Identification Number)

100 Corporate Pointe Culver City, California (Address of principal executive offices)		90230 (Zip Code)

(310) 410-9281
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed, since last year)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

6,172,879 shares of Common Stock as of October 31, 2007

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	*September 30,*		*December 31,*
	*2007*		*2006*
	(Unaudited)
	(Dollars in thousands)
*Assets*
Cash and due from banks	$	21,049	$	18,732
Federal funds sold		45,645		28,810

Total cash and cash equivalents		66,694		47,542
Time deposits with other financial institutions		1,471		2,556
Securities held to maturity, fair market value $104,062 at September 30, 2007; $104,153 at December 31, 2006		104,367		104,627
Loans held for sale		—		305
Loans, net of the allowance for loan losses of $11,062 at September 30, 2007; $9,195 at December 31, 2006		830,332		700,189
Equipment and leasehold improvements, net		4,925		4,286
Accrued interest receivable and other assets		17,001		16,257

Total assets	$	1,024,790	$	875,762


*Liabilities, Redeemable Preferred Stock and Shareholders’ Equity*
Deposits:
Non-interest bearing demand	$	148,531	$	157,265
Interest bearing:
Demand		20,554		12,817
Savings and money market		212,137		183,692
Certificates of deposit		460,624		363,094

Total deposits		841,846		716,868
Accrued interest payable and other liabilities		5,121		7,774
Securities sold under agreements to repurchase		31,096		20,000
FHLB advances		60,000		50,000
Junior subordinated debentures		27,837		27,837

Total liabilities		965,900		822,479

Commitments and contingencies		—		—
Redeemable Preferred Stock:
Serial preferred stock, no par value:
Authorized - 20,000,000 shares
7% Series A Non-Cumulative Convertible Non-Voting:
Authorized and outstanding - 733,050 shares at September 30, 2007 and December 31, 2006		7,697		7,697
6.82% Series B Non-Cumulative Convertible Non-Voting:
Authorized and outstanding - 667,096 shares at September 30, 2007 and December 31, 2006		11,319		11,319

Total redeemable preferred stock		19,016		19,016

Shareholders’ Equity:
Common stock, no par value:
Authorized - 20,000,000 shares; Outstanding - 6,171,879 shares at September 30, 2007 and 6,151,679 shares at December 31, 2006		6,712		6,600
Additional Paid in Capital		957		502
Undivided profits		32,205		27,165

Total shareholders’ equity		39,874		34,267

Total liabilities, redeemable preferred stock and shareholders’ equity	$	1,024,790	$	875,762

The accompanying notes are an integral part of these statements.

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Part I. Item 1. (continued)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	*Three Months Ended*				*Nine Months Ended*
	*September 30,*				*September 30,*
	*2007*		*2006*		*2007*		*2006*
	(Dollars in thousands except earnings per share)
Interest Income:
Interest and fees on loans	$	18,398	$	15,925	$	54,143	$	42,945
Interest on time deposits with other financial institutions		14		26		53		157
Interest on securities held to maturity		1,383		1,168		3,872		3,073
Interest on federal funds sold		489		382		1,656		1,024

Total interest income		20,284		17,501		59,724		47,199


Interest Expense:
Interest on deposits		8,042		5,938		22,671		15,763
Interest on FHLB advances		762		576		2,119		1,391
Interest on securities sold under repurchase agreements		271		370		744		996
Interest on junior subordinated debentures		522		518		1,542		1,196

Total interest expense		9,597		7,402		27,076		19,346

Net interest income		10,687		10,099		32,648		27,853
Provision for Loan Losses		1,060		1,090		3,199		2,813

Net interest income after provision for loan losses		9,627		9,009		29,449		25,040


Non-Interest Income		1,462		716		2,857		2,056

Non-Interest Expense:
Salaries and related benefits		4,588		3,426		13,000		9,471
Occupancy and equipment expenses		932		781		2,812		2,186
Professional fees		415		475		1,122		1,195
Data processing		186		203		617		653
Other operating expense		1,379		1,300		4,265		3,827

Total non-interest expense		7,500		6,185		21,816		17,332

Earnings Before Income Tax Expense		3,589		3,540		10,490		9,764
Income tax expense		1,599		1,470		4,466		3,959

Net Earnings	$	1,990	$	2,070	$	6,024	$	5,805


Earnings per Common Share:
Basic earnings per share	$	0.27	$	0.29	$	0.82	$	0.79
Diluted earnings per share	$	0.26	$	0.27	$	0.79	$	0.76

The accompanying notes are an integral part of these statements.

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Part I. Item 1. (continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	*Nine Months Ended September 30,*
	*2007*			*2006*
	(Dollars in thousands)
Cash Flows from Operating Activities:
Net earnings	$	6,024		$	5,805
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net amortization of discounts and premiums on securities held to maturity		36			207
Depreciation and amortization		1,039			857
Provision for loan losses		3,199			2,813
Compensation expense on stock options		337			260
Excess tax benefit from share based payment arrangements		(118	)		—
Net gains on sales of loans held for sale		(1,008	)		(357	)
Proceeds from sales of loans held for sale		65,015			22,259
Originations of loans held for sale		(63,702	)		(24,057	)
(Increase) decrease in accrued interest receivable and other assets		901			(1,367	)
Increase (decrease) in accrued interest payable and other liabilities		(2,653	)		1,810

Net cash provided by operating activities		9,070			8,230


Cash Flows from Investing Activities:
Net (increase) decrease in:
Time deposits with other financial institutions		1,085			5,869
Loans		(134,442	)		(112,919	)
Purchase of equipment and leasehold improvements		(1,678	)		(780	)
Purchase of FHLB stock		(427	)		(29	)
Purchase of securities held to maturity		(47,877	)		(41,798	)
Proceeds from maturities of securities held to maturity		48,101			11,540
Investment in statutory trust		—			(310	)

Net cash used in investing activities		(135,238	)		(138,427	)


Cash Flows from Financing Activities:
Net increase (decrease) in:
Demand deposits		(8,734	)		51,400
Interest bearing demand deposits		7,737			(434	)
Savings and money market deposits		28,445			51,582
Certificates of deposit		97,530			73,240
Excess tax benefit from share based payment arrangements		118			(36	)
Proceeds from issuance of junior subordinated debentures		—			10,310
Increase in FHLB Advances		10,000			10,000
Increase (decrease) in securities sold under agreements to repurchase		11,096			(41,134	)
Proceeds from stock options exercised		112			76
Dividends paid on preferred stock		(984	)		(984	)

Net cash provided by financing activities		145,320			154,020

Net Increase (decrease) in Cash and Cash Equivalents		(19,152	)		23,823
Cash and Cash Equivalents, Beginning of Period		47,542			30,149

Cash and Cash Equivalents, End of Period	$	66,694		$	53,972


Supplemental Schedule of Noncash Investing and Financing Activities
Transfer from loans to Other Real Estate Owned	$	1,100			—

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest	$	25,775		$	18,230
Income taxes		5,922			4,616

The accompanying notes are an integral part of these statements.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

For the Nine Months Ended September 30, 2007 and 2006


	*Common Stock*				*Additional*
	*Number of*				*Paid In*		*Undivided*
	*Shares*		*Amount*		*Capital*		*Profits*			*Total*
	(Dollars and shares in thousands)
Balance, December 31, 2005		6,066	$	6,406		—	$	20,470		$	26,876
Stock options exercised		32		76		—		—			76
Dividends paid on preferred stock		—		—		—		(984	)		(984	)
Compensation expense on stock options		—		—		—		260			260
Net earnings		—		—		—		5,805			5,805

Balance, September 30, 2006		6,098	$	6,482		—	$	25,551		$	32,033


	*Common Stock*				*Additional*
	*Number of*				*Paid In*		*Undivided*
	*Shares*		*Amount*		*Capital*		*Profits*			*Total*
	(Dollars and shares in thousands)
Balance, December 31, 2006		6,152	$	6,600	$	502	$	27,165		$	34,267
Stock options exercised		20		112				—			112
Dividends paid on preferred stock		—		—				(984	)		(984	)
Tax benefit on non-qualified stock options		—		—		118		—			118
Compensation expense on stock options		—		—		337		—			337
Net earnings		—		—		—		6,024			6,024

Balance, September 30, 2007		6,172	$	6,712	$	957	$	32,205		$	39,874

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Part I. Item 1. (continued)

ALLIANCE BANCSHARES CALIFORNIA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2007
(Unaudited)

1. Nature of Business and Significant Accounting Policies

Organization

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations and changes in cash flows in conformity with accounting principles generally accepted in the United States of America. However, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments and accruals) which, in the opinion of the management, are necessary for a fair presentation of the results for the interim periods presented. These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a basis consistent with, and should be read in conjunction with, the Company’s audited financial statements as of and for the year ended December 31, 2006 and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

The results of operations for the nine months ended September 30, 2007 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, 2007.

The consolidated financial statements include the accounts of Alliance Bancshares California (“Bancshares”), its wholly owned subsidiary Alliance Bank (the “Bank”) and Lexib Realcorp, an inactive wholly owned subsidiary of the Bank. Bancshares is a bank holding company which was incorporated in February 2000 in the State of California. The Bank is a California-chartered bank that commenced operations in 1980. The Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation up to the maximum amount and under the terms allowed by federal regulations. References in these Notes to the “Company” refer to Bancshares and its consolidated subsidiaries. Bancshares has three other subsidiaries, Alliance Bancshares California Capital Trust I, Alliance Bancshares California Capital Trust II and Alliance Bancshares California Capital Trust III (the “Trusts”), which it formed in 2002, 2005 and 2006, respectively, to issue trust preferred securities. FIN 46 and FASB interpretation No. 46R do not allow the consolidation of the Trusts into the Company’s consolidated financial statements. As a result, the accompanying consolidated statements of financial condition include the investment in the Trusts of $837,000 in other assets.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, and contingencies 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.

Income Taxes

Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, as of January 1, 2007. The Company has two tax jurisdictions: The U.S. Government and the State of California. As of January 1, the Company has no unrecognized tax benefits. There are no accrued interest and penalties as of January 1, 2007. The total amount of unrecognized tax benefits is not expected to significantly increase within the next twelve months. The Company still has the tax years of 2001 through 2006 subject to examination by the Internal Revenue Service and 2002 through 2006 by the Franchise Tax Board of the State of California. The Company will classify any interest required to be paid on an underpayment of income taxes as interest expense. Any penalties assessed by a taxing authority will be classified as other expense.

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Other Real Estate Owned

Other real estate owned represents real estate acquired through foreclosure and is stated at fair value, minus estimated costs to sell (fair value at time of foreclosure). Loan balances in excess of fair value of the real estate acquired at the date of acquisition are charged against the allowance for loan losses. Any subsequent operating expenses or income, reduction in estimated values, and gains or losses on disposition of such properties are charged to current operations. At September 30, 2007, there was one property in other real estate owned for $1.1 million. There was no other real estate owned at December 31, 2006.

Equity Compensation Plans

The Company has two stock-based equity compensation plans, which are described more fully in Note 4.

Prior to January 1, 2006, the Company accounted for stock-based awards to employees and directors using the intrinsic value method, in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Accordingly, no compensation expense was recognized in the consolidated financial statements for employee and director stock based awards for the periods prior to January 1, 2006 as all awards (consisting only of stock options) granted under the Plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123-R, Share-Based Payment (“SFAS 123-R”), using the modified-prospective-transition method. Under that transition method, compensation cost recognized for the nine months ended September 30, 2007 and 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006. Results for prior periods have not been restated.

Prior to the adoption of SFAS 123-R, the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. SFAS 123-R requires the cash flows related to the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The Company had excess tax benefits of $118,000 resulting from exercise of non-qualified stock options or from disqualifying dispositions of shares acquired upon exercise of incentive stock options for the nine months ended September 30, 2007.

The following table summarizes the stock option activity under the plans for the nine months ended September 30, 2007:


					*Weighted Average*
			*Weighted Average*		*Remaining*		*Aggregate Intrinsic*
	*Shares*		*Exercise Price*		*Contractual Life*		*Value*
	(Dollars in thousands except per share amounts)
2007
Outstanding at December 31, 2006		425,000	$	9.72
Granted		97,000		16.67
Exercised		20,200		5.61
Forfeited		8,200		9.69

Outstanding at September 30, 2007		493,600		11.26		6.78	$	1,142

Vested or expected to vest at September 30, 2007		474,728		9.75		6.05		1,130

Options exercisable at September 30, 2007		187,000		6.77		4.88		958

The total intrinsic value of options exercised during the nine months ended September 30, 2007 and 2006 was $205,000 and $419,000, respectively.

2. Allowance for Loan Losses

The following table presents an analysis of changes in the allowance for loan losses during the periods indicated:

CHANGES IN ALLOWANCES FOR LOAN LOSSES


	*Nine Months Ended September 30,*
	*2007*			*2006*
	(Dollars in thousands)
Balance at beginning of period	$	9,195		$	6,051
Charge-offs		(1,643	)		(1,229	)
Recoveries		166			369

Net charge-offs		(1,477	)		(860	)
Additional provisions		3,199			2,813
Other adjustments		145			138

Balance at end of period	$	11,062		$	8,142

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3. Earnings per Share

Basic and diluted earnings per share for the periods indicated are computed as follows:


						*Per Share*
*Three Months Ended September 30, 2007*	*Net Earnings*			*Shares*		*Amount*
	(Dollars in thousands)
Basic earnings per share:
Net earnings	$	1,990
Cash dividends on preferred stock		(328	)

Net earnings available to common shareholders		1,662			6,169,488	$	0.27
Preferred stock dividend		328
Effect of exercise of options and warrants		—			87,774
Effect of conversion of Series A preferred stock		—			733,050
Effect of conversion of Series B preferred stock		—			667,096

Diluted earnings per share:
Net earnings available to common shareholders	$	1,990			7,657,408	$	0.26


						*Per Share*
*Three Months Ended September 30, 2006*	*Net Earnings*			*Shares*		*Amount*
	(Dollars in thousands)
Basic earnings per share:
Net earnings	$	2,070
Cash dividends on preferred stock		(328	)

Net earnings available to common shareholders		1,742			6,082,853	$	0.29
Preferred stock dividend		328
Effect of exercise of options and warrants		—			226,096
Effect of conversion of Series A preferred stock		—			733,050
Effect of conversion of Series B preferred stock		—			667,096

Diluted earnings per share:
Net earnings available to common shareholders	$	2,070			7,709,095	$	0.27

The diluted EPS computation does not include the anti-dilutive effect of options to purchase 225,000 shares and 104,500 shares for the quarters ended September 30, 2007 and 2006, respectively.


						*Per Share*
*Nine Months Ended September 30, 2007*	*Net Earnings*			*Shares*		*Amount*
	(Dollars in thousands)
Basic earnings per share:
Net earnings	$	6,024
Cash dividends on preferred stock		(984	)

Net earnings available to common shareholders		5,040			6,163,637	$	0.82
Preferred stock dividend		984
Effect of exercise of options and warrants		—			83,542
Effect of conversion of Series A preferred stock		—			733,050

Effect of conversion of Series B preferred stock		—			667,096

Diluted earnings per share:
Net earnings available to common shareholders	$	6,024			7,647,326	$	0.79


						*Per Share*
*Nine Months Ended September 30, 2006*	*Net Earnings*			*Shares*		*Amount*
	(Dollars in thousands)
Basic earnings per share:
Net earnings	$	5,805
Cash dividends on preferred stock		(984	)

Net earnings available to common shareholders		4,821			6,071,854	$	0.79
Preferred stock dividend		984
Effect of exercise of options and warrants		—			208,073
Effect of conversion of Series A preferred stock		—			733,050
Effect of conversion of Series B preferred stock		—			667,096

Diluted earnings per share:
Net earnings available to common shareholders	$	5,805			7,680,073	$	0.76

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4. Stock Options

The Company’s 1996 Combined Incentive and Non-Qualified Stock Option Plan (“1996 Plan”) provides for the issuance of up to 800,000 shares of the Company’s common stock upon exercise of incentive and non-qualified options. The 2005 Equity Incentive Plan (the “2005 Plan”) provides for the issuance of up to 450,000 shares of the Company’s common stock upon the exercise of the incentive and non-qualified options, as restricted stock grants, or upon exercise of stock appreciation rights. To date, no restricted stock grants or stock appreciation rights have been issued under the 2005 Plan.

Both Plans provide that each option must have an exercise price not less than the fair market value of the stock at the date of grant and have a term not to exceed ten years (five years with respect to options granted to employees holding 10% or more of the voting stock of the Company). Options vest in various increments of not less frequently than 20% per year. The 1996 Plan expired in February 2006, although options remain outstanding under that Plan.

At September 30, 2007, compensation expense related to non-vested stock option grants aggregated to $1.7 million and is expected to be recognized as follows:


	*Stock Option*
	*Compensation*
	*Expense*
	(Dollars in thousands)
Remainder of 2007	$	132
2008		512
2009		467
2010		346
2011		195
2012		34

Total	$	1,686

The Company uses the Black-Scholes option valuation model to determine the fair value of options. The Company utilizes assumptions on expected life, risk-free rate, expected volatility, and dividend yield to determine such values. If grants were to occur, the Company would estimate the life of the options by calculating the average of the vesting period and the contractual life. The risk-free rate would be based on treasury instruments in effect at the time of grant whose terms are consistent with the expected life of the Company’s stock options. Expected volatility would be based on historical volatility of the Company’s stock. The dividend yield would be based on historical experience and expected future changes. The Company has not historically paid dividends on its common stock.

The following table summarizes the assumptions used for stock options granted for the periods presented:


	*Nine Months Ended September 30,*
	*2007*			*2006*
Risk-free rate		4.8	%		5.0	%
Expected term	6.25 years			6.21 years
Expected volatility		36.0	%		42.5	%

5. Operation Segments

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for the way that public businesses report information about operating segments in annual and interim financial statements and establishes standards for related disclosures about an enterprise’s products and services, geographic areas, and major customers.

In accordance with the provisions of SFAS No. 131, reportable segments have been determined based upon the Company’s internal management and profitability reporting system, which is organized based on lines of business. The reportable segments for the Company are the Regional Banking Centers, the Real Estate Industries Division, the Small Business Administration (SBA), and Other. The Regional Banking Centers segment is comprised of the

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Bank’s five regional banking centers which provide a wide range of credit products and banking services primarily to small to medium sized businesses, executives and professionals. The Real Estate Industries Division is comprised of real estate lending, including commercial real estate loans and construction loans for commercial, multi-family and residential properties. The SBA segment provides credit products that are in part guaranteed by the U.S. government and are made to qualified small business owners for the purpose of accessing capital for operations, acquisitions, and inventory or debt management. The “Other” incorporates all remaining business units such as the Company’s corporate office, administrative and treasury functions, as well as other types of products and services such as asset-based lending, investment securities, money desk certificates of deposit and brokered deposits.

The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to generally accepted accounting principles. As a result, reported segment results are not necessarily comparable with similar information reported by other financial institutions.

The Company does not allocate provisions for loan losses, general and administrative expenses, or income taxes to the business segments. In addition, the Company allocates internal funds transfer pricing to the segments using a methodology that charges users of funds interest expense and credits providers of funds interest income with the net effect of this allocation being recorded in administration.

The following table shows interest income and interest expense, which include the effect of internal funds transfer pricing, and non-interest income, non-interest expense, and net contribution to earnings before income tax expense, for each of these segments as shown in the following table for the three and nine months ended September 30, 2007 and 2006. The following table also shows the assets allocated to each of these segments as of September 30, 2007 and December 31, 2006.


	Regional		Real Estate
	Banking		Industries
Three Months Ended September 30	Centers		Division		SBA		Other			Total
	(Dollars in thousands)
2007
Interest income	$	8,181	$	8,478	$	1,061	$	2,564		$	20,284
Credit for funds provided		7,056		425		45		(7,526	)		—

Total interest income		15,237		8,903		1,106		(4,962	)		20,284

Interest expense		4,155		—		6		5,436			9,597
Charge for funds used		5,258		4,471		455		(10,184	)		—

Total interest expense		9,413		4,471		461		(4,748	)		9,597

Net interest income		5,824		4,432		645		(214	)		10,687
Provision for loan losses		—		—		—		1,060			1,060

Net interest income after provision for loan losses		5,824		4,432		645		(1,274	)		9,627

Non-interest income		194		205		135		928			1,462
Non-interest expense		2,756		704		344		3,696			7,500

Net contribution to earnings before tax expense	$	3,262	$	3,933	$	436	$	(4,042	)	$	3,589


	Regional		Real Estate
	Banking		Industries
Three Months Ended September 30	Centers		Division		SBA		Other			Total
	(Dollars in thousands)
2006
Interest income	$	6,021	$	8,342	$	1,032	$	2,106		$	17,501
Credit for funds provided		5,440		405		46		(5,891	)		—

Total interest income		11,461		8,747		1,078		(3,785	)		17,501

Interest expense		3,266		1		—		4,135			7,402
Charge for funds used		3,579		3,912		398		(7,889	)		—

Total interest expense		6,845		3,913		398		(3,754	)		7,402

Net interest income		4,616		4,834		680		(31	)		10,099
Provision for loan losses		—		—		—		1,090			1,090

Net interest income after provision for loan losses		4,616		4,834		680		(1,121	)		9,009

Non-interest income		252		7		295		162			716
Non-interest expense		1,968		505		327		3,385			6,185

Net contribution to earnings before tax expense	$	2,900	$	4,336	$	648	$	(4,344	)	$	3,540

- 11 -


	Regional		Real Estate
	Banking		Industries
Nine Months Ended September 30	Centers		Division		SBA		Other			Total
	(Dollars in thousands)
2007
Interest income	$	22,969	$	26,190	$	3,116	$	7,449		$	59,724
Credit for funds provided		20,010		1,265		126		(21,401	)		—

Total interest income		42,979		27,455		3,242		(13,952	)		59,724

Interest expense		11,418		—		1		15,657			27,076
Charge for funds used		14,341		13,375		1,290		(29,006	)		—

Total interest expense		25,759		13,375		1,291		(13,349	)		27,076

Net interest income		17,220		14,080		1,951		(603	)		32,648
Provision for loan losses		—		—		—		3,199			3,199

Net interest income after provision for loan losses		17,220		14,080		1,951		(3,802	)		29,449

Non-interest income		717		362		495		1,283			2,857
Non-interest expense		7,527		1,944		1,124		11,221			21,816

Net contribution to earnings before tax expense	$	10,410	$	12,498	$	1,322	$	(13,740	)	$	10,490


	Regional		Real Estate
	Banking		Industries
Nine Months Ended September 30	Centers		Division		SBA		Other			Total
	(Dollars in thousands)
2006
Interest income	$	15,865	$	22,512	$	3,008	$	5,814		$	47,199
Credit for funds provided		14,458		1,064		132		(15,654	)		—

Total interest income		30,323		23,576		3,140		(9,840	)		47,199

Interest expense		8,557		4		2		10,783			19,346
Charge for funds used		9,472		10,572		1,141		(21,185	)		—

Total interest expense		18,029		10,576		1,143		(10,402	)		19,346

Net interest income		12,294		13,000		1,997		562			27,853
Provision for loan losses		—		—		—		2,813			2,813

Net interest income after provision for loan losses		12,294		13,000		1,997		(2,251	)		25,040

Non-interest income		869		107		645		435			2,056
Non-interest expense		5,354		1,473		1,138		9,367			17,332

Net contribution to earnings before tax expense	$	7,809	$	11,634	$	1,504	$	(11,183	)	$	9,764

Segment assets as of:
September 30, 2007		436,398		349,437		32,705		206,250			1,024,790

December 31, 2006		322,610		337,548		34,345		181,259			875,762

Note: Overhead expenses are not allocated for costs from administration departments to operating segments.

6. Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of SFAS 115.” SFAS 159 permits an entity to choose to measure financial instruments and certain other items at fair value. Most of the provisions of SFAS 159 are elective; however, the amendment to SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available for sale or trading securities. For financial instruments elected to be accounted for at fair value, an entity will report the unrealized gains and losses in earnings. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company does not expect the adoption of SFAS 159 to have an effect on the Company’s consolidated financial statements.

- 12 -

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion presents information about our consolidated results of operations, financial condition, liquidity and capital resources. Substantially all of our operations are conducted by the Bank and the Bank accounts for substantially all of our revenues and expenses. This information should be read in conjunction with our unaudited consolidated financial statements, and the notes thereto, contained elsewhere in this Report.

References in this report to the “Company,” “we” or “us” refer to Alliance Bancshares California (“Bancshares”) and its consolidated subsidiaries, including Alliance Bank (“Bank”).

Forward-Looking Information

The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. These forward-looking statements involve risks and uncertainties, including the risks and uncertainties described in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2006. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management, and actual results may differ from those projected in the forward-looking statements. Statements regarding policies and procedures are not intended, and should not be interpreted to mean, that such policies and procedures will not be amended, modified or repealed at any time in the future.

Overview

We recorded net earnings of $2.0 million ($0.27 basic and $0.26 diluted earnings per share) for the third quarter of 2007 as compared to $2.1 million ($0.29 basic and $0.27 diluted earnings per share) for the third quarter of 2006. The decrease in net earnings was primarily due to a $1.3 million increase in non-interest expenses offset by a $0.6 million increase in net interest income before provision for loan losses.

For the nine months ended September 30, 2007, we generated net earnings of $6.0 million ($0.82 basic and $0.79 diluted earnings per share) as compared to $5.8 million ($0.79 basic and $0.76 diluted earnings per share) for the same period of 2006. The improvement in earnings in 2007 was due primarily to a $4.8 million increase in net interest income before provision for loan loss offset by a $4.5 million increase in non-interest expenses and a $0.4 million increase in the provision for loan losses.

Although net earnings remained relatively unchanged during the three months ended September 30, 2007 as compared to the corresponding period in the previous year and increased slightly during the nine months ended September 30, 2007 as compared to the prior year, our non-performing assets have increased from $6.1 million at December 31, 2006 to $18.9 million at September 30, 2007. While we have increased our loan loss provisions, a prolonged or deeper decline in the housing market will impact our residential construction loan borrowers. We will continue to monitor this closely to determine whether further loan loss provisions are required. We do expect credit losses in our residential construction loan portfolio to remain at somewhat elevated levels well into 2008 as compared to the recent past.

We continued to grow, with total assets increasing from $875.8 million at December 31, 2006 to $1,024.8 million at September 30, 2007. Net loans, grew from $700.5 million at December 31, 2006 to $830.3 million at September 30, 2007. Deposits grew from $716.9 million at December 31, 2006 to $841.8 million at September 30, 2007.

Set forth below are certain key financial performance ratios for the periods indicated:


	*Three Months Ended*						*Nine Months Ended*
	*September 30,*						*September 30,*
	*2007*			*2006*			*2007*			*2006*
Return on average assets ⁽¹⁾		0.80	%		1.01	%		0.84	%		1.02	%
Return on average shareholders’ equity ⁽¹⁾		20.2	%		26.2	%		21.6	%		26.3	%
Net yield on average interest earning assets ⁽¹⁾		4.43	%		5.10	%		4.71	%		5.10	%


⁽¹⁾		Annualized

- 13 -

The following table sets forth information regarding the net interest income before provision for loan losses, the provision for loan losses, non-interest expense, net earnings and net earnings per share for the periods indicated:


	*Three Months Ended September 30,*							*Nine Months Ended September 30,*
					*Percent*							*Percent*
	*2007*		*2006*		*Change*			*2007*		*2006*		*Change*
	(Unaudited)
	(Dollars in thousands except per share amounts)
Net interest income before provision for loan losses	$	10,687	$	10,099		5.8	%	$	32,648	$	27,853		17.2	%
Provision for loan losses		1,060		1,090		(2.8	)%		3,199		2,813		13.7	%
Non-interest expense		7,500		6,185		21.3	%		21,816		17,332		25.9	%
Net earnings		1,990		2,070		(3.9	)%		6,024		5,805		3.8	%
Earnings per common share:
Basic earnings per share	$	0.27	$	0.29		(6.9	)%	$	0.82	$	0.79		3.8	%
Diluted earnings per share	$	0.26	$	0.27		(3.7	)%	$	0.79	$	0.76		3.9	%

The increases in net interest income before provision for loan losses in the three months and nine months ended September 30, 2007, as compared to the corresponding period of 2006, occurred because of increases of $170.0 million and $195.6 million, respectively, in average interest earnings assets during the three and nine months ended September 30, 2007 and increases of $29.8 million and $55.5 million in net average interest earnings assets in the same periods. The increase in net interest income occurred notwithstanding a decrease in the net interest rate spread from 4.22% and 4.32% in the three and nine months of 2006 to 3.52% and 3.72% in the corresponding period of 2007. The decrease in the interest rate spread resulted from a decrease in the weighted average yields on interest earning assets of 0.41% and 0.02%, respectively, during the three and nine months ended September 30, 2007 and an increase in the weighted average cost of interest bearing liabilities of 0.29% and 0.58% during the same periods. Our net interest margin declined less than our interest rate spread because of the increase in our net interest earning assets.

The provision for loan losses increased by $0.4 million or 13.7% to $3.2 million in the first nine months of 2007 as compared to the corresponding period of 2006 due to a $16.2 million increase in non- performing assets, a 26.3% increase in net loans and the growing housing slump in Southern California. We have curtailed originating new residential construction loans, and expect that residential construction loans will constitute a declining percentage of our loan portfolio for the foreseeable future. While we have increased our loan loss provisions, a prolonged or deeper decline in the housing market will impact our residential construction loan borrowers. We will continue to monitor this closely to determine whether further loan loss provisions are required. We do expect credit losses in our residential construction loan portfolio to remain at somewhat elevated levels well into 2008 as compared to the recent past.

Non-interest expense increased by $1.3 million, or 21.3%, to $7.5 million for the three months ended September 2007 and $4.5 million, or 25.9%, to $21.8 million for the nine months ended September 30, 2007 primarily due to increased salaries and related benefits expense and the opening of our Westside Regional Banking Center. Salaries and related benefits expense increased due to an increase in the number of employees in most locations and departments due to our growth. The opening of the Westside Regional Banking Center also resulted in increased rent expense, amortization of leasehold improvements and depreciation of office furniture and equipment.

- 14 -

RESULTS OF OPERATIONS — Three months and nine months ended September 30, 2007 and 2006

Net Interest Income

The following table sets forth interest income, interest expense, net interest income before provision for loan losses and net interest margin for the periods presented:


	*Three Months Ended September 30,*									*Nine Months Ended September 30,*
							*Percent*									*Percent*
	*2007*			*2006*			*Change*			*2007*			*2006*			*Change*
	(Unaudited)
	(Dollars in thousands)
Interest income	$	20,284		$	17,501			15.9	%	$	59,724		$	47,199			26.5	%
Interest expense		9,597			7,402			29.7	%		27,076			19,346			40.0	%
Net interest income before provision for loan losses		10,687			10,099			5.8	%		32,648			27,853			17.2	%
Net interest margin		4.43	%		5.10	%		(13.1	)%		4.71	%		5.10	%		(7.7	)%

Our earnings depend largely upon our net interest income, which is the difference between the income we earn on loans and other interest earning assets and the interest we pay on deposits and borrowed funds. Net interest income is related to the rates earned and paid on and the relative amounts of interest earning assets and interest bearing liabilities. Our inability to maintain strong asset quality, capital or liquidity may adversely affect (i) our ability to accommodate desirable borrowing customers, thereby impacting growth in quality, higher-yielding earning assets; (ii) our ability to attract comparatively stable, lower-cost deposits; and (iii) the costs of wholesale funding sources.

Net interest income is related to our interest rate spread and net interest margin. The interest rate spread represents the difference between the weighted average yield on interest earning assets and the weighted average rate paid on interest bearing liabilities. Net interest margin (also called the net yield on interest earning assets) is net interest income expressed as a percentage of average total interest earning assets. Our net interest margin is affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes, and changes in the relative amounts of interest earning assets and interest bearing liabilities. Interest rates earned and paid are affected principally by our competition, general economic conditions and other factors beyond our control such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and actions of the Federal Reserve Board (“FRB”).

We recorded interest income of $20.3 million and $59.7 million for the three and nine months ended September 30, 2007 as compared to $17.5 million and $47.2 million for the three and nine months ended September 30, 2006. Interest expense totaled $9.6 million and $27.1 million for the three and nine months ended September 30, 2007 as compared to $7.4 million and $19.3 million for the three and nine months ended September 30, 2006. The increase in interest income was due to $170.0 million and $195.6 million increase in average interest earning assets for the three and nine months ended September 30, 2007 despite a 0.41% decrease in the weighted average yield on interest earning assets for the three months ended September 30, 2007 while the weighted average yield on interest earning assets for the nine months ended September 30, 2007 remained static. The increase in interest expense was due to a $140.2 million and $140.1 million increase in average interest bearing liabilities in addition to a 0.29% and 0.58% increase in the weighted average rates paid on interest bearing liabilities for the three and nine months ended September 30, 2007.

The increase in average interest earning assets and average interest bearing liabilities is a result of continued efforts to expand all of the Bank’s Regional Banking Centers, the continued growth of all categories of loans and investments. Average loans increased 25.7% and 29.9%, respectively, to $815.4 million and $784.1 million for the three and nine months ended September 30, 2007 from $648.7 million and $603.6 million for the three and nine months ended September 30, 2006, with the increase occurring primarily in the commercial real estate loans category. Average interest bearing liabilities increased 22.0% and 23.4%, respectively to $777.5 million and $738.4 million for the three and nine months ended September 30, 2007 compared to $637.3 million and $598.3 million for the three and nine months ended September 30, 2006.

- 15 -

Our interest rate spread decreased from 4.22% during the third quarter of 2006 to 3.52% during the third quarter of 2007. The decrease in the interest rate spread resulted from decreases in the weighted average yield on our interest earning assets of 0.41% and 0.02%, respectively, during the three and nine months ended September 30, 2007 while the weighted average cost of our interest bearing liabilities increased 0.29% and 0.58% during the same periods. The decrease in the weighted average yield on interest earning assets decreased because of our higher levels of non-accrual loans and a change in the composition of our loan portfolio from construction loans, which declined from 38% of our loan portfolio at September 30, 2006 to 36% of our loan portfolio at September 30, 2007, and an increase in commercial real estate loans from 30% to 34% of our loan portfolio during the same period. During the past year, commercial real estate loans generally have interest rates of 1.50% to 2.0% lower than concurrently originated construction loans. The increase in the weighted average cost of our interest bearing liabilities was due primarily to an increase in the amount of and interest rate on certificates of deposit. Certificates of deposit are among our higher cost funding sources. The average amount of certificates of deposit increased from 50% of our average interest bearing liabilities in the three and nine months ended September 30, 2007 to 56% of our average interest bearing liabilities in the comparable periods of 2007. The rates paid on certificates of deposit, as well as FHLB advances, increased because of increases in market interest rates.

Our net interest margin decreased from 5.10% during the third quarter of 2006 to 4.43% during the third quarter of 2007. Our net interest margin continues to remain high in comparison with our interest rate spread because a significant portion of our interest earning assets are funded by non-interest bearing liabilities, preferred stock and shareholders’ equity. Net average interest earning assets increased $29.8 million and $55.5 million in the three and nine months ended September 30, 2007 from the comparable periods in 2006. This was principally due to increases in non-interest bearing demand deposits.

The following tables present the weighted average yield on each specified category of interest earning assets, the weighted average rate paid on each specified category of interest bearing liabilities, and the resulting interest rate spread and net interest margin for the periods indicated.

ANALYSIS OF NET INTEREST INCOME


	*Quarter ended September 30,*
	*2007*					*2006*
					*Weighted*					*Weighted*
					*Average*					*Average*
	*Average*		*Interest*		*Rates*	*Average*		*Interest*		*Rates*
	*Balance*		*Inc./Exp.* ⁽¹⁾		*Earned/Paid* ⁽³⁾	*Balance*		*Inc./Exp.* ⁽¹⁾		*Earned/Paid* ⁽³⁾
	(Dollars in thousands)
Interest earning assets:
Federal funds sold	$	39,326	$	489	4.93%	$	29,101	$	382	5.20%
Time deposits		1,606		14	3.46%		3,560		26	2.89%
Securities		100,001		1,383	5.49%		104,890		1,168	4.42%
Loans ⁽²⁾		815,389		18,398	8.95%		648,738		15,925	9.74%

Total interest earning assets		956,322		20,284	8.42%		786,289		17,501	8.83%

Non-interest earning assets		31,560					29,929

Total assets	$	987,882				$	816,218

Interest bearing liabilities:
Interest bearing demand deposits	$	18,505		72	1.54%	$	9,781		47	1.91%
Savings and money market deposits		212,414		2,217	4.14%		193,333		2,050	4.21%
Certificates of deposit		438,747		5,753	5.20%		319,803		3,841	4.77%
FHLB advances:
Short-term							5,000		68	5.38%
Long-term		55,406		762	5.46%		36,460		508	5.54%
Securities sold under repurchase agreements		24,600		271	4.37%		45,053		370	3.26%
Junior subordinated debentures		27,837		522	7.44%		27,837		518	7.37%

Total interest bearing liabilities		777,509		9,597	4.90%		637,267		7,402	4.61%

Non-interest bearing liabilities		152,176					128,537

Total liabilities		929,685					765,804
Redeemable preferred stock and shareholders’ equity		58,197					50,414

Total liabilities and shareholders’ equity	$	987,882				$	816,218

Net interest income			$	10,687				$	10,099

Interest rate spread					3.52%					4.22%
Net interest margin					4.43%					5.10%


⁽¹⁾		Interest income on loans includes loan fees of $0.9 million in 2007 and $1.2 million in 2006.

⁽²⁾		Loans include nonaccrual loans.

⁽³⁾		Annualized

- 16 -


	*Nine Months Ended September 30,*
	*2007*					*2006*
					*Weighted*					*Weighted*
					*Average*					*Average*
	*Average*		*Interest*		*Rates*	*Average*		*Interest*		*Rates*
	*Balance*		*Inc./Exp.* ⁽¹⁾		*Earned/Paid* ⁽³⁾	*Balance*		*Inc./Exp.* ⁽¹⁾		*Earned/Paid* ⁽³⁾
	(Dollars in thousands)
Interest earning assets:
Federal funds sold	$	43,240	$	1,656	5.12%	$	27,521	$	1,024	4.97%
Time deposits		1,882		53	3.77%		5,553		157	3.78%
Securities		96,591		3,872	5.36%		93,442		3,073	4.40%
Loans ⁽²⁾		784,074		54,143	9.23%		603,631		42,945	9.51%

Total interest earning assets		925,787		59,724	8.62%		730,147		47,199	8.64%

Non-interest earning assets		30,405					29,774

Total assets	$	956,192				$	759,924

Interest bearing liabilities:
Interest bearing demand deposits	$	16,352		188	1.54%	$	9,866		130	1.75%
Savings and money market deposits		202,914		6,358	4.19%		182,395		5,346	3.92%
Certificates of deposit		416,930		16,125	5.17%		298,800		10,287	4.60%
FHLB advances:
Short-term		—		—	—		5,000		185	4.95%
Long-term		51,997		2,119	5.45%		32,074		1,206	5.03%
Securities sold under repurchase agreements		22,408		744	4.44%		47,503		996	2.80%
Junior subordinated debentures		27,837		1,542	7.41%		22,682		1,196	7.05%

Total interest bearing liabilities		738,438		27,076	4.90%		598,319		19,346	4.32%

Non-interest bearing liabilities		161,523					113,118

Total liabilities		899,961					711,437
Redeemable preferred stock and shareholders’ equity		56,231					48,487

Total liabilities and shareholders’ equity	$	956,192				$	759,924

Net interest income			$	32,648				$	27,853

Interest rate spread					3.72%					4.32%
Net interest margin					4.71%					5.10%


⁽¹⁾		Interest income on loans includes loan fees of $3.4 million in 2007 and $3.3 million in 2006.

⁽²⁾		Loans include nonaccrual loans.

⁽³⁾		Annualized

- 17 -

The following tables present information concerning the change in interest income and interest expense attributable to changes in average volume and average rate during the periods indicated.

ANALYSIS OF CHANGE IN NET INTEREST INCOME


	*Three Months Ended September 30, 2007*									*Nine Months Ended September 30, 2007*
	*Increase (Decrease)*									*Increase (Decrease)*
	*Due To Change In*									*Due To Change In*
	*Volume*			*Rate*			*Net Change*			*Volume*			*Rate*			*Net Change*
	(Dollars in thousands)
Interest income:
Federal funds sold	$	128		$	(21	)	$	107		$	601		$	30		$	631
Time deposits		(16	)		4			(12	)		(103	)		(1	)		(104	)
Securities		(57	)		272			215			107			692			799
Loans		3,839			(1,366	)		2,473			12,494			(1,295	)		11,199

Total interest earning assets		3,895			(1,112	)		2,783			13,098			(573	)		12,525

Interest expense:
Interest bearing demand		35			(10	)		25			76			(17	)		59
Savings and money market		200			(33	)		167			627			383			1,010
Certificates of deposit		1,534			379			1,913			4,449			1,390			5,839
FHLB advances:
Short-term		—			—			—			—			—			—
Long-term		192			(7	)		185			600			128			728
Securities sold under agreements to repurchase		(201	)		102			(99	)		(672	)		420			(252	)
Junior subordinated debentures		—			4			4			283			63			346

Total interest bearing liabilities		1,760			435			2,195			5,363			2,367			7,730

Net interest income	$	2,135		$	(1,547	)	$	588		$	7,735		$	(2,940	)	$	4,795

Provision for Loan Losses

We made provisions for loan losses of $1.1 million and $3.2 million, respectively, for the three and nine months ended September 30, 2007 as compared to provisions of $1.1 million and $2.8 million for the comparable periods of 2006. These increases were attributable to a 26.3% increase in net loans and a $16.2 million increase in non-performing assets for the nine months ended September 30, 2007 as compared to the same period in 2006. We continue to observe a slowdown in the housing sector in Southern California and downward pressure on prices on a number of residential construction projects we have financed. At September 30, 2007, we had outstanding construction loans to developers for tract projects and single homes for sale to unidentified buyers totaling $192.7 million, representing 22.8% of our loan portfolio, and additional commitments for these projects in the amount of $46.7 million. We have curtailed originating new residential construction loans, and expect that residential construction loans will constitute a declining percentage of our loan portfolio for the foreseeable future. While we have increased our loan loss provisions, a prolonged or deeper decline in the housing market will impact our residential construction loan borrowers. We will continue to monitor this closely to determine whether further loan loss provisions are required. We do expect credit losses in our residential construction loan portfolio to remain at somewhat elevated levels well into 2008 as compared to the recent past.

We assess the adequacy of the Allowance each calendar quarter. Classified loans (loans assigned point values of 7 — 10) are assigned specific reserve percentages based on point value. Loans that are not classified (loans assigned risk point values of less than 7) are subdivided into pools of similar loans by loan type and are assigned reserve percentages based on the loan type. We determine the reserve percentage by first examining actual loss history for each type of loan, then adjust that percentage by several factors including changes in lending policies; changes in national and local economic conditions; changes in experience, ability and depth of lending management and staff; changes in trends of past due and classified loans; changes in external factors such as competition and legal and regulatory requirements; and other relevant factors. Reserve estimates are totaled and any shortage is charged to current period operations and credited to the Allowance.

- 18 -

The credit quality of our loans will be influenced by underlying trends in the economic cycle, particularly in Southern California, and other factors, which are ostensibly beyond management’s control. Accordingly, no assurance can be given that we will not sustain loan losses that in any particular period will be sizable in relation to the Allowance. Although we believe that we employ an appropriate approach to downgrading credits that are experiencing slower than projected sales and/or increases in loan to value ratios, subsequent evaluation of the loan portfolio by us and by our regulators, in light of factors then prevailing, may require increases in the Allowance through changes to the provision for loan losses.

Non-Interest Income

The following table identifies the components of and the percentage changes for the periods indicated:

NON-INTEREST INCOME


	*Three Months Ended September 30,*							*Nine Months Ended September 30,*
					*Percent*							*Percent*
	*2007*		*2006*		*Change*			*2007*		*2006*		*Change*
	(Dollars in thousands)
Service charges	$	294	$	329		(10.6	)%	$	861	$	877		(1.8	)%
Gain on sale of loans, net		772		221		249.3	%		1,008		408		147.1	%
Loan broker fee income		45		81		(44.4	)%		174		281		(38.1	)%
Other		351		85		312.9	%		814		490		66.1	%

Total	$	1,462	$	716		104.2	%	$	2,857	$	2,056		39.0	%

Non-interest income primarily includes service charges on deposit accounts, net gains on sales of loans and loan broker fees for referring loans to other lenders. Non-interest income increased by 104.2% and 39.0% for the three and nine months ended September 30, 2007 as compared to the same period in 2006 primarily due to the sale of a 99% participation interest in a pool of approximately $52.0 million of commercial real estate loans. We retained the loan servicing rights in connection with this sale. We may from time to time sell participation interests in other pools of loans with servicing retained based on available pricing, concentrations in our loan portfolio, capital requirements and other factors.

The amount of gains from sales of loans and loan broker fees in any period is dependent upon the number of loans we can originate, which in turn depends upon market conditions, interest rates, borrower and investor demand, and the availability SBA loan programs. Thus, these gains and fees can vary substantially from period to period, and gains and fees in any period are not indicative of gains and fees to be expected in any subsequent period.

Non-Interest Expense

The components of non-interest expense were as follows for the periods indicated:


	*Three Months Ended September 30,*							*Nine Months Ended September 30,*
					*Percent*							*Percent*
	*2007*		*2006*		*Change*			*2007*		*2006*		*Change*
	(Dollars in thousands)
Salaries and related benefits	$	4,588	$	3,426		33.9	%	$	13,000	$	9,471		37.3	%
Occupancy and equipment		932		781		19.3	%		2,812		2,186		28.6	%
Professional fees		415		475		(12.6	)%		1,122		1,195		(6.1	)%
Data processing		186		203		(8.4	)%		617		653		(5.5	)%
Other		1,379		1,300		6.1	%		4,265		3,827		11.4	%

Total	$	7,500	$	6,185		17.8	%	$	21,816	$	17,332		25.9	%

The increase in salaries and related benefits expense was due primarily to the addition of employees at the Bank’s new Westside Regional Banking Center in July and to continued growth of the Bank. The increase in the size and profitability of the Company also resulted in an increase in incentive accruals. At September 30, 2007, we employed 154 full-time employees, compared with 129 full-time employees at September 30, 2006.

Occupancy and equipment expenses increased due to increased rent expense and the depreciation of office furniture and equipment at all locations including the opening of the new Westside Regional Banking Center.

- 19 -

FINANCIAL CONDITION

Regulatory Capital

At September 30, 2007, Bancshares’ and the Bank’s Tier 1 capital, which is comprised of shareholders’ equity as modified by certain regulatory adjustments, was $78.1 million and $85.3 million, respectively. Our regulatory capital increased since December 31, 2006 as a result of net earnings. At September 30, 2007, Bancshares and the Bank met all applicable regulatory capital requirements and the Bank was “well capitalized” as defined under applicable regulations.

The following table sets forth the regulatory standards for well capitalized and adequately capitalized institutions and the capital ratios for Bancshares and the Bank as of the date indicated.

REGULATORY CAPITAL
September 30, 2007


						*To Be Adequately*					*To Be Well*
	*Actual*					*Capitalized*					*Capitalized*
	*Amount*		*Ratio*			*Amount*		*Ratio*			*Amount*		*Ratio*
	(Dollars in thousands)
Bancshares
Total Capital (to risk-weighted assets)	$	96,749		10.71	%	$	72,295		>=8.0	%		N/A		N/A
Tier 1 Capital (to risk-weighted assets)	$	78,121		8.64	%	$	36,148		>=4.0	%		N/A		N/A
Tier 1 Capital (to average assets)	$	78,121		7.92	%	$	39,469		>=4.0	%		N/A		N/A
Bank
Total Capital (to risk-weighted assets)	$	96,410		10.69	%	$	72,169		>=8.0	%	$	90,212		>=10.0	%
Tier 1 Capital (to risk-weighted assets)	$	85,348		9.46	%	$	36,085		>=4.0	%	$	54,127		>=6.0	%
Tier 1 Capital (to average assets)	$	85,348		8.65	%	$	39,469		>=4.0	%	$	49,336		>=5.0	%

Liquidity and Cash Flow

Our objective in managing our liquidity is to maintain cash flow adequate to fund our operations and meet obligations and other commitments on a timely and cost effective basis. We manage this objective through the selection of asset and liability maturity mixes. Our liquidity position is enhanced by our ability to raise additional funds as needed through available borrowings or accessing deposits nationwide through our money desk.

Deposits provide most of our funds. This relatively stable and low-cost source of funds has, along with preferred stock and shareholders’ equity, provided 89% and 85%, respectively, of our funding as a percentage of average total assets during the nine months ended September 30, 2007 and 2006.

Secondary sources of liquidity include borrowing arrangements with the Federal Reserve Board (“FRB”) and the Federal Home Loan Bank (“FHLB”). Borrowings from the FRB are short-term and must be collateralized by pledged securities or loans. As a member of the FHLB system, the Bank may obtain advances from the FHLB pursuant to various credit programs offered from time to time. Credit limitations are based on the assessment by the FHLB of the Bank’s creditworthiness, including an adequate level of net worth, reasonable prospects of future earnings, sources of funds sufficient to meet the scheduled interest payments, lack of financial or managerial deficiencies and other factors. Such advances may be obtained pursuant to several different credit programs, and each program has its own rate, commitment fees and range of maturities. Funds borrowed from the FHLB must be collateralized either by pledged securities or by assignment of notes and may be for terms of one day to several years. As of September 30, 2007, we had $60.0 million outstanding FHLB advances and had no outstanding borrowings from the FRB.

- 20 -

We also have liquidity as a net seller of overnight funds. During the nine months ended September 30, 2007, we had an average balance of $43.2 million in overnight funds sold representing 5% of total average assets.

We may also obtain funds from securities sold under agreements to repurchase. See “Borrowed Funds - Securities Sold Under Agreements to Repurchase.”

Cash Flow from Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2007 increased by $0.8 million as compared to the same period in 2006 primarily due to a decrease in accrued interest receivable and other assets.

Cash Flow from Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2007 decreased by $3.2 million as compared to the same period in 2006 primarily due to an increase in the proceeds from the maturities of investment securities held for sale offset by an increase in loans and in the purchase of securities held to maturity.

Cash Flows from Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2007 decreased by $8.7 million as compared to the same period in 2006 primarily due to a decrease in demand deposits and savings and money market accounts while other deposit accounts increased at a lower rate compared to 2006. This was offset somewhat by an increase in securities sold under agreements to repurchase.

Investments in Time Deposits and Securities

The following table provides certain information regarding our investments in time deposits with other financial institutions at the dates indicated:

TIME DEPOSIT INVESTMENTS


	*September 30, 2007*					*December 31, 2006*
			*Weighted*					*Weighted*
			*Average*					*Average*
	*Book Value*		*Yield*			*Book Value*		*Yield*
	(Dollars in thousands)
Time deposits maturing:
Within one year		1,173		4.02	%		2,262		4.35	%
After one year but within five years		298		5.73	%		294		4.41	%

Total time deposits	$	1,471		4.36	%	$	2,556		4.36	%

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The following table provides certain information regarding our investment securities at the dates indicated. Expected maturities will differ from contractual maturities, particularly with respect to collateralized mortgage obligations and mortgage backed securities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. We had no tax-exempt securities during the quarters ended September 30, 2007 or 2006.

INVESTMENT SECURITIES


	*September 30, 2007*					*December 31, 2006*
			*Weighted*					*Weighted*
			*Average*					*Average*
	*Book Value*		*Yield*			*Book Value*		*Yield*
	(Dollars in thousands)
Investment securities maturing:
Within one year	$	6,997		5.16	%	$	16,018		3.99	%
After one year but within five years		19,478		5.29	%		31,484		5.37	%
After five years		—		—			—		—
Collateralized mortgage obligations and mortgage-backed securities		77,892		5.41	%		57,125		4.94	%

Total investment securities	$	104,367		5.37	%	$	104,627		4.92	%

Our present strategy is to stagger the maturities of our time deposit investments and investment securities to meet our overall liquidity requirements. At September 30, 2007, we classified all our investment securities as held to maturity as we intend to hold the securities to maturity.

At September 30, 2007, securities with an amortized cost of $46.0 million were pledged to secure structured repurchase agreements, a letter of credit, FHLB advances and a discount line at the FRB. At September 30, 2006, securities with an amortized cost of $74.3 million were pledged to secure repurchase agreements with one of the Bank’s depositors and to secure a discount line at the Federal Reserve.

The amortized cost and estimated fair values of securities held to maturity at the date indicated are as follows:

FAIR VALUE OF INVESTMENT SECURITIES


			*Gross*		*Gross*
			*Unrealized*		*Unrealized*			*Estimated Fair*
	*Amortized Cost*		*Gains*		*Losses*			*Value*
	(Dollars in thousands)
*September 30, 2007*
U.S. Agency securities	$	20,456	$	35	$	(1	)	$	20,490
Corporate bonds		6,019		—		(108	)		5,911
Collateralized mortgage obligations and mortgage-backed securities:		77,892		287		(518	)		77,661

	$	104,367	$	322	$	(627	)	$	104,062


			*Gross*		*Gross*
			*Unrealized*		*Unrealized*			*Estimated Fair*
	*Amortized Cost*		*Gains*		*Losses*			*Value*
	(Dollars in thousands)
*December 31, 2006*
U.S. Agency securities	$	37,927	$	16	$	(88	)	$	37,855
Corporate bonds		9,575		—		(186	)		9,389
Collateralized mortgage obligations and mortgage-backed securities		57,125		206		(422	)		56,909

	$	104,627	$	222	$	(696	)	$	104,153

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Unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2007 are summarized as follows:

UNREALIZED LOSSES ON INVESTMENT SECURITIES


	*Less than 12 Months*				*12 Months or More*				*Total*
	*Fair value*		*Unrealized loss*		*Fair value*		*Unrealized loss*		*Fair value*		*Unrealized loss*
	(Dollars in thousands)
U.S. Agency securities	$	—	$	—	$	2,996	$	1	$	2,996	$	1
Corporate bonds		—		—		5,911		108		5,911		108
Collateralized mortgage obligations and mortgage-backed securities		11,699		311		15,432		207		27,131		518

	$	11,699	$	311	$	24,339	$	316	$	36,038	$	627

Our analysis of these securities and the unrealized losses was based on the following factors: (i) the length of the time and the extent to which the market value has been less than cost; (ii) the financial condition and near-term prospects of the issuer; (iii) our intent and ability to retain the investment in a security for a period of time sufficient to allow for any anticipated recovery in market value; and (iv) general market conditions which reflect prospects for the economy as a whole, including interest rates and sector credit spreads.

Our corporate bonds consist primarily of securities issued by General Motors Acceptance Corporation and Ford Motor Credit Company. These securities were rated as less than investment grade at September 30, 2007. Because these securities mature within the next two years, we believe that we will fully recover our principal investment and do not consider these investments to be other than temporarily impaired at September 30, 2007 or 2006.

Additionally, at September 30, 2007, approximately 50% of our collateral mortgage obligations and mortgage backed securities were issued by U.S. government agencies that guarantee payment of principal and interest of the underlying mortgage and we believe we will fully recover the principal investment on these securities. The remaining collateral mortgage obligations and mortgage backed securities were rated “AAA” by either Standard & Poor’s or Moody’s, as of September 30, 2007 and, therefore, we do not consider these investments to be other than temporarily impaired.

Loans

Our present lending strategy is to attract small-to mid-sized business borrowers by offering a variety of commercial and real estate loan products and a full range of other banking services coupled with highly personalized service. We offer secured and unsecured commercial term loans and lines of credit, construction loans for individual and tract single family homes and for commercial and multifamily properties, accounts receivable and equipment loans, SBA loans and home equity lines of credit. We often tailor our loan products to meet the specific needs of our borrowers. Our primary lending area includes six Southern California counties: Los Angeles, Orange, Riverside, San Diego, San Bernardino, and Ventura.

The following table sets forth the composition of our loan portfolio at the dates indicated (excluding loans held for sale):

LOAN PORTFOLIO COMPOSITION


	*September 30, 2007*						*December 31, 2006*
	*Amount*			*Percent of*			*Amount*			*Percent of*
	*Outstanding*			*Total*			*Outstanding*			*Total*
	(Dollars in thousands)
Commercial loans	$	242,713			28.8	%	$	203,984			28.6	%
Construction loans		288,203			34.1			260,805			36.6
Real estate loans		301,477			35.8			241,734			33.9
Other loans		11,271			1.3			6,062			0.9

		843,664			100.0	%		712,585			100.0	%

Less — Deferred loan fees, net		(2,270	)					(3,201	)
Less — Allowance for loan losses		(11,062	)					(9,195	)

Net loans	$	830,332					$	700,189

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At September 30, 2007, we had outstanding construction loans to developers for tract projects and single homes for sale to unidentified buyers totaling $192.7 million, representing 22.8% of our loan portfolio, and additional commitments for these projects in the amount of $46.7 million. These types of loans generally have greater risks than loans on completed homes, multifamily and commercial properties.

At September 30, 2007 and December 31, 2006, qualifying loans with an outstanding balance of $303.5 and $228.4 million, respectively, were pledged to secure advances and a letter of credit at the FHLB.

The following table sets forth the maturity distribution of our loan portfolio at September 30, 2007 excluding loans held for sale:

LOAN MATURITIES


	*At September 30, 2007*
			*After One Year*
	*One Year or*		*Through Five*
	*Less*		*Years*		*After Five Years*		*Total*
	(Dollars in thousands)
Commercial loans	$	124,801	$	96,699	$	21,213	$	242,713
Construction loans		255,460		32,743		—		288,203
Real estate loans		40,305		110,669		150,503		301,477
Other loans		4,942		6,288		41		11,271

	$	425,508	$	246,399	$	171,757	$	843,664

Non-performing assets consist of non-performing loans and other real estate owned. Non-performing loans are (i) loans which have been placed on non-accrual status; (ii) loans which are contractually past due 90 days or more with respect to principal or interest, and have not been restructured or placed on non-accrual status, and are accruing interest as described below; and (iii) troubled debt restructurings (“TDRs”). Other real estate owned consists of real properties securing loans on which we have taken title in partial or complete satisfaction of the loan.

The following table sets forth information about non-performing assets at the dates indicated:

NON-PERFORMING ASSETS


	*September 30,*		*December 31,*
	*2007*		*2006*
	(Dollars in thousands)
Non-accrual loans	$	17,687	$	5,864
Accruing loans past due 90 days or more		83		241
Troubled debt restructuring		—		—
Other real estate owned		1,100		—

Balance at end of period	$	18,870	$	6,105

Nonperforming assets increased from $6.1 million at December 31, 2006 to $18.9 million at September 30, 2007. The non-accrual loans at September 30, 2007 primarily represent an $8.6 million construction loan for eleven single family homes in Nevada, a $4.4 million secured revolving line of credit and a $2.6 million land loan in Southern California. The $8.6 construction loan is eighteen months past due at September 30, 2007 due to slow sales in this market. The $4.4 million revolving line of credit is six months past due at September 30, 2007. The $2.6 million land loan is six months past due at September 30, 2007 due to slow home sales in this market.

We continue to observe slower levels of home and condominium sales and downward pressure on prices on a number of residential construction projects we have financed. Given current market conditions, we may report elevated levels of non-performing assets for the next several quarters. We will closely monitor these loans and the related collateral. In addition, we believe that we employ an appropriate approach to downgrading credits that are experiencing slower

- 24 -

than projected sales and/or increases in loan to value ratios. A severe deterioration in home prices could have an adverse impact on our construction loan portfolio and result in significant changes to the loan loss reserve.

Cash collections on non-performing loans totaled $10.3 million during the nine months ended September 30, 2007 of which $9.8 million was applied to principal and $0.5 million was recorded as interest income. Interest payments received on non-accrual loans are applied to principal unless there is no doubt as to ultimate full repayment of principal, in which case, the interest payment is recognized as interest income. The additional interest income that would have been recorded from non-accrual loans, if the loans had not been on non-accrual status, was $2.3 million and $0.2 million for the nine months ended September 30, 2007 and 2006, respectively. Non-performing loans were assigned a reserve of $2.3 million and $0.6 million at September 30, 2007 and December 31, 2006, respectively.

Changes in Allowance for Loan Losses

See Note 2, “Changes in Allowance for Loan Losses” in the Notes to the Consolidated Financial Statements for discussion regarding changes in the allowance for loan losses.

Off-Balance Sheet Credit Commitments and Contingent Obligations

Commitments to extend credit are agreements to lend to a customer as long as there is not a violation of any condition in the loan contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since we expect some commitments to expire without being drawn upon, the total commitment amounts do not necessarily represent future loans. At September 30, 2007, we had undisbursed loan commitments of $237.6 million.

Standby letters of credit and financial guarantees are conditional commitments issued to secure the financial performance of a customer to a third party. These are issued primarily to support public and private borrowing arrangements. The credit risk involved in issuing a letter of credit for a customer is essentially the same as that involved in extending a loan to that customer. We hold certificates of deposit and other collateral of at least 100% of the notional amount as support for letters of credit for which we deem collateral to be necessary. At September 30, 2007, we had outstanding standby letters of credit with a potential $44.0 million of obligations maturing at various dates through 2013.

Deposits

Total deposits increased from $716.9 million at December 31, 2006 to $841.8 million at September 30, 2007. This increase was primarily due to a $28.4 million increase in savings and money market deposits and a $97.5 million increase in certificates of deposit. These increases in deposits resulted from additional emphasis on core deposits as well as a Company-wide incentive compensation program for deposit growth, which we used to fund the increase in our loan portfolio and to increase our liquidity.

- 25 -

The following table sets forth information concerning the amount of deposits from various sources at the dates indicated:

SOURCE OF DEPOSITS


	*September 30, 2007*					*December 31, 2006*
			*Percent of*					*Percent of*
	*Amount*		*Total*			*Amount*		*Total*
	(Dollars in thousands)
Regional Bank Centers	$	535,565		63.7	%	$	443,725		61.9	%
Money desk		94,049		11.1			74,802		10.4
Brokered		170,145		20.2			162,449		22.7
Internet		42,087		5.0			35,892		5.0

Total	$	841,846		100.0	%	$	716,868		100.0	%

Our money desk attracts primarily certificates of deposit from institutional investors nationwide by telephone. We also engage brokers to place certificates of deposit for their customers. During 2007, the certificates of deposit obtained through our money desk or deposit brokers generally had maturities ranging from nine months to five years. We limit the amount of money desk and broker deposits that are scheduled to mature in any one calendar month. In addition, we have historically maintained an appropriate level of liquidity specifically to counter any concurrent deposit reduction that might occur.

We have established relationships with several brokers that will place certificates of deposit for us. When we desire to use these brokers to place certificates of deposit, we generally advise all of them of the amount and maturities of the certificates of deposit we want to place, and place the certificates of deposit through the broker offering the lowest interest rates. Notwithstanding this procedure, all except $10.0 million of our brokered deposits at September 30, 2007 were obtained through one broker. We believe that should our business discontinue with this broker, we could continue to obtain the certificates of deposit we desire through other brokers. However, we could be adversely affected because the certificates of deposit through other brokers may bear slightly higher interest rates. Further, the deposits obtained through this broker as of September 30, 2007 mature at various times through June 2011, and thus such discontinuation would not likely result in the immediate withdrawal of such deposits. We intend to continue our efforts to increase our levels of core deposits in an effort to decrease our reliance on money desk and brokered deposits.

For more than the past year, one individual has represented a number of entities that have provided a significant amount of funds to us. At September 30, 2007, these entities had provided us an aggregate of $32.0 million of deposits. During 2007, the maximum amount of funds provided by these entities at any date was $46.5 million. We provide additional collateral to this customer for the deposits in excess of the FDIC insurance limit through a $38 million letter of credit from the FHLB of San Francisco. We monitor this relationship closely, and have adequate liquidity to fund any consequential withdrawals. If we had to replace these deposits, the new deposits or borrowings might be more costly which would adversely affect our net interest income.

In recent years, the interest rates on certificates of deposit obtained through deposit brokers generally have been lower than the interest rates then offered to local customers for certificates of deposit with comparable maturities. We believe this is due to the highly competitive nature of Southern California market for deposits and, in particular, the difficulty some smaller banks have in competing for deposits with larger banks, savings associations and credit unions with multiple offices.

Banks that are not “well capitalized” under the FDIC prompt corrective action rules may not accept brokered deposits without the prior approval of the FDIC. In addition, we believe that if the Bank is not “well capitalized”, we will have greater difficulty obtaining certificates of deposit through our money desk and may have to pay higher interest rates to continue to attract those deposits. Accordingly, the failure of the Bank to remain “well capitalized” could have a material adverse affect on us.

The aggregate amount of the certificates of deposit in denominations of $100,000 or more at September 30, 2007 was approximately $296.5 million. Interest expense on such deposits was approximately $10.2 million for the nine months ended September 30, 2007.

- 26 -

The approximate scheduled maturities of certificates of deposit at September 30, 2007 was as follows:

CERTIFICATES OF DEPOSIT


Certificate of Deposit Maturing:	Amount⁽¹⁾
	(Dollars in thousands)
Three months or less	$	43,685
Over three and through twelve months		189,244
Over twelve months		202,229

Total	$	435,158


⁽¹⁾		Excludes time deposits included in IRA accounts.

Borrowed Funds

FHLB Advances. At September 30, 2007, we had $50.0 million of long-term debt and $10 million of short-term debt advances from the FHLB which, along with the aforementioned $38 million letter of credit, were collateralized by certain qualifying loans with a carrying value of $303.5 million. These advances bear interest at the rates noted below. Interest is payable monthly, quarterly or semi-annually with principal and any accrued interest due at maturity. At September 30, 2007, we had $79.8 million of borrowing availability at the FHLB.

The table below sets forth the amounts, interest rates, and the maturity dates of FHLB advances as of September 30, 2007:

FHLB ADVANCES


Principal Amount	Interest rate	Maturity date
(Dollars in thousands)
$ 10,000	Fixed at 4.70%	October 2007
10,000	Fixed at 5.31%	August 2008
10,000	Prime minus 2.87%	December 2008
10,000	Prime minus 2.83%	January 2009
10,000	Prime minus 2.80%	December 2009
10,000	Prime minus 2.74%	January 2010

$ 60,000

Junior Subordinated Debentures. In October 2002, Bancshares issued $7,217,000 of junior subordinated debentures to Alliance Bancshares California Capital Trust I, a Delaware business trust that was formed for the exclusive purpose of issuing trust preferred securities to provide additional regulatory capital. This capital has a relatively low cost as interest payments on the debentures are deductible for income tax purposes. The Trust purchased the debentures with the proceeds of the sale of its common trust securities to Bancshares for $217,000 and trust preferred securities in a private placement for $7,000,000. The debentures and trust preferred securities have generally identical terms, including that they mature in 2032, are redeemable at Bancshare’s option commencing October 2007 at par, and require quarterly distributions/interest payments at a rate which adjusts quarterly at the three-month LIBOR rate plus 3.45% (the rate was 9.00% at September 30, 2007).

In February 2005, Bancshares issued $10,310,000 of junior subordinated debentures to Alliance Bancshares California Capital Trust II, a Delaware business trust that was formed for the exclusive purpose of issuing trust preferred securities to provide additional regulatory capital. The Trust purchased the debentures with the proceeds of the sale of its common trust securities to Bancshares for $310,000 and trust preferred securities in a private placement for $10,000,000. The debentures and trust preferred securities have generally identical terms, including that they mature in 2034, are redeemable at Bancshare’s option commencing December 2009 at par, and require quarterly distributions/interest payments at a rate which adjusts quarterly at the three-month LIBOR rate plus 1.90% (the rate was 7.48% at September 30, 2007).

In May 2006, Bancshares issued $10,310,000 of junior subordinated debentures to Alliance Bancshares California Capital Trust III, a Delaware business trust that was formed for the exclusive purpose of issuing trust preferred securities to provide additional regulatory capital. The Trust purchased the debentures with the proceeds of the sale of its common trust securities to Bancshares for $310,000 and trust preferred securities in a private placement for $10,000,000. The subordinated debentures and trust preferred securities have generally identical terms, including that they mature in 2036, are redeemable at Bancshare’s option commencing June 2011 at par, and require quarterly distributions/interest payments at a rate which adjusts quarterly at the three-month LIBOR rate plus 1.50% (the rate was 6.86% at September 30, 2007).

- 27 -

Bancshares has unconditionally guaranteed distributions on, and payments on liquidation and redemption of, both issues of the trust preferred securities.

Securities Sold Under Agreements to Repurchase.

In November 2006, we entered into a repurchase agreement in the amount of $20.0 million. This agreement is collateralized by various collateral mortgage obligations and mortgage-backed securities with an amortized cost of $20.9 million. Interest is payable on a quarterly basis and adjusts quarterly at the rate of the three-month LIBOR minus 1.00% (the rate was 4.36% at September 30, 2007) until November 2008 at which time it converts to a fixed rate of 4.54%. The agreement has a maturity date of November 2016 and is callable by the holder at any time after November 7, 2008.

In August 2007, we entered into a repurchase agreement in the amount of $10.0 million. This agreement is collateralized by various collateral mortgage obligations and mortgage-backed securities with an amortized cost of $12.6 million. Interest is payable on a quarterly basis and is a fixed rate of 3.55% until September 2008 at which time it converts and adjusts quarterly at the rate of 8.75% minus the three-month LIBOR with a zero percent floor and a cap of 4.75%. The agreement has a maturity date of September 2014 and is callable by the holder at any time after September 5, 2008.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Based on our business, market risk is primarily limited to interest rate risk which is the impact that changes in interest rates would have on future earnings. Our Asset Liability Committee manages interest rate risk, including interest rate sensitivity and the repricing characteristics of assets and liabilities. The principal objective of our asset/liability management is to maximize net interest income within acceptable levels of risk established by policy. Interest rate risk is measured using financial modeling techniques, including stress tests, to measure the impact of changes in interest rates on future earnings. Net interest income, the primary source of earnings, is affected by interest rate movements. Changes in interest rates have lesser impact the more that assets and liabilities reprice in approximately equivalent amounts at basically the same time intervals. Imbalances in these repricing opportunities at any point in time constitute interest sensitivity gaps, which is the difference between interest sensitive assets and interest sensitive liabilities. These static measurements do not reflect the results of any projected activity and are best used as early indicators of potential interest rate exposures.

An asset sensitive gap means an excess of interest sensitive assets over interest sensitive liabilities, whereas a liability sensitive gap means an excess of interest sensitive liabilities over interest sensitive assets. In a changing rate environment, a mismatched gap position generally indicates that changes in the income from interest earning assets will not be completely proportionate to changes in the cost of interest bearing liabilities, resulting in net interest income volatility. This risk can be reduced by various strategies, including the administration of liability costs and the reinvestment of asset maturities.

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The following table sets forth the distribution of rate-sensitive assets and liabilities at the date indicated:

RATE SENSITIVITY
September 30, 2007
(Dollars in thousands)


				Over Three			Over One
	Three			Through			Year			Over
	Months			Twelve			Through			Five
	Or Less			Months			Five Years			Years			Total
Assets
Federal funds sold	$	45,645		$	—		$	—		$	—		$	45,645
Time deposits with other financial institutions		1,173			—			298			—			1,471
Securities held to maturity		—			6,997			19,478			77,892			104,367
Loans, gross		461,625			98,320			201,597			79,852			841,394

Total rate-sensitive assets	$	508,443		$	105,317		$	221,373		$	157,744		$	992,877


Liabilities:
Interest bearing demand deposits	$	20,554		$	—		$	—		$	—		$	20,554
Savings and money market		212,137			—			—			—			212,137
Certificates of deposit		70,562			189,244			200,818			—			460,624
FHLB advances		50,000			—			10,000			—			60,000
Restructured repurchase agreement		31,096			—			—			—			31,096
Junior subordinated debentures		27,837			—			—			—			27,837

Total rate sensitive liabilities	$	412,186		$	189,244		$	210,818		$	—		$	812,248


Interval Gaps:
Interest rate sensitivity gap	$	96,257		($	83,927	)	$	10,555		$	157,744		$	180,629

Rate sensitive assets to rate sensitive liabilities		123.4	%		55.7	%		105.0	%		N/A			122.2	%


Cumulative Gaps:
Cumulative interest rate sensitivity gap	$	96.257		$	12,330		$	22,885		$	180,629		$	180,629

Rate sensitive assets to rate sensitive liabilities		123.4	%		102.1	%		102.8	%		122.2	%		122.2	%


% of rate sensitive assets in period		51.2	%		61.8	%		84.1	%		100.0	%		N/A

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as defined in Exchange Act Rule 13a—15(e)) that are designed to assure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide reasonable assurance only of achieving the desired control objectives, and management necessarily is required to apply its judgment in weighting the costs and benefits of possible new or different controls and procedures. Limitations are inherent in all control systems, so no evaluation of controls can provide absolute assurance that all control issues and any fraud within the company have been detected.

As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report the Company, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of that date.

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There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarters that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As of September 30, 2007, we were not involved in any litigation other than routine litigation incidental to our business.

ITEM 1A. RISK FACTORS

There were no material changes in our risk factors from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no unregistered sales of equity securities for the quarter ended September 30, 2007.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities as of September 30, 2007.

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

There were no matters submitted to a vote of security holders for the quarter ended September 30, 2007.

ITEM 5. OTHER INFORMATION

There was no other information to report as of September 30, 2007.

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	Page No.
Part I. Financial Information

Item 1. Financial Statements

Consolidated Statements of Financial Condition at September 30, 2007 and December 31, 2006		3

Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006		4

Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2007 and 2006		5

Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2007 and 2006		6

Notes to Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13

Item 3. Quantitative and Qualitative Disclosures About Market Risk		28

Item 4. Controls and Procedures		30

Part II. Other Information

Item 1. Legal Proceedings		30

Item 1A. Risk Factors		30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30

Item 3. Defaults Upon Senior Securities		30

Item 4. Submission of Matters to a Vote of Security Holders		30

Item 5. Other Information		30

Item 6. Exhibits		31

Signatures		32
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

	31.1		Section 302 CEO Certification

	31.2		Section 302 CFO Certification

	32.1		Certificate by Curtis S. Reis, Chairman and Chief Executive Officer of the Company dated November 14, 2007 pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002.

	32.2		Certificate by Daniel L. Erickson, Executive Vice President and Chief Financial Officer of the Company dated November 14, 2007 pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002.


DATE: November 14, 2007	ALLIANCE BANCSHARES CALIFORNIA
	By:	/s/ Daniel L. Erickson
		Daniel L. Erickson
		Executive Vice President and Chief Financial Officer


EXHIBITS		DESCRIPTION

31.1		Section 302 CEO Certification

31.2		Section 302 CFO Certification

32.1		Certificate by Curtis S. Reis, Chairman and Chief Executive Officer of the Company dated November 14, 2007 pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certificate by Daniel L. Erickson, Executive Vice President and Chief Financial Officer of the Company dated November 14, 2007 pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002.

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