UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2008.

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

For the transition period from ________ to ________.

Commission File Number: 333-141453

BELVEDERE SOCAL

(Exact name of registrant as specified in its charter)

California	20-8356735
(State or other jurisdiction of employee incorporation or organization)	(I.R.S. Employer Identification No.)

One Maritime Plaza, Suite 825

San Francisco, California 94111

(Address of Principal Executive Offices, Including Zip Code)

(415) 434-1236

(Registrant’s Telephone Number, Including Area Code)

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

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

Indicate by check mark if the registrant is a well-known seasoned issues, as defined in Rule 405 of the Securities Act. Yes £ No S

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No S

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 S No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceeding 12 months (or for such shorter period that the registrant was required to submit and post such files). £ Yes £ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	£ Large accelerated filer	£ Accelerated filer
	£ Non-accelerated filer (Do not check if a smaller reporting company)	S Smaller reporting company

The aggregate market value of the Registrant’s Common Stock, zero par value per share, held by nonaffiliates of the Registrant as of May 1, 2009 was $870,057.

As of May 1, 2009, the number of shares of the Registrant’s Common Stock, zero par value per share, outstanding was 3,332,500.

DOCUMENTS INCORPORATED BY REFERENCE: None.

TABLE OF CONTENTS

PART I		Page

Item 1.	Description of Business	1

Item 1A.	Risk Factors	13

Item 1B.	Unresolved Staff Comments	22

Item 2.	Description of Property	22

Item 3.	Legal Proceedings	22

Item 4.	Submission of Matters to a Vote of Security Holders	22

PART II

Item 5.	Market for Common Equity and Related Stockholder Matters	23

Item 6.	Selected Financial Data	23

Item 7.	Management’s Discussion and Analysis or Plan of Operations	23

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 8.	Financial Statements and Supplementary Data	43

Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	86

Item 9A.	Controls and Procedures	86

Item 9B.	Other Information	86

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	87

Item 11.	Executive Compensation	89

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	92

Item 13.	Certain Relationships and Related Transactions, and Director Independence	93

Item 14.	Principal Accountant Fees and Services	94

Item 15.	Exhibits	94

PART I

ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL

Belvedere SoCal (“SoCal”) is a bank holding company formed in 2007 in the state of California with the vision of becoming Southern California’s premier provider of financial services for small businesses through its focus on small business customers, experienced management and staff, disciplined credit policies, and emphasis on the customer experience.

History. As part of its growth strategy, SoCal has completed two acquisitions. Each of these acquisitions brings a low-cost deposit base, a footprint in markets with attractive growth potential, and a talented employee base with a strong emphasis on customer service.

SoCal was formed by its majority shareholder, Belvedere Capital Fund II L.P. (the “Fund”), a Delaware limited partnership formed in 2002 by Belvedere Capital Partners II LLC (“Belvedere Capital”). SoCal was formed specifically to acquire Professional Business Bank (“PBB”), which occurred on November 23, 2007, and to be the platform for acquiring other banks in Southern California. SoCal completed the acquisition of Spectrum Bank (“Spectrum”) on January 31, 2008, further expanding its market presence. Following the acquisition of Spectrum, 72.9% of SoCal’s common stock is owned by the Fund.

Effective July 3, 2008, SoCal completed the merger of Spectrum into PBB. The existing Spectrum branches and certain customer-related activities are conducted using the Spectrum brand. SoCal issued an additional 1,313,432 shares of common stock to the Fund for proceeds of $22 million to partially fund the Spectrum acquisition. Collectively, PBB and Spectrum are referred to as the “Subsidiary Bank”.

Prior to November 23, 2007, SoCal had no significant operations. The results of operations for the period ended December 31, 2007 include the operations of PBB subsequent to November 23, 2007. The consolidated balance sheet at December 31, 2008 and the results of operations for the year ended December 31, 2008 include the operations of Spectrum subsequent to January 31, 2008.

The December 31, 2008 consolidated financial statements include SoCal and the Subsidiary Bank. SoCal has one other wholly-owned subsidiary, Belvedere SoCal Statutory Trust I (the “Trust”), which was formed in 2008, to issue trust preferred securities. FIN 46R does not allow the consolidation of the Trust into SoCal’s consolidated financial statements. As a result, the accompanying consolidated balance sheets include the investment in the Trust of $464,000 in other assets.

Relationship with Belvedere Capital. The Fund, which is controlled by Belvedere Capital, is our majority shareholder. The Fund is a private investment fund with 32 limited partners and one general partner, Belvedere Capital. Based in San Francisco, CA, Belvedere Capital, established itself as one of the leading private equity investors in community banks and related financial services in the U.S. Since 1994, Belvedere Capital, and its affiliates, have purchased or invested in 18 financial services companies. Both the Fund and Belvedere Capital are registered bank holding companies.

Trading and Disclosure. SoCal’s common stock is not listed on any national securities exchange or quoted on the OTC Bulletin Board. Any trades are currently reported on the Pink Sheets under the symbol “BLVE.PK.” Since the shares of SoCal common stock issued in the merger with PBB were initially registered under the Securities Act of 1933, as amended, SoCal has filed periodic reports and makes other required filings with the Securities and Exchange Commission (the “SEC”) pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”). Subsequent to filing this Form 10-K, SoCal plans on filing a Form 15 Notice of Termination of Registration under Section 12h-3 of the Exchange Act, which would suspend our filing obligations under the Exchange Act.

BUSINESS PLAN

The Subsidiary Bank provides responsive, personalized financial products and services to small- and medium-sized businesses, professionals, and high net worth individuals in Southern California. To accomplish its goal of becoming Southern California’s premier business banking franchise, SoCal intends to deepen and expand its relationships with business customers, diligently assume and manage credit risk, and within the limits of safety and soundness, pursue both organic growth and growth through opportunistic business combinations.

Business Banking Strategy. Due to the high number of small- and medium-sized businesses in Southern California, SoCal believes that there is an excellent opportunity to build a business-focused community bank throughout Southern California. The Subsidiary Bank will focus intensely on these business customers, their employees, and associated high net worth individuals by serving them with a full suite of community banking products that are tailored to each customer’s individual need.

Management recognizes that customer relationships are often founded on the basis of a strong and enduring deposit relationship. To this end, the Subsidiary Bank has built a competitive set of deposit products and associated service capabilities to accommodate customer business needs and preferences. The Subsidiary Bank also offers commercial loans, lines of credit, certain consumer and installment loans, commercial and residential construction loans, commercial real estate loans, as well as certain specialized products such as Small Business Administration (“SBA”) and California Pollution Control Financing Authority’s California Capital Access Program (“CalCAP”) loans.

During 2008, the Subsidiary Bank incurred $7.5 million of net charge-offs and in response recorded $10.8 million of loan loss provision expense to offset incurred charge-offs and bolster its loan loss reserve. The worsening economic climate has adversely affected the loan portfolio’s credit quality as borrowers’ operating cash flows have contracted and the real estate collateral values have eroded. Management is devoting increased resources to loan collection and workout activities as well as strengthening the credit administration process to improve the integrity and timeliness of loan credit quality reporting. The relationship manager compensation program has been modified to provide greater incentive to proactively manage loan customers’ credit issues. Underwriting standards for new loan originations have been adjusted in recognition of the potential for heightened and prolonged economic stress.

The Subsidiary Bank has $6.9 million of gross home equity lines at year-end, $4.4 million of which were drawn, and in 2008 purchased $24.5 million of senior private label collateralized mortgage obligations (“CMOs”) supported by “Alt-A” and prime residential mortgage loan collateral, which were purchased at a discount to par. Aside from these positions, the Subsidiary Bank has no direct exposure to the residential mortgage market and does not directly own any subprime residential mortgages.

Near Term Stabilization Strategy. In response to credit deterioration of the Subsidiary Bank’s loan portfolio and price decline of the investment security portfolio, together with an associated reduction of both SoCal’s and the Subsidiary Bank’s capital bases, management has shifted its immediate strategic focus away from growth and towards stabilizing both SoCal and the Subsidiary Bank. Initiatives being pursued include diminishing the Subsidiary Bank’s credit risk exposure through accelerated recognition and disposition of problem loans, adoption of more conservative loan underwriting standards, rebuilding both SoCal and the Subsidiary Bank’s capital bases and augmenting SoCal’s liquidity position.

Management has embarked on a plan to restructure SoCal’s balance sheet to reduce the use of debt and preferred equity. A key aspect of this plan requires investors in SoCal debt and preferred equity securities to agree to convert their holdings into SoCal common stock and for SoCal common shareholders to approve an accommodative increase in the number of authorized common shares. Management believes accomplishment of this restructuring would significantly improve SoCal’s potential for attracting new investors. This restructuring plan would result in the issuance of new common equity that would dilute current common shareholders’ percentage ownership of SoCal, but would at the same time eliminate senior claims. Funding from new investors would be used to augment SoCal’s asset liquidity, reduce debt and provide it with capacity to act as a source of strength for the Subsidiary Bank.

Belvedere Capital, on behalf of SoCal, is currently soliciting potential new investors in SoCal. At this time it is uncertain what amount or form of investment would be made, if any, and what the terms and conditions of such investment would be. After providing $9.0 million of funding in first quarter 2009, the Fund advised SoCal that it no longer has the capacity to extend SoCal further financial support. Due to the difficult environment for financial institutions, SoCal may not be able to secure necessary financing on acceptable terms, if at all.

Long Term Expansion Strategy. SoCal believes that significant economies of scale benefits could be realized through an expansion of its business franchise in Southern California, achieved through organic growth and/or synergistic business combinations. The increasing fixed cost of business operations, corporate governance and regulatory compliance provide a strong financial incentive to expand the Subsidiary Bank’s scale. At the same time, in an expanded scale operation, the Subsidiary Bank’s competitive advantage achieved through personalized customer service and product customization would need to be preserved.

SoCal believes that resolution of the current banking industry turmoil will accelerate consolidation in the number of community banks operating in Southern California and in the process, attract new capital investment. By continually strengthening the Subsidiary Bank’s core franchise, management is positioning the Subsidiary Bank to be a scalable platform organically as well as be an attractive business combination partner.

Capitalization Strategy. Belvedere Capital has provided funding and capital support to SoCal through direct investment by the Fund as well as soliciting third party investments on SoCal’s behalf. SoCal in turn has provided financial support to the Subsidiary Bank through capital contributions. Within its capacity to do so, it is SoCal’s intention to augment the Subsidiary Bank’s capital as needed to satisfy regulatory “well-capitalized” status requirements, counterbalance risks inherent in its business operations and balance sheet, and when prudent, support organic and acquisition growth opportunities.

The Subsidiary Bank will not be in a position to provide dividend income to SoCal for the foreseeable future due to its capital position and limitations on payment of dividends by the California General Corporation Law, and a recently executed regulatory agreement with bank regulators. The Subsidiary Bank’s current focus is to conserve its existing capital resources, improve its operating performance and reduce risk.

Loan Services of the Subsidiary Bank. The Subsidiary Bank offers commercial loans, lines of credit, certain consumer and installment loans, commercial and residential construction loans, commercial real estate loans, as well as certain specialized products such as SBA and CalCAP loans. Through outsourcing or referring loans to other lenders in return for fee income, we are able to assist our customers to procure certain loans not maintained in our portfolio, such as long term real estate loans.

The Subsidiary Bank offers loans to eligible small businesses that are guaranteed by the SBA, as well as loans primarily for real estate-related projects under Section 504 of the Small Business Administration Act of 1953, such as for purchasing land and improvements, construction, modernizing or converting existing facilities and purchasing certain machinery and equipment. SBA loans are written at variable rates of interest which generally are limited by SBA guidelines. Additionally, the Subsidiary Bank offers loans to small- and medium-sized businesses under the CalCAP program. Under the CalCAP program, the borrower, CalCAP and the Subsidiary Bank contribute funds to a loss reserve account, or CalCAP reserve, that is held in an interest-bearing demand deposit account at the Subsidiary Bank. Losses on loans originated under the CalCAP program will be charged to the CalCAP reserve account after notification to CalCAP. Although there is no plan to leave the CalCAP program, if that event were to occur, any excess funds in the CalCAP reserve account, after all loans have been repaid and there are no pending claims for reimbursement, will be distributed to CalCAP and the Subsidiary Bank based on contributions to the CalCAP reserve account. The allowance for loan losses allocated to the CalCAP loans takes into consideration the credit support provided by the CalCAP reserve account. At December 31, 2008, the balance of loans outstanding under the CalCAP program totaled $17.8 million on commitments of $22.7 million.

The Subsidiary Bank also offers a variety of consumer loans, including home equity loans, home improvement loans and auto loans. Although consumer loans comprise a small portion of our overall loan portfolio, such loans are important in terms of servicing customer needs in the Subsidiary Bank’s target market, as well as to assist us in meeting our Community Reinvestment Act responsibilities.

Deposit Services of the Subsidiary Bank. Through the Subsidiary Bank we offer personal and business checking, money market, savings account, certificates of deposit, and IRA accounts. Depositors have the option of subscribing for a wide range of electronic services, including online banking, ATM and debit cards, remote capture and telebanking. The types and terms of deposit accounts are on competitive terms. The interest rates payable by banks on the various types of deposit instruments (except for commercial demand deposits) are a function of a number of factors, including rates paid by competitors and the Subsidiary Bank’s need for liquidity.

In addition to more traditional deposit services, the Subsidiary Bank offers specialized deposit services for title and escrow company clients that move substantial amounts of funds in and out of deposit accounts as escrows for the purchase of real estate and other types of transactions.

Online Banking Services of the Subsidiary Bank. The Subsidiary Bank’s websites (www.probizbank.com and www.spectrumbank.com) offer a complete on-line banking solution for our customers. On these websites, customers are able to check their balances, transfer funds, review past transactions, and contact us online. In addition, we recently added online bill payment. The content of these websites are not part of this report.

Management by the Fund. SoCal and Belvedere Capital entered into a management agreement under which the Fund will provide to SoCal certain management support services for a fee set at 5% of the Subsidiary Bank’s pretax profit, with a $200,000 annual minimum and $750,000 annual maximum. The fee is paid in quarterly installments. In 2008, SoCal paid $191,997 to the Fund. The total paid in 2008 was below the $200,000 minimum due to the proration of Spectrum’s management fee from the acquisition date. Beginning in January 2009, payment of this fee has been deferred. In addition, Belvedere Capital will work with SoCal in identifying, structuring, and negotiating third party investment and business combinations. See “Risk Factors” beginning on page 13 for a more complete discussion of the risks involved with SoCal’s growth strategy and Belvedere Capital’s continuing role in the management of SoCal.

EMPLOYEES

At December 31, 2008, the Subsidiary Bank had 76 full time and 3 part-time employees, and SoCal had 3 employees who were also employees of the Subsidiary Bank. Our employees are not represented by a union or other collective bargaining agreement and we consider our relations with our employees to be satisfactory.

COMPETITION

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

To compete with other financial institutions in the Subsidiary Bank’s primary market area, the Subsidiary Bank relies principally upon personal contact by our officers, directors and employees. For clients whose loan demands exceed the Subsidiary Bank’s internal concentration limit, arrangements may be made for portions of such loans to be participated to other financial institutions and intermediaries. The Subsidiary Bank also assists clients requiring other services not offered by the Subsidiary Bank to obtain such services from other providers. Additional services offered by the Subsidiary Bank include a night depository, courier service, bank-by-mail services, merchant windows, direct deposit, and notary services.

EFFECT OF GOVERNMENT POLICIES AND RECENT LEGISLATION

Banking is a business that largely depends on rate differentials. In general, the difference between the interest rate paid on deposits and other borrowings and the interest rate received on loans extended to customers and securities held in the Subsidiary Bank’s portfolio comprise the major portion of earnings. Rates are highly sensitive to many factors that are beyond the control of the Subsidiary Bank. Accordingly, earnings and growth are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment.

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

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

SUPERVISION AND REGULATION

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

Oversight. SoCal is regularly reviewed to assess safety and soundness and compliance with applicable laws and regulations by the Federal Reserve, and the Subsidiary Bank is reviewed by its state regulatory agency, the California Department of Financial Institutions (“DFI”) and its primary federal regulator, the Federal Deposit Insurance Corporation (“FDIC”).

Recent Regulatory Actions

The Board of Directors of the Subsidiary Bank entered into a Memorandum of Understanding (the “Regulatory Agreement”) with the FDIC and the Commissioner of the DFI. The Regulatory Agreement sets forth certain actions required to be taken by management of the Subsidiary Bank. The Regulatory Agreement, relates primarily to the Subsidiary Bank’s asset quality, loan loss reserves, capital, management, and earnings, and requires the Subsidiary Bank to submit plans and report to the DFI and the FDIC regarding its loan portfolio and profit plans, among other matters. Under the terms of the Regulatory Agreement, the Subsidiary Bank must achieve and maintain a Tier 1 leverage capital ratio and tangible shareholders’ equity to total tangible assets ratio of not less than 9% and a total risk based capital ratio at a minimum of 12% by December 31, 2009. Further, classified assets present at October 31, 2008 are required to be reduced relative to the sum of prevailing Tier 1 capital plus loan loss reserves to no more than 60% within 120 days and no more than 40% within 210 days. As of March 31, 2009, these classified assets were 78% of prevailing Tier 1 capital plus loan loss reserves. Additionally, the Regulatory Agreement requires that, prior to declaring or paying any cash dividends, the Subsidiary Bank must obtain the prior written consent of the FDIC and the DFI.

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

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

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

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

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

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acquiring all or substantially all of the assets of another bank or bank holding company; or

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merging or consolidating with another bank holding company.

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

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

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

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

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

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

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

Liability of Commonly Controlled Institutions. Under federal law, institutions insured by the FDIC may be liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of commonly controlled FDIC-insured depository institutions or any assistance provided by the FDIC to commonly controlled FDIC-insured depository institutions in danger of default. For purposes of these provisions of federal law, Presidio Bank and Green Bank, National Association are recognized as being commonly controlled with the Subsidiary Bank by the Fund.

Control of Financial Institutions. California banking law provides that no person may acquire direct or indirect control of a California bank without the prior approval of the Commissioner of the DFI. A person who has the power to vote 10% or more of the voting stock of a California bank is presumed to control the bank. The federal Change in Bank Control Act of 1978 generally imposes similar restrictions and prior notice requirements on the direct or indirect acquisition by a person of more than 10% of any class of voting stock of a bank or bank holding company.

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

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

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

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

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

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

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the assets of the corporation exceed 1.25 times its liabilities; or

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the current assets of the corporation exceed its current liabilities, but if the average pre-tax earnings of the corporation before interest expenses for the two years preceding the distribution was less than the average interest expenses of the corporation for those years, the current assets of the corporation must exceed 1.25 times its current liabilities.

A primary source of a bank holding company’s cash receipts are dividends received from its subsidiary bank(s). Under California law, the directors of California state-licensed banks may declare distributions to shareholders (which include cash dividends), subject to the restriction that the amount available for the payment of cash dividends shall be the lesser of retained earnings of the bank or the bank’s net income for its last three fiscal years (less the amount of any distributions to shareholders made during such period). If the above test is not met, distributions to shareholders may be made only with the prior approval of the DFI Commissioner in an amount not exceeding the greater of a bank’s retained earnings, a bank’s net income for its last fiscal year, or a bank’s net income for its current fiscal year. If the Commissioner finds that the shareholders’ equity of a bank is not adequate, or that the making by a bank of a distribution to shareholders would be unsafe or unsound for the bank, the Commissioner can order a bank not to make any distribution to shareholders. At March 31, 2009, the Subsidiary Bank has an accumulated deficit of $46.4 million. The Subsidiary Bank has entered into a Regulatory Agreement with its regulators that, among other things, requires the prior written consent of the FDIC and DFI before the Subsidiary Bank may declare or pay dividends. See “Recent Regulatory Actions” above in this section for the discussion of the Regulatory Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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annual notices of their privacy policies to current customers; and

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

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

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

Deposit Insurance. The FDIC is an independent federal agency that insures deposits, up to prescribed statutory limits, of federally insured banks and savings institutions and safeguards the safety and soundness of the banking and savings industries. Previously, the FDIC administered two separate insurance funds, the Bank Insurance Fund (“BIF”), which generally insured commercial bank and state savings bank deposits, and the Savings Association Insurance Fund (“SAIF”), which generally insured savings association deposits.

Under the Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”), which was signed into law on February 15, 2006, the Bank Insurance Fund and the Savings Association Insurance Fund were merged into a new combined fund, called the Deposit Insurance Fund (the “DIF”). The FDIC was also given greater latitude in setting the assessment rates for insured depository institutions which could be used to impose minimum assessments.

Pursuant to the Emergency Economic Stabilization Act of 2008, the maximum deposit insurance amount has been increased from $100,000 to $250,000 until December 31, 2009. On October 13, 2008, the FDIC established a Temporary Liquidity Guarantee Program (“TLGP”) under which the FDIC will fully guarantee all non-interest-bearing transaction accounts and qualifying senior unsecured debt of any insured depository institutions or their qualified holding companies that did not opt out of the program issued between October 14, 2008 and June 30, 2009. Qualifying senior unsecured debt includes federal funds purchased and certificates of deposit outstanding to the credit of the bank with a maturity of 30 days or greater. The Subsidiary Bank opted to remain in both the transaction account guarantee and debt guarantee portions of the TLGP.

The FDIC is authorized to set the reserve ratio for the DIF annually at between 1.15% and 1.50% of estimated insured deposits. If the DIF’s reserves exceed the designated reserve ratio, the FDIC is required to pay out all or, if the reserve ratio is less than 1.50%, a portion of the excess as a dividend to insured depository institutions based on the percentage of insured deposits held on December 31, 1996 adjusted for subsequently paid premiums. Insured depository institutions that were in existence on December 31, 1996 and paid assessments prior to that date (or their successors) are entitled to a one-time credit against future assessments based on their past contributions to the BIF or SAIF.

Pursuant to the Reform Act, the FDIC has determined to maintain the designated reserve ratio at its current 1.25%. The FDIC has also adopted a new risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based on their examination ratings and capital ratios. Under these regulations, all insured depository institutions are placed into one of four risk categories. As of January 1, 2009, all insured institutions will pay a base rate assessment of 12 to 50 basis points for the first quarter of 2009 of assessable deposits based on the risk of loss to the DIF posed by the particular institution.

Institutions in Risk Category I will be assessed at an annual rate of 12 to 14 basis points for the first quarter of 2009. This is a substantial increase from the base rate assessment of 2 to 4 basis points in effect during 2008. The increase in the base rate assessment from 2008 to 2009 is due to insurance fund depletion in 2008 with an outlook for substantial further insurance fund payouts. For institutions such as the Subsidiary Bank, which do not have a long-term public debt ratings, the individual risk assessment is based on its supervisory ratings and certain financial ratios and other measurements of its financial condition. For institutions that have a long-term public debt rating, the individual risk assessment is based on its supervisory ratings and its debt rating.

On February 27, 2009, the FDIC issued new rules that took effect on April 1, 2009 which changed the way the FDIC differentiates risk and appropriate assessment rates. Base assessment rates that took effect on April 1, 2009 ranged from 12 to 45 basis points, but giving effect to certain risk adjustments in the new rules, assessments may range from 7 to 77.5 basis points. In addition, the FDIC also issued an interim final rule that, unless amended, will impose an emergency special assessment of 20 basis points in addition to its risk-based assessment The emergency special assessment will be based on deposit balances as of June 30, 2009 and collected on September 30, 2009.

In addition, all institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize the predecessor to the SAIF. The FICO assessment rate for 2008 was approximately .0110% of insured deposits. These assessments will continue until the FICO bonds mature in 2017.

The FDIC may terminate the deposit insurance of any insured depository institution, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances which would result in termination of the Subsidiary Bank’s deposit insurance.

Capital Adequacy

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

Tier 1 and Tier 2 Capital. Under the capital adequacy guidelines, the capital of an institution is divided into two broad categories, Tier 1 capital and Tier 2 capital. Tier 1 capital generally consists of common stockholders’ equity, surplus and undivided profits. Tier 2 capital generally consists of the allowance for loan losses, hybrid capital instruments, and subordinated debt. The sum of Tier 1 capital and Tier 2 capital represents an institution’s total capital. The guidelines require that at least 50% of an institution’s total capital consist of Tier 1 capital. The Bank regulatory agencies can also impose stricter guidelines on an institution. As described above, the Subsidiary Bank entered into a Regulatory Agreement with its regulators, which increased its minimum capital requirements.

Risk-based Capital Ratios. The adequacy of an institution’s capital is gauged primarily with reference to the institution’s risk-weighted assets. The guidelines assign risk weightings to an institution’s assets in an effort to quantify the relative risk of each asset and to determine the minimum capital required to support that risk. These risk-weighted assets are then compared with Tier 1 capital and total capital to arrive at a Tier 1risk-based ratio and a total risk-based ratio, respectively. The guidelines provide that an institution must have a minimum Tier 1 risk-based ratio of 4%, and a minimum total risk-based ratio of 8% to be considered adequately capitalized.

In March 2005, the Board of Governors of the Federal Reserve adopted a final rule that allows the continued inclusion of trust preferred securities in the Tier 1 capital of bank holding companies, subject to stricter quantitative limits and qualitative standards. Under the final ruling, qualifying mandatory preferred securities may be included in Tier 1 capital, subject to a limit of 25% of all core capital. Amounts of restricted core capital elements in excess of this limit generally may be included in Tier 2 capital. The quantitative limits become effective on March 31, 2011. As of December 31, 2007, SoCal had no trust preferred securities outstanding. However, as part of the Spectrum acquisition a total of $15.0 million of trust preferred securities were issued by a subsidiary of SoCal, and a corresponding amount of junior subordinated debentures were issued by SoCal. In addition, SoCal sold $20 million of non-cumulative perpetual preferred stock to the Fund on December 10, 2007. The trust preferred securities and the non-cumulative perpetual preferred stock are generally included in Tier I capital for regulatory capital purposes, and the trust preferred securities are subject to the quantitative limits discussed above. In addition, the Federal Reserve also has a strong preference for voting common stockholders’ equity, which should be the dominant element within Tier 1 capital. Thus where a banking organization relies excessively on nonvoting elements within Tier 1 capital, the Federal Reserve generally may require the banking organization to allocate a portion of the nonvoting elements to Tier 2 capital. At December 31, 2008 the balance of non-cumulative perpetual preferred stock was $23.0 million, reflecting both the original issuance amount as well as cumulative dividend-in-kind payments recorded since the original issuance date.

Leverage Ratio. The guidelines also employ a leverage ratio, which is Tier 1 capital as a percentage of average total assets less intangibles, to be used as a supplement to risk-based guidelines. The principal objective of the leverage ratio is to constrain the maximum degree to which a bank holding company may leverage its equity capital base. The minimum leverage ratio is 3%; however, for all but the most highly-rated bank holding companies and for bank holding companies seeking to expand, regulators generally expect a leverage ratio of 5% or more. The Subsidiary Bank’s leverage ratio as of March 31, 2009 was 8.39%.

Prompt Corrective Action. Under the guidelines, an institution is assigned to one of five capital categories depending on its total risk-based capital ratio, Tier 1 risk-based capital ratio, and leverage ratio, together with certain subjective factors. The categories range from “well-capitalized” to “critically undercapitalized.” Institutions that are deemed to be “undercapitalized,” depending on the category to which they are assigned, are subject to certain mandatory supervisory corrective actions. SoCal was “adequately capitalized and “well-capitalized” at December 31, 2008 and 2007, respectively. The Subsidiary Bank’s Tier 1 risk-based capital ratio and leverage ratio exceeded the “well-capitalized” regulatory requirements at December 31, 2008 and 2007 and its total risk-based capital ratio exceeded the “adequately capitalized” regulatory capital requirement at December 31, 2008 and 2007. Subsequent to December 31, 2008, SoCal made additional capital contributions to the Subsidiary Bank in the amount of $7.0 million. Pursuant to a Regulatory Agreement between the Subsidiary Bank’s Board of Directors and the Subsidiary Bank’s regulators, discussed above, the Subsidiary Bank must achieve and thereafter maintain a tangible shareholder equity ratio of at least 9%, a Tier 1 leverage ratio of at least 9%, and a total risk-based capital ratio of at least 12% by December 31, 2009 so long as the Regulatory Agreement is in effect. See “Recent Regulatory Actions” above in this section for a discussion of the Regulatory Agreement.

Corporate Governance and Accounting Legislation

Sarbanes-Oxley Act of 2002. As a public company, SoCal is subject to the Sarbanes-Oxley Act of 2002 (the “Act”), which implements a broad range of corporate governance and financial reporting measures for public companies designed to promote honesty and transparency in corporate America and better protect investors from corporate wrongdoing. In general, the Act mandated important new corporate governance and financial reporting requirements intended to enhance the accuracy and transparency of public companies’ reported financial results. It established new responsibilities for corporate chief executive officers, chief financial officers and audit committees in the financial reporting process, and it created a new regulatory body to oversee auditors of public companies. It backed these requirements with new SEC enforcement tools, increased criminal penalties for federal mail, wire and securities fraud, and created new criminal penalties for document and record destruction in connection with federal investigations. It also increased the opportunity for more private litigation by lengthening the statute of limitations for securities fraud claims and providing new federal corporate whistleblower protection.

Section 402 of the Act prohibits the extension of personal loans to directors and executive officers of issuers (as defined in the Act). The prohibition, however, does not apply to mortgages advanced by an insured depository institution that are subject to the insider lending restrictions of Section 22(h) of the Federal Reserve Act.

As a public reporting company, SoCal is subject to the requirements of the Act and related rules and regulations issued by the SEC. SoCal has incurred additional expense as a result of the Act, but it is not expected that such compliance will have a material impact on SoCal’s business. SoCal intends to file a Form 15 Notice of Termination of Registration with the SEC in May 2009 which would suspend our filing obligations under the Exchange Act and suspend SoCal’s compliance obligation under the Act

Anti-terrorism Legislation

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

Bank Secrecy Act. The Subsidiary Bank is subject to the Bank Secrecy Act, as amended by the USA PATRIOT Act, which gives the federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers, and mandatory transaction reporting obligations. By way of example, the Bank Secrecy Act imposes an affirmative obligation on the Subsidiary Bank to report currency transactions that exceed certain thresholds and to report other transactions determined to be suspicious.

Title III of the USA PATRIOT Act takes measures intended to encourage information sharing among financial institutions, bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act. Among other requirements, the USA PATRIOT Act imposes the following obligations on financial institutions:

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financial institutions must establish anti-money laundering programs that include, at minimum: (i) internal policies, procedures, and controls, (ii) specific designation of an anti-money laundering compliance officer, (iii) ongoing employee training programs, and (iv) an independent audit function to test the anti-money laundering program;

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financial institutions must establish and meet minimum standards for customer due diligence, identification and verification;

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financial institutions that establish, maintain, administer, or manage private banking accounts or correspondent accounts in the United States for non-United States persons or their representatives (including foreign individuals visiting the United States) must establish appropriate, specific, and, where necessary, enhanced due diligence policies, procedures, and controls designed to detect and report money laundering through those accounts;

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financial institutions are prohibited from establishing, maintaining, administering or managing correspondent accounts for foreign shell banks (foreign banks that do not have a physical presence in any country), and are subject to certain recordkeeping obligations with respect to correspondent accounts of foreign banks; and

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bank regulators are directed to consider a depository institution’s or holding company’s effectiveness in combating money laundering when ruling on Federal Reserve Act and Bank Merger Act applications.

Recent Regulatory Developments. In light of current conditions in the global financial markets and the global economy, regulators have increased their focus on the regulation of the financial services industry. Proposals for legislation that could substantially intensify the regulation of the financial services industry are expected to be introduced in the U.S. Congress and in state legislatures. The agencies regulating the financial services industry also frequently adopt changes to their regulations. Substantial regulatory and legislative initiatives, including a comprehensive overhaul of the regulatory system in the U.S., are possible in the months or years ahead. Any such action could have a materially adverse effect on SoCal’s business, financial condition and results of operations.

Recent months have seen an unprecedented number of government initiatives designed to respond to the stresses experienced in financial markets.

In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, the Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law on October 3, 2008. Pursuant to EESA, the U.S. Treasury was given the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. Pursuant to EESA, the U.S. Treasury established the Troubled Asset Relief Program (“TARP”) and has since injected capital into many financial institutions under the TARP Capital Purchase Program (“TARP CPP”).

On February 10, 2009, the U.S. Treasury announced the Financial Stability Plan (“FSP”), which, among other things, proposes to establish a new Capital Assistance Program (“CAP”) through which eligible banking institutions will have access to U.S. Treasury capital as a bridge to private capital until market conditions normalize, and extends the FDIC’s TLGP to October 31, 2009. As a complement to CAP, a new Public-Private Investment Fund on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion, was announced to catalyze the removal of legacy assets from the balance sheets of financial institutions. This proposed fund will combine public and private capital with government financing to help free up capital to support new lending. In addition, the Federal Reserve’s existing Term Asset-Backed Securities Lending Facility (“TALF”) would be expanded (up to $1 trillion) with the intention of reducing credit spreads and restarting the securitized credit markets that in recent years supported a substantial portion of lending to households, students, small businesses, and others. Furthermore, the FSP proposes a new framework of governance and oversight to help ensure that banks receiving funds are held responsible for appropriate use of those funds through stronger conditions on lending, dividends and executive compensation along with enhanced reporting to the public. As of the date of this report, SoCal has decided not to participate in the CAP. However, it will continue to monitor emerging government programs to evaluate whether such programs would be applicable and beneficial to SoCal.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law. ARRA is intended to provide tax breaks for individuals and businesses, direct aid to distressed states and individuals, and infrastructure spending. In addition, ARRA imposes new executive compensation and expenditure limits on all previous and future TARP CPP recipients and expands the class of employees to whom the limits and restrictions apply. ARRA also provides the opportunity for additional repayment flexibility for existing TARP CPP recipients. Among other things, ARRA prohibits the payment of bonuses, other incentive compensation and severance to certain highly paid employees (except in the form of restricted stock subject to specified limitations and conditions), and requires each TARP CPP recipient to comply with certain other executive compensation related requirements. These provisions modify the executive compensation provisions that were included in EESA, and in most instances apply retroactively for so long as any obligation arising from financial assistance provided to the recipient under TARP remains outstanding. To the extent that the executive compensation provisions in ARRA are more restrictive than the restrictions described in the Treasury’s executive compensation guidelines already issued under EESA, the new ARRA guidelines appear to supersede those restrictions. However, both ARRA and the existing Treasury guidelines contemplate that the Secretary of the Treasury will adopt standards to provide additional guidance regarding how the executive compensation restrictions under ARRA and EESA will be applied. Because, as of the date of this report, SoCal is not a TARP CPP recipient, such provisions are not currently applicable.

In addition, ARRA directs the Secretary of the Treasury to review previously-paid bonuses, retention awards and other compensation paid to the senior executive officers and certain other highly-compensated employees of each TARP CPP recipient to determine whether any such payments were excessive, inconsistent with the purposes of ARRA or the TARP, or otherwise contrary to the public interest. If the Secretary determines that any such payments have been made by a TARP CPP recipient, the Secretary will seek to negotiate with the TARP CPP recipient and the subject employee for appropriate reimbursements to the U.S. government (not the TARP CPP recipient) with respect to any such compensation or bonuses. ARRA also permits the Secretary, subject to consultation with the appropriate federal banking agency, to allow a TARP CPP recipient to repay any assistance previously provided to such TARP CPP recipient under the TARP, without regard to whether the TARP CPP recipient has replaced such funds from any source, and without regard to any waiting period. Any TARP CPP recipient that repays its TARP assistance pursuant to this provision would no longer be subject to the executive compensation provisions under ARRA. Because, as of the date of this report, SoCal is not a TARP CPP recipient, such provisions are not currently applicable to us.

On February 18, 2009, the U.S. Treasury announced the Homeowner Affordability and Stability Plan (“HASP”), which proposes to provide refinancing for certain homeowners, to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac, and to establish a Homeowner Stability Initiative to reach at-risk homeowners. Among other things, the Homeowner Stability Initiative would offer monetary incentive to mortgage servicers and mortgage holders for certain modifications of at-risk loans, and would establish an insurance fund designed to reduce foreclosures.

It is not clear at this time what impact EESA, the CPP, the TLGP, the FSP, AARA, HASP, or other liquidity and funding initiatives will have on the financial markets and the other difficulties described above, including the high levels of volatility and limited credit availability currently being experienced, or on the U.S. banking and financial industries and the broader U.S. and global economies. Failure of these programs to address the issues noted above could have an adverse effect on the Subsidiary Bank’s business.

Future Legislation. Additional legislation, including proposals to change substantially the financial institution regulatory system, is from time to time introduced in Congress. Such legislation may change banking statutes and our operating environment in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. SoCal cannot predict whether any of this potential legislation will be enacted and, if enacted, the effect that it, or any implementing regulations, would have on its business, results of operations or financial condition.

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

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

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

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

Management of SoCal believes that the Final Guidance may apply to its CRE lending activities due to the concentration in construction and land development loans in the Subsidiary Bank. SoCal believes its Subsidiary Bank’s long-term experience in CRE lending, underwriting policies, internal controls, and other policies currently in place are generally appropriate in managing its concentrations as required under the Final Guidance. Furthermore, the Subsidiary Bank has adopted additional enhancements to its analysis and review of CRE concentrations consistent with Final Guidance requirements.

AVAILABLE INFORMATION

We maintain an Internet website at www.probizbank.com. The website contains information about us and our operations. The content of our website is not part of this report. Through a link to the Investor Relations section of our website, copies of each of our filings with the SEC, on Form 10-K, Form 10-Q and Form 8-K and all amendments to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC.

In addition, copies of any document we file with or furnish to the SEC may be obtained from the SEC at its public reference room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference room by calling the SEC at 1-800-SEC-0330. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, N.E., Washington, D.C. 20549. The SEC maintains an Internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file or furnish such information electronically with the SEC. Our SEC filings are accessible through the Internet at that website.

ITEM 1A. RISK FACTORS

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

Risks Related to Our Business

If SoCal is not able to raise outside financing, SoCal may be forced to sell the Subsidiary Bank in order to pay its creditors. In such case, holders of SoCal’s capital stock may not receive any consideration from the sale of the Subsidiary Bank.

As of March 31, 2009, SoCal had current unencumbered liquid assets of approximately $1.7 million, consisting primarily of cash and cash equivalents. As of this date, SoCal had approximately $32.9 million of outstanding indebtedness. SoCal has no borrowing availability under its current debt arrangements and is currently seeking, with the assistance of the Fund, its majority shareholder, other sources of liquidity. Previously, SoCal has relied on the Fund for its financing needs. However, the Fund has advised SoCal that it no longer has the capacity to extend SoCal further financial support.

SoCal is currently pursuing a restructuring plan which would have investors in SoCal debt (other than the secured lender) and preferred equity securities convert their holdings into SoCal common stock. Management believes accomplishment of this restructuring would significantly improve SoCal’s potential for attracting new investors. This restructuring plan would result in the issuance of new common equity that would dilute current common shareholders’ percentage ownership of SoCal, but would at the same time eliminate a substantial amount of senior claims. The Fund has indicated a willingness to participate, but as of the date of this filing, all investors have not agreed to such conversion. Therefore, we are not able to predict whether this or any other restructuring plan will be successful. If SoCal is not able to complete some type of restructuring, SoCal believes that it is unlikely that any outside financing would be available on acceptable terms, if at all. In addition, even if the restructuring plan is successful, SoCal may not be able to secure any financing or other sources of liquidity due to the difficult credit and investment environment for financial institutions.

If SoCal is not able to raise outside financing, it may be forced to sell the Subsidiary Bank to pay its creditors. Under such a scenario, it is difficult to predict what price SoCal would be able to obtain for the Subsidiary Bank. Due to the forced nature of any such sale and the current difficult environment for financial institutions, the price that SoCal may be able to obtain for the Subsidiary Bank may not be sufficient to satisfy its obligations to creditors. Therefore, there may not be any amounts available for distribution to the holders of SoCal’s capital stock in the event of a sale of the Subsidiary Bank.

Subsidiary Bank dividends and additional holding company debt and equity funding may be insufficient for SoCal to meet its financial obligations.

SoCal has contractual obligations to pay interest and repay loan principal as well as pay its ongoing operating expenses while acting as a source of strength to the Subsidiary Bank. SoCal is a holding company with no significant assets beyond its investment in Subsidiary Bank equity. SoCal’s ability to meet its obligations is heavily dependent on receiving dividends from the Subsidiary Bank and SoCal’s ability to attract new debt and equity investors. The ability of the Subsidiary Bank to pay dividends is subject to the regulatory authority of the FDIC and the DFI. At present, the Subsidiary Bank is prohibited from making dividend payments without their prior approval and is further legally constrained by a accumulated deficit of $42.8 million at December 31, 2008. Further, current capital market disruptions and recent operating losses make raising funds at competitive rates challenging. Any needed financing may not be available on acceptable terms, if at all. If additional financing is not available when needed, you may lose your entire investment in SoCal.

SoCal’s operations and activities are subject to heightened regulatory oversight and further regulatory action may be taken.

As a result of a regulatory agreement (the “Regulatory Agreement”) between the Subsidiary Bank, the FDIC and the DFI, the Subsidiary Bank’s operations and activities are now subject to heightened regulatory oversight, over and above the extensive regulation which normally applies. Our ability to conduct operations and meet our obligations requires, in many circumstances, that we obtain prior regulatory approval. In addition, the Regulatory Agreement requires the Subsidiary Bank to have a plan to meet certain capital requirements, which will require it to raise its capital ratios. Without a successful transaction to increase capital and/or a substantial restructuring and shrinking of the balance sheet, the Subsidiary Bank will not be able to become fully compliant with the provisions of the Regulatory Agreement. As a result of any failure to comply with the Regulatory Agreement, the FDIC or DFI may take further enforcement action, including a capital directive, a cease and desist order or placing the Subsidiary Bank into receivership with the FDIC.

The Subsidiary Bank’s allowance for loan losses may not be adequate to cover actual losses.

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

Like all financial institutions, the Subsidiary Bank maintains an allowance for loan losses to provide for credit losses. The allowance for loan losses may not be adequate to cover actual loan losses, and future provisions for loan losses could materially and adversely affect the Subsidiary Bank’s business, financial condition, results of operations and cash flows. The allowance for loan losses reflects the Subsidiary Bank’s estimate of the probable losses in its loan portfolio at the relevant balance sheet date. Its allowance for loan losses is based on prior experience, as well as an evaluation of the known risks in the current portfolio, composition and growth of the loan portfolio and economic factors. The determination of an appropriate level of loan loss allowance is an inherently difficult process and is based on numerous assumptions. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond the Subsidiary Bank’s control and credit losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review the Subsidiary Bank’s loans and allowance for loan losses. While the Subsidiary Bank believes that the allowance for loan losses is adequate to cover current losses, there is no assurance that it will not increase the allowance for loan losses further, or that regulators will not require increases to this allowance. Either of these occurrences could materially adversely affect the Subsidiary Bank’s business, financial condition, results of operations and cash flows.

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

SoCal was formed specifically for the acquisition of PBB and to be the platform for the Fund’s expansion into the Southern California financial services market. The acquisition of PBB closed on November 23, 2007. On January 31, 2008, SoCal acquired Spectrum which was merged into PBB on July 3, 2008. SoCal’s business is subject to the risks inherent in the establishment of any new business enterprise in addition to the special risks of starting a new bank holding company. No assurance can be given what return, if any, holders of our common stock will receive on their investment.

The Subsidiary Bank’s loan portfolio is concentrated in real estate, which has a high degree of risk and a sustained downturn in real estate values may significantly affect the Subsidiary Bank’s business.

The continued downturn in the Subsidiary Bank’s real estate markets may adversely affect its business because many of the Subsidiary Bank’s loans are secured by real estate. Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies and acts of nature. If real estate prices continue to decline, the value of real estate collateral securing the Subsidiary Bank’s loans would be reduced. Recoveries from the sale of defaulted loans through foreclosure and sale of the underlying real estate collateral would then be diminished, and the Subsidiary Bank would be more likely to suffer losses on defaulted loans. As of December 31, 2008, approximately 64% of the book value of Subsidiary Bank’s loan portfolio consisted of loans collateralized by various types of real estate. Almost all of the Subsidiary Bank’s real property collateral is located in California. If real estate values continue to decline, especially in California, the collateral for the Subsidiary Bank’s loans will provide less security. Real estate values could also be affected by, among other things, earthquakes and national disasters particular to California. Any such downturn or disaster could have a material adverse effect on SoCal’s and the Subsidiary Bank’s business, financial condition, results of operations and cash flows.

SoCal may need to recognize a goodwill or core deposit intangible impairment charge.

Management is required to assess goodwill and other intangible assets at least annually for impairment. Goodwill is recognized when a company acquires a business and the purchased assets and liabilities are recorded at fair value. The fair value of most financial assets and liabilities is determined by discounting anticipated cash flows using current market rates applicable to each asset and liability. Excess consideration paid to acquire a business over the fair value of the acquired assets, less the fair value of assumed liabilities, is recorded as goodwill. The calculation of goodwill and the determination of impairment is an estimate subject to ongoing review based on certain factors such as declines in stock price, adverse economic conditions in the U.S. and international financial markets, unprecedented lack of liquidity, uncertainty regarding future economic policy and banking regulation changes and negative market sentiment towards the banking industry in general and additional impairment may be assessed in future periods.

During its impairment testing of goodwill during the third quarter of 2008, SoCal determined that its carrying amount exceeded its fair value, requiring it to record a goodwill impairment charge of $33.3 million. If goodwill is written down further in future periods it may have a material affect on SoCal’s results of operations, but not regulatory capital ratios.

Additionally, core deposit intangible asset amortization is continuously reviewed to assess whether the amortization rate used for financial reporting purposes is consistent with actual acquired deposit attrition. In the event that the pace of acquired deposit attrition exceeds that previously anticipated, the Subsidiary Bank would record an impairment charge and shorten the remaining core deposit intangible amortization period.

Other-than-temporary impairment (“OTTI”) charges in the Subsidiary Bank’s investment securities portfolio could result in significant losses and cause SoCal and the Subsidiary Bank to become significantly undercapitalized and adversely affect continuing operations.

At December 31, 2008, the Subsidiary Bank maintained a $23.9 million portfolio of private label collateralized mortgage obligations (“CMOs”) that are classified for financial reporting purposes as held-to-maturity. These CMOs are secured by prime and “Alt-A” first lien residential mortgage loans and were purchased at a discount to par value. At December 31, 2008, the fair value of these securities was $22.0 million. Under U.S. generally accepted accounting principles, when a security is deemed to have OTTI, it must be written down to its fair value as a charge against net income. As of December 31, 2008, and at the time of this filing, no OTTI charges have been recorded on this portfolio. In April 2009, SoCal adopted Financial Accounting Standards Board (“FASB”) Staff Positions FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairment (OTTI)” which changes existing guidance for determining whether an impairment is other than temporary to debt securities, replaces the existing requirement that management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under FAS 115-2 and FAS 124-2, declines in fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of impairment related to other factors is recognized in Other Comprehensive Income in our consolidated financial statements. FAS 115-2 and FAS 124-2 are effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.

The Subsidiary Bank closely monitors these and its other investment securities for changes in credit risk, and intends to hold these CMOs until the market value recovers or they mature. These securities’ reported fair value is influenced by external market and other factors, including implementation of SEC and Financial Accounting Standards Board guidance on fair value accounting, and default and recovery rates on residential mortgage collateral underlying these CMOs, rating agency actions, and the prices at which observable market transactions in similar securities occur. The current relatively illiquid market environment significantly limits the Subsidiary Bank’s ability to mitigate its exposure to valuation changes in these securities by selling them. Accordingly, if market conditions deteriorate further and the Subsidiary Bank determines its holdings of these or other investment securities are OTTI, future earnings, shareholders’ equity, and regulatory capital could be adversely affected.

SoCal may violate existing loan covenants and be subjected to more punitive terms and have more operating restrictions imposed by the lender as a condition for receiving a covenant waiver or may have the loan declared to be in default.

SoCal has an $8.0 million loan from Pacific Coast Bankers’ Bank secured by the Subsidiary Bank’s stock that requires SoCal to satisfy financial covenants quarterly and places other restrictions on management. On September 30, 2008, SoCal violated two of the four covenants and upon request and following payment of an administrative fee, received a waiver. On December 31, 2008, SoCal violated three financial covenants relating to the amount of the Subsidiary Bank’s regulatory capital and debt service coverage. Following payment of an administrative fee and execution of a loan amendment that increased the loan interest rate and accelerated the principal repayment schedule, SoCal received a waiver. On March 31, 2009, SoCal violated one financial covenant relating to the amount of total capital. On May 12, 2009, SoCal entered into an agreement with Pacific Coast Bankers’ Bank wherein the March 31, 2009 covenant violation was waived. The agreement resets quarterly debt service payments to be interest-only from June 2009 through June 2010 and thereafter includes a fixed quarterly $300,000 principal repayment, creates an interest reserve account dedicated to making interest payments until exhausted and to be funded with a $0.8 million payment from SoCal in May 2009, requires a $200,000 principal payment in May 2009, and requires that SoCal grant each quarter, from June 2009 to and including June 2010, to Pacific Coast Bankers’ Bank, 10,000 warrants to purchase SoCal common stock at one cent per warrant. The agreement requires that 25% of new SoCal capital financings be dedicated to principal payments on the Pacific Coast Bankers’ Bank loan, and that loan principal be paid down by $2.3 million by September 2010.

SoCal’s business is subject to interest rate risk and variations in interest rates may negatively affect its financial performance.

Changes in the interest rate environment in combination with unhedged interest rate positions may reduce SoCal’s net interest income. A substantial portion of the Subsidiary Bank’s income is derived from the differential or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. Because of the differences in the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities, changes in interest rates will not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect its profitability. In addition, new loan origination volumes are affected by market interest rates on loans; rising interest rates generally are associated with a lower volume of loan originations while lower interest rates are usually associated with higher loan originations. Conversely, in rising interest rate environments, loan repayment rates will decline and in falling interest rate environments, loan repayment rates will increase. In addition, an increase in the general level of interest rates may adversely affect the ability of certain borrowers to pay the interest on and principal of their obligations. Changes in levels of market interest rates could materially and adversely affect SoCal’s net interest spread, asset quality, loan origination volume, business, financial condition, results of operations and cash flows.

Liquidity risk could impair the Subsidiary Bank’s ability to fund operations and jeopardize its financial condition.

Liquidity is essential to the Subsidiary Bank’s business. An inability to raise funds through deposits, borrowings, capital contributions from SoCal and other sources could have a substantial negative effect on its liquidity. The Subsidiary Bank’s access to funding sources in amounts adequate to finance its activities, on at least equitable terms, could be impaired by factors that impact it specifically or the financial services industry in general. Factors that could detrimentally impact the Subsidiary Bank’s access to liquidity sources include a reduction in the level of business activity due to a market downturn or adverse regulatory action against it, or a decrease in depositor or investor confidence in the Subsidiary Bank. Further, as a business bank, a significant portion of the Subsidiary Bank’s deposits are raised from companies in amounts that exceed levels covered by FDIC insurance. In addition, the Subsidiary Bank’s ability to borrow could also be impaired by factors that are not specific to us, such as the severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as the recent turmoil faced by banking in the domestic and worldwide credit markets deteriorates.

SoCal may not be able to provide sufficient capital support required by its Subsidiary Bank.

Due to increased loan loss provision expense and a reduction in capital-eligible deferred tax assets, the Subsidiary Bank has needed capital support from SoCal. In December 2008, SoCal contributed $1.0 million to the Subsidiary Bank and in the first quarter 2009 contributed a further $7.0 million. Given a current unencumbered liquidity asset balance of $1.7 million and significant short-term maturing obligations, it is uncertain if SoCal will be able to meet any further capital needs by the Subsidiary Bank. It is uncertain what action, if any, regulators would take in the event that the Subsidiary Bank’s future capital needs could not be met by SoCal.

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

The Fund has provided financial support to SoCal to meet its liquidity requirements, including monies needed for SoCal to make capital contributions to the Subsidiary Bank. The Fund is subject to concentration limits on its aggregate investments in any single company. The Fund has advised management that following its $6.5 million loan to SoCal on March 31, 2009, it no longer has legal capacity to provide further direct financial support Further, should the Fund obtain additional capacity under its concentration limits, the Fund may choose not to provide further direct support to SoCal and instead direct its capital to the pursuit other opportunities which it may consider, in its sole discretion, to be more advantageous to the Fund.

SoCal may not be able to successfully implement its longer term business strategy to expand through business combinations with regionally and strategically compatible financial institutions, and therefore its market value and profitability may suffer.

Growth through business combinations with other banks represents a key component of SoCal’s business strategy. Any future combinations will be accompanied by the risks commonly encountered, including, among other things:

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difficulty in finding suitable business combination candidates willing to combine business on economic terms;

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difficulty of integrating the operations and personnel;

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potential disruption of the Subsidiary Bank’s ongoing business;

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inability of management to maximize SoCal’s financial and strategic position by the successful implementation of uniform product offerings and the incorporation of uniform technology into the Subsidiary Bank’s product offerings and control systems; and

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

Moreover, SoCal’s inability to improve the operating performance of acquired banks or to integrate their operations successfully could have a material adverse effect on its business, financial condition, results of operations and cash flows. SoCal could incur substantial expenses, including the expenses of integrating the businesses of the acquired banks with its existing business.

SoCal expects that competition for additional acquisition candidates may be significant. SoCal may compete with other banks or financial service companies with similar acquisition strategies, many of which may be larger or have greater financial and other resources. The purchase price of banks that might be attractive acquisition candidates for SoCal may significantly exceed the fair values of their net assets. As a result, material goodwill and other intangible assets would be required to be recorded.

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

Further, SoCal’s growth may place a strain on its administrative, operational and financial resources and increase demands on its systems and controls. SoCal anticipates its business growth may require continued enhancements to and expansion of its operating and financial systems and controls and may strain or significantly challenge them. The process of implementing the strategic integration of any acquired businesses may take a significant amount of time. It may also place additional strain on SoCal’s resources and could subject it to additional expenses. There is no assurance that SoCal will be able to integrate these businesses successfully or in a timely manner. In addition, SoCal cannot assure you that its existing operating and financial control systems and infrastructure will be adequate to maintain and effectively monitor future growth.

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

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

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

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inability to recruit and hire necessary personnel or to successfully integrate new personnel into operations;

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inability to integrate successfully the operations of acquired businesses or to manage growth effectively; or

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

If the Subsidiary Bank cannot attract and retain deposits, growth may be inhibited.

The Subsidiary Bank’s long term strategy is to increase the level of its assets, including its loan portfolio. Its ability to increase assets depends in large part on its ability to attract and retain deposits at competitive rates. The Subsidiary Bank intends to seek additional deposits by offering deposit products that are competitive with those offered by other financial institutions in its markets and by establishing personal relationships with its customers. SoCal cannot assure you that these efforts will be successful. The Subsidiary Bank’s inability to attract additional deposits at competitive rates could have a material adverse effect on its business, financial condition, results of operations and cash flows.

SoCal is dependent upon the services of its management team.

SoCal is dependent upon the ability and experience of a number of key management personnel who have experience with its operations, the financial services industry and the markets in which the Subsidiary Bank offers our services. It is possible that the loss of the services of one or more senior executives or key managers would have an adverse effect on operations. SoCal’s success also depends on its ability to continue to attract, manage and retain other qualified personnel as it grows.

Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the California banking industry. The process of recruiting personnel with the combination of skills and attributes required to carry out SoCal’s strategies is often lengthy. SoCal’s success depends to a significant degree upon its ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of the SoCal’s management and personnel. In particular, SoCal’s success has been and continues to be highly dependent upon the abilities of key executives.

In 2008, SoCal appointed William Baribault as Chief Executive Officer and Executive Chairman, and James Westfall as Chief Financial Officer. Upon Mr. Baribault’s resignation in March 2009, SoCal appointed Mary Lynn Lenz as President and Chief Executive Officer. There is no assurance that turnover in senior executive positions with the attendant loss of operating continuity will not be experienced again in the future.

The Subsidiary Bank’s performance could be adversely affected by a diminished reputation among customers, employees, vendors, counterparties, and/or regulators.

Negative publicity or public opinion could adversely affect the Subsidiary Bank’s ability to keep and attract customers and expose it to adverse legal and regulatory consequences. Negative public opinion could result from the Subsidiary Bank’s actual or perceived conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, mergers and acquisitions, and inadvertent disclosure, sharing or inadequate protection of customer information, and from actions taken by government regulators and community organizations in response to that conduct.

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

SoCal will rely heavily on third-party service providers for much of its communications, information, operating and financial control systems technology, including customer relationship management, general ledger, deposit, servicing and loan origination systems. Any failure or interruption or breach in security of these systems could result in failures or interruptions in SoCal’s customer relationship management, general ledger, deposit, servicing and/or loan origination systems. There is no assurance that such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by SoCal or the third parties on which SoCal relies. The occurrence of any failures or interruptions could have a material adverse effect on SoCal’s business, financial condition, results of operations and cash flows. If any of its third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in its relationships with them, SoCal may be required to locate alternative sources of such services, and there is no assurance that we could negotiate terms that are as favorable to SoCal, or could obtain services with similar functionality as found in the existing systems utilized by the Subsidiary Bank without the need to expend substantial resources, if at all. Any of these circumstances could have a material adverse effect on SoCal’s business, financial condition, results of operations and cash flows.

The Subsidiary Bank will be exposed to risk of environmental liabilities with respect to properties to which it takes title.

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

If SoCal fails to maintain an effective system of internal and disclosure controls, it may not be able to accurately report financial results or prevent fraud.

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

As a result of weaknesses that may be identified in SoCal’s internal controls, it may also identify certain deficiencies in some of its disclosure controls and procedures that SoCal believes require remediation. If SoCal discovers weaknesses, it will make efforts to improve its internal and disclosure controls. Any failure to maintain effective controls or timely effect any necessary improvement of its internal and disclosure controls could harm operating results or cause SoCal to fail to meet its reporting obligations. Ineffective internal and disclosure controls could also cause investors to lose confidence in SoCal’s reported financial information, which would likely have a negative effect on the trading price of its securities.

SoCal faces strong competition from financial service companies and other companies that offer banking services which could hurt its business.

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

The soundness of other financial institutions could adversely affect SoCal.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. SoCal and the Subsidiary Bank routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose SoCal and the Subsidiary Bank to credit risk in the event of default of our counterparty or client. In addition, SoCal’s and the Subsidiary Bank’s credit risk may be increased when the collateral we hold cannot be realized or is liquidated at prices not sufficient to recover the full amount of the secured obligation. Such losses could materially and adversely affect SoCal’s and the Subsidiary Bank’s results of operations or earnings.

Risks Related to Our Industry

The current changing economic environment poses significant challenges.

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

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Increased loan delinquencies, nonaccrual loans and Other Real Estate Owned (“OREO”) assets;

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Reduced demand for our products and services;

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General depositor nervousness in bank industry stability, individual bank creditworthiness and FDIC system soundness may precipitate customer deposit withdrawals;

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Collateral supporting the Subsidiary Bank’s real estate loans may decline in value, and in turn reduce customers’ borrowing power;

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Reduced borrowing capacity under Federal Home Loan Bank borrowing facilities and loss of correspondent bank Federal Funds lines;

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Reduced access to capital market debt and equity funding due to relative market illiquidity, general investor nervousness and heightened uncertainty about economic trends and future regulatory actions; and

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Increased regulatory scrutiny and the added cost of compliance, including higher FDIC insurance assessments.

SoCal and the Subsidiary Bank are subject to extensive government regulation, which may restrict or direct management actions and priorities, and could result in a decrease in the value of your shares.

SoCal and the Subsidiary Bank are subject to extensive regulation, supervision and examination by the DFI, as its state regulatory agency, and by the FDIC as the insurer of its deposits up to certain limits. This regulation and supervision limits the activities in which we may engage. The purpose of regulation and supervision is primarily to protect our depositors and borrowers and, in the case of FDIC regulation, the FDIC’s insurance fund. Regulatory authorities have extensive discretion in the exercise of their supervisory and enforcement powers. They may, among other things, impose restrictions on the operation of a banking institution, the classification of assets by such institution and such institution’s allowance for loan losses.

As discussed above under the caption “Supervision and Regulation,” financial institutions have been the subject of significant legislative and regulatory changes and will continue to be the subject of further significant legislation or regulation in the future, none of which is within our control. These changes as well as any future change in the laws or regulations applicable to SoCal or the Subsidiary Bank, or in banking regulators’ supervisory policies or examination procedures, whether by the FDIC, other state or federal regulators, or the United States Congress could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, the cost and burden of compliance, over time, could significantly increase and adversely affect our ability to operate profitably.

Recent legislative and regulatory initiatives to address these difficult market and economic conditions may not stabilize the U.S. banking system.

The U.S. Congress enacted the EESA in response to the impact of the volatility and disruption in the capital and credit markets on the financial sector. The U.S. Department of the Treasury (the “Treasury”) and the federal banking regulators are implementing a number of programs under this legislation that are intended to address these conditions and the asset quality, capital and liquidity issues they have caused for certain financial institutions and to improve the general availability of credit for consumers and businesses. In addition, the U.S. Congress recently enacted the ARRA in an effort to save and create jobs, stimulate the U.S. economy and promote long-term growth and stability. There can be no assurance that EESA, ARRA or the programs that are implemented under them will achieve their intended purposes. The failure of EESA, ARRA or the programs that are implemented under them to achieve their intended purposes could result in a continuation or worsening of current economic and market conditions, and this could adversely affect our financial condition, results of operations, and/or the trading price of our common stock. Moreover, the success of government programs with regard the economy as a whole could still adversely affect our financial condition.

FDIC deposit insurance premiums have increased and may increase further in the future.

Under the Federal Deposit Insurance Act, the FDIC, absent extraordinary circumstances, must establish and implement a plan to restore the deposit insurance reserve ratio to 1.15% of insured deposits, over a five-year period, at any time that the reserve ratio falls below 1.15%. The FDIC’s reserve ratio has continued to decline due to costs associated with bank failures and FDIC-assisted transactions, and the reserve ratio is expected to continue to decline due to future bank failures and FDIC-assisted transactions.

Pursuant to the EESA, the maximum deposit insurance amount has been increased from $100,000 to $250,000 until December 31, 2009, and certain types of deposit accounts will have unlimited deposit insurance coverage through that date. On October 13, 2008, the FDIC established a Temporary Liquidity Guarantee Program under which the FDIC will fully guarantee all non-interest-bearing transaction accounts and all senior unsecured debt of any insured depository institutions or their qualified holding companies that did not opt out of the program issued between October 14, 2008 and June 30, 2009. Senior unsecured debt includes federal funds purchased and certificates of deposit outstanding to the credit of the bank with a maturity of 30 days or greater. These increases have increased the aggregate amount of deposits that the FDIC insures and thus have exposed the FDIC’s deposit insurance fund to potentially greater losses. The Subsidiary Bank will be subject to increased deposit premium expenses in 2009 and futures years which will have an adverse impact on our results of operations.

Risks Related to Our Securities

An investment in SoCal common stock may be illiquid or holders may find it difficult to sell their shares.

The limited trading of SoCal’s common stock may cause fluctuations in its traded market value to be exaggerated, leading to price volatility in excess of that which would occur if it were more actively traded. In addition, even if a more active market in SoCal’s common stock develops, there is no assurance that such a market will continue or that you will be able to sell your shares in an orderly process. Due to the absence of an actively traded market in SoCal common shares, investors seeking to sell their shares may have to accept reduced prices in order to stimulate buyer interest.

Future issuances or sales of shares of SoCal common stock could have an adverse effect on its common stock price and dilute existing shareholders.

As of May 1, 2009, SoCal had 3,332,500 shares of our common stock outstanding. In addition, 1.5 million shares of our common stock are reserved for future issuance to directors, officers, employees and consultants under the Belvedere SoCal 2007 Equity Incentive Plan. In addition, 179,312 shares of our common stock are reserved for future issuance pursuant to the warrants that were issued in connection with the acquisition of PBB. Any sales of substantial amounts of common stock, including shares issued upon the exercise of outstanding options or warrants, may cause the market price of our common stock to decline.

Future sales of our common stock, or even the perception that such sales could occur, could adversely affect prevailing market prices for the shares of SoCal’s common stock and be dilutive to its shareholders. Such sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that is deemed appropriate. SoCal’s inability to raise funds and capital through the issuance of equity securities or the conversion of existing debt or preferred stock to common or preferred stock could adversely affect SoCal’s business or its ability to implement its business plan.

Additionally, SoCal may need authorization for additional shares of common stock to satisfy the conversion of existing debt and/or preferred stock, which if issued may have an adverse effect on its common stock price and dilute existing shareholders.

SoCal has no present intention of paying dividends on its common stock, and its future ability to pay dividends is subject to restrictions.

SoCal’s ability to pay dividends is subject to the restrictions of the California Corporations Code and the Federal Reserve. The ability of the Subsidiary Bank to pay dividends or make other capital distributions to SoCal will be subject to the regulatory authority of the FDIC and the DFI.

SoCal has also issued certain long term debt and corresponding junior subordinated deferrable interest debentures and perpetual non-cumulative preferred stock in connection with the acquisition of Spectrum, which contain provisions limiting SoCal’s ability to pay dividends on its common stock. One of the agreements executed in connection with the secured loan to SoCal also contains certain restrictions on the ability of the Subsidiary Bank to pay dividends for purposes other than to service such debt.

Additionally, the Subsidiary Bank has entered into a regulatory agreement with its regulators that, among other things, requires the prior written consent of the FDIC and DFI before the Subsidiary Bank may declare or pay dividends.

Concentrated ownership of SoCal’s common stock creates a risk of sudden changes in its share price.

The Fund beneficially owned 73.9% of SoCal’s outstanding common stock at December 31, 2008. Other shareholders may be subject to certain risks due to the Fund’s concentrated ownership position. The sale by the Fund of a significant portion of its respective holdings could have a material adverse effect on the market price of SoCal’s common stock.

Concentrated ownership of SoCal’s common stock creates a potential conflict of interest risk between the Fund and other common shareholders.

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

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

SoCal has entered into a management agreement with the Fund and the Fund’s general partner, under which the Fund’s general partner will provide certain management services to SoCal for a yearly fee. The fee is equal to 5% of the Subsidiary Bank’s pre-tax income but in no event shall such yearly fee be less than $200,000 or more than $750,000. The execution of SoCal’s business plan will be, in some ways, dependent on the management expertise of the Fund in using SoCal and the Subsidiary Bank as its platform for expansion into the financial services market in Southern California. The Fund’s agreements with SoCal, related fees, participation in management of SoCal, and its controlling interest in SoCal may present conflicts of interest between the Fund and SoCal’s other shareholders.

SoCal may default under its Pacific Coast Bankers’ Bank loan.

Should a loan default occur, PCBB has the right to foreclose on the loan and obtain the common stock of the Subsidiary Bank held as collateral and, subject to regulatory approvals, sell the Subsidiary Bank. Should this occur, it is uncertain what, if any, remuneration SoCal common shareholders would ultimately receive for their SoCal shares.

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 2. PROPERTIES.

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

Premises are considered adequate for SoCal’s needs. In management’s opinion, SoCal has sufficient insurance to cover its interests in the occupied premises.

ITEM 3. LEGAL PROCEEDINGS.

SoCal is involved from time to time in a number of judicial, regulatory and arbitration proceedings and inquiries concerning matters arising in connection with the conduct of our business. SoCal reviews such matters on a case-by-case basis and establishes any required reserves in accordance with Statement of Financial Accounting Standards No. 5, “Accounting For Contingencies.” Management believes, based on currently available information, that the results of the following matter will not have a material adverse effect on SoCal’s financial condition but may be material to SoCal’s operating results or cash flows for any particular period, depending upon the operating results for such period.

On October 28, 2008, a former executive officer filed a suit against SoCal in the Superior Court of the State of California, claiming, among other things, breach of contract. No specific damages have been pleaded. Depositions are in process and the Court has set an initial court date of September 28, 2009. SoCal believes this case is without merit and intends to vigorously defend the claim.

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

There were no matters submitted to a vote of the security holders during the fourth quarter 2008.

PART II

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

Our common stock is not listed on any national securities exchange or quoted on the OTC Bulletin Board. Any trades are currently reported on the Pink Sheets under the symbol “BLVE.PK”. There is not an active market for our common stock and what limited trading that is currently reported on the Pink Sheets may cease at any time. As of December 31, 2008, there were approximately 149 shareholders of record of SoCal common stock and 3,331,877 shares of common stock issued and outstanding.

The bid prices below are over-the-counter market quotations, as obtained from Pink Sheets, LLC. The limited trading market for SoCal’s common stock may cause fluctuations in the market value of our common stock to be exaggerated, leading to price volatility in excess of that which would occur in a more active trading of its common stock.

The following table shows the highs and low prices for the common stock for each quarter in 2008:

	Bid Prices
	Low		High
First quarter		11.80		21.60
Second quarter		7.05		12.10
Third quarter		6.00		8.10
Fourth quarter		1.00		6.25

In January 2008, SoCal filed a Form S-8 which registered 1,500,000 shares of its common stock, no par value, in connection with its 2007 Equity Incentive Plan. On March 9, 2009, SoCal filed a post-effective amendment deregistering these shares, all of which remain unsold. On March 11, 2009, SoCal withdrew its registration statement on Form S-1, which was filed with the SEC on September 12, 2008 (the “Registration Statement”). No amendments to the Registration Statement were ever filed and no securities were sold in connection with the offering contemplated by the Registration Statement. Subsequent to filing this Form 10-K, SoCal plans on filing a Form 15 Notice of Termination of Registration under Section 12h-3 of the Exchange Act, which would suspend its filing obligations under the Exchange Act.

Shareholders of SoCal common stock are entitled to receive dividends when and as declared by our board of directors (the “Board”) , out of funds legally available therefore, subject to a variety of regulatory restrictions. In addition, SoCal has issued certain long term debt and corresponding junior subordinated deferrable interest debentures and perpetual non-cumulative preferred stock in connection with the acquisition of Spectrum, which contain provisions limiting SoCal’s ability to declare and pay dividends on its common stock in certain events. SoCal has paid no cash dividends to its common shareholders since inception and has no present intent to commence the payment of dividends to common shareholders in the foreseeable future. In addition, the California Financial Code and various other regulatory provisions restrict its ability to pay cash dividends.

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

For sales of unregistered securities made by SoCal during the period covered by this report, please refer to our Quarterly Report on Form 10-Q filed on May 15, 2008.

ITEM 6. SELECTED FINANCIAL DATA.

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

CAUTIONARY NOTES

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

The following includes discussion and analysis of the financial position at December 31, 2008 and 2007, and results for the year ended December 31, 2008 and the period ended December 31, 2007.

OVERVIEW

Formation and Structure

SoCal acquired PBB on November 23, 2007 and Spectrum on January 31, 2008. Prior to November 23, 2007, SoCal had no significant operations. Accordingly, the discussion of the results of operations and financial condition for periods subsequent to November 23, 2007 are for SoCal. Periods prior to November 23, 2007 relate to PBB only. Management believes the information is comparable since the sole subsidiary of SoCal through and including December 31, 2007 was PBB. Results of operations for 2008 include Spectrum from January 31, 2008, the acquisition date, through December 31, 2008.

Effective July 3, 2008, PBB and Spectrum merged. By combining the two banks, SoCal expects to improve operational efficiency, reduce regulatory compliance costs, and consolidate vendor relationships. The merger was accounted for as a transfer of assets and liabilities between entities under common control and, accordingly, the assets and liabilities of Spectrum were transferred at their carrying amounts, similar to a pooling of interests. The existing Spectrum branches and certain customer-related activities will continue to be conducted using the Spectrum brand.

SoCal Liquidity

The Subsidiary Bank is SoCal’s sole operating asset. SoCal, like other bank holding companies, relies on dividends from the Subsidiary Bank and outside financing sources as its primary sources of liquidity. At present, the Subsidiary Bank does not have the legal capacity to pay dividends.

As of March 31, 2009, SoCal had current unencumbered liquid assets of approximately $1.7 million, consisting primarily of cash and cash equivalents. Pursuant to the May 12, 2009 signed term sheet, $1.0 million of SoCal unencumbered liquid assets will be committed in May 2009 to payment of interest and principal on the Pacific Coast Bankers’ Bank loan. As of this date, SoCal had approximately $32.9 million of outstanding indebtedness, including $8 million of secured indebtedness, $9.5 million of senior unsecured notes held by the Fund and $15 million of subordinated indebtedness related to trust preferred securities. SoCal has no borrowing availability under its current debt arrangements and is currently seeking, with the assistance of the Fund, other sources of liquidity. Previously, SoCal has relied on the Fund for its financing needs. However, the Fund has advised SoCal that it no longer has the capacity to extend SoCal further financial support.

While SoCal has deferred the scheduled April and May 2009 interest payments under the indenture related to the trust preferred securities, it continues to make interest payments under the $8.0 million of senior secured debt held by PCBB. The modified interest rate on that loan is 810 basis points over 3-month LIBOR

As described above, SoCal entered into agreements with PCBB, which, among other things, waived certain covenant violations as of December 31, 2008 and at March 31, 2009.

The senior notes held by the Fund mature on July 1, 2009. Although, SoCal currently anticipates that it will be able to negotiate an extension from the Fund or an agreement to convert the senior notes to equity, there can be no assurance that it will be able to do so. However, the Fund has currently agreed to defer interest payments.

Due to SoCal’s ability to continue deferring interest payments on the trust preferred securities and assuming the Fund extends the maturity, or agrees to convert the senior notes, current unencumbered liquidity assets are sufficient to meet maturing obligations and normal operating expenses until August 2010.

As a result of the foregoing, SoCal is currently pursuing a plan under which investors in SoCal debt (other than the secured lender) and preferred equity securities would convert their holdings into SoCal common stock. Management believes accomplishment of this restructuring would significantly improve SoCal’s potential for attracting new investors. This restructuring plan would result in the issuance of new common shares that would dilute current common shareholders’ percentage ownership of SoCal, but would at the same time eliminate a substantial amount of debt and preferred equity. As of the date of this filing, the holders have not agreed to such conversion but the Fund has indicated its interest in a proposed conversion but the exact terms have yet to be determined. Therefore, SoCal cannot provide any assurance that the restructuring plan will be successful. In addition, even if the restructuring plan is successful, we can provide no assurance that any financing or other sources of liquidity will be available to SoCal on acceptable terms, if at all.

See “Business—Near Term Stabilization Strategy” above for more detail on SoCal’s restructuring plan; see also “—Liquidity” below for more information on SoCal’s liquidity position, including its outstanding debt instruments.

Recent SoCal Operating Results

In the first quarter 2009, SoCal incurred a loss of $4.3 million. Key contributing factors were a $2.7 million loan loss provision and a $0.7 million severance expense. The loan loss provision expense was primarily attributable to the continued decline of both national and local market business conditions. During the first quarter there was a $4.4 million increase in nonaccrual loans and $7.0 million increase in non-performing assets recorded.

The Subsidiary Bank’s regulatory capital ratios at March 31, 2009 improved relative to December 31, 2008. The improvement was due to $7.0 million of capital contributions made by SoCal during the first quarter, partially offset by the first quarter operating loss.

During the first quarter, SoCal borrowed $9 million from the Fund and contributed $7 million of capital to the Subsidiary Bank. The remainder of these loan proceeds augmented SoCal’s cash and cash equivalent account. Additionally, SoCal renegotiated its Pacific Coast Bankers’ Bank loan in order to obtain a waiver for December 31, 2008 and March 31, 2009 financial covenant violations. A description of the amended loan agreement is included on page 40.

At March 31, 2009, SoCal had $1.7 million of unencumbered cash and equivalents. By comparison, SoCal has projected net cash expenditure obligations of $1.4 million for the remainder of 2009. Monies due Pacific Coast Bankers’ Bank constitute $1.1 million of this total. The Subsidiary Bank does not currently or prospectively have dividend payment capacity. Management and the board have had discussions with potential investors, but it is uncertain what, if any, new funding may be obtained from these sources.

CONSOLIDATED EARNINGS SUMMARY

Financial data for 2008 includes the consolidated results of SoCal and the Subsidiary Bank. For comparative analysis, PBB’s net loss of $843 thousand for the period January 1, 2007 through November 23, 2007 (pre-acquisition) is combined with PBB’s net income of $99 thousand for the period from November 24, 2007 to December 31, 2007, SoCal’s loss for 2007 of $473 thousand and a $143 thousand (net of tax) pro forma adjustment for additional amortization of the PBB core deposit intangible for a total pro forma combined loss of $1.4 million, or $(0.68), basic and diluted earnings per share.

The following unaudited pro forma financial information is presented for information purposes only and you should not assume that the combined company would have achieved the pro forma results if they had actually been combined at the beginning of the period presented.

UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2007

	Professional Business Bank					Belvedere SoCal
	January 1 - November 23, 2007			November 24 - December 31, 2007		January 17 (inception) - December 31, 2007			Combined			Pro Forma Adjustments			Pro Forma Combined
Interest income:
Interest and fees on loans	$	13,369		$	1,769	$	-		$	15,138		$	-		$	15,138
Interest on investments		589			46					635						635
Other interest income		519			40					559						559
Total interest income		14,477			1,855		-			16,332			-			16,332

Interest expense:
Interest on NOW, savings and money market		2,369			121					2,490						2,490
Interest on time deposits less than $100,000		1,030			194					1,224						1,224
Interest on time deposits $100,000 and over		671			140					811						811
Interest on other borrowings		358			23		170			551						551
Total interest expense		4,428			478		170			5,076			-			5,076

Net interest income		10,049			1,377		(170	)		11,256			-			11,256

Provision for loan losses		1,903			351		-			2,254			-			2,254

Net interest income after provision for loan losses		8,146			1,026		(170	)		9,002			-			9,002

Non-interest income:
Service charges and fees		388			44		-			432			-			432
Other income		1			3		-			4			-			4
Total non-interest income		389			47		-			436			-			436

Non-interest expense:
Salaries and employee benefits		5,355			530		37			5,922			-			5,922
Occupancy and equipment expenses		603			78					681			-			681
Professional fees		1,716			72		568			2,356			-			2,356
Office and administrative expenses		724			95		30			849			-			849
Loan origination expenses		30			1					31			-			31
Other expenses		1,309			128					1,437			242	A		1,679
Total non-interest expense		9,737			904		635			11,276			242			11,518

Income (loss) before tax expense (benefit)		(1,202	)		169		(805	)		(1,838	)		(242	)		(2,080	)

Income tax expense (benefit)		(359	)		70		(332	)		(621	)		(99	)		(720	)

Net income (loss)	$	(843	)		99		(473	)	$	(1,217	)	$	(143	)	$	(1,360	)

Net loss per share - basic	$	(0.42	)									$	-		$	(0.68	)
Net loss per share - diluted		n/a														n/a
Weighted average shares - basic		1,998,199														2,011,343

(A) Represents amortization of PBB core deposit intangible

The net loss in 2008 was $46.0 million, or $15.28 per diluted share, compared to the pro forma net loss of $1.4 million, or $0.68 per diluted share, in 2007. Net interest income before provision for loan losses increased $3.7 million, or 33.0%, to $15.0 million for the year ended December 31, 2008, compared to $11.3 million for the prior year. The increase was primarily due to an increase in interest-earning assets due to the acquisition of Spectrum, as well as a decline in our average cost of funds, as deposits have repriced downward in response to lower market interest rates. Noninterest income increased $717,000, or 164.4%, to $1.2 million in 2008 compared to $436,000 in 2007 due to the acquisition of Spectrum’s deposit base. Noninterest expense increased $39.4 million, or 342.5%, from $11.5 million in 2007 to $51.0 million in 2008. The increase resulted from a $33.3 million goodwill impairment charge, a $3.4 million, or 57.2%, increase in personnel costs, and a $2.8 million, or 49.3% increase in other noninterest expenses. The acquisition of Spectrum was the primary cause for the personnel and other noninterest expense increases.

CONSOLIDATED BALANCE SHEET SUMMARY

As of December 31, 2008, total assets were $384.9 million, an increase of $114.8 million, or 42.5%, from total assets of $270.1 million at December 31, 2007. Net loans grew from $210.3 million at December 31, 2007 to $299.4 million at December 31, 2008, an increase of $89.1 million, or 42.4%. Deposits grew from $194.0 million at December 31, 2007 to $303.7 million at December 31, 2008, an increase of $109.7 million, or 56.5%. The primary reason for the increase in assets, loans and deposits relates to the acquisition of Spectrum, which contributed $187.4 million in assets, $79.5 million in loans and $142.0 million in deposits at the acquisition date.

The allowance for loan losses as a percentage of total loans was 2.9% and 1.9% at December 31, 2008 and 2007, respectively. During the year ended December 31, 2008, net charge-offs totaled $7.5 million, compared to $46,000 during the prior year.

Shareholders’ equity decreased $23.8 million for the year ended December 31, 2008 primarily due to the net loss in 2008 offset by issuance of common stock to the Fund to provide cash in connection with the acquisition of Spectrum.

The following table sets forth several key operating ratios:

	Year Ended December 31,
	2008		2007

Return on Average Assets		-10.93%		-0.66%
Return on Average Equity		-67.57%		-4.97%

CRITICAL ACCOUNTING POLICIES

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

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

Allowance for Loan Losses. The allowance for loan losses represents management’s best estimate of losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. The provision for loan losses is determined based on management’s assessment of several factors, including reviews and evaluation of specific loans, changes in the nature and volume of the loan portfolio, current economic conditions and the related impact on specific borrowers and industry groups, historical loan loss experiences, the level of classified and nonperforming loans and the results of regulatory examinations. Refer to “Provision and Allowance for Loan Losses” on page 37 for a full discussion of SoCal’s methodology of assessing the adequacy of the allowance for loan losses.

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

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

The Subsidiary Bank has an analysis of its portfolio performed on a quarterly basis utilizing a model which calculates an estimated reserve based upon loan type, collateral type, geographic location and credit grade. The model estimates the likelihood of payment default, and the potential charge-off rate given default. The model is further enhanced for Joint Policy Statement factors and actual loan performance on a loan by loan basis. Underlying factors for geography, collateral type and overall payment history and losses given default are adjusted quarterly from call report data gathered from approximately 1,100 small community banks in the Western United States.

Goodwill and Other Intangibles. Net assets of entities acquired in purchase transactions are recorded at fair value at the date of acquisition. The historical cost basis of individual assets and liabilities are adjusted to reflect their fair value. Identified intangibles are amortized on a straight-line basis over the period benefited. Goodwill is not amortized for book purposes, although it is reviewed for potential impairment on an annual basis, or if events or circumstances indicate a potential impairment. The impairment test is performed in two phases. The first step of the goodwill impairment test compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, an additional procedure must be performed. That additional procedure compares the implied fair value of the reporting unit’s goodwill (as defined in SFAS No. 142, Goodwill and Other Intangible Assets ) with the carrying amount of that goodwill. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. During the third quarter of 2008, SoCal engaged a third party to provide an independent impairment analysis of goodwill in accordance with the requirements of SFAS 142. The fair value of SoCal was determined using valuation approaches typically applied in business combinations involving financial institutions: (1) comparable transactions approach, (2) discounted cash flow approach and (3) control premium approach. The process of evaluating goodwill for impairment requires assumptions and estimates including market trends and multiples of companies engaged in similar businesses. If any of those assumptions change over time, the estimated value assigned to goodwill could change significantly.

The independent analysis resulted in a non-cash charge of $33.3 million for the write-down of goodwill. The charge does not affect our tangible equity or our liquidity position. Regulatory capital ratios are unaffected by the write-down of goodwill. As goodwill is not tax deductible at the time of acquisition, there is no corresponding tax impact for the write-down of this asset. This charge is not expected to impact ongoing operations.

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

Fair Value Measurements. Effective January 1, 2008, SoCal adopted SFAS No. 157, Fair Value Measurements, which among other things, requires enhanced disclosures about financial instruments carried at fair value. SFAS No. 157 establishes a hierarchical disclosure framework associated with the level of observable pricing scenarios utilized in measuring financial instruments at fair value. The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of the observable pricing scenario. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of observable pricing and a lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have little or no observable pricing and a higher degree of judgment utilized in measuring fair value.

On October 10, 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,” which clarifies how companies should apply the fair value measurement methodologies of SFAS 157 to financial assets when markets they are traded in are illiquid or inactive. Under the provisions of this FSP, companies may use their own assumptions about future cash flows and appropriately risk-adjusted discount rates when relevant observable inputs are either not available or are based solely on transaction prices that reflect forced liquidations or distressed sales. This FSP is effective as of September 30, 2008. There was no impact to our financial position or results of operations from the adoption of this FSP.

Accounting for Income Taxes. SoCal files its income taxes on a consolidated basis with its Subsidiary Bank. The allocation of income tax expense (benefit) represents each entity’s proportionate share of the consolidated provision for income taxes.

SoCal applies the asset and liability method to account for income taxes. Deferred tax assets and liabilities are calculated by applying applicable tax laws to the differences between the financial statement basis and the tax basis of assets and liabilities. The effect on deferred taxes of changes in tax laws and rates is recognized in income in the period that includes the enactment date. A valuation allowance is established to reduce deferred tax assets to the level at which it is “more likely than not” that the tax assets or liabilities will be realized. Realization of tax benefits of deductible temporary differences and operating loss carry forwards depends on having sufficient taxable income of an appropriate character within the carry forward periods.

SoCal accounts for uncertainty in income taxes under FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). Under the provisions of FIN 48, only tax positions that meet the more likely than not recognition threshold that the tax position would be sustained in a tax examination are recognized.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than fifty percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Impairment of Investment Securities. Investment securities are evaluated for other-than-temporary impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value below amortized cost is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline, the financial condition of the issuer, rating agency changes related to the issuer’s securities and the intent and ability of the Bank to retain its investment in the issues for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS’ EQUITY

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

	For the Year Ended December 31,
	2008							2007
						Average							Average
				Interest		Yield or					Interest		Yield or
	Average			Earned		Rate		Average			Earned		Rate
	Balance			or Paid		Paid		Balance			or Paid		Paid
Assets
Interest-Earning Assets:
Investment Securities-taxable	$	24,217		$	1,280		5.29%	$	13,394		$	635		4.74%
Investment Securities-nontaxable		7,308			298		6.18%		-			-		-
Interest-Bearing Deposits with Other Financial Institutions		892			46		5.16%		2,021			154		7.62%
Federal Funds Sold		13,868			300		2.16%		7,935			406		5.12%
Loans		301,688			21,226		7.04%		170,658			15,138		8.87%
Total Interest-Earning Assets		347,973			23,150		6.65%		194,008			16,333		8.42%

Noninterest-Earning Assets:
Cash and Due from Banks		8,294							6,953
Premises and Equipment		4,837							461
Accrued Interest and Other Assets		15,718							6,976
Goodwill		46,366							-
Other Intangible Assets, Net		2,776							-
Other Real Estate Owned		752							-
Allowance for Loan Losses		( 5,841	)						( 2,609	)
Total Assets	$	420,875						$	205,789


Liabilities and Shareholders’ Equity
Interest-Bearing Liabilities:
Money Market, Savings and NOW	$	83,061			1,175		1.41%	$	74,306			2,491		3.35%
Time Deposits under $100,000		75,521			2,857		3.78%		23,817			1,225		5.14%
Time Deposits of $100,000 or More		57,009			2,014		3.53%		15,672			810		5.17%
Short-Term Borrowings		12,766			323		2.53%		7,802			551		7.06%
Junior Subordinated Debentures		14,154			1,418		10.02%		-			-		-
Notes Payable		7,322			388		5.30%		-			-		-
Total Interest-Bearing Liabilities		249,833			8,175		3.27%		121,597			5,077		4.18%

Noninterest-Bearing Liabilities:
Demand Deposits		99,005							55,471
Other Liabilities		3,966							1,359
Shareholders’ Equity		68,071							27,362
Total Liabilities and Shareholders’ Equity	$	420,875						$	205,789
Net Interest Income				$	14,975						$	11,256

Net Yield on Interest-
Earning Assets (Net Interest Margin)							4.30%							5.80%

Yields are computed on a tax equivalent basis resulting in an adjustment of $154,000 to interest earned on municipal bonds for the year ended December 31, 2008. There were no municipal bonds held during 2007.

CONSOLIDATED EARNINGS ANALYSIS

NET INTEREST INCOME

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

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

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

	Year Ended December 31, 2008
	versus
	Year Ended December 31, 2007
	Increase (Decrease) Due
	To Change in
	Volume			Rate			Total
Interest-Earning Assets:
Investment Securities-Taxable	$	565		$	80		$	645
Investment Securities-Nontaxable		298			-			298
Interest Bearing Deposits in Other Financial Institutions		( 68	)		(40	)		( 108	)
Federal Funds Sold		205			(311	)		( 106	)
Loans		9,729			(3,641	)		6,088
Total Interest Income		10,729			(3,912	)		6,817

Interest-Bearing Liabilities:
Money Market, Savings and NOW		265			( 1,581	)		(1,316	)
Time Deposits under $100,000		2,032			(400	)		1,632
Time Deposits of $100,000 or More		1,533			(329	)		1,204
Short-Term Borrowings		239			(467	)		(228	)
Notes Payable		388			-			388
Junior Subordinated Debentures		1,418			-			1,418
Total Interest Expense		5,875			(2,777	)		3,098
Net Interest Income	$	4,854		$	(1,135	)	$	3,719

Net interest income was $15.0 million and $11.3 million for the years ended December 31, 2008 and 2007, respectively. The increase of $3.7 million, or 33.0%, was primarily due to the increase in average interest-earning assets in 2008 over 2007 due to the Spectrum acquisition. The net interest margin was 4.30% and 5.80% for 2008 and 2007, respectively. The decrease in net interest margin is primarily due to declines in market interest rates and additional holding company financings.

Interest income was $23.2 million and $16.3 million for 2008 and 2007, respectively. The year over year increase of $6.8 million, or 41.7%, was due to the $154.0 million, or 79.4%, increase in average interest-earning assets year over year. The yield on interest-earning assets decreased 177 basis points from 8.42% to 6.65% for 2007 and 2008, respectively, due to a decrease in average market rates year over year. The prime rate decreased seven times, totaling a reduction of 400 basis points from December 31, 2007 to December 31, 2008. Variable rate loans, with rates primarily tied to the prime rate, comprise approximately 64% of the loan portfolio. The decline in prime rate impacted the loan portfolio immediately and to a greater extent than its impact on the interest-bearing liabilities generally due to a lag in deposit repricing as compared to loans.

Interest expense was $8.2 million and $5.1 million for the years ended December 31, 2008 and 2007, respectively. The increase of $3.1 million, or 61.1%, was due to the increase in average interest-bearing liabilities resulting from the acquisition of Spectrum along with an increase in holding company debt issued in conjunction with the Spectrum acquisition. The average balance of interest-bearing liabilities increased $128.2 million, or 105.5%, from $121.6 million to $249.8 million for 2007 and 2008, respectively. The average rate paid on interest-bearing liabilities decreased 91 basis points from 4.18% to 3.27% for 2007 and 2008, respectively, in response to lower market interest rates.

NONINTEREST INCOME

Noninterest income consists primarily of service charges on deposit accounts. Noninterest income was $1.2 million for 2008 compared to $436,000 for 2007. Virtually all of the increase relates to the acquisition of Spectrum’s deposit base. During 2008, losses on sales of available-for-sale investment securities of $116,000 were included in non-interest income. There were no sales of investment securities during 2007.

NONINTEREST EXPENSE

Noninterest expense reflects SoCal’s costs of operations including systems, facilities, personnel, and administration. The following are the major components of noninterest expense for the years ended December 31, 2008 and 2007 (dollar amounts in thousands):


	2008		2007		Percent Change

Salaries and employee benefits	$	9,307	$	5,922		57.2 %
Professional fees		2,566		2,356		8.9 %
Occupancy and equipment		1,443		681		111.9 %
Data processing		1,268		551		130.3 %
Other intangible asset amortization		499		276		80.6 %
Office and administrative expenses		490		263		86.0 %
Correspondent banking fees		472		556		(15.0 %)
Insurance		432		202		113.8 %
Marketing and business promotion		125		136		(8.5 %)
Goodwill impairment charge		33,301		-		100.0 %
Other expenses		1,061		575		84.6 %
Total	$	50,964	$	11,518		342.5 %

The increase of $39.4 million in noninterest expense, or 342.5%, for 2008 over 2007 was primarily due to the following:

●

The $33.3 million goodwill impairment charge in 2008 resulted from an independent analysis performed in the third quarter of 2008 which has been discussed previously.

●

Salary and employee benefits increased $3.4 million, or 57.2%, due to the addition of 33 full-time and two part-time Spectrum employees. The remainder of the increase was the result of increased stock-based compensation costs, salary adjustments and other employee benefits.

●

Professional fees increased $210,000, or 8.9%, which is reflective of the larger organization in 2008.

●

Occupancy and equipment expenses increased $762,000, or 111.9%, due to the acquisition of Spectrum, which added three branch offices to the existing branches of PBB.

●

Data processing expenses increased $717,000, or 130.3%, due to system conversion costs and the increased transaction volume subsequent to the acquisition of Spectrum.

●

Other intangible asset amortization increased $223,000 or 80.6%, due to the amortization of Spectrum’s core deposit intangible in 2008.

●

Office and administrative expenses increased $227,000, or 86.0%, due to increased administrative costs associated with the expanded organization subsequent to the acquisition of Spectrum.

●

Correspondent banking fees decreased $83,000, or 15.0%, due to reduced costs resulting from the consolidation of PBB and Spectrum correspondent banking relationships.

●

Insurance costs increased $230,000, or 113.8%, due primarily to FDIC insurance assessments on the increased deposit base resulting from the Spectrum acquisition.

●

Marketing and business promotion expenses decreased $11,000, or 8.5%.

●

Other expenses increased $486,000, or 84.6%, due to expenses incurred by SoCal and the larger organization including increased courier costs, collection and foreclosure costs and ATM related expenses.

As a percentage of average assets, noninterest expense was 12.1%, of which 65% was attributable to a goodwill impairment charge, and 5.6% in 2008 and 2007, respectively.

INCOME TAXES

The income tax expense (benefit) was $384,000, or an effective rate of 0.84%, and ($720,000), or an effective rate of (34.6)%, for 2008 and 2007, respectively. The lower absolute income tax expense rate in 2008 was due to the nondeductibility of the goodwill impairment charge along with a $5.6 million valuation allowance recorded on deferred tax assets. The income tax benefit for 2007 was due primarily to the 2007 acquisition that occurred during the year and the related impact on operations. As of December 31, 2008, SoCal has net operating loss carry forwards of approximately $15.1 million for federal income tax and $17.7 million for California franchise tax purposes. Federal net operating loss carry forwards, to the extent not used, will expire in 2028. California net operating loss carry forwards, to the extent not used, will expire in 2030.

A valuation allowance is established for any deferred tax assets for which management does not believe it is more-likely-than-not that the full future tax benefit will be utilized. At December 31, 2008, management does not believe it is more-likely-than-not that $5.6 million of our net deferred tax asset will be realized. Accordingly, a valuation allowance of $5.6 million has been established against such benefits. No valuation allowance was considered necessary at December 31, 2007.

CONSOLIDATED BALANCE SHEET ANALYSIS

INVESTMENT PORTFOLIO

The following table summarizes the amounts and distribution of investment securities held as of the dates indicated (dollar amounts in thousands):

	December 31, 2008							December 31, 2007
					Weighted							Weighted
	Amortized		Market		Average			Amortized		Market		Average
	Cost		Value		Yield			Cost		Value		Yield
Available-for-Sale Securities

U.S. Government Agencies
Within One Year	$	-	$	-				$	2,004	$	2,002		4.24	%
One to Five Years		1,628		1,704		5.85	%		2,024		2,024		5.42	%
		1,628		1,704		5.85	%		4,028		4,026		4.40	%

States and Political Subdivisions
Over Ten Years		6,253		6,112		4.10	%		-		-		-
		6,253		6,112		4.10	%						-
Mortgage-Backed Securities
Within One Year		1,163		1,161		3.80	%		-		-
One to Five Years		-		-					1,230		1,231		4.16	%
After Five Years to Ten Years		151		152		4.99	%		558		559		4.98	%
Over Ten Years		346		338		5.80	%		2,953		2,970		4.78	%
		1,660		1,651		4.32	%		4,741		4,760		4.84	%

Subtotal available-for-sale securities		9,541		9,467		4.45	%		8,769		8,786		4.56	%

Held-to-Maturity Securities

Private Label Collateralized Mortgage Obligations
Over Ten Years		23,854		21,967		5.81	%		-		-		-
		23,854		21,967		5.81	%		-		-		-

Total investment securities	$	33,395	$	31,434		5.40	%	$	8,769	$	8,786		4.56	%

During 2008, SoCal purchased $24.5 million of seasoned private label collateralized mortgage obligation (“CMO”) securities secured by prime and “Alt-A” residential mortgages originated from 2003 to 2007, 94% of which were originated prior to 2006. CMO purchase prices ranged from 75.8% to 93.3% of their par value and credit loss protection provided by subordinated tranches ranged from 4.02% to 12.10% of par. At the time of acquisition, these securities were AAA-rated. At March 31, 2009, 51% are AAA-rated, 26% are investment grade rated but rate below the AAA level, and 23% have been downgraded below investment grade.

Management’s OTTI evaluation at December 31, 2008 and March 31, 2009 indicated that the decline in fair value below the Subsidiary Bank’s carrying value at that date was not OTTI. Chief factors considered in this evaluation were the relative decline in value since purchase, the extent of time that the value had been depressed, credit rating downgrades, the credit performance of the underlying loan collateral and whether contracted interest and principal payments had been made.

LOAN PORTFOLIO

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

	December 31,
	2008			2007
Loans
Commercial	$	79,008		$	56,791
Real Estate - Construction		43,104			37,566
Real Estate - Other		179,432			113,123
Consumer		7,032			7,127
Net Deferred Loan Fees		( 388	)		( 273	)
Total Loans		308,188			214,334
Allowance for Loan Losses		( 8,799	)		( 4,077	)
Net Loans	$	299,389		$	210,257

Commitments
Letters of Credit	$	-		$	769
Undisbursed Loans and
Commitments to Grant Loans		57,121			62,459
Total Commitments	$	57,121		$	63,228

At December 31, 2008 and 2007, respectively, approximately 58% and 53%, of the loan portfolio was comprised of real estate-other loans. Real estate-other loans consist primarily of loans secured by owner-occupied and investor commercial real estate.

In an effort to diversify its loan portfolio, in 2006, PBB, now the Subsidiary Bank, became an approved lender under CalCAP under which $15.4 million and $5.9 million of commercial loans were outstanding at December 31, 2008 and 2007, respectively. The outstanding balances of real estate loans originated under the CalCAP program were $2.4 million and $1.9 million at December 31, 2008 and 2007, respectively. Under the CalCAP program, the borrower, CalCAP and the Subsidiary Bank contribute funds (generally 2%, 4% and 2%, respectively, of the loan commitment amount) to a CalCAP reserve account that is held in an interest-bearing demand account at the Subsidiary Bank. The Subsidiary Bank’s contributions to the CalCAP reserve account have been recorded as a receivable and are included in accrued interest and other assets. The allowance for loan losses allocated to the CalCAP loans takes into consideration the credit support provided by the CalCAP reserve account. If the Subsidiary Bank were to formally withdraw from the program, the remaining balance in the CalCAP reserve account after all loans have been repaid and there are no pending claims for reimbursement and the California Pollution Control Financing Authority withdraws its pro rata portion (based on total contributions) of the account balance will be paid to the Subsidiary Bank as repayment of the previously recorded receivable.

The following table sets forth the maturity distribution of loans outstanding at December 31, 2008. In addition, the table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the national prime rate or other interest rate indices. Variable rate loans where the interest rate has fallen below contractual minimums are classified in the following chart as fixed rate loans (dollar amounts in thousands):

			Over One
			Year But
	Less Than		Less Than		Over Five
	One Year		Five Years		Years		Total

Commercial	$	65,749	$	11,388	$	1,871	$	79,008
Real Estate - Construction		39,979		3,125		-		43,104
Real Estate - Other		49,469		98,999		30,964		179,432
Consumer		3,447		900		2,685		7,032

Total	$	158,644	$	114,412	$	35,520	$	308,576

Loans with fixed interest rates	$	48,835	$	30,189	$	33,187	$	112,211
Loans with variable interest rates		109,809		84,223		2,333		196,362

Total	$	158,644	$	114,412	$	35,520	$	308,576

NONPERFORMING ASSETS

At September 30, 2008, one borrowing relationship totaling $3.5 million, of which $3.4 million was outstanding, was graded Substandard. Of the total outstanding balance, approximately $1.0 million was past due at September 30, 2008, of which $0.5 million is collateralized by deposits at the Subsidiary Bank. The Subsidiary Bank declared the loans in default. During the fourth quarter, the $2.9 million unsecured portion of the debt was charged off. The remaining balance of the loan is on nonaccrual. While the loans are supported by various guarantors, the Subsidiary Bank is currently unsure of what action, if any, will be required to collect from the guarantors.

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

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

SoCal considers a loan to be impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. The measurement of impairment may be based on (i) the present value of the expected cash flows of the impaired loan discounted at the loan’s original effective interest rate, (ii) the observable market price of the impaired loan or (iii) the fair value of the collateral of a collateral-dependent loan.

At December 31, 2008, nonperforming loans consisted of $2.1 million in SBA loans, $3.5 million in real estate secured loans and $7.7 million in construction loans. At December 31, 2007, nonperforming loans consisted of one $920,000 loan secured by commercial real estate. If interest had been recognized on nonaccrual loans, such income would have approximated $332,000 and $71,000 for 2008 and 2007, respectively. At December 31, 2008 and 2007, SoCal had no loans that were 90 days past due that were still accruing interest or loans that were “troubled debt restructurings”.

Other real estate owned (“OREO”) at December 31, 2008 consists of one property taken in settlement of an SBA loan obligation and a participation interest in a construction loan that was taken into OREO. Subsequent to year end, two additional commercial properties with fair values of $2.6 million were transferred to OREO. There was no OREO at December 31, 2007.

The current economic slowdown has negatively affected the ability of borrowers to meet their loan and credit line payment obligations. Management continues to actively evaluate the entire loan portfolio as part of their internal credit review process.

The following table sets forth information about non-performing assets at the date indicated (dollar amounts in thousands):

	December 31,
	2008		2007

Loans 90 Days Past Due and Still Accruing	$	-	$	-
Nonaccrual Loans		13,258		920

Total Nonperforming Loans		13,258		920

Other Real Estate Owned		647		-

Total Nonperforming Assets	$	13,905	$	920

Nonperforming Loans as a Percentage of Total Loans
		4.30%		0.43%
Allowance for Loan Loss as a Percentage of Nonperforming Loans
		66.37%		443.15%
Nonperforming Assets as a Percentage of Total Assets
		3.64%		0.34%

POTENTIAL PROBLEM LOANS

On at least a quarterly basis, the Subsidiary Bank applies an internal credit quality rating system to loans that are either past due or fully performing but exhibit certain characteristics that could reflect a potential weakness. Loans are placed on nonaccrual status when the likely amount of future principal and interest payments are expected to be less than the contractual amounts, even if such loans are not 90 days past due.

Periodically the Subsidiary Bank reviews the loan portfolio for evidence of potential problem loans. Potential problem loans are loans that are currently performing in accordance with contractual terms, but where known information about possible credit problems of the borrower causes doubt about the ability of the borrower to comply with the loan payment terms and may result in disclosure of such loans as nonperforming at some time in the future. At December 31, 2008, the Subsidiary Bank identified $9.4 million of potential problem loans consisting of three commercial loans totaling $3.5 million, two construction loans totaling $2.9 million, three commercial real estate loans totaling $2.1 million and five SBA loans totaling $935 thousand. At December 31, 2007, the Subsidiary Bank identified $824,000 of potential problem loans consisting of one commercial real estate loan totaling $592 thousand, one commercial loan totaling $142,000 and $90,000 of purchased consumer loans as potential problem loans. Potential problem loans totaled 3.06% and 0.38% of total loans at December 31, 2008 and 2007, respectively. Factors such as payment history, value of supporting collateral, and personal or government guarantees led us to conclude that the current risk exposure on these loans did not require accounting for the loans as nonperforming.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

The provision for loan losses is based on management’s assessment of the allowance for loan losses required to provide for the loan losses inherent in the loan portfolio. For 2008 and 2007, the provision for loan losses was $10.8 million and $2.3 million, respectively. The increase in the provision for loan losses during 2008 was due to loan portfolio credit deterioration exemplified by the increase in our non-performing loans. Non-performing loans as of December 31, 2008 were $13.3 million, compared to $920,000 at December 31, 2007.

Management believes that the allowance for loan losses is adequate. Quarterly detailed reviews are performed by management to identify the risks inherent in the loan portfolio, assess the overall quality of the loan portfolio and to determine the adequacy of the allowance for loan losses and the related provision for loan losses to be charged to expense. Management has adopted a methodology designed by a third-party to determine the required loan loss reserve. Management believes that this methodology is consistent with the methodology set forth by the FDIC in its 2006 policy statement on the allowance for loan losses.

The methodology estimates the expected loss rates based on a two-factor approach. The first factor is based on the actual payment default rate in the loan portfolio. For loan types that have not generated an actual payment default rate, a rate is applied based on industry experience for such loans by type and geographic location. The second factor is based on the rate of loss as determined by dividing the expected net charge-off of defaulted loans, with defaulted loans being defined as loans that have 30 days or greater payment delinquency plus nonaccrual and gross loans charged-off, by total loans in each group. This rate reflects industry experience as determined by state and loan type. Taken together, the two factors produce the expected loss rate.

The calculation is applied to outstanding loan balances, including participation loans, and expected contingent funding of commitments to fund as of the measurement date. Expected losses on loans identified as specifically impaired are excluded from the above measurements, as the provision for such loans is based on the present value of expected future cash flows discounted at the historical effective interest rate stipulated in the loan agreement, or based on the fair value of collateral for collateral-dependent loans and is included as a separate component in calculating the required provision for loan losses.

SoCal takes external, subjective (so-called qualitative) factors into consideration when assessing the adequacy of the allowance for loan losses. These qualitative factors, as determined by management, take into account and weight by risk, among other things, the growth and nature of the loan portfolio, concentration of credits, lending policies, economic trends, competition and legal and regulatory requirements. The total qualitative reserve requirement is determined by applying the risk weights of the qualitative factors to the total amount of loans outstanding and is included as the third component in the calculation.

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 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. Additionally, 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 charges to the provision for loan losses.

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

	December 31,
	2008					2007

	Amount			Loan Percent		Amount			Loan Percent

Commercial		$	3,730		25.6%		$	1,286		26.5%
Real Estate - Construction			2,761		14.0 %			1,163		17.5 %
Real Estate - Other			2,074		58.1 %			1,468		52.7 %
Consumer			234		2.3 %			152		3.3 %
Unallocated			-		-			8		-
Total		$	8,799		100.0 %		$	4,077		100.0 %

The CalCAP loans totaled $17.8 million and $29.9 million at December 31, 2008 and 2007, respectively, and are included in the Commercial and Real Estate—Other categories in the above table. The allowance for loan losses allocated to the CalCAP loans takes into consideration the credit support provided by the CalCAP reserve account. The balance in the CalCAP reserve account, including amounts due from CalCAP, was $2.4 million and $2.2 million at December 31, 2008 and 2007, respectively.

As a percentage of total loans, the allowance for loan losses increased 96 basis points from 1.90% at December 31, 2007 to 2.86% at December 31, 2008. The increase is due to an increase in nonperforming loans and an increase in the percentage of loans categorized at higher risk ratings.

The following table sets forth information about the allowance for loan losses and non-performing assets at the date indicated (dollar amounts in thousands):

	For the Year Ended December 31,
	2008			2007
Outstanding Loans:
Average for the Year	$	301,688		$	170,658
End of the Year		308,188			214,334
Allowance For Loan Losses:
Balance at Beginning of Year		4,077			1,869
Allowance acquired at acquisition of Spectrum		1,437
Actual Charge-Offs:
Commercial		(3,899	)		-
Real Estate Construction		(1,935)			-
Real Estate- Other		(1,456	)		-
Consumer		(46	)		(46)
Total Charge-Offs		(7,530	)		(46	)
Less Recoveries:
Commercial		26			-
Real Estate Construction
Real Estate- Other					-
Consumer		16			-
Total Recoveries		42			-
Net Loans Charged-Off		(7,488	)		(46	)
Provision for Loan Losses		10,773			2,254
Balance at End of Year	$	8,799		$	4,077

Ratios:
Net Loans Charged-Off to Average Loans		2.48%			0.03%

Allowance for Loan Losses to Total Loans		2.86%			1.90%

Net Loans Charged-Off to Beginning Allowance for Loan Losses		183.66%			2.46%

Net Loans Charged-Off to Provision for Loan Losses		69.51%			2.04%

Allowance for Loan Losses to Nonperforming Loans		66.37%			443.15%

SUBSIDIARY BANK FUNDING

Deposits are the primary source of funds for the Subsidiary Bank.

The acquisition of Spectrum on January 31, 2008 underlay significant deposit increases in 2008 versus 2007. The following table summarizes the distribution of average deposits and the average rates paid for the period indicated (dollar amounts in thousands):

	Years Ended December 31,
	2008					2007
	Average		Average			Average		Average
	Balance		Rate			Balance		Rate

Money Market, Savings and NOW	$	83,061		1.41	%	$	74,306		3.35	%
Time Deposits under $100,000		75,521		3.78	%		23,817		5.14	%
Time Deposits of $100,000 or More		57,009		3.53	%		15,672		5.17	%

Total Interest-Bearing Deposits		215,591		2.80	%		113,795		3.98	%

Noninterest-Bearing Demand Deposits		99,005		n/a			55,471		n/a

Total Average Deposits	$	314,596		1.92	%	$	169,266		2.67	%

The average balance of money market, savings and NOW accounts increased $8.8 million, or 11.8%, from $74.3 million in 2007 to $83.1 million in 2008. The average balance of time deposits under $100,000 increased $51.7 million, or 217.1%, from $23.8 million in 2007 to $75.5 million in 2008. The average balance of time deposits greater than $100,000 increased $41.3 million, or 263.8%, from $15.7 million in 2007 to $57.1 million in 2008. The overall average rate decreased 75 basis points from 2.67% in 2007 to 1.92% in 2008. The decrease was primarily due to a decline in interest rates on deposits, as deposits have repriced downward in response to lower wholesale market interest rates.

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

Three Months or Less	$	17,189
Over Three Months to One Year		15,701
Over One Year to Three Years		7,995
Over Three Years		865
Total	$	41,750

The Subsidiary Bank has from time to time borrowed funds on a short-term basis from the Federal Home Loan Bank and other financial institutions. Outstanding borrowings totaled $24.0 million and $18.0 million at December 31, 2008 and 2007, respectively. The interest rate was 0.50% and 3.80% on these outstanding borrowings at December 31, 2008 and 2007, respectively. The maximum amount of borrowings at any month-end was $39.0 million and $18.0 million in 2008 and 2007, respectively. The average amounts outstanding totaled $15.0 million and $7.8 million and the weighted average interest rates were 1.92% and 4.90% in 2008 and 2007, respectively.

LIQUIDITY

The following discusses liquidity of both SoCal and the Subsidiary Bank on an unconsolidated basis.

SoCal

SoCal and the Subsidiary bank liquidity positions are managed separately since SoCal, as a bank holding company, is blocked by regulation from accessing the liquidity of its subsidiary bank.

Management’s primary measure of SoCal’s liquidity is the time until its existing unencumbered asset liquidity would be exhausted if used to satisfy maturing obligations and meet normal operating expenses. This analysis precludes any assumed Subsidiary Bank dividend income and potential new financings. At December 31, 2008, SoCal’s unencumbered liquid assets were sufficient to meet SoCal’s projected expenditures to February 2009. As of the date of this filing, SoCal’s liquidity position has somewhat improved. Current unencumbered liquid assets are sufficient to meet maturing obligations and normal operating expenses until August 2010, assuming SoCal’s principal shareholder would extend or convert to common or preferred equity its $9.5 million of unsecured senior notes, maturing on July 1, 2009.

In March 2008, SoCal borrowed $8.0 million from Pacific Coast Bankers’ Bank (“PCBB”) through a loan secured by the stock of the Subsidiary Bank. On December 31, 2008, SoCal was in violation of three financial covenants. In the First Amendment and Waiver Agreement (the “Agreement”) executed April 14, 2009, both parties agreed to amend the loan terms and conditions in exchange for waiver of the covenant violations. Certain PCBB loan financial covenants were modified in the amendment. On May 12, 2009, SoCal and PCBB agreed to a term sheet whereby the loan agreement would be modified again. Under the May 12, 2009 term sheet, SoCal is obligated to make a principal payment of $200,000 in May 2009 and fund an interest reserve account in the amount of $800,000. Interest payments due PCBB beginning with the June 2009 quarterly debt service payments would be funded from the interest reserve account until it is exhausted. The loan rate was reset to 3-month LIBOR plus 810 basis points. Loan amortization would begin in September 2010 with quarterly principal payments in the amount of $300,000. The agreement further requires that 25% of any new capital financings be dedicated to PCBB loan principal payment with an obligation for SoCal to have made $2.3 million of principal payments by September 2010.

SoCal also agreed to defer all interest and principal cash payments on loans due to the Fund, including any refinancing loans, and within its legal capacity to do so, defer all interest payments on its Fixed Rate Junior Subordinated Deferrable Interest Rate Debentures until the principal of the PCBB loan has been paid down to less than $5.5 million and no event of default exists or is continuing.

In January 2008, SoCal issued $15.5 in junior subordinated debentures to the Trust, a Delaware business trust that was formed for the exclusive purpose of issuing trust preferred securities. The Trust purchased debentures with: (1) the proceeds of the sale of its common trust securities to SoCal for $464,000, and (2) certain shares of common stock in Spectrum valued at $15 million that the Trust received from certain shareholders of Spectrum in exchange for the Trust’s trust preferred securities. The junior subordinated debentures and trust preferred securities have generally identical terms, including that they mature in January 2038 are redeemable after 2013 at SoCal’s option at par and require monthly interest payments at an annual rate of 10%. SoCal has unconditionally guaranteed certain distributions on, and certain payments on liquidation and redemption of, the trust preferred securities. The trust preferred securities and corresponding junior subordinated deferrable interest debentures contain provisions limiting our ability to declare and pay dividends on SoCal’s common stock in certain events. Consistent with its obligations under the amended Pacific Coast Bankers’ Bank loan agreement, in March and again in April 2009, SoCal notified the trustee of its $15.4 million Fixed Rate Junior Subordinated Deferrable Interest Rate Debentures that it would be deferring the scheduled April and May 2009 interest payments. Terms of the debenture permit SoCal to defer up to 60 monthly interest payments. Deferred interest payments accrue interest is at a 10% annual rate, the same rate as the debenture.

In December 2008 and January, February and March 2009, the Fund made loans to SoCal in the amounts of $0.5 million, $2.0 million, $0.5 million and $6.5 million, respectively. The annual interest rate on these loans is 15% and each loan included a transaction fee equal to 2% of the principal amount. The loans mature on July 1, 2009 and can be repaid at the Fund’s discretion in either cash, SoCal common stock at 120% of the then prevailing fair value as determined by an independent appraisal of shares of SoCal’s Series A Non-Cumulative Perpetual Preferred Stock at face value. SoCal believes that the Fund will either convert its outstanding loans to common or preferred stock, or extend the maturity date.

The Subsidiary Bank

Liquidity management for banks requires that funds be available to pay anticipated deposit withdrawals and maturing financial obligations promptly and fully in accordance with their terms. Subsidiary Bank fund inflows are primarily sourced from loan payments, loan sales, asset liquidations, acquisition of additional deposit liabilities, and Federal Home Loan Bank advances. One method banks utilize for acquiring additional liabilities is through the acceptance of “brokered deposits” (defined to include not only deposits received through deposit brokers, but also deposits bearing interest in excess of 75 basis points over market rates), typically attracting large certificates of deposit at higher interest rates. At December 31, 2008 and 2007 the deposit portfolio consisted of $44.6 million and $20.3 million, respectively, in brokered deposits. Scheduled maturities of the deposit portfolio at December 31, 2008 are $25.1 million in 2010, $5.2 million in 2011, $3.3 million in 2012 and $11.0 million in 2013. The Subsidiary Bank’s Regulatory Agreement precludes access to the brokered deposit marketplace. In lieu of refinancing these maturities with brokered deposits, funds to cover maturing brokered deposits will be obtained through core deposit growth, asset liquidation and capital growth. The Subsidiary Bank’s “adequately capitalized” status as of December 31, 2008 precludes access to the brokered deposit marketplace without a waiver from the FDIC. In January 2009, a waiver request was submitted to the FDIC which has not been acted upon. The Subsidiary Bank has $28.2 million in callable brokered certificates of deposit which could be refinanced for their same remaining maturities at rates up to 200 basis points lower, but which have not been called due to the current inability to replace that funding in the brokered deposit market.

As of December 31, 2008, the Subsidiary Bank had available unused short-term borrowing facilities totaling approximately $108 million. This consisted of $15 million in advised federal funds lines of credit with two correspondent banks and approximately $93 million in a secured line of credit with Federal Home Loan Bank (“FHLB”). The FHLB notified the Subsidiary Bank that it will likely reduce the amount of funds that are available to the Subsidiary Bank under its collateralized borrowing facilities. As of the date of this filing, the FHLB has not yet acted. During the first quarter of 2009, the Subsidiary Bank was notified by one correspondent bank that its $5 million advised federal funds line was being withdrawn and that $3.5 million of correspondent bank commitments would require collateralization. Collateral was provided in the form of $3.5 million of Federal Funds Sold to that correspondent bank.

As of December 31, 2008, one depositor accounted for 5.4%, or $16.4 million, of total deposits. The Subsidiary Bank believes it could replace these deposits through asset sales, alternative deposit-taking programs or utilize its borrowing facilities to fund the cash outflow.

INTEREST RATE SENSITIVITY

Interest rate risk is the exposure of a bank’s earnings and the economic value of equity to adverse movements in interest rates. Interest rate exposures exist in the form of differences in the maturity or rate reset timing of interest-earning assets and interest-bearing liabilities, basis risk due to imperfect correlation in the adjustment of rates earned and paid on variable rate instruments with otherwise similar characteristics (e.g., three-month Treasury bill versus three-month LIBOR) and from interest-rate-related embedded options (e.g. loan prepayment risk, callable brokered CD’s, early withdrawal of time deposits, interest rate caps on loans, etc).

The potential impact of interest rate risk is significant because of the profitability and capital adequacy consequences that reduced earnings could imply. Interest rate risk is a routine part of bank operations and will from time to time adversely impact profits and a bank’s capital position. The objective of interest rate risk management is to contain net interest income and economic value of equity adverse exposures within tolerances set by the board of directors.

The aligning of asset and liability maturities is an integral part of the active management of an institution’s interest rate risk exposure. To the extent maturities of assets and liabilities do not match, the net interest margin may be affected. Even with perfectly matched repricing of assets and liabilities, risk remains in the form of basis risk and embedded option risk. In an overall attempt to match assets and liabilities, SoCal takes into account rates and maturities to be offered in connection with certificates of deposit and variable rate loans. SoCal has generally been able to control exposure to changing interest rates by maintaining a large percentage of floating interest rate loans and funding from generally shorter maturity or variable rate sources.

CAPITAL RESOURCES

Shareholders’ equity at December 31, 2008 was $31.2 million, a decrease of $23.8 million from $55.0 million at December 31, 2007. The decrease was primarily due to the 2008 net loss, offset by the issuance of common stock to the Fund to provide cash for the Spectrum acquisition.

As part of the Spectrum acquisition a total of $15.0 million of 10% trust preferred securities were issued by the Trust, a non-bank subsidiary of SoCal, and a corresponding amount of junior subordinated debentures were issued by SoCal. In addition, SoCal sold $20 million of 15% non-cumulative perpetual preferred stock to the Fund on December 10, 2007. The trust preferred securities and the non-cumulative perpetual preferred stock have been partially included in Tier 1 capital for regulatory capital.

The Subsidiary Bank’s Tier 1 risk-based capital ratio and leverage ratio exceeded the “well capitalized” regulatory minimum requirements and its total risk-based capital ratio exceeded the “adequately capitalized” regulatory capital minimum requirement at December 31, 2008. As the lowest capital status governs, the Subsidiary Bank was deemed to be “adequately capitalized” at December 31, 2008. During the first quarter 2009, SoCal made $7 million of additional capital contributions to the Subsidiary Bank.

Under regulatory capital adequacy guidelines, capital adequacy is measured relative to period-end risk-adjusted assets and average net ledger assets. Risk weights are applied to assets and certain off-balance-sheet items, such as unused loan commitments and standby letters of credit, to compute risk-adjusted assets. Capital ineligible assets, primarily goodwill, core deposit intangibles and certain amounts of deferred tax assets, are deducted from both risk-adjusted and average net ledger assets. The guidelines require that a portion of total capital be core, or Tier 1, capital consisting of common shareholders’ equity and perpetual preferred stock, less goodwill and certain deductions. Tier 2 capital consists of other elements, primarily non-perpetual preferred stock, subordinated debt and mandatory convertible debt, plus the allowance for loan losses, subject to certain limitations.

Pursuant to a Regulatory Agreement between the Subsidiary Bank’s board of directors and the Subsidiary Bank’s regulators discussed previously, the Subsidiary Bank must by December 31, 2009 achieve and thereafter maintain a tangible shareholders’ equity ratio of at least 9%, a Tier 1 leverage ratio of at least 9%, and a total risk-based capital ratio of at least 12% so long as the agreement is in effect. See “Recent Regulatory Actions” previously for a discussion of the Regulatory Agreement.

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

Consolidated SoCal

	Minimum Requirements to be Adequately Capitalized	Actual December 31, 2008
Tier 1 Capital to Average Assets	4.00%	4.92%
Tier 1 Capital to Risk-Weighted Assets	4.00%	5.41%
Total Capital to Risk-Weighted Assets	8.00%	6.67%

______________

(1) These minimum reequirements apply to consolidated bank holding companies in excess of $500 million in assets. As such, Consolidated SoCal is not currently required to meet these minimum requirements.

The Subsidiary Bank

	Minimum Requirement to be Adequately Capitalized	Minimum Requirement to be Well Capitalized (1)	Actual December 31, 2008	Actual December 31, 2007
				(PBB only)
Tier 1 Capital to Average Assets	4.00%	9.00%	7.03%	8.82%
Tier 1 Capital to Risk-Weighted Assets	4.00%	9.00%	7.69%	8.29%
Total Capital to Risk-Weighted Assets	8.00%	12.00%	8.96%	9.55%

(1)

The minimum required ratios have been adjusted pursuant to the Regulatory Agreement entered into by the Subsidiary Bank and its regulators. See “Recent Regulatory Actions” above for further discussion of the Regulatory Agreement. At December 31, 2008, prior to execution of the Regulatory Agreement, the minimum requirement to be Well-Capitalized was 5.00% for Tier 1 capital to average assets, 6.00% Tier 1 capital to risk-weighted assets, and 10.00% for total capital to risk-weighted assets.

TARP APPLICATION

The United States Treasury Department recently announced the TARP CPP, the $700 billion relief program for financial institutions passed by Congress. Under the TARP CPP, the Treasury department is offering to purchase senior preferred stock in qualifying financial institutions with an initial cumulative dividend rate of 5%, increasing to 9% after five years. Financial institutions participating in the program are required to issue warrants to purchase their common stock equal to 15% of the value of the preferred stock purchased by the Treasury Department.

SoCal has applied for $10.4 million of TARP CPP funding. Management reserves the right to modify or withdraw the application following release of program rules applicable to SoCal. Application approval is at the discretion of the Treasury Department, with consideration given to a concurrent recommendation from SoCal’s primary federal regulator. It is uncertain when SoCal’s application will be processed and, if approved, when funding may occur.

EFFECTS OF INFLATION

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

OFF-BALANCE SHEET ARRANGEMENTS

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

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

The Subsidiary Bank enters into leases for real estate used in the conduct of its business. At December 31, 2008, the future minimum rental payments under these lease commitments follows:

Year Ending		Amount
2009		$490,443
2010		436,222
2011		421,309
2012		386,067
2013		363,064
Thereafter		76,657
		$2,173,762

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements called for by this item appear in this document beginning on the following page, and include audited consolidated financial statements for SoCal for the year ended December 31, 2008 and for the period from January 17, 2007 (Inception) to December 31, 2007.

INDEX TO FINANCIAL STATEMENTS

Belvedere SoCal and Subsidiary	Page

Report of Independent Registered Public Accounting Firm	44
Consolidated Statement of Financial Condition	45
Consolidated Statement of Operations	46
Consolidated Statement of Changes in Shareholders’ Equity	47
Consolidated Statement of Cash Flows	48
Notes	50

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Shareholders and Board of Directors

Belvedere SoCal and Subsidiary

We have audited the accompanying consolidated statement of financial condition of Belvedere SoCal and subsidiary as of December 31, 2008 and 2007 and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the year ended December 31, 2008 and the period from January 17, 2007 (inception) to December 31, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial condition of Belvedere SoCal and subsidiary as of December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for the year ended December 31, 2008 and the period from January 17, 2007 (inception) to December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ Perry-Smith LLP

Sacramento, California

May 14, 2009

BELVEDERE SoCAL AND SUBSIDIARY

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

December 31, 2008 and 2007

	2008			2007
ASSETS

Cash and due from banks	$	6,917,815		$	4,401,632
Federal Funds sold		3,460,000			9,130,000

Total cash and cash equivalents		10,377,815			13,531,632

Interest-bearing deposits in other financial institutions		225,000			100,000
Investment securities available-for-sale		9,467,470			8,786,293
Investment securities held-to-maturity		23,853,591			-

Loans:
Commercial		79,008,123			56,791,314
Real Estate – Construction		43,103,911			37,566,205
Real Estate – Other		179,432,738			113,123,251
Consumer		7,031,589			7,126,720

Total loans		308,576,361			214,607,490

Deferred loan fees, net of costs		(388,392	)		(273,115	)
Allowance for loan losses		(8,798,713	)		(4,077,213	)

Net loans		299,389,256			210,257,162

Premises and equipment, net		5,257,185			461,760
Goodwill		24,185,915			29,459,783
Other intangible asset, net		2,440,080			2,368,172
Federal Home Loan Bank stock, at cost		1,598,000			916,300
Other real estate owned		647,447			-
Accrued interest and other assets		7,442,438			4,198,740

Total assets	$	384,884,197		$	270,079,842

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
Noninterest-bearing demand	$	100,053,616		$	73,358,729
NOW, savings and money market accounts		92,971,587			49,514,411
Time deposits under $100,000		68,929,661			45,460,646
Time deposits $100,000 and over		41,750,479			25,715,811

Total deposits		303,705,343			194,049,597

Federal Home Loan Bank advances		24,000,000			18,000,000
Notes payable, net of fees		8,460,224			-
Junior subordinated debentures, net of issuance costs		15,426,192			-
Accrued interest and other liabilities		2,066,085			3,044,416

Total liabilities		353,657,844			215,094,013

Commitments and contingencies (Notes 5 and 12)		-			-

Shareholders' equity:
Preferred stock – non-cumulative, perpetual, no par value;
authorized 20,000,000 shares; 934,642 and 806,666 Series A
shares issued and outstanding at December 31, 2008 and 2007,
respectively		22,966,050			19,766,650
Common stock – no par value; authorized 20,000,000 shares;
3,331,877 and 2,011,343 shares issued and outstanding at
December 31, 2008 and 2007, respectively		58,038,621			35,749,587
Accumulated deficit		(49,734,318	)		(540,408	)
Accumulated other comprehensive (loss) income		(44,000	)		10,000

Total shareholders' equity		31,226,353			54,985,829

Total liabilities and shareholders' equity	$	384,884,197		$	270,079,842

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

BELVEDERE SoCAL AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2008 and the

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

	2008			2007

Interest income:
Interest and fees on loans	$	21,225,508		$	1,769,077
Interest on investment securities		1,514,914			45,919
Other interest income		409,277			40,132

Total interest income		23,149,699			1,855,128

Interest expense:
Interest on NOW, savings and money market accounts		1,175,160			121,230
Interest on time deposits		4,871,087			194,281
Interest on advances and notes payable		710,514			139,502
Interest on junior subordinated debentures		1,418,725			192,670

Total interest expense		8,175,486			647,683

Net interest income		14,974,213			1,207,445

Provision for loan losses		10,772,742			350,859

Net interest income after provision for loan losses		4,201,471			856,586

Non-interest income:
Service charges and fees		1,047,634			43,720
Loss on sales of available-for-sale investment securities		(116,000	)		-

Belvedere SoCal 10-K