10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended September 30, 2007

or

¨ 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: 0-27384

CAPITAL CORP OF THE WEST

(Exact name of registrant as specified in its charter)

California	77-0405791
(State or other jurisdiction of incorporation or organization)	IRS Employer ID Number

550 West Main, Merced, CA  95340

(Address of principal executive offices)

Registrant’s telephone number, including area code: (209) 725-2200

Former name, former address and former fiscal year, if changed since last report:  Not applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.  Large accelerated filer  ¨  Accelerated filer þ  Non-accelerated filer ¨

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

The number of shares outstanding of the registrant’s common stock, no par value, as of November 6, 2007 was 10,789,944.  No shares of preferred stock, no par value, were outstanding at November 6, 2007.

Capital Corp of the West

Table of Contents

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements
Consolidated Balance Sheets (unaudited)	3
Consolidated Statements of Income (unaudited)	4
Consolidated Statements of Changes in Shareholders’ Equity (unaudited)	5
Consolidated Statements of Comprehensive Income (unaudited)	6
Consolidated Statements of Cash Flows (unaudited)	7
Notes to the Consolidated Financial Statements (unaudited)	8
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.    Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.    Controls and Procedures	33

PART II.   OTHER INFORMATION

Item 1.     Legal Proceedings	34
Item 1A.  Risk Factors	34
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.    Defaults Upon Senior Securities	37
Item 4.    Submission of Matters to a Vote of Security Holders	37
Item 5.    Other Information	37
Item 6.    Exhibits	37
SIGNATURES	38
Exhibit Index	39

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Capital Corp of the West

Consolidated Balance Sheets

(Unaudited)

	As of September 30,			As of December 31,
(Dollars in thousands)	2007			2006
ASSETS:
Cash and non-interest-bearing deposits in other banks	$	45,389		$	44,853
Federal funds sold		12,880			150,680
Time deposits at other financial institutions		100			350
Investment securities available for sale, at fair value		231,686			256,538
Investment securities held to maturity, at cost; fair value of $154,862 and $166,266 at September 30, 2007 and December 31, 2006		157,507			168,058
Loans, net of allowance for loan losses of $15,285 and $14,031 at September 30, 2007 and December 31, 2006		1,348,953			1,210,730
Interest receivable		9,941			9,819
Premises and equipment, net		46,119			42,320
Goodwill		1,405			1,405
Cash value of life insurance		43,574			43,051
Investment in housing tax credit limited partnerships		9,439			10,082
Other real estate owned		9,450			60
Other assets		31,072			23,593
Total assets:	$	1,947,515		$	1,961,539
LIABILITIES:
Deposits:
Non-interest-bearing demand	$	240,720		$	287,723
Negotiable orders of withdrawal		226,040			225,481
Savings		464,005			436,494
Time, under $100,000		352,336			299,409
Time, $100,000 and over		248,148			366,234
Total deposits:		1,531,249			1,615,341
Other borrowings		213,292			151,697
Junior subordinated debentures		31,960			31,960
Accrued interest, taxes and other liabilities		14,910			14,961
Total liabilities:		1,791,411			1,813,959
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value; 10,000,000 shares authorized; none outstanding		-			-
Common stock, no par value; 20,000,000 shares authorized; 10,789,944   and 10,760,762 issued and outstanding at September 30, 2007 and December 31, 2006		66,090			64,586
Retained earnings		91,987			84,614
Accumulated other comprehensive loss, net		(1,973	)		(1,620	)
Total shareholders’ equity:		156,104			147,580
Total liabilities and shareholders’ equity:	$	1,947,515		$	1,961,539

See accompanying notes to consolidated financial statements.

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Capital Corp of the West

Consolidated Statements of Income

(Unaudited)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Amounts in thousands, except per share data)	2007		2006		2007		2006
Interest income:
Interest and fees on loans	$	28,422	$	26,009	$	80,068	$	73,440
Interest on deposits with other financial institutions		1		5		9		14
Interest on investments held to maturity:
Taxable		855		882		1,708		2,723
Non-taxable		842		950		2,655		2,844
Interest on investments available for sale:
Taxable		2,825		3,063		9,463		9,826
Non-taxable		11		11		33		33
Interest on federal funds sold		223		100		1,756		193
Total interest income:		33,179		31,020		95,692		89,073
Interest expense:
Interest on negotiable orders of withdrawal		792		373		2,214		1,038
Interest on savings deposits		3,778		2,259		10,798		6,041
Interest on time deposits, under $100,000		4,191		2,666		12,019		7,443
Interest on time deposits, $100,000 and over		2,995		4,840		10,430		10,305
Interest on federal funds purchased		11		40		16		914
Interest on other borrowings		2,831		2,010		6,541		5,893
Interest on junior subordinated debentures		620		683		1,971		1,456
Total interest expense:		15,218		12,871		43,989		33,090
Net interest income		17,961		18,149		51,703		55,983
Provision for loan losses		732		200		4,645		400
Net interest income after provision for loan losses:		17,229		17,949		47,058		55,583
Noninterest income:
Service charges on deposit accounts		2,041		1,550		5,834		4,475
Death benefit on BOLI policies		993		179		993		179
Gain on the sale of securities		835		0		835		622
Increase in cash value of life insurance		465		365		1,304		966
Other		782		1,062		2,743		2,968
Total noninterest income:		5,116		3,156		11,709		9,210
Noninterest expenses:
Salaries and related expenses		7,606		7,293		22,883		21,487
Premises and occupancy		1,835		1,422		5,140		3,866
Equipment		1,382		1,096		3,861		3,129
Professional fees		1,225		478		2,895		1,952
Supplies		222		237		719		776
Marketing		588		360		1,507		1,213
Community support donations		185		264		554		773
Intangible amortization		0		0		0		23
Communications		415		406		1,179		1,137
Other		1,898		1,436		6,671		4,218
Total noninterest expenses:		15,356		12,992		45,409		38,574
Income before provision for income taxes		6,989		8,113		13,358		26,219
Provision for income taxes		993		2,284		2,744		8,579
Net income:	$	5,996	$	5,829	$	10,614	$	17,640
Basic earnings per share	$	0.56	$	0.54	$	0.98	$	1.65
Diluted earnings per share	$	0.55	$	0.53	$	0.97	$	1.61

See accompanying notes to consolidated financial statements.

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Capital Corp of the West

Consolidated Statement of Changes in Shareholders’ Equity

(Unaudited)

	Common Stock
(Amounts in thousands)	Number of Shares		Amounts		Retained Earnings			Total			Accumulated other Comprehensive (Loss) Gain
Balance, December 31, 2005		10,575	$	59,785	$	65,049		$	(2,589	)	$	122,245
Exercise of stock options, including tax benefit of $911		161		3,553		-			-			3,553
Effect of share-based payment expense		-		566		-			-			566
Net change in fair value of available for sale investment securities, net of tax effect of $347(1)		-		-		-			479			479
Net change in fair value of interest rate floor, net of tax benefit of $117(2)		-		-		-			(161	)		(161	)
Cash dividends		-		-		(2,249	)		-			(2,249	)
Net income		-		-		17,640			-			17,640
Balance, September 30, 2006		10,736	$	63,904	$	80,440		$	(2,271	)	$	142,073
Balance, December 31, 2006		10,761	$	64,586	$	84,614		$	(1,620	)	$	147,580
Exercise of stock options, including tax benefit of $23		29		438		-			-			438
Effect of share-based payment expense		-		1,066		-			-			1,066
Net change in fair value of available for sale investment securities, net of tax effect of  $490		-		-		-			(666	)		(666	)
Net change in fair value of interest rate floor, net of tax effect of $227 (3)		-		-		-			313			313
Cash dividends		-		-		(3,241	)		-			(3,241	)
Net income		-		-		10,614			-			10,614
Balance, September 30, 2007		10,790	$	66,090	$	91,987		$	(1,973	)	$	156,104

(1)Includes reclassification adjustment for net gains included in net income of $361 (net of $261 tax expense).

(2)Includes reclassification adjustment for net losses included in net income of $16 (net of $11 tax benefit).

(3)Includes reclassification adjustment for net losses included in net income of $142 (net of $103 tax benefit).

See accompanying notes to consolidated financial statements.

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Capital Corp of the West

Consolidated Statements of Comprehensive Income

(Unaudited)

	For The Nine Months Ended September 30,
(Amounts in thousands)	2007			2006
Net income	$	10,614		$	17,640
Unrealized gain (loss) on securities arising during the year, net		(666	)		840
Unrealized gain (loss) on interest rate floor arising during the year, net		171			(177	)
Reclassification adjustment for losses realized in net income, net of tax (benefit of $83 in 2007 and expense of $258 in 2006 for the time periods presented)		142			(345	)
Comprehensive income:	$	10,261		$	17,958

See accompanying notes to consolidated financial statements.

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Capital Corp of the West

Consolidated Statements of Cash Flows

(Unaudited)

	For The Nine Months Ended September 30,
(Amounts in thousands)	2007			2006
Operating activities:
Net income	$	10,614		$	17,640
Adjustments to reconcile net income to net cash provided by
Operating activities:
Provision for loan losses		4,645			400
Depreciation, amortization and accretion, net		6,555			5,442
Origination of loans held for sale		(5,203	)		(2,380	)
Proceeds from sales of loans		5,890			1,662
Gain on sale of loans		(324	)		(123	)
Gain on sale of AFS securities		(835	)		(622	)
Increase in cash value of bank owned life insurance		(1,304	)		(966	)
Gain on death benefit from bank owned life insurance		(993	)		(179	)
Proceeds from death benefit of BOLI		1,773			-
Non-cash share based payment expense		1,066			566
Net (increase) decrease in interest receivable & other assets		(6,706	)		1,431
Gain on sale of other real estate owned		(102	)		(190	)
(Gain) loss on interest rate derivative		117			-
Net (increase) decrease in accrued interest, taxes and other liabilities		(51	)		1,314
Net cash provided by operating activities:		15,142			23,995
Investing activities:
Investment securities purchased – available for sale securities		(2,454	)		(2,944	)
Investment securities purchased – held to maturity securities		-			(3,659	)
Proceeds from maturities of available for sale investment securities		24,221			38,591
Proceeds from maturities of held to maturity investment securities		9,986			11,404
Proceeds from sales of available for sale securities		3,000			20,483
Net decrease in time deposits at other institutions		250			-
Proceeds from the sale of other real estate owned		102			656
Loans purchased		-			(30,015	)
Net increase in loans		(155,270	)		(169,379	)
Net purchases of bank owned life insurance		-			(10,000	)
Purchases of premises and equipment		(6,941	)		(11,984	)
Net cash used in investing activities:		(127,106	)		(156,847	)
Financing activities:
Net (decrease) increase in demand, NOW and savings deposits		(18,933	)		(74,966	)
Net (decrease) increase in certificates of deposit		(65,159	)		244,362
Net increase (decrease) in other borrowings		61,595			(49,099	)
Issuance of subordinated debentures		-			15,464
Payment of cash dividends		(3,241	)		(2,249	)
Exercise of stock options		415			2,642
Tax benefits related to exercise of stock options		23			911
Net cash (used in) provided by financing activities:		(25,300	)		137,065
Net (decrease) increase in cash and cash equivalents		(137,264	)		4,213
Cash and cash equivalents at beginning of period		195,533			91,581
Cash and cash equivalents at end of period		58,269		$	95,794
Supplemental disclosure of noncash investing and financing activities:
Interest rate floor unrealized gain (loss), net of taxes	$	313		$	(161	)
Interest paid		47,627			31,855
Income tax payments		3,060			8,150
Loans transferred to other real estate owned		9,390			-
Investment securities unrealized gain (loss), net of tax	$	(666	)	$	479

See accompanying notes to consolidated financial statements.

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Capital Corp of the West

Notes to Consolidated Financial Statements

September 30, 2007 and December 31, 2006

(Unaudited)

NOTE 1.

GENERAL COMPANY

Capital Corp of the West (the “Company”) is a bank holding company incorporated under the laws of the State of California on April 26, 1995. The Company at September 30, 2007 had total assets of $1.95 billion and total shareholders’ equity of $156 million. On November 1, 1995, the Company became registered as a bank holding company and is the holder of all of the capital stock of County Bank (the “Bank”). The Company's primary asset and source of income is the Bank. As of November 6, 2007, the Company had outstanding 10,789,944 shares of Common Stock, no par value, held by approximately 1,700 shareholders. There were no preferred shares outstanding at November 7, 2007. The Company has one wholly-owned inactive non-bank subsidiary, Capital West Group (“CWG”).  The Bank has two wholly-owned subsidiaries, Merced Area Investment & Development, Inc. (“MAID”), a real estate company, and County Asset Advisors (“CAA”). CAA is currently inactive, and MAID has limited operations serving as the owner of certain bank properties.  All references herein to the Company includes all subsidiaries of the Company, the Bank and the Bank's subsidiaries, unless the context otherwise requires. The Company is also the parent of County Statutory Trust I, County Statutory Trust II, and County Statutory Trust III, which are all trust subsidiaries established to facilitate the issuance of trust preferred securities. On June 19, 2007, the Bank formed 1977 Services Corporation, a wholly-owned subsidiary formed for the purpose of holding the now  foreclosed real estate construction project located in Rocklin, California and on October 5, 2007, the Bank acquired Bay View Funding, a factoring business headquartered in San Mateo, CA.

NOTE 2.

GENERAL BANK

The Bank was organized on August 1, 1977, as County Bank of Merced, a California state banking corporation. The Bank commenced operations in 1977. In November 1992, the Bank changed its legal name to County Bank. The Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"), up to applicable limits. The Bank is a member of the Federal Reserve System.

NOTE 3.

INDUSTRY AND MARKET AREA

County Bank is a community bank with operations located mainly in the San Joaquin Valley of Central California with business banking operations in the San Francisco Bay Area.  The corporate headquarters of the Company and the Bank’s main branch facility are located at 550 West Main Street, Merced, California.  In addition to this facility, there are three support centers in downtown Merced with an additional square footage of 33,000 square feet of office space.

The Bank currently has 28 branch operations located in the Central Valley, 1 branch operation in San Francisco, and 1 branch operation in San Jose.  The Central Valley operations include branches located in: Merced (2), Atwater, Los Banos, Hilmar, Sacramento, Sonora, Turlock (2), Modesto (2), Riverbank, Ceres, Newman, Dos Palos, Livingston, Mariposa, Madera, Clovis (2), Fresno (6), Delhi, and Stockton. The Bank owns eleven of these branch facilities and the remaining eighteen facilities are leased.  One of the branches in Fresno is located in a high school and the school is allowing the bank to use the space free of cost.  The Management of the Bank believes that the facilities will be adequate to accommodate operations for the foreseeable future.  During the fourth quarter of 2007, the bank acquired Bay View Funding, a factoring business headquartered in San Mateo, CA and 11 branches of California Stockmen’s Bank (see Subsequent Events section on page 37 for more details).

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NOTE 4.

OTHER FINANCIAL NOTES

All adjustments which in the opinion of Management are necessary for a fair presentation of the Company’s financial position at September 30, 2007 and December 31, 2006 and the results of operations for the three and nine month periods ended September 30, 2007 and 2006, and the statements of cash flows for the nine months ended September 30, 2007 and 2006 have been included therein.  The interim results for the three and nine months ended September 30, 2007 are not necessarily indicative of results for the full year.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes included in the Company’s Annual Report and Form 10-K for the year ended December 31, 2006.

In the opinion of management, the accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

Cash and cash equivalents on the Consolidated Statement of Cash Flows include cash, noninterest bearing deposits in other banks, and federal funds sold.

Basic earnings per share (EPS) is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period and potential common shares outstanding.  Diluted earnings per share reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

The following table provides a reconciliation of the numerator and denominator of the basic and diluted earnings per share computation of the three and nine month periods ended September 30, 2007 and 2006:

	For The Three Months				For The Nine Months
	Ended September 30,				Ended September 30,
(In thousands, except per share data)	2007		2006		2007		2006
Basic EPS computations:
Net income	$	5,996	$	5,829	$	10,614	$	17,640
Average common shares outstanding		10,790		10,736		10,783		10,673
Basic EPS	$	0.56	$	0.54	$	0.98	$	1.65
Diluted EPS computations:
Net income	$	5,996	$	5,829	$	10,614	$	17,640
Average common shares outstanding		10,790		10,736		10,783		10,673
Effect of stock options		130		239		162		274
Diluted common shares outstanding		10,920		10,975		10,945		10,947
Diluted EPS	$	0.55	$	0.53	$	0.97	$	1.61

NOTE 5.

BORROWED FUNDS

For the nine months ended September 30, 2007, the Company increased other borrowings which were obtained primarily from the Federal Home Loan Bank.  The increase in other borrowings of $61,595,000 was used to fund a portion of the decrease in the Bank’s brokered deposit balances and a portion of the increase in the Bank’s gross loan balances.

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NOTE 6.

SHARE-BASED PAYMENT

The Company maintains a stock option plan for certain directors, executives, and officers.  The plan stipulates that (i) all options have an exercise price equal to the fair market value on the date of grant; (ii) all options have a ten-year term and become exercisable as follows: 25% at date of issuance and 25% per year for the subsequent three years; (iii) all must be exercised within 90 days following termination of employment (iv) one year after death or disability or they expire.  The Company’s stock option plan is designed to provide equity compensation to officers and directors that is based on Company stock price performance.  The shares issued pursuant to the Company’s plan are newly issued, registered and non-restricted.

On January 1, 2006, the Company began recording share-based payment expense in accordance with Statement of Financial Accounting Standards No. 123-R, Share-based Payment, (“SFAS 123R”) as interpreted by SEC Staff Accounting Bulletin No. 107.  The Company adopted the modified prospective transition method provided for under SFAS 123R, and consequently has not retroactively adjusted results from prior periods.  Under this transition method, compensation cost associated with stock option awards now includes quarterly amortization of the remaining unvested portion of stock options outstanding prior to January 1, 2006.  Share-based payment expense was recorded as a non-cash expense increase in salaries and benefits, which had the effect of reducing net income, earnings per share, and diluted earnings per share.  Share-based payment expense is recorded on a ratable basis in the period in which the stock option vests.  The Company uses the Black-Scholes-Merton closed form model, an acceptable model under SFAS 123R, for estimating the fair value of stock options.  For the valuation of stock options, the Company used the following assumptions: a risk free rate of 4.18%; a volatility rate of 27.63%; an expected dividend rate of 2.30%; and an expected term of 6.27 years for the three months ended September 30, 2007 and a risk free rate of 4.80%; a volatility rate of 26.89%; an expected dividend rate of 0.90%; and an expected term of 5.85 years for the three months ended September 30, 2006.

Information as Reported in the Financial Statements

The following table presents the stock option compensation expense included in the Company’s Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2007 and September 30, 2006:

	Three Months Ended						Nine Months Ended
	September 30, 2007			September 30, 2006			September 30, 2007			September 30, 2006
(Dollars in thousands except per share data)
Stock option compensation expense	$	217		$	131		$	1,066		$	566
Tax benefit recorded related to stock option compensation expense		(24	)		(9	)		(152	)		(37	)
Decrease in net income	$	193		$	122		$	914		$	529
Effect on:
Net income per share – basic	$	(0.02	)	$	(0.01	)	$	(0.08	)	$	(0.05	)
Net income per share – diluted	$	(0.02	)	$	(0.01	)	$	(0.08	)	$	(0.05	)

Options activity during the first nine months of 2007 is as follows:

(Shares in thousands)	Number of Shares			Weighted-Average Exercise Price per Share
Outstanding at January 1, 2007		680		$	20.73
Options granted		192			28.87
Options exercised		(29	)		14.23
Options forfeited		(18	)		30.15
Outstanding at September 30, 2007		825			22.65
Exercisable at September 30, 2007		606		$	19.84

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Options grants during the first nine months of 2007:

	September 30,
	2007				2006
(Shares in thousands)	Number of Shares		Weighted-Average Fair Value per Share		Number of Shares		Weighted-Average Fair Value per Share
Options granted		192	$	9.09		169	$	9.83

Option vesting activity that occurred during the first nine months of 2007:

(Shares in thousands)	Number of Shares			Weighted-Average Fair Value per Share
Nonvested options at January 1, 2007		115		$	11.17
Options granted		192			9.09
Options vested		(70	)		9.80
Options forfeited		(18	)		10.14
Nonvested options at September 30, 2007		219		$	9.87

Vested option summary information as of September 30, 2007 is as follows:

(Shares and dollars in thousands, except per share data)	Number of Shares		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Life in Years		Weighted-Average Exercise Price per Share
Vested options exercisable at September 30, 2007		606	$	2,669		6.01	$	19.84
Total options outstanding at September 30, 2007		825	$	2,671		6.82	$	22.65

The vesting schedule for each option holder’s stock option contract is identical to the exercise schedule for each option contract.  The total intrinsic value of options exercised was $402,000 and $919,000 for the nine months ended September 30, 2007 and September 30, 2006.  Intrinsic value is defined as positive difference between the current market price for the underlying stock and the strike price of an option.  The exercise price must be less than the current market price of the underlying stock to have intrinsic value.  The total fair value of shares vested was $686,000 and $566,000 for the nine months ended September 30, 2007 and 2006.  Total future compensation expense related to non-vested awards was $1,646,000 with a weighted average period to be recognized of 2.00 years as of September 30, 2007.  There are 650,000 authorized shares remaining available for future grant under the Company’s stock option plan.

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NOTE 7.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes.  FIN 48 requires that management make a determination as to whether each tax position is more-likely-than-not to be sustained under tax authority examination, based on the technical merits of the position.  If the more-likely-than-not threshold is met, management must measure the benefit of each position to determine the amount of benefit to recognize in the financial statements.  Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in: (a) an increase in a liability for income taxes payable or a reduction in an income tax refund; (b) a reduction in a deferred tax asset or an increase in a deferred tax liability; or (c) both.  This interpretation was effective for fiscal years beginning after December 15, 2006.  The adoption of this statement did not have a material impact on the Company’s Consolidated Financial Statements.

In September 2006, FASB issued SFAS No. 157, "Employers’ Fair Value Measurements” which defines and establishes a framework for measuring fair value used in FASB pronouncements that require or permit fair value measurement.   This statement expands disclosures using fair value to measure assets and liabilities in interim and annual periods subsequent to the period of initial recognition.  SFAS No. 157 is effective for financial statements issued for fiscal years after November 15, 2007, and interim periods within those years.  Management is currently evaluating the impact the adoption of SFAS No. 157 will have on its financial position and results of operations.

In September 2006, the Emerging Issues Task Force issued EITF Issue No. 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (“EITF 06-04”).  EITF 06-04 establishes that for certain split-dollar life insurance arrangements, an employer should recognize a liability for future benefits in accordance with currently existing accounting pronouncements based on the substantive agreement with the employee.  EITF 06-04 will be effective for fiscal years beginning after December 15, 2007.  Management is currently evaluating the impact of the adoption of EITF 06-04 and has not yet determined the impact EITF 06-04 will have on the Company’s consolidated financial statements upon adoption.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159), which creates an alternative measurement method for certain financial assets and liabilities. SFAS 159 permits fair value to be used for both the initial and subsequent measurements on a contract-by-contract election, with changes in fair value to be recognized in earnings as those changes occur. This election is referred to as the “fair value option”. SFAS 159 also requires additional disclosures to compensate for the lack of comparability that will arise from the use of the fair value option. SFAS 159 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted as of the beginning of a company’s fiscal year, provided the company has not yet issued financial statements for that fiscal year.  Management is currently evaluating the impact the adoption of SFAS 159 will have on its financial position and results of operations and has decided not to early adopt SFAS 159.

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

The following Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements that are subject to risks and uncertainties and include information about possible or assumed future results of operations.  Many possible events or factors could affect the future financial results and performance of the company.  This could cause results or performance to differ materially from those expressed in our forward-looking statements.  Words such as “expects”, “anticipates”, “believes”, “estimates”, “intends,” “plans,” “assumes,” “projects,” “predicts,” “forecasts,” and variations of such words and other similar expressions are intended to identify such forward-looking statements.  These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict.  Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements.

Readers of the Company’s Form 10-Q should not base their investment decisions solely on forward looking statements and should consider all uncertainties and risks discussed throughout this report, as well as those discussed in the Company’s 2006 Annual Report on Form 10-K filed on March 16, 2007.  These statements are representative only on the date hereof, and the Company undertakes no obligation to update any forward-looking statements made.  Some possible events or factors that could occur that may cause differences from expected results include the following: the Company’s loan growth is dependent on economic conditions, as well as various discretionary factors, such as decisions to sell, or purchase certain loans or loan portfolios; or sell or buy participations of loans; the quality and adequacy of management of our borrowers; or industry, product and geographic concentrations and the mix of the loan portfolio.  The rate of charge-offs and provision expense can be affected by local, regional and international economic and market conditions, concentrations of borrowers, industries, products and geographical conditions, the mix of the loan portfolio and management’s judgments regarding the collectibility of loans.  Liquidity requirements may change as a result of fluctuations in assets and liabilities and off-balance sheet exposures, which will impact the capital and debt financing needs of the Company and the mix of funding sources.  Decisions to purchase, hold, or sell securities are also dependent on liquidity requirements and market volatility, as well as on and off-balance sheet positions.  Factors that may impact interest rate risk include local, regional and international economic conditions, levels, mix, maturities, yields or rates of assets and liabilities and the wholesale and retail funding sources of the Company.

The Company is also exposed to the potential of losses arising from adverse changes in market rates and prices which can adversely impact the value of financial products, including securities, loans, and deposits.  In addition, the banking industry in general is subject to various monetary and fiscal policies and regulations, which include those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation and state regulators, whose policies and regulations could affect the Company’s results.

Other factors that may cause actual results to differ from the forward-looking statements include the following: competition with other local and regional banks, savings and loan associations, credit unions and other nonbank financial institutions, such as investment banking firms, investment advisory firms, brokerage firms, mutual funds and insurance companies, as well as other entities which offer financial services; interest rate, market and monetary fluctuations; inflation; market volatility; general economic conditions; introduction and acceptance of new banking-related products, services and enhancements; fee pricing strategies, mergers and acquisitions and their integration into the Company, civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences or acts of this type; outbreak or escalation of hostilities in which the United States is involved; any declaration of war by the U.S. Congress or any other national or international calamity, crisis or emergency; changes in laws and regulations; recently issued accounting pronouncements, government policies, regulations, and their enforcement (including Bank Secrecy Act-related matters, taxing statutes and regulations); restrictions on dividends that our subsidiaries are allowed to pay to us; the ability to satisfy requirements related to the Sarbanes-Oxley Act and other regulation on internal control; and management’s ability to manage these and other risks. For additional information relating to the risks of the Company's business see "Risk Factors" in the Company's Annual Report on Form 10-K for 2006 and in Part II Item 1A of this report.

-13-

Critical Accounting Policies and Estimates

Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, the Company evaluates its estimates, including those related to the adequacy of the allowance for loan losses and reserve for unfunded loan commitments, valuation of deferred income taxes and contingencies.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results will differ from these estimates. (See caption “Allowance for Loan Losses” below in the current Form 10-Q and in the Company’s 2006 annual report for a more detailed discussion).

The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to the Company and its subsidiaries' financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto included in the Company’s 2006 Annual Report and Form 10-K.

Results of Operations

Three and Nine Months Ended September 30, 2007 Compared With Three and Nine Months Ended September 30, 2006

OVERVIEW

For the three and nine months ended September 30, 2007, the Company reported net income of $5,996,000 and $10,614,000.  This compares to $5,829,000 and $17,640,000 for the comparative periods in 2006 and represents an increase of $167,000 (or 3%) and a decrease of $7,026,000 (or 40%) respectively.  Basic earnings per share were $0.56 and $0.98 and diluted earnings per share were $0.55 and $0.97 for the three and nine months ended September 30, 2007.  This compares to basic earnings per share of $0.54 and $1.65 and diluted earnings per share were $0.53 and $1.61 for the three and nine months ended September 30, 2006.  This was an increase of $0.02 and a decrease of $0.67 per share for basic and an increase of $0.02 and a decrease of $0.64 for diluted earnings per share for the three and nine months ended September 30, 2007.

The increase in net income for the three months ended September 30, 2007 compared to same time period in 2006 is mainly attributable to a $835,000 ($484,000 after tax) gain on the sale of certain equity securities and a gain of $993,000 on bank owned life insurance.  These gains were offset by an increase in the provision for loan losses of $532,000 ($309,000 after tax).  Additionally, third quarter acquisition and integration costs aggregated $382,000 ($222,000 after tax) and $626,000 ($363,000 after tax) for the nine months ended September 30, 2007.

The decrease in net income for the nine months ended September 30, 2007 is primarily attributable to an increase in the provision for loan losses recorded of $4,245,000, compared to the same time periods in 2006.  The increase in the provision was primarily attributable to a specific reserve recorded in the second quarter for a housing development loan in Rocklin, California.  In the third quarter, the Bank foreclosed on the property and charged off $2,823,000 ($1,637,000 after tax) of the specified reserve recorded in the second quarter to record the property at its net realizable value.  For more information related to the provision for loan losses, see the section titled “NON-PERFORMING ASSETS” on page 25 of this report.  The increase in the provision for loan loss was combined with a contraction in the net interest margin and an increase in noninterest expense which resulted in decreased net income for the nine months ended September 30, 2007 compared to the same time periods in 2006.  The decrease in net interest margin was primarily attributable to higher prevailing interest rates paid on deposits and a change in the deposit portfolio’s mix of deposits.  The increase in noninterest expense has primarily been driven by a specific reserve of $1,646,000 related to the unfunded commitments recorded in 2007 on the aforementioned housing development loan in Rocklin, California, related to mechanic's liens, increased costs associated with branch expansion, normal salary progression and acquisition expenses.  For more information related to the specific reserve recorded in noninterest expense, see the section titled “RESERVE FOR UNFUNDED COMMITMENTS” on page 28 of this report.

The Bank has opened nine new branch facilities in two years.  These new branches have increased salary and benefit costs attributable to the staffing for these branches, and the additional depreciation expense of capitalized equipment and new facilities.  The annualized return on average assets was 1.25% and .76% for the three and nine months ended September 30, 2007 compared to 1.29% and 1.33% for the three and nine months ended September 30, 2006.  The Company's annualized return on average equity was 15.66% and 9.39% for the three and nine months ended September 30, 2007 compared to 17.05% and 17.91% for the three and nine months ended September 30, 2006.

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NET INTEREST INCOME

The Company's primary source of income is net interest income and represents the difference between interest income and fees derived from earning assets and interest paid on interest bearing liabilities.  The following table illustrates the results and changes in interest income and interest expense for the dates indicated.

	For the Three Months Ended September 30,							For the Nine Months Ended September 30,
(Dollars in thousands)	2007		2006		Percent Change			2007		2006		Percent Change
Total interest income	$	33,179	$	31,020		6.9	%	$	95,692	$	89,073		7.4	%
Total interest expense		15,218		12,871		18.2	%		43,989		33,090		32.9	%
Net interest income:	$	17,961	$	18,149		(1.0	)%	$	51,703	$	55,983		(7.6	)%

The following table illustrates the average balances affecting interest income and expense, and interest earned or paid on those balances on a tax adjusted basis for the periods indicated.

	For the Three Months Ended September 30,									For the Nine Months Ended September 30,
(Dollars in thousands)	2007			2006			Percent Change			2007			2006			Percent Change
Average interest-earning assets	$	1,744,977		$	1,674,083			4.2	%	$	1,721,541		$	1,639,476			5.0	%
Average interest-bearing liabilities	$	1,496,922		$	1,384,793			8.1	%	$	1,467,260		$	1,345,609			9.0	%
Average interest rate earned		7.61	%		7.42	%		2.6	%		7.50	%		7.34	%		2.2	%
Average interest rate paid		4.03	%		3.69	%		9.4	%		4.01	%		3.29	%		21.9	%
Net interest margin:		4.15	%		4.37	%		(5.0	)%		4.09	%		4.64	%		(12.0	)%

The level of interest income is affected by changes in volume of and rates earned on interest-earning assets.  Interest-earning assets consist primarily of loans, investment securities and federal funds sold.  The increase in total interest income for the three and nine months ended September 30, 2007 was primarily the result of an increase in both the volume of interest-earning assets and the average interest rates earned.  The increase in average interest earning assets during 2007 was made possible by increased asset generation from our existing branch network with funding being provided from the reduction in federal funds sold and the issuance of other borrowings.  The increase in interest rates earned during 2007 compared to the same period in 2006 was primarily the result of an increase in prevailing market interest rates.  Management believes that while deposit competition will likely continue, the dramatic increase in interest rates paid on deposits appears to have ended.  Short term interest rates for the three and nine months ended September 30, 2007 as compared to the same period in 2006 have increased as a result of the Federal Reserve Board’s Open Market Committee (FRBOMC) actions that increased short term rates through June 2006.  The FRBOMC reduced the fed funds rate by 50 basis points on September 18, 2007 and another 25 basis points on October 31, 2007.  These reductions took place late in the third quarter and in the fourth quarter of 2007 and did not materially impact our third quarter financial results.

Interest expense is a function of the volume and rates paid on interest-bearing liabilities.  Interest-bearing liabilities consist primarily of certain deposits and borrowed funds.  The increase in interest rates paid during the three and nine months ended September 30, 2007 when compared to 2006 was primarily the result of an increase in prevailing interest rates and a change in the mix within the deposit portfolio.  The increase in interest-bearing liabilities during 2007 when compared to the same period in 2006 was primarily the result of an increase in time and savings deposits.  The increase in savings deposits was primarily the result of a decision the Bank made in September of 2006 to retain deposits that the Bank swept out at the end of the day to other depository institutions.  This action allowed the Bank to retain $49,840,000 in savings deposits in September 2006, which grew to $91,152,000 at December 31, 2006 and again grew to $104,115,000 as of September 30, 2007.  Average savings deposits accounted for 29% and 28% of the average deposit portfolio for the three and nine months ended September 30, 2007 compared to 23% and 25% for the same time periods in 2006.  The increase in time deposits in 2007 was partially the result of customers reallocating funds from non-interest bearing demand deposit accounts to interest bearing time accounts.  The Bank has also increased market penetration into existing markets and expanded into new markets, which has increased deposits in the savings and time segments of the deposit portfolio.  One of the major causes for the increase was an increase in promotional rate programs established by the new branches in an effort to attract more business.  Management decided to reduce the amount of federal funds sold allowing the Bank to reduce high cost brokered time deposits to $2,606,000 as of September 30, 2007 compared to $92,943,000 at December 31, 2006.  Average time deposits accounted for 40% and 41% of the average deposit portfolio for the three and nine months ended September 30, 2007 compared to 45% and 41% for the same time periods in 2006.  The decrease in the time deposit segment of the deposit portfolio was coupled with declines in the demand deposit segment of the deposit portfolio causing the average interest rate paid on interest bearing liabilities to increase to 4.03% and 4.01% for the three and nine months ended September 30, 2007 compared to 3.69% and 3.29% for the same periods in 2006.

The net interest margin provides a measurement of the Company's ability to utilize funds profitably during the period of measurement.  The Company's decrease in the net interest margin for the three and nine months ended September 30, 2007 when compared to the same periods in 2006 was primarily attributable to a larger percentage increase in yields paid for deposits than yields earned on loans.  Loans as a percentage of average interest-earning assets increased to 77% and 74% for the three and nine months ended September 30, 2007 as compared with 73% and 71% for the same time periods in 2006.  The increase in loans as a percentage of interest-earning assets is mainly attributable to increased loan production generated through our branch network.  For the three and nine months ended September 30, 2007 average loans grew to $1,334,981,000 and $1,270,114,000 from $1,225,723,000 and $1,168,887,000.  The increase in average loan growth equated to 8.9% and 8.7% respectively.  The loan growth occurred primarily in the non-residential real estate mortgage loan segment of the portfolio.  Net interest income and the net interest margin are presented in the table on pages 16 and 17 on a taxable-equivalent basis to consistently reflect income from taxable loans and securities and tax-exempt securities based on a 35% marginal federal tax rate.

AVERAGE BALANCES AND RATES EARNED AND PAID

The following table presents condensed average balance sheet information for the Company, together with average interest rates earned and paid on the various sources and uses of its funds for each of the periods indicated.  Non-accruing loans are included in the calculation of the average balances of loans, but the non-accrued interest on such loans is excluded

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AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST EARNINGS

	Three Months Ended September 30, 2007								Three Months Ended September 30, 2006
(Dollars in thousands)	Average Balance			Taxable Equivalent Interest		Taxable Equivalent Yield/Rate			Average Balance			Taxable Equivalent Interest		Taxable Equivalent Yield/Rate
Assets:
Federal funds sold	$	17,862		$	223		4.95	%	$	7,613		$	100		5.21	%
Time deposits at other financial institutions		100			1		3.97			350			5		5.67
Taxable investment securities  (1)		294,858			3,712		4.99			337,085			3,959		4.66
Nontaxable investment securities (1)		97,176			1,124		4.59			103,312			1,249		4.80
Loans, gross: (2)		1,334,981			28,422		8.45			1,225,723			26,009		8.42
Total interest-earning assets:		1,744,977			33,482		7.61			1,674,083			31,322		7.42
Allowance for loan losses		(15,547	)							(14,868	)
Cash and due from banks		44,731								43,274
Premises and equipment, net		46,371								37,647
Interest receivable and other assets		86,596								73,820
Total assets:	$	1,907,128							$	1,813,956
Liabilities And Shareholders' Equity:
Negotiable order of withdrawal	$	232,859		$	792		1.35		$	197,546		$	372		0.75
Savings deposits		430,562			3,778		3.48			333,695			2,259		2.69
Time deposits		597,518			7,186		4.77			666,501			7,507		4.47
Total interest-bearing deposits:		1,260,939			11,756		3.70			1,197,742			10,138		3.36
Federal funds purchased		816			11		5.35			2,945			40		5.39
Other borrowings		203,207			2,831		5.53			152,146			2,026		5.28
Junior subordinated debentures		31,960			620		7.70			31,960			667		8.28
Total interest-bearing liabilities:	$	1,496,922		$	15,218		4.03		$	1,384,793		$	12,871		3.69
Noninterest-bearing deposits		243,145								276,923
Accrued interest, taxes and other liabilities		15,176								15,471
Total liabilities:	$	1,755,243							$	1,677,187
Total shareholders' equity:		151,885								136,769
Total liabilities and shareholders' equity:	$	1,907,128							$	1,813,956
Net interest income and margin (3)				$	18,264		4.15	%				$	18,451		4.37	%

(1) Tax-equivalent adjustments included in the nontaxable investment securities portfolio are $271,000 and $288,000 for the three months ended September 30, 2007 and 2006.  Tax equivalent adjustments included in the taxable investment securities created by a dividends received deduction were $32,000 and $14,000 for the three months ended September 30, 2007 and 2006.

(2) Amounts of interest earned included loan fees of $1,011,000 and $950,000 and loan costs of $105,000 and $152,000 for the three months ended September 30, 2007 and 2006, respectively.

(3)   Net interest margin is computed by dividing net interest income by total average interest-earning assets.

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AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST EARNINGS

	Nine Months Ended September 30, 2007								Nine Months Ended September 30, 2006
(Dollars in thousands)	Average Balance			Taxable Equivalent Interest		Taxable Equivalent Yield/Rate			Average Balance			Taxable Equivalent Interest		Taxable Equivalent Yield/Rate
Assets:
Federal funds sold	$	44,939		$	1,756		5.22	%	$	5,250		$	193		4.92	%
Time deposits at other financial institutions		223			9		5.40			350			14		5.35
Taxable investment securities  (1)		307,240			11,235		4.89			362,508			12,609		4.65
Nontaxable investment securities (1)		99,025			3,548		4.79			102,481			3,756		4.90
Loans, gross: (2)		1,270,114			80,068		8.43			1,168,887			73,440		8.40
Total interest-earning assets:		1,721,541			96,616		7.50			1,639,476			90,012		7.34
Allowance for loan losses		(14,622	)							(15,074	)
Cash and due from banks		43,692								46,146
Premises and equipment, net		45,581								33,733
Interest receivable and other assets		80,144								69,644
Total assets:	$	1,876,336							$	1,773,925
Liabilities And Shareholders' Equity:
Negotiable order of withdrawal	$	230,732		$	2,214		1.28		$	205,209		$	1,038		0.68
Savings deposits		419,405			10,798		3.44			353,195			6,041		2.29
Time deposits		626,809			22,450		4.79			577,631			17,749		4.11
Total interest-bearing deposits:		1,276,946			35,462		3.71			1,136,035			24,828		2.92
Federal funds purchased		387			16		5.53			25,275			914		4.83
Other borrowings		157,967			6,540		5.54			162,139			5,942		4.90
Junior subordinated debentures		31,960			1,971		8.25			22,160			1,407		8.49
Total interest-bearing liabilities:	$	1,467,260		$	43,989		4.01		$	1,345,609		$	33,091		3.29
Noninterest-bearing deposits		242,919								281,828
Accrued interest, taxes and other liabilities		15,020								15,169
Total liabilities:	$	1,725,199							$	1,642,606
Total shareholders' equity		151,137								131,319
Total liabilities and shareholders' equity:	$	1,876,336							$	1,773,925
Net interest income and margin (3)				$	52,627		4.09	%				$	56,921		4.64	%

(1) Tax-equivalent adjustments included in the nontaxable investment securities portfolio are $860,000 and $879,000 for the nine months ended September 30, 2007 and 2006.  Tax equivalent adjustments included in the taxable investment securities created by a dividends received deduction were $52,000 and $64,000 for the nine months ended September 30, 2007 and 2006.

(2) Amounts of interest earned included loan fees of $3,013,000 and $2,805,000 and loan costs of $364,000 and $377,000 for the nine months ended September 30, 2007 and 2006, respectively.

 (3) Net interest margin is computed by dividing net interest income by total average interest-earning assets.

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NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE

The following table sets forth, for the periods indicated, a summary of the changes in interest earned and interest paid resulting from changes in average interest rates (Rate) and changes in average asset and liability balances (Volume) and the total net change in interest income and expenses on a tax equivalent basis.  The changes in interest due to both rate and volume have been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amount of the change in each.

Net Interest Income Variance Analysis:

	Three Months Ended
	September 30, 2007 Compared to September 30, 2006
(Amounts in thousands)	Rate			Volume			Total
Increase (decrease) in interest  income:
Federal funds sold	$	(12	)	$	135		$	123
Time deposits at other institutions		0			(4	)		(4	)
Taxable investment securities		249			(496	)		(247	)
Tax-exempt investment securities		(51	)		(74	)		(125	)
Loans		95			2,318			2,413
Total:	$	281		$	1,879		$	2,160
Increase in interest expense:
Interest bearing demand	$	354		$	66		$	420
Savings deposits		863			656			1,519
Time deposits		456			(777	)		(321	)
Federal funds purchased		0			(29	)		(29	)
Other borrowings		125			680			805
Junior subordinated debentures		(47	)		0			(47	)
Total:		1,751			596			2,347
Decrease in net interest income:	$	(1,470	)	$	1,283		$	(187	)

	Nine Months Ended
	September 30, 2007 Compared to September 30, 2006
(Amounts in thousands)	Rate			Volume			Total
Increase (decrease) in interest  income:
Federal funds sold	$	104		$	1,459		$	1,563
Time deposits at other institutions		0			(5	)		(5	)
Taxable investment securities		548			(1,922	)		(1,374	)
Tax-exempt investment securities		(81	)		(127	)		(208	)
Loans		268			6,360			6,628
Total:	$	839		$	5,765		$	6,604
Increase in interest expense:
Interest bearing demand	$	1,047		$	129		$	1,176
Savings deposits		3,625			1,132			4,757
Time deposits		3,190			1,511			4,701
Federal funds purchased		2			(900	)		(898	)
Other borrowings		751			(153	)		598
Junior subordinated debentures		(58	)		622			564
Total:		8,557			2,341			10,898
Decrease in net interest income:	$	(7,718	)	$	3,424		$	(4,294	)

-18-

PROVISION FOR LOAN LOSSES

The provision for loan losses was $732,000 and $4,645,000 for the three and nine months ended September 30, 2007 compared to $200,000 and $400,000 for the three and nine months ended September 30, 2006, this represents an increase of $532,000 and $4,245,000 in 2007 compared to 2006. For an explanation of the increase in the provision for loan losses during 2007, see "ALLOWANCE FOR LOAN LOSSES" elsewhere herein.  As of September 30, 2007 the allowance for loan losses was $15,285,000 or 1.12% of total loans compared to $14,031,000 or 1.15% of total loans as of December 31, 2006.  At September 30, 2007, non-performing assets totaled $12,734,000 or 0.65% of total assets, non-performing loans totaled $3,284,000 or 0.24% of total gross loans and the allowance for loan losses totaled 465.44% of non-performing loans.  At December 31, 2006, non-performing assets totaled $2,435,000 or 0.12% of total assets, non-performing loans totaled $2,375,000 or 0.19% of total gross loans and the allowance for loan losses totaled 590.78% of non-performing loans.  No assurance can be given that non-performing loans will not increase or that the allowance for loan losses will be adequate to cover losses inherent in the loan portfolio.  For more information related to non-performing loans, see the section titled “NON-PERFORMING ASSETS” on page 25 of this report.

NON-INTEREST INCOME

Non-interest income increased by $1,960,000 and $2,499,000 or 62% and 27% to $5,116,000 and $11,709,000 for the three and nine months ended September 30, 2007, respectively, compared to the same time periods in 2006.  Service charges on deposit accounts increased by $491,000 and $1,359,000 or 32% and 30% to $2,041,000 and $5,834,000 for the three and nine months ended September 30, 2007, respectively, compared with the same periods in 2006.  The increase in service charges on deposit accounts for the three and nine month periods was the result of increased Bank focus on service charges as a way to increase non-interest income and a greater number of accounts opened than closed that incur service charges.  The gain on sale of securities increased by $835,000 and $213,000 compared to same time periods of 2006.  The increase of $100,000 and $338,000 for the three and nine months ended September 30, 2007 in cash surrender value of life insurance policies was the result of higher average earning balances compared to the same time periods in 2006.  Income on bank owned life insurance policy increased by $814,000 for three and nine months ended September 30, 2007.  Other categories of noninterest income had normal fluctuations in the ordinary course of business.

NON-INTEREST EXPENSE

Non-interest expenses increased by $2,364,000 and $6,835,000 or 18% for both periods to $15,356,000 and $45,409,000 for the three and nine months ended September 30, 2007 compared to the same time periods in 2006.  The primary components of non-interest expenses were salaries and employee benefits, premises and occupancy expenses, equipment depreciation expense, communication expenses, professional fees, supplies expenses, marketing expenses, intangible amortization and other operating expenses which include the provision for unfunded commitments.

Salaries and related expenses increased by $313,000 and $1,396,000 or 4% and 6% to $7,606,000 and $22,883,000 for the three and nine months ended September 30, 2007.  This compares to the $7,293,000 and $21,487,000 for the same time periods in 2006.  The increase was primarily the result of normal salary progression, increased support staff used to support branch operations, the staffing of new branch offices, regulatory compliance support functions, and increased expense in 2007 associated with share-based payment as part of salaries and related benefits.  Share-based payment expense increased $86,000 and $501,000 for the three and nine months ended September 30, 2007 compared to the same time periods in 2006.  Premises and occupancy expense increased by $413,000 and $1,274,000 or 29% and 33% for the three and nine months ended September 30, 2007 compared to the same time periods in 2006.  The primary reason for the increase in 2007 was related to the opening of new branch facilities in 2006 and 2007.  Equipment expense increased by $286,000 and $732,000 or 26% and 23% for the three and nine months ended September 30, 2007 compared to the same time periods in 2006.  The increase in equipment depreciation expense is related to the opening of new facilities and equipment upgrades in existing facilities.  When comparing the results for the three and nine months ended September 30, 2007 to the same periods in 2006, professional fees increased by $747,000 and $943,000 or 156% and 48%, respectively.  The increase in professional fees is primarily attributable to increased fees associated with merger and acquisition activity which did not occur in 2006.  Legal and consulting fees associated with merger and acquisition activity were $297,000 and $418,000 for the three and nine months ended September 30, 2007.  Marketing expense increased primarily due to a marketing campaign of the thirty year anniversary of the Bank and certain time deposit promotions.  Supplies expense decreased primarily because of increased attention to use of supplies and conservation.  Other expenses increased primarily due to the provision for unfunded commitments increasing by $214,000 and $1,797,000 to $195,000 and $1,790,000 for the three and nine months ended September 30, 2007 compared to a reduction of $19,000 and $7,000 recorded for the three and nine months ended September 30, 2006.  The increase in the provision for unfunded commitments in the three month ended September 30, 2007 was primarily driven by an increase of $127,000 for mechanics liens that have been placed against and an additional $136,000 recorded for unfunded loan commitments.  For more information related to the non-performing construction loan, see the section titled “NON-PERFORMING ASSETS” on page 28 or for more information related to the provision for unfunded commitments, see the section titled “RESERVE FOR UNFUNDED COMMITMENTS” on page 28.  Community support donations decreased primarily because they are provided as a percentage of income and have decreased as earnings have decreased.

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PROVISION FOR INCOME TAXES

The Company recorded a decrease in the provision for income taxes of $1,291,000 and $5,835,000 or 57% and 68% for the three and nine months ended September 30, 2007 compared to the expense recorded for the same time periods in 2006.  The Company recorded an effective tax rate of 14% and 21% for the three and nine months ended September 30, 2007.  For the same time periods in 2006, the Company recorded an effective tax rate of 28% and 33%.  The decrease in the effective tax rate is the result of nontaxable income representing a greater percentage of income before taxes and the recognition of increasing tax credits related to investments in housing tax credit limited partnerships.  The company had a tax benefit of $182,000 resulting from “true-up” of the 2006 accounting estimate with actual tax returns filed in the third quarter and a tax valuation reserve reversal of $160,000.  In the third quarter of 2007, the Bank also recorded a tax-free insurance benefit payment of $993,000.

Effective January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.  We recognize both interest and penalties as a component of income tax expense.  The Company did not have any accrued interest or penalties due to tax authorities at adoption or September 30, 2007.  The Company has not recorded any cumulative effects of applying this interpretation as those positions that do not meet the threshold are not material to the Company's financial statements and due to management’s belief that all of the Company’s material tax positions are more-likely-than-not to be upheld, and fully realized upon audit.  The Company files a consolidated federal income tax return and the Company files income tax returns in the State of California.  The Bank is not subject to federal income tax examinations for taxable years prior to 2003, or state examinations prior to 2002.

Financial Condition

Total assets at September 30, 2007 were $1,947,515,000, a decrease of $14,024,000 or 1% compared with total assets of $1,961,539,000 at December 31, 2006.  Net loans were $1,348,953,000 at September 30, 2007, an increase of $138,223,000 or 11% compared with net loans of $1,210,730,000 at December 31, 2006.  Deposits were $1,531,249,000 at September 30, 2007, a decrease of $84,092,000 or 5% compared with deposits of $1,615,341,000 at December 31, 2006.  The decrease in total assets of the Company between December 31, 2006 and September 30, 2007 was primarily the result of federal funds sold being reduced by $137,800,000 to retire brokered deposits and fund reductions in other areas of the deposit portfolio.  For further information on the reduction of brokered deposits, see the “NET INTEREST INCOME” section on page 17 of this report.

Total shareholders' equity was $156,104,000 at September 30, 2007, an increase of $8,524,000 or 6% from the $147,580,000 at December 31, 2006. The growth in shareholders’ equity between December 31, 2006 and September 30, 2007 was primarily achieved through the retention of accumulated earnings.

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OFF-BALANCE SHEET COMMITMENTS

The following table shows the distribution of the Company's undisbursed loan commitments at the dates indicated.

	September 30,		December 31,
(In thousands)	2007		2006
Letters of credit	$	6,815	$	6,739
Commitments to extend credit		416,953		445,189
Total	$	423,768	$	451,928

As a financial services provider, the Bank routinely commits to extend credit, including loan commitments, standby letters of credit and financial guarantees. A significant portion of commitments to extend credit may expire without being drawn upon. These commitments are subject to the same credit policies and approval process used for the Bank’s loans.

RETIREMENT PLANS

The Company has a supplemental retirement plan covering fourteen current and former executive officers. This plan is a nonqualified defined benefit plan and is unsecured and unfunded. The Company has purchased insurance on the lives of the participants and intends to use the death benefits of these policies to offset the related retirement obligations.  For more information on the life insurance plans, see the section titled “CASH VALUE OF LIFE INSURANCE” contained in this report.

The following table sets forth the net periodic benefit cost recognized for the plan:

(Dollars in thousands)	Three Months Ended September 30, 2007		Nine Months Ended September 30, 2007
Net pension cost included the following components:
Service cost-benefits earned during the period	$	75	$	232
Interest cost on projected benefit obligation		53		159
Net periodic pension cost	$	128	$	391

During the nine months ended September 30, 2007, the Company contributed and paid out as benefits $112,000 to participants under the plan. For the year ending December 31, 2007, the Company expects to contribute and pay out as benefits $150,000 to participants under the plans.

CASH VALUE OF LIFE INSURANCE

The Bank maintains certain cash surrender value life insurance policies to, among other things, partially offset the cost of employee and director benefit programs.  The policies are also associated with a supplemental retirement plan for the Bank's executive management and deferred retirement benefits for participating board members.  The Bank has purchased insurance on the lives of the participants and intends to hold these policies until their death to obtain the death proceeds associated with the policies.  Income from these policies is reflected in non-interest income.  At September 30, 2007, the Bank held $43,574,000 in cash surrender value of life insurance, an increase of $523,000 from the $43,051,000 maintained at December 31, 2006.

The Bank is the owner and beneficiary of life insurance policies on a former employee of the Bank who passed away in August 2007.  The Bank recorded a gain of $993,000 from the policies, or approximately $0.09 per diluted share in the third quarter.

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INVESTMENT IN HOUSING TAX CREDIT LIMITED PARTNERSHIPS

The Bank invests in housing tax credit limited partnerships to help meet the Bank’s Community Reinvestment Act low income housing investment requirements as well as to obtain federal and state income tax credits.  These partnerships provide the funding for low-income housing projects that might not otherwise be built.  The Bank had invested $12,304,000 and was committed to invest an additional amount of $1,496,000 in these partnerships as of September 30, 2007.

INVESTMENT SECURITIES

At September 30, 2007 the Bank’s investment securities included $5,093,000 of preferred stock issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.  These issues of preferred stock are tied to various short term indices ranging from the one year LIBOR interest rate to the five year U.S. Treasury rate.  These securities have AA- credit ratings from the securities rating agencies and are callable by the issuer at par.

The Company’s investment portfolio consists of Mortgage backed securities, US Government Agencies, Collateralized Mortgage Obligations, Municipal securities, preferred stock, and other securities/debt.  The majority of the Company’s investments are with government sponsored entities. Specifically, FHLMC, FNMA, FHLB, FFCB.  All of our MBS & CMOs, except for the two whole loan CMOs, also are with government sponsored entities (GNMA, FHLMC or FNMA).  The two whole loan CMOs, do not appear to have subprime exposure, as such, Management does not believe the investments are other than temporarily impaired.  All of our municipals have an A rating or higher and most are AAA rating either implicitly or are insured by a third party.   For those investments with a fair value below cost, Management has the intent and the ability to hold for recoverability.

DERIVIATIVE INSTRUMENTS

Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities.  As required by SFAS 133, the Company records all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation.  Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.  Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.  To qualify for hedge accounting, the Company must comply with the detailed rules and strict documentation requirements at the inception of the hedge, and hedge effectiveness is assessed at inception and periodically throughout the life of each hedging relationship.

The Company’s objective in using derivatives is to reduce its exposure to variability in cash flows relating to receipts on its prime-based variable-rate loans.  To accomplish this objective, the Company uses an interest rate floor contract to protect the Company against movements in interest rates below the floor’s strike rate over the life of the agreement.  The interest rate floor contract is with Wachovia Bank and is effective from October 1, 2005 until September 1, 2010.  The contract’s cost was $1,270,000, and that cost is being amortized over the life of the contract.  The notional amount of the floor is $100,000,000 with a strike rate of 6.5% vs. the prime rate as published in the H15 bulletin from the Federal Reserve Bank for the first of each month.  The interest rate floor contract is designated as a cash flow hedge of the overall changes in cash flows below the interest rate floor contract’s strike rate of 6.5% on the Company’s designated prime-based interest receipts.  The hedged transactions are the forecasted interest receipts of the first prime-based interest payments received by the Company on designated prime-based loans each calendar month that, in aggregate for each month, are interest payments on $100 million principal of the Company’s then-existing pool of designated prime-based loans that reset on the first of every month.  With respect to the $100 million principal of the Company’s then existing pool of designated prime-based loans, the interest floor contract specifically designates the hedged transaction to be (i) for the first $1 million of the $100 million of floor notional:  the first prime-based interest payments received by the Company each calendar month until the maturity date of the floor that, in the aggregate for each period, are interest payments on $1 million principal of its then-existing prime-based loans that reset on the 1^st of each month and with a 0.25% spread below prime (the “hedged transactions” for this portion of the floor); (ii) for the next $20 million of the $100 million of floor notional:  the first prime-based interest payments received by the Company each calendar month until the maturity date of the floor that, in the aggregate for each period, are interest payments on $20 million principal of its then-existing prime-based loans that reset on the 1^st of each month and with a 0.00% spread to prime (the “hedged transactions” for this portion of the floor); (iii) for the next $2 million of this $100 million of floor notional:  the first prime-based interest payments received by the Company each calendar month until the maturity date of the floor that, in the aggregate for each period, are interest payments on $2 million principal of its then-existing prime-based loans that reset on the 1^st of each month and with a 0.25% spread over prime (the “hedged transactions” for this portion of the floor);  (iv) for the next $17 million of the $100 million of floor notional:  the first prime-based interest payments received by the Company each calendar month until the maturity date of the floor that, in the aggregate for each period, are interest payments on $17 million principal of its then-existing prime-based loans that reset on the 1^st of each month and with a 0.50% spread over prime (the “hedged transactions” for this portion of the floor);  (v) for the next $5 million of the $100 million of floor notional:  the first prime-based interest payments received by the Company each calendar month until the maturity date of the floor that, in the aggregate for each period, are interest payments on $5 million principal of its then-existing prime-based loans that reset on the 1^st of each month and with a 0.75% spread over prime (the “hedged transactions” for this portion of the floor);  (vi) For the next $28 million of the $100 million of floor notional:  the first prime-based interest payments received by the Company each calendar month until the maturity date of the floor that, in the aggregate for each period, are interest payments on $28 million principal of its then-existing prime-based loans that reset on the 1^st of each month and with a 1.00% spread over time (the “hedged transactions” for this portion of the floor);  (vii) for the next $12 million of the $100 million of floor notional:  the first prime-based interest payments received by the Company each calendar month until the maturity date of the floor that, in the aggregate for each period, are interest payments on $12 million principal of its then-existing prime-based loans that reset on the 1^st of each month and with a 1.25% spread over time (the “hedged transactions” for this notional of the floor);  (viii) for the remaining $15 million of the $100 million of floor notional:  the first prime-based interest payments received by the Company each calendar month until the maturity date of the floor that, in the aggregate for each period, are interest payments on $15 million principal of its then-existing prime-based loans that reset on the 1^st of each month and with a  1.50% spread over time (the “hedged transactions” of this portion of the floor).  The designation described above is consistent with the approach outlined in DIG Issue No. G25.  DIG Issue No. G25 addresses the “first-payments-received technique” for identifying the hedged forecasted transactions in a cash flow hedge of the variable prime-based or other variable non-benchmark-rate-based interest payments for a rolling portfolio of prepayable interest-bearing financial assets or liabilities.  The pool of designated prime-based loans being hedged contains no optionality (no embedded caps or floors).  During 2007 and 2006, the floor contract was used to hedge the variable cash flows associated with existing variable-rate loan assets that are based on the prime rate.  For accounting purposes, the interest floor contract is designated as a cash flow hedge of the overall changes in cash flows on the first prime-based interest payments received by the Company each calendar month during the term of the hedge that, in aggregate for each period, are interest payments on principal from specified portfolios equal to the notional amount of the floor.  For more information on the interest rate floor see the Note 1 in the derivative instruments and hedging activities section of the Company’s 2006 Annual Report and Form 10-K.

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Both prospective and retrospective assessments of hedge effectiveness are based on the approach described in SFAS 133 Implementation Issue No. G20, “Assessing and Measuring the Effectiveness of a Purchased Option Used in a Cash Flow Hedge” (Issue G20) at inception and on an ongoing basis.  Under this approach, the assessment of hedge effectiveness is based on total changes in the option’s cash flows.  The Company performs its effectiveness assessments and measures ineffectiveness by comparing the actual option with a hypothetically perfect option, as discussed in Issue G20.  Prospective and retrospective assessments of hedge effectiveness and measurements of hedge ineffectiveness are performed on a quarterly basis, when financial statements are reported.  The effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings (“interest and fees on loans” for the hedging relationship described above) when the hedged transactions affect earnings.  Ineffectiveness resulting from the hedge, if any, is recorded as a gain or loss in the consolidated statement of income and comprehensive income as part of noninterest income or noninterest expense.  The Company also monitors the risk of counterparty default on an ongoing basis.

Prepayments in hedged loan portfolios are treated in a manner consistent with the guidance in SFAS 133 Implementation Issue No. G25, “Cash Flow Hedges: Using the First-Payments-Received Technique in Hedging the Variable Interest Payments on a Group of Non-Benchmark-Rate-Based Loans,” which allows the designated forecasted transactions to be the variable prime-rate-based interest payments on a rolling portfolio of prepayable interest-bearing loans using the first-payments-received technique, thereby allowing interest payments from prime-based loans that prepay to be replaced with interest payments from newly originated prime-based loans.

As of September 30, 2007, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations.  Additionally, the Company does not use derivatives for trading or speculative purposes.

To the extent the hedging relationship is effective, changes in the fair value of the floor each period will be deferred in accumulated other comprehensive income (AOCI), and the floor purchase price will be reclassified from AOCI to earnings (amortized) as adjustments to interest income on loans.

The increase of $295,000 or 94% in the fair value of the interest rate floor between December 31, 2006 and September 30, 2007 was primarily the result of a changing interest rate environment which caused a corresponding increase in the probability that the Company will receive future cash inflows related to this contract.  The Company recorded a reduction of interest income of $47,000 and $129,000 for the three and nine month ended September 30, 2007 related to the amortization of the interest rate floor.  The Company recorded the reduction as a reclassification from other comprehensive income of $74,000 with a tax benefit of $54,000 for the nine months ended September 30, 2007.  The Company recorded a reduction of interest income in the nine months of 2006 of $27,000 related to the amortization of the interest rate floor.  The Company recorded the reduction as a reclassification from other comprehensive income of $7,000 with a tax benefit of $5,000 in the nine months of 2006.  In the second quarter of 2007 the hedge became partially ineffective, requiring the Company under SFAS 133 to record a charge of $117,000 in noninterest expense.  The Company recorded the expense as a reclassification from AOCI of $68,000 with a tax benefit of $49,000.

In the third quarter of 2007, the Company expanded the scope of the loans and redesignated the hedge.   When the floor is redesignated in a new hedging relationship, the prospective impact (if there is no ineffectiveness noted in the analysis) would mirror hedge accounting with no ineffectiveness. However, the amortization now consists of two components: the new hedging relationship and the adjusted old hedging relationship.  At the time of redesignation, the floor will move from its value on that date to zero; therefore, the amount reclassified to AOCI over its remaining life will equal that value and must be amortized to interest income so that AOCI is zero at maturity.

At the same time, however, the cumulative AOCI balance includes an amount related to the “old” hedging relationship ($234,000), which must also be amortized to interest income.  If the hedged forecasted transactions for the original hedging relationship are probable of occurring, then the amounts in AOCI related to the old hedging relationship continue to be amortized to interest income. However, if the originally designated forecasted transactions become probable of not occurring, then the amounts deferred in AOCI related to those transactions should be reclassified to earnings immediately.

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The amounts deferred in AOCI related to the “old” hedging relationship will continue to be monitored through the maturity date of the floor to ensure that the amortization to earnings of the balance does not need to be accelerated.

The fair value and notional amounts for the cash flow hedge at September 30, 2007 and December 31, 2006 are presented below.

	September 30, 2007				December 31, 2006
(Dollars in thousands)	Fair Value		Notional Amount		Fair Value		Notional Amount
Purchased option, interest rate floor	$	609	$	100,000	$	314	$	100,000

LOANS

The Company concentrates its lending activities in five principal areas: commercial, agricultural, real estate construction, real estate mortgage, and consumer loans.  Interest rates charged for loans made by the Company vary with the degree of risk, the size and term of the loan, borrowers’ depository relationships with the Company and prevailing market rates.

As a result of the Company’s loan portfolio mix, the future quality of these assets could be affected by any adverse trends in its geographic market or in the broader economy. These trends are beyond the control of the Company.

The Bank’s business activity is with customers located primarily in the counties of Fresno, Madera, Mariposa, Merced, Sacramento, San Francisco, San Joaquin, Stanislaus, Santa Clara and Tuolumne in the state of California. The consumer and small business loan portfolio consists of loans to small businesses, home equity, credit cards and the purchase of financing contracts principally from automobile and recreational vehicle dealers. Individual loans and lines of credit are made in a variety of ways. In many cases collateral such as real estate, automobiles and equipment are used to support the extension of credit. Repayment, however, is largely dependent upon the borrower’s cash flow.

Commercial lending activities are spread across a wide spectrum of customers including loans to businesses, construction and permanent real estate financing, short and long term agricultural loans for production and real estate purposes and SBA financing. In most cases, collateral is taken to secure and reduce the Bank’s credit risk.  Each loan is submitted to an individual risk grading process as part of the Bank’s underwriting, but the borrowers’ ability to repay is dependent, in part, upon factors affecting the local and national economies.

The following table shows the composition of the loan portfolio of the Company by type of loan on the dates indicated:

(Dollars in thousands)	September 30, 2007						December 31, 2006
Loan Categories:	Dollar Amount			Percent of loans			Dollar Amount			Percent of loans
Commercial	$	365,633			27	%	$	320,121			26	%
Agricultural		86,318			6			81,568			7
Real estate construction		143,047			11			136,152			11
Real estate construction residential		38,564			3			41,081			3
Real estate mortgage		605,875			44			502,355			41
Real estate mortgage residential		26,648			2			39,725			3
Consumer		98,153			7			103,759			9
Total		1,364,238			100	%		1,224,761			100	%
Less allowance for loan losses		(15,285	)					(14,031	)
Net loans	$	1,348,953					$	1,210,730

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The Bank’s loan portfolio continues to be well diversified in terms of loan products and geography.  The Bank does not originate single family residential loans for the loan portfolio but merely functions in a loan brokerage capacity.  The Bank does not carry any sub-prime residential loans in its portfolio.  Our total residential real estate exposure totals $65 million (residential mortgages and liens on residential properties of $6 million, $20 million in home equity lines and residential construction loans of $39 million), or 5% of our loans.  It is also important to note that the Bank has never incurred a loss in our home equity portfolio.  The Bank’s agricultural loans aggregate $86 million or 6% of our loans and include no citrus or poultry exposures as of September 30, 2007.  While we are headquartered in Merced County, more than 70% of our real estate loans are located outside of Merced County.

The table that follows shows the regional distribution of the portfolio of real estate construction, real estate residential construction, real estate mortgage, and real estate residential mortgage on September 30, 2007.

(Dollars in thousands)	San Francisco Bay Area		Merced/ Mariposa		Stockton/ Modesto		Sacramento		Fresno/ Bakersfield		All Other		Total
Real estate construction	$	23,201	$	28,749	$	35,371	$	18,969	$	36,757	$	-	$	143,047
Real estate construction residential		6,090		6,256		5,007		5,601		15,610		-		38,564
Real estate mortgage		50,660		190,982		186,657		49,237		98,185		30,154		605,875
Real estate mortgage residential		742		12,423		7,865		647		4,971		-		26,648
Total	$	80,693	$	238,410	$	234,900	$	74,454	$	155,523	$	30,154	$	814,134
Owner occupied		19,202		115,571		91,063		35,568		71,478		12,394		345,276
Non-owner occupied	$	61,491	$	122,839	$	143,837	$	38,886	$	84,045	$	17,760	$	468,858

NON-PERFORMING ASSETS

Non-performing assets include non-accrual loans, loans 90 days or more past due, restructured loans and other real estate owned.

Non-performing loans are those in which the borrower fails to perform in accordance with the original terms of the obligation and include loans on non-accrual status, loans past due 90 days or more and restructured loans.  The Bank generally places loans on non-accrual status and accrued but unpaid interest is reversed against the current year's income when interest or principal payments become 90 days or more past due unless the outstanding principal and interest are adequately secured and, in the opinion of management, is deemed in the process of collection.  Interest income on non-accrual loans is recorded on a cash basis.  Payments may be treated as interest income or return of principal depending upon management's opinion of the ultimate risk of loss on the individual loan.  Cash payments are treated as interest income where management believes the remaining principal balance is fully collectible.  Additional loans not 90 days past due may also be placed on non-accrual status if management reasonably believes the borrower will not be able to comply with the contractual loan repayment terms and collection of principal or interest is in question.

A "restructured loan" is a loan on which interest accrues at a below market rate or upon which certain principal has been forgiven so as to aid the borrower in the final repayment of the loan, with any interest previously accrued, but not yet collected, being reversed against current income.  Interest is reported on a cash basis until the borrower's ability to service the restructured loan in accordance with its terms is reestablished.  The Company had no restructured loans as of the dates indicated in the table below.

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The following table summarizes non-performing assets of the Company at September 30, 2007 and December 31, 2006:

	September 30, 2007			December 31, 2006
(Dollars in thousands)
Non-accrual loans	$	3,156		$	2,375
Accruing loans past due 90 days or more		128			-
Total non-performing loans		3,284			2,375
Other real estate owned		9,450			60
Total non-performing assets	$	12,734		$	2,435
Non-performing loans to total loans		0.24	%		0.19	%
Non-performing assets to total assets		0.65	%		0.12	%

During the first nine months of 2007, eight customers with loans that totaled $15,654,000 were placed on non-accrual status, while ten customers with loans that totaled approximately $14,873,000 were removed from non-accrual status.

The increase in non-accrual loans of $781,000 between September 30, 2007 and December 31, 2006 was primarily the result of a problem with specific customers and not a general degradation of overall credit quality in the portfolio.  During the third quarter of 2007, the Bank recorded a charge off against the specific reserve taken in the second quarter of $2,833,000 in the allowance for loan losses.  A specific reserve of $1,646,000 was recorded in unfunded commitments related to a construction loan in Rocklin, California.  The specific reserve related to unfunded commitments was recorded to recognize the Bank’s estimate of liability for mechanic liens placed against the property.  For more information on the specific reserve related to the mechanic liens, see the section titled “RESERVE FOR UNFUNDED COMMITMENTS” on page 28 of this report.  In the third quarter, Management received a third party appraisal on this property and concluded that a reserve should be established for this property based on the market value which is what willing market participants would pay for the property at the time.  Subsequent to the end of the second quarter, the Bank foreclosed on the property on July 25, 2007 and charged-off $2,833,000 of the specific reserve recorded in the second quarter related to the loan.  The charge-off resulted in the property being recorded at a net realizable value of $9,389,000.

Contractual accrued interest income on loans on non-accrual status as of September 30, 2007 and December 31, 2006, which would have been recognized if the loans had been current in accordance with their original terms, was approximately $163,000 and $137,000, respectively.

At September 30, 2007, non-performing assets represented 0.65% of total assets, an increase of 53 basis points when compared to the 0.12% at December 31, 2006.  Non-performing loans represented 0.24% of total gross loans at September 30, 2007, an increase of 5 basis points compared to the 0.19% at December 31, 2006.  Non-performing loans that were secured by first deeds of trust on real property were $2,171,000 and $473,000 at September 30, 2007 and December 31, 2006.  The increase in non-performing loans that were secured by first deeds of trust on real property was primarily the result of collateral taken on individual customer loans that have been placed on non-accrual.  Other forms of collateral such as inventory and equipment secured a portion of the non-performing loans as of each date.  No assurance can be given that the collateral securing non-performing loans will be sufficient to prevent losses on such loans.

At September 30, 2007 the Company had $9,450,000 invested in two real estate properties that were acquired through foreclosure.  At December 31, 2006, the Company had $60,000 invested in two real estate properties that were acquired through foreclosure.  These properties were carried at the lower of their estimated market value, as evidenced by an independent appraisal, or the recorded investment in the related loan, less estimated selling expenses.  At foreclosure, if the fair value of the real estate is less than the Company's recorded investment in the related loan, a charge is made to the allowance for loan losses.  No assurance can be given that the Company will sell the properties during 2007 or at any time or for an amount that will be sufficient to recover the Company’s investment in these properties.

Management defines impaired loans, regardless of past due status, as those on which principal and interest are not expected to be collected under the original contractual loan repayment terms.  An impaired loan is charged off at the time management believes the collection process has been exhausted.  At September 30, 2007 and December 31, 2006, impaired loans were measured based on the present value of future cash flows discounted at the loan's effective rate, the loan's observable market price or the fair value of collateral if the loan is collateral-dependent.  Impaired loans at September 30, 2007 were $3,284,000.

Except for loans that are disclosed above, there were no assets as of September 30, 2007, where known information about possible credit problems of the borrower causes management to have serious doubts as to the ability of the borrower to comply with the present loan repayment terms and which may become non-performing assets.  Given the scope and extent of the Company's loan portfolio, however, it is always possible that current credit problems may exist that may not have yet been identified by the Bank’s credit officers.

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ALLOWANCE FOR LOAN LOSSES

The following table summarizes the loan loss experience of the Company for the nine months ended September 30, 2007 and 2006, and for the year ended December 31, 2006.

	September 30,						December 31,
(Dollars in thousands)	2007			2006			2006
Allowance for Loan Losses:
Balance at beginning of period	$	14,031		$	14,776		$	14,776
Provision for loan losses		4,645			400			400
Charge-offs:
Commercial and  agricultural		3,273			942			2,134
Real estate - construction		-			-			-
Consumer		499			319			495
Total charge-offs		3,772			1,261			2,629
Recoveries
Commercial and agricultural		275			763			1,337
Real-Estate – construction		-			-			-
Consumer		106			118			147
Total recoveries		381			881			1,484
Net (charge-offs) recoveries		(3,391	)		(380	)		(1,145	)
Balance at end of period	$	15,285		$	14,796		$	14,031
Loans outstanding at period-end	$	1,364,238		$	1,266,200		$	1,224,761
Average loans outstanding	$	1,270,114		$	1,168,887		$	1,187,156
Annualized net charge-offs to average loans		0.36	%		0.04	%		0.10	%
Allowance for loan losses
To total loans		1.12	%		1.17	%		1.15	%
To non-performing loans		465.44	%		443.92	%		590.78	%
To non-performing assets		120.03	%		436.07	%		576.22	%

The Company maintains an allowance for loan losses at a level considered by management to be sufficient to cover the inherent risks of loss associated with its loan portfolio under prevailing economic conditions.  In determining the adequacy of the allowance for loan losses, management takes into consideration, among other things, growth trends in the portfolio, examination by financial institution supervisory authorities, prior loan loss experience for the Company, concentrations of credit risk, delinquency trends, specific credit risks, general economic conditions, the interest rate environment and internal and external credit reviews.  In addition, the risks management considers vary depending on the nature of the loan.  The normal risks considered by management with respect to agricultural loans include, among other things, the fluctuating value of the collateral, changes in weather conditions and the availability of adequate water resources in the Company's local market area.  The normal risks considered by management with respect to real estate construction loans include, among other things, fluctuation in real estate values, the demand for improved commercial and industrial properties and housing, the availability of permanent financing in the Company's market area and borrowers' ability to obtain permanent financing.  The normal risks considered by management with respect to real estate mortgage loans include, among other things, fluctuations in the value of real estate.  Additionally, the Company relies on data obtained through independent appraisals for significant properties to determine loss exposure on non-performing loans.

The balance in the allowance is affected by the amounts provided from operations, amounts charged off and recoveries of loans previously charged off.  The Company recorded a provision for loan losses of $732,000 and $4,645,000 in the three and nine months ended September 30, 2007 compared with $200,000 and $400,000 in the same time periods of 2006.  During the third quarter of 2007, the Bank recorded a charge off of $2,833,000 in the allowance for loan losses related to a construction loan in Rocklin, California.  For more information related to the construction loan in Rocklin California, see the section titled “NON-PERFORMING ASSETS” on page 25 of this report.  The Company had net charge-offs of $3,391,000 for the nine months ended September 30, 2007 compared with net charge-offs of $380,000 for the same nine months in 2006.  The increased charge-offs occurred primarily because of the charge-off taken on the construction loan in Rocklin, CA.

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During the third quarter of 2006, the Company enhanced its methodology used to compute the adequacy of the Allowance for Loan Losses.  Prior to the third quarter 2006, the Company utilized regulatory guidance as a measuring metric to determine the level of the allowance for loan losses required.

In the third quarter of 2006, management completed their data collection and historical loss calculations, and began using documented historical net loss experience by loan type to develop a statistically relevant model to reserve for inherent losses in the loan portfolio.   This enhanced methodology resulted in an allowance that was materially the equivalent of the figure developed under the prior method.  There was no provision adjustment recorded relevant to this enhancement in methodology.

The allowance for loan losses is based on estimates and ultimate future losses may vary from current estimates.  It is possible that future economic or other factors may adversely affect the Company's borrowers, and thereby cause loan losses to exceed the current allowance and require the Company to make additional provisions to the allowance for loan losses.  In addition, there can be no assurance that future economic or other factors will not adversely affect the Company's borrowers, or that the Company's asset quality may not deteriorate through rapid growth, failure to enforce underwriting standards, failure to maintain appropriate underwriting standards, failure to maintain an adequate number of qualified loan personnel, failure to identify and monitor potential problem loans or for other reasons, and thereby cause loan losses to exceed the current allowance.

The allocation of the allowance for loan losses to loan categories is an estimate by credit officers of the relative risk characteristics of loans in those categories.  No assurance can be given that losses in one or more loan categories will not exceed the portion of the allowance allocated to that category or even exceed the entire allowance.

The following table summarizes a breakdown of the allowance for loan losses by category and the percentage by loan category of total loans for the dates indicated.

	September 30, 2007					December 31, 2006					December 31, 2005
(Dollars in thousands)	Amount		Loans % to total loans			Amount		Loans % to total loans			Amount		Loans % to total loans
Commercial and Agricultural	$	5,213		34	%	$	4,983		33	%	$	6,024		32	%
Real Estate (Construction)		6,539		13			1,658		15			2,474		16
Real Estate (Mortgage)		2,385		46			3,882		44			5,598		44
Consumer		1,148		7			3,508		8			680		8
Total	$	15,285		100	%	$	14,031		100	%	$	14,776		100	%

OTHER ASSETS

At September 30, 2007, the Company recorded a balance in other assets of $31,072,000 and $23,593,000 at December 31, 2006, an increase of 32%.  The primary reason for the change in other assets is due to a $12,332,000 and $8,665,000 loan participation funding receivable at September 30, 2007 and December 31, 2006, respectively.  During January 2007 and October 2007, those funding receivables were collected from the participating banks.

RESERVE FOR UNFUNDED COMMITMENTS

The reserve for unfunded commitments included in other liabilities as of September 30, 2007 and for the year ended,December 31, 2006, is presented below.

	September 30, 2007					December 31,
(Dollars in thousands)	2007		2006			2006
Balance at the beginning of period	$	710	$	717		$	717
Provision for credit losses		144		(7	)		(7	)
Provision for bonded stop notices		1,646		-			-
Balance at the end of period	$	2,500	$	710		$	710

During 2007, the Bank recorded a specific reserve of $1,646,000 in unfunded commitments related to a construction loan in Rocklin, California.  The specific reserve related to unfunded commitments was recorded to recognize the Bank’s estimate of liability for mechanic liens placed against the property.  For more information related to the specific reserve related to this loan, see the section titled “NON-PERFORMING ASSETS” on page 25 of this report.

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EXTERNAL FACTORS AFFECTING ASSET QUALITY

For a discussion on external factors affecting asset quality, see Part II Item 1A. Risk Factors in this report.

LIQUIDITY

In order to maintain adequate liquidity, the Company must have sufficient resources available at all times to meet its cash flow requirements.  The need for liquidity in a banking institution arises principally to provide for deposit withdrawals, the credit needs of its customers and to take advantage of investment opportunities as they arise.  The Company may achieve desired liquidity from both assets and liabilities.  The Company considers cash and deposits held in other banks, federal funds sold, other short term investments, maturing loans and investments, payments of principal and interest on loans and investments and potential loan sales as sources of asset liquidity.   The Company also has the ability to access significant amounts of asset liquidity through borrowings from the Federal Home Loan Bank secured by pledged loans. Deposit growth and access to credit lines established with correspondent banks and market sources of funds are considered by the Company as additional sources of liability liquidity.  The Company’s primary source of liquidity is from dividends received from the Bank.  Dividends from the Bank are subject to certain regulatory restrictions.

The Company reviews its liquidity position on a regular basis based upon its current position and expected trends of loans and deposits. These assets include cash and deposits in other banks, time deposits at other financial institutions, available-for-sale securities and federal funds sold.  The Company's liquid assets totaled $290,056,000 and $452,421,000 on September 30, 2007 and December 31, 2006, respectively, and constituted 15% and 23% of total assets on both those dates.  Liquidity is also affected by the collateral requirements of its public deposits and certain borrowings.  Total market value of pledged securities was $292,883,000 at September 30, 2007 compared with $280,182,000 at December 31, 2006.

Although the Company's primary sources of liquidity include liquid assets and the Bank’s deposit base, the Company maintains lines of credit with the Federal Reserve Bank of San Francisco, Federal Home Loan Bank of San Francisco, Pacific Coast Banker’s Bank, Union Bank of California, Wells Fargo Bank and First Tennessee Bank aggregating $310,271,000 of which $107,500,000 was outstanding as of September 30, 2007 and $239,289,000 of which $46,500,000 was outstanding as of December 31, 2006.  Management believes that the Company maintains adequate amounts of liquid assets to meet its liquidity needs.  The Company's liquidity might be insufficient if deposit withdrawals were to exceed anticipated levels.  Deposit withdrawals can increase if a company experiences financial difficulties or receives adverse publicity for other reasons, or if its pricing, products or services are not competitive with those offered by other institutions.

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CAPITAL RESOURCES

Capital serves as a source of funds and helps protect depositors against potential losses.  The primary source of capital for the Company has been generated through retention of retained earnings.  The Company's shareholders' equity increased by $8,524,000 or 6% between September 30, 2007 and December 31, 2006.  This increase was achieved through the retention of accumulated earnings and the exercise of stock options.

The Company is subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a material adverse effect on the Company’s consolidated financial statements.  Management believes, as of September 30, 2007, that the Company and the Bank met all applicable capital requirements.  The Company’s leverage capital ratio at September 30, 2007 was 9.85% as compared with 9.33% as of December 31, 2006.  The Company’s total risk based capital ratio at September 30, 2007 was 12.16% as compared to 12.49% as of December 31, 2006.

The Company has received regulatory approval for the acquisitions of The California Stockmen’s Bank and Bay View Funding. Both acquisitions were completed in the fourth quarter of 2007.  Management anticipates the Company will remain well capitalized after the acquisitions by issuing additional trust preferred securities to meet the regulatory requirements.  See Subsequent Events Note.

In the opinion of management, the Company’s and Bank’s actual capital amounts and ratios met all regulatory requirements as of September 30, 2007 and are summarized as follows:

(Dollars in thousands)	Actual					For Regulatory Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions:
The Company:	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk weighted assets)	$	206,925		12.16	%	$	136,114		8	%	$	170,142		10	%
Tier 1 capital (to risk weighted assets)	$	187,672		11.03	%	$	68,057		4	%	$	102,085		6	%
Leverage ratio(1)	$	187,672		9.85	%	$	76,229		4	%	$	95,286		5	%
The Bank:
Total capital (to risk weighted assets)	$	183,236		10.83	%	$	135,411		8	%	$	169,264		10	%
Tier 1 capital (to risk weighted assets)	$	163,983		9.69	%	$	67,706		4	%	$	101,558		6	%
Leverage ratio(1)	$	163,983		8.64	%	$	75,915		4	%	$	94,894		5	%

(1) The leverage ratio consists of Tier 1 capital divided by adjusted quarterly average assets.  The minimum leverage ratio allowed by bank regulators is 3 percent for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality and in general, are considered top-rated banks.

The Company’s and Bank’s actual capital amounts and ratios met all regulatory requirements as of December 31, 2006 and were summarized as follows:

(Dollars in thousands)	Actual					For Regulatory Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
The Company:	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk weighted assets)	$	193,721		12.49	%	$	124,119		8	%	$	155,148		10	%
Tier I capital (to risk weighted assets)	$	178,764		11.52	%	$	62,059		4	%	$	93,089		6	%
Leverage ratio(1)	$	178,764		9.33	%	$	76,644		4	%	$	95,806		5	%
The Bank:
Total capital (to risk weighted assets)	$	167,238		10.83	%	$	123,523		8	%	$	154,404		10	%
Tier I capital (to risk weighted assets)	$	152,281		9.86	%	$	61,762		4	%	$	92,643		6	%
Leverage ratio(1)	$	152,281		7.98	%	$	76,313		4	%	$	95,392		5	%

(1) The leverage ratio consists of Tier 1 capital divided by quarterly average assets. The minimum leverage ratio allowed by bank regulators is 3 percent for banking organizations that do not anticipate significant growth and that have well diversified risk, excellent asset quality and in general, are considered top-rated banks.

The Company declares dividends solely at the discretion of the Company’s Board of Directors, subject to compliance with regulatory requirements.  In order to pay any cash dividends, the Company must receive payments of dividends or management fees from the Bank.  There are certain regulatory limitations on the payment of cash dividends by banks.

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DEPOSITS

Deposits are the Company's primary source of funds.  At September 30, 2007, the Company had a deposit mix of 30% in savings deposits, 39% in time deposits, 15% in interest-bearing checking accounts and 16% in noninterest-bearing demand accounts compared to 27% in savings deposits, 41% in time deposits, 14% in interest-bearing checking accounts and 18% in noninterest-bearing demand accounts at December 31, 2006.  Noninterest-bearing demand deposits enhance the Company's net interest income by lowering its cost of funds.

The Company obtains deposits primarily from the communities it serves.  No material portion of its deposits has been obtained from or is dependent on any one person or industry.  The Company's business is not seasonal in nature.  The Company accepts time deposits in excess of $100,000 from customers.  These deposits are priced to remain competitive.  At September 30, 2007, the Company had brokered deposits of $2,606,000.  At December 31, 2006, the Company’s brokered deposits totaled $92,943,000.  The decrease in brokered deposits during 2007 was due to management’s decision to allow these high cost funds to mature without renewal.  The Bank has a policy target for brokered deposits of no more than 15% of the Bank’s asset base.  Brokered deposits did not exceed the policy limit as of September 30, 2007.

Maturities of time certificates of deposits of $100,000 or more outstanding at September 30, 2007 and December 31, 2006 are summarized as follows:

(Dollars in thousands)	September 30, 2007		December 31, 2006
Three months or less	$	131,318	$	190,565
Over three to six months		66,428		103,261
Over six to twelve months		16,144		50,555
Over twelve months		34,258		21,853
Total	$	248,148	$	366,234

FEDERAL FUNDS PURCHASED AND OTHER BORROWED FUNDS

For the nine months ended September 30, 2007 and for the year ended December 31, 2006, the Bank did not have recorded any federal funds purchased.  Other borrowed funds have increased primarily to secure liquidity for future anticipated growth

In December 2005, the Bank entered into a repurchase agreement with an embedded LIBOR floor for $100,000,000 with J.P. Morgan. This agreement has a maturity date of December 15, 2010. The repurchase agreement will help to insulate the Company from the effects of a downward rate environment. For more information about the agreement, see Note 5 on “Other Borrowings” in the Company’s 2006 Annual Report and Form 10-K.

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RETURN ON EQUITY AND ASSETS

	Nine Months Ended September 30,						Year ended December 31
	2007			2006			2006
Annualized return on average assets		0.76	%		1.33	%		1.25	%
Annualized return on average equity		9.39	%		17.91	%		16.85	%
Average equity to average assets		8.05	%		7.40	%		7.44	%
Dividend payout ratio		21.19	%		12.73	%		13.70	%

IMPACT OF INFLATION

The primary impact of inflation on the Company is its effect on interest rates.  The Company’s primary source of income is net interest income which is affected by changes in interest rates.  The Company attempts to limit inflation’s impact on its net interest margin through management of rate sensitive assets and liabilities and the analysis of interest rate sensitivity.

SUBSEQUENT EVENTS

On October 5, 2007, the Company completed the acquisition of Bay View Funding, a factoring business headquartered in San Mateo, California. On a preliminary basis, the initial purchase price for BVF was $11.7 million in cash.  Further, payments of approximately $2.0 million have been withheld as a contingency reserve and earn-out payments of up to $3.3 million may be made if certain growth targets are achieved over the next two years.  While our accounting for this acquisition is not yet finalized, we currently estimate minimum initial goodwill of approximately $9.7 million with a $2 million amount ascribed to an identified customer base intangible.  Goodwill could change dependant on the determination of the final accounting.

On November 2, 2007, the Company completed the acquisition of the 11 branches of The California Stockmen’s Bank. County Bank expects to assume, based on September 30, 2007 financial information received assets and liabilities, primarily consisting of $196 million in deposits and $172 million of loans. The loan yield was 7.48% and the funding costs were 2.61% for a net interest margin of 4.87%.  The Bank expects to leverage this low-cost funding source post-acquisition.  The Company, at this time, continues to estimate the purchase price at $27.4 million with $6 million attributable to the core deposit intangible and $21+ million representing goodwill.  This transaction will be accounted for as a business combination.

In October 2007, the Company formed County Statutory Trust IV (CST IV), a wholly-owned special purpose entity, for the purpose of issuing trust preferred securities.  On October 31, 2007, CST IV issued $25,000,000 in trust preferred securities.  The securities have a maturity date of October 31, 2037 and bear a variable rate (repricing quarterly) of the three-month LIBOR rate plus a spread of 3.25%.  Interest will be paid quarterly.  Concurrent with the issuance of the trust preferred securities, CST IV used the proceeds of the trust preferred securities offering to purchase a like amount of junior subordinated debt securities of the Company.  The Company will pay interest on the junior subordinated debt securities to CST IV, which represents the sole source of dividend distributions to the holders of the trust preferred securities.  After December 15, 2012, the Company will have the unrestricted option to repay at par.  See the Company's 2006 Annual Report and Form 10-K for details regarding the Company's existing trust preferred entities, which are similar in nature to CST IV.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, the Company is exposed to market risk which includes both price and liquidity risk.  Price risk is created from fluctuations in interest rates and the mismatch in repricing characteristics of assets, liabilities, and off balance sheet instruments at a specified point in time.  Mismatches in interest rate repricing among assets and liabilities arise primarily through the interaction of the various types of loans versus the types of deposits that are maintained as well as from management's discretionary investment and funds gathering activities.  Liquidity risk arises from the possibility that the Company may not be able to satisfy current and future financial commitments or that the Company may not be able to liquidate financial instruments at market prices.  Risk management policies and procedures have been established and are utilized to manage the Company's exposure to market risk.  Quarterly testing of the Company’s assets and liabilities under both increasing and decreasing interest rate environments are performed to insure the Company does not assume a magnitude of risk that is outside approved policy limits.

The Company’s success is largely dependent upon its ability to manage interest rate risk.  Interest rate risk can be defined as the exposure of the Company’s net interest income to adverse movements in interest rates.  Although the Company manages other risks, such as credit and liquidity risk in the normal course of its business, management considers interest rate risk to be its most significant market risk, and it could potentially have the largest material effect on the Company’s financial condition and results of operations.  Correspondingly, the overall strategy of the Company is to manage interest rate risk, through balance sheet structure, to be interest rate neutral.

The Company’s interest rate risk management is the responsibility of the Asset/Liability Management Committee (ALCO), which provides monthly reports to the Board of Directors.  ALCO establishes policies that monitor and coordinate the Company’s sources, uses and pricing of funds.  ALCO is also involved in formulating the economic projections for the Company’s budget and strategic plan.  ALCO sets specific rate sensitivity limits for the Company.  ALCO monitors and adjusts the Company’s exposure to changes in interest rates to achieve predetermined risk targets that it believes are consistent with current and expected market conditions.  Management monitors the asset and liability changes on an ongoing basis and provides report information and recommendations to the ALCO committee in regards to those changes.

It is the opinion of management that there has been no material change in the Company’s market risk during the first nine months of 2007 when compared to the level of market risk at December 31, 2006.  If interest rates were to suddenly and materially fall from levels experienced during the nine months of 2007, the Company could become susceptible to an increased level of market risk.

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of the Company’s management, including its chief executive officer and chief financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as defined by Rule 13a–15(e) under the Securities Exchange Act of 1934.

Based on the evaluation, the chief executive officer and chief financial officer concluded that as of the end of the period covered by this report the disclosure controls and procedures were adequate and effective, and that the material information required to be included in this report, including information from the Company’s consolidated subsidiaries, was properly recorded, processed, summarized and reported, and was made known to the chief executive officer and chief financial officer by others within the Company in a timely manner, particularly during the period when this quarterly report on Form 10-Q was being prepared.

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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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

PART II - Other Information

Item 1. Legal Proceedings

The Company is a party to routine litigation in the ordinary course of its business.  The Company is also party to legal proceedings related to foreclosed property of which the Company has already recorded a specific reserve of $1.6 million related to the Company’s best estimate of probable loss on this legal matter.  The Company’s maximum exposure related to this matter is $3.038 million.  In addition to the routine litigation incidental to its business, the Company is a defendant in a lawsuit brought by Pacific Coast Bankers Bank. Management believes that the allegations are unfounded and that judgment against the Company is not probable. In the opinion of management, pending and threatened litigation, where liabilities have not been reserved, have a remote likelihood of having a material adverse effect on the financial condition or results of operations of the Company.

Item 1A.  Risk Factors

Readers and prospective investors in our securities should carefully consider the following risk factors as well as the other information contained or incorporated by reference in this report.

The risks and uncertainties described below are not the only ones facing us. 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. This report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of the Company’s securities could decline significantly, and shareholders could lose all or part of their investment.

Market and Interest Rate Risk

Changes in interest rates could reduce income and cash flow

The discussion in this report under “Market and Interest Rate Risk Management” and “Earnings Sensitivity” is incorporated by reference in this paragraph. The Company’s income and cash flow depend to a great extent on the difference between the interest earned on loans and investment securities, and the interest paid on deposits and other borrowings. We cannot control or prevent changes in the level of interest rates. They fluctuate in response to general economic conditions and the policies of various governmental and regulatory agencies, in particular, the FRB. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits and the rates received on loans and investment securities and paid on deposits and other liabilities.

Risks related to the nature and geographical location of Capital Corp of the West’s business

Capital Corp of the West invests in loans that contain inherent credit risks that may cause us to incur losses

The Company closely monitors the markets in which it conducts its lending operations and adjusts its strategy to control exposure to loans with higher credit risk. Asset reviews are performed using grading standards and criteria similar to those employed by bank regulatory agencies. We can provide no assurance that the credit quality of our loans will not deteriorate in the future and that such deterioration will not adversely affect Capital Corp of the West.

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Deterioration of local economic conditions could hurt our profitability.

Our operations are primarily located in the Central Valley of California. As a result of this geographic concentration, our financial results depend largely upon economic conditions in these areas. The local economy relies heavily on real estate, agriculture and ranching. A significant downturn in any or all of these industries could result in a decline in the local economy in general, which could in turn negatively impact us. Poor economic conditions could cause us to incur losses associated with higher default rates and decreased collateral values in our loan portfolio. Also, if there were significant recessionary conditions in our market area, our financial condition would be negatively impacted.

The markets in which Capital Corp of the West operates are subject to the risk of earthquakes and other natural disasters

Most of the properties of Capital Corp of the West are located in California. Also, most of the real and personal properties which currently secure the Company's loans are located in California. California is a state which is prone to earthquakes, brush fires, drought, flooding and other natural disasters. In addition to possibly sustaining damage to its own properties, if there is a major earthquake, flood or other natural disaster, Capital Corp of the West faces the risk that many of its borrowers may experience uninsured property losses, or sustained job interruption and/or loss which may materially impair their ability to meet the terms of their loan obligations. A major earthquake, flood or other natural disaster in California could have a material adverse effect on Capital Corp of the West's business, financial condition, results of operations and cash flows.

Substantial competition in the California banking market could adversely affect us

Banking is a highly competitive business. We compete actively for loan, deposit, and other financial services business in California. Our competitors include a large number of state and national banks, thrift institutions and credit unions, as well as many financial and non-financial firms that offer services similar to those offered by us. Other competitors include large financial institutions that have substantial capital, technology and marketing resources. Such large financial institutions may have greater access to capital at a lower cost than us, which may adversely affect our ability to compete effectively.

Risks associated with potential acquisitions or divestitures or restructuring may adversely affect us

We may seek to acquire or invest in financial and non-financial companies, technologies, services or products that complement our business. There can be no assurance that we will be successful in completing any such acquisition or investment as this will depend on the availability of prospective target opportunities at valuation levels which we find attractive and the competition for such opportunities from other bidders. In addition, we continue to evaluate the performance of all of our subsidiaries, businesses and business lines and may sell, liquidate or otherwise divest a subsidiary, business or business line. Any acquisitions, divestitures or restructuring may result in the issuance of potentially dilutive equity securities, significant write-offs, including those related to goodwill and other intangible assets, and/or the incurrence of debt, any of which could have a material adverse effect on our business, financial condition and results of operations. Acquisitions, divestitures or restructuring could involve numerous additional risks including difficulties in obtaining any required regulatory approvals and in the assimilation or separation of operations, services, products and personnel, the diversion of management's attention from other business concerns, higher than expected deposit attrition (run-off), divestitures required by regulatory authorities, the disruption of our business, and the potential loss of key employees. There can be no assurance that we will be successful in addressing these or any other significant risks encountered.

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Regulatory Risks

Restrictions on dividends and other distributions could limit amounts payable to us

As a holding Company, a substantial portion of our cash flow typically comes from dividends of our Bank. Various statutory provisions restrict the amount of dividends our Bank can pay to us without regulatory approval.

Adverse effects of, or changes in, banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us

We are subject to significant federal and state regulation and supervision, which is primarily for the benefit and protection of our customers and not for the benefit of investors. In the past, our business has been materially affected by these regulations. This trend is likely to continue in the future. Laws, regulations or policies, including accounting standards and interpretations currently affecting us and our subsidiaries, may change at any time. Regulatory authorities may also change their interpretation of these statutes and regulations. Therefore, our business may be adversely affected by any future changes in laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement, including legislative and regulatory reactions to acts of terrorism, and major U.S. corporate bankruptcies and reports of accounting irregularities at U.S. public companies.

Additionally, our business is affected significantly by the fiscal and monetary policies of the federal government and its agencies. We are particularly affected by the policies of the FRB, which regulates the supply of money and credit in the U.S. Under long-standing policy of the FRB, the Company is expected to act as a source of financial strength for its subsidiary banks. As a result of that policy, we may be required to commit financial and other resources to our subsidiary bank in circumstances where we might not otherwise do so. Among the instruments of monetary policy available to the FRB are (a) conducting open market operations in U.S. government securities, (b) changing the discount rates of borrowings by depository institutions, and (c) imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. The policies of the FRB may have a material effect on our business, results of operations and financial condition.

Systems, Accounting and Internal Control Risks

The accuracy of the Company’s judgments and estimates about financial and accounting matters will impact operating results and financial condition

The discussion under “Critical Accounting Policies and Estimates” in this report and the information referred to in that discussion is incorporated by reference in this paragraph. The Company’s makes certain estimates and judgments in preparing its financial statements. The quality and accuracy of those estimates and judgments will have an impact on the Company’s operating results and financial condition.

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The Company’s information systems may experience an interruption or breach in security

The Company relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company’s customer relationship management and systems. There can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately corrected by the Company. The occurrence of any such failures, interruptions or security breaches could damage the Company’s reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose the Company to litigation and possible financial liability, any of which could have a material adverse effect on the Company’s financial condition and results of operations.

The Company’s controls and procedures may fail or be circumvented

Management regularly reviews and updates the Company’s internal control over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls and procedures, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

On September 26, 2007, the Company renewed the existing Shareholder Rights Agreement entered into on September 26, 1997.  The final expiration date of the new Shareholder Rights Agreement is September 26, 2012. In the opinion of management, except as noted above, there is no additional information relating to these periods being reported which warrants inclusion in the report.

Item 6. Exhibits

See Exhibit Index

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CAPITAL CORP OF THE WEST

(Registrant)

Date: November 9, 2007	By /s/   Thomas T. Hawker
	Thomas T. Hawker
	President and
	Chief Executive Officer

Date: November 9, 2007	By /s/   David A. Heaberlin
	David A. Heaberlin
	Chief Financial Officer/Treasurer

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Exhibit Index

Exhibit	Description
2.1	Purchase and Assumption Agreement by and between National Bank of Arizona and County Bank dated June 11, 2007 (incorporated by reference to Exhibit 2.1 on Form 8-K of the registrant filed November 8, 2007).
2.2	Stock Purchase Agreement between Capital Corp of the West and Bay View Funding
31.1	Certification of Registrant's Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Registrant's Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Registrant’s Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2	Certification of Registrant’s Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

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EX-2.2

STOCK PURCHASE AGREEMENT

CAPITAL CORP OF THE WEST

AS “BUYER”

BAY VIEW FUNDING

AS “COMPANY”

AND

VINCE NAREZ

AS “SHAREHOLDER REPRESENTATIVE”

             

                  TABLE OF CONTENTS              

      

                  Page              

    

ARTICLE 1	DEFINITIONS	1
ARTICLE 2	SALE OF STOCK BY SHAREHOLDERS	4
2.2	Purchase Price	4
ARTICLE 3	CLOSING	4
3.1	Closing Date	4
3.2	Delivery of Share Certificates	4
3.3	Payment	4
ARTICLE 4	REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS	5
4.1	Company Shares	5
4.2	Authority	5
4.3	Noncontravention	5
4.4	No Agreement to Sell Company Shares	5
4.5	Broker’s Fees	6
4.6	Investment Representation	6
ARTICLE 5	REPRESENTATIONS AND WARRANTIES OF COMPANY	6
5.1	Organization; Power; Good Standing	6
5.2	Licenses and Permits	6
5.3	Subsidiaries; Capital Stock; Financial Shareholders.	7
5.4	Authority Relative to Agreement	8
5.5	Noncontravention	8
5.6	No Other Agreements	8
5.7	Undisclosed Liabilities	8
5.8	Absence of Certain Changes or Events	9
5.9	Tax Matters.	11
5.10	Environmental Matters	12
5.11	Transactions with Management	13
5.12	Company Filings	13
5.13	Accuracy of Information Supplied	13
5.14	Litigation	14
5.15	Insurance	14
5.16	Bonds	14
5.17	Title to Assets other than Real Property	14
5.18	Real Property	15
5.19	Material Contracts	15
5.20	Employees; Employee Benefit Plans; ERISA.	16
5.21	Powers of Attorney	19
5.22	Tangible Personal Property Other than Inventory	20
5.23	Intangible Personal Property.	20
5.24	Compliance with Law	21
5.25	No Undisclosed Liabilities	21
5.26	Other Material Circumstances	21
5.27	Conflicts of Interest	21
5.28	Accounts Receivable	22
5.29	Statement	22
5.30	Condition of Assets	22
5.31	Title to Properties; Encumbrances	22
5.32	Major Customers and Suppliers	22
5.33	Broker’s Fees	23
5.34	Guaranties	23
5.35	Officers and Directors	23
5.36	Bank Accounts	23
5.37	Other Information	23
ARTICLE 6	REPRESENTATIONS AND WARRANTIES OF BUYER	23
6.1	Organization; Power; Good Standing; Regulation	23
6.2	Authority Relative to Agreement	23
6.3	Financial Capacity	23
ARTICLE 7	TRANSACTIONS PRIOR TO THE CLOSING	24
7.1	Access to Information	24
7.2	Conduct of Company’s Business Pending the Closing	24
7.3	Consents	26
7.4	Applications	26
7.5	Tail Insurance	26
ARTICLE 8	CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SHAREHOLDERS	27
8.1	Accuracy of Representations and Warranties	27
8.2	Performance of Agreements	27
ARTICLE 9	CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER	27
9.1	Accuracy of Representations and Warranties	27
9.2	Performance of Agreements	27
9.3	Resolutions of Board of Directors	27
9.4	Company’s Certificate	27
9.5	Actions; Proceedings	28
9.6	Consents	28
9.7	Financial Statements	29
9.8	Regulatory Approvals	29
9.9	Employment Agreements	29
9.10	Director Resignations	29
9.11	Stock Certificates	29
9.12	Agreements Not to Compete	29
9.13	Other Deliverables	29
9.14	Due Diligence; No Material Adverse Changes	29
ARTICLE 10	CONDITIONS PRECEDENT FOR ALL PARTIES	30
10.1	Regulatory Approvals	30
10.2	No Action or Proceeding	30
ARTICLE 11	TERMINATION, AMENDMENTS AND WAIVERS	30
11.1	Termination	30
11.2	Effect of Termination; Survival	31
11.3	Liquidated Damages; Cancellation Fee.	31
ARTICLE 12	NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION	32
12.1	Indemnification by Shareholders and Company.	32
12.2	Indemnification by Buyer	32
12.3	Limitations on Indemnification	33
12.4	Notification	33
12.5	Set-Off	33
ARTICLE 13	MISCELLANEOUS	33
13.1	Waivers and Amendments	33
13.2	Expenses	33
13.3	Occurrences of Conditions Precedent	33
13.4	Press Releases; Confidentiality	33
13.5	Notices	34
13.6	Binding Effect; Benefits	35
13.7	Non-assignability	35
13.8	Applicable Law	35
13.9	Attorney’s Fees	35
13.10	Section and Other Headings	35
13.11	Counterparts	35
13.12	Effect of Investigation	36
ARTICLE 14	POST PURCHASE COMPANY COVENANTS	36
14.1	Special Bonus Pool	36

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (“Agreement”) is made and entered into this __________, 2007, by and among Capital Corp of the West, a California bank holding company (“Buyer”), Bay View Funding, a California corporation (“Bay View”), and with respect to Article 10, Vince Narez (“Shareholder Representative”).

WHEREAS, Buyer desires to purchase all of the outstanding shares of the Bay View’s capital stock from the Shareholders pursuant to the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the promises, covenants and agreements hereinafter set forth, the receipt and sufficiency of which is hereby acknowledged by both parties, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE 1                                

DEFINITIONS

As used in this Agreement, the following terms shall have the meanings set forth below:

“Acquisition Event” shall mean that, prior to the termination of this Agreement, the Company shall have authorized, recommended, or shall have entered into a letter of intent, an agreement-in-principle or a definitive agreement with any Person (other than Buyer or any of its Affiliates) to effect, an Acquisition Transaction.  As used herein, the term “Acquisition Transaction” shall mean (i) a merger or consolidation of the Company with another entity, (ii) the disposition, by sale, lease, exchange, dissolution or liquidation, or otherwise, of all or substantially all of the assets of Company or any asset or assets of Company the disposition or lease of which would have a Material Adverse Effect; or (iii) the issuance, sale or other disposition by Shareholders or Company (including, without limitation, by way of merger, consolidation, share exchange or any similar transaction) of shares of Common Stock, Preferred Stock or other stock, securities or other interests of Company, or the grant of any option, warrant or other right to acquire shares of Common Stock, Preferred Stock or other stock, securities or other interests of Company.

“Acquisition Proposal” shall have the meaning given such term in Section 6.2(p).

“Affiliate” or “affiliate” shall mean, with respect to any other Person, any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person.

“Bay View” shall mean Bay View Funding, a California corporation.

“Buyer” shall mean Capital Corp of the West, a California bank holding corporation.

“Benefit Arrangement” shall have the meaning given such term in Section 4.20.

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“Business Day” shall mean any day, other than a Saturday, Sunday or any other day, such as a legal holiday, on which California state banks in California are not open for substantially all their banking business.

“California Corporations Code” shall mean the General Corporation Law of the State of California.

“Closing” shall have the meaning given to such term in Section 3.1.

“Closing Date” shall have the meaning given to such term in Section 3.1.

“Common Stock” shall mean the shares of common stock of Bay View, no par value per share.

“Company” shall mean, collectively, Bay View and CSNK.

“Company Financial Statements” shall have the meaning given such term in Section 4.3.

“Company Filings” shall have the meaning given such term in Section 4.12.

“CSNK” shall mean CSNK Working Capital Finance Corp., a California corporation, which is a wholly owned Subsidiary of Bay View.

“DOC” shall mean the California Department of Corporations.

“Default” shall mean, as to any party to this Agreement, a failure by such party to perform, in any material respect, any of the agreements or covenants of such party contained in Article 6.

“EBITDA” shall have the meaning set forth on Exhibit 2.2 attached hereto.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Federal Reserve Board” shall mean the Board of Governors of the Federal Reserve System.

“GAAP” shall mean generally accepted accounting principles as adopted and applied in the United States of America.

“Governmental Entity” shall mean any court, federal, state, local or foreign government or any administrative or regulatory agency or commission or other governmental authority or instrumentality whatsoever.

“IRC” shall mean the Internal Revenue Code of 1986, as amended.

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“Knowledge” shall mean, with respect to any representation or warranty contained in this Agreement: as to Company, the actual knowledge, of any director or executive officer of Company; as to Buyer, the actual knowledge, of any director or executive officer of Buyer; and as to the Shareholders, the actual knowledge, of each such Shareholder.

“Letter of Transmittal” shall have the meaning given to such term in Section 7.12.

“Liens” shall have the meaning given to such term in Section 2.1.

“Material Adverse Effect” shall mean a material adverse effect: (i) on the business, assets, results of operations, financial condition or prospects of a Person and its subsidiaries, if any, taken as a whole (unless specifically indicated otherwise); or (ii) on the ability of a Person that is a party to this Agreement to perform its obligations under this Agreement or to consummate the transactions contemplated by this Agreement.

“Nasdaq” shall mean The Nasdaq Marketplace and the rules and regulations promulgated thereunder.

“Net Revenues” shall have the meaning given to such term in Exhibit 2.2.

“Preferred Stock” shall mean the shares of preferred stock of Bay View, no par value per share.

“Purchase Price” shall have the meaning given to such term in Section 2.2.

“Purchased Shares” shall have the meaning given to such term in Section 2.1.

“Persons” or “persons” shall mean an individual, corporation, partnership, limited liability company, joint venture, trust or unincorporated organization, Governmental Entity or any other legal entity whatsoever.

“Regulatory Approval” shall mean the Federal Reserve Board approval, California Department of Corporations approval and Nasdaq compliance (and, if appropriate, approval) required to permit the parties to consummate the transactions contemplated by the Agreement.

“Regulatory Authority” shall mean any Governmental Entity, the approval of which is legally required for transactions contemplated by this Agreement.

“Requisite Regulatory Approvals” shall have the meaning given such term in Section 7.8.

“Returns” shall mean all returns, declarations, reports, statements, declarations of estimate taxes, claims for refunds, information returns and statements, and any other documents required to be filed with respect to Taxes, including any schedule or attachment thereto and any amendment thereof, and the term “Return” means any one of the foregoing Returns.

“Shareholders” shall mean the holders of all of the issued and outstanding capital stock of Bay View, a list of whom is set forth on Schedule 4.3(b) attached hereto.

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“Subsidiary” shall mean, with respect to any corporation (the “parent”), any other corporation, association or other business entity of which more than 50% of the shares of the voting stock are owned or controlled, directly or indirectly, by the parent or by one or more Subsidiaries of the parent, or by the parent and one or more of its Subsidiaries in the aggregate.

“Taxes” shall mean all federal, state, local and foreign net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties, or other taxes, together with any interest and any penalties, additions to tax, or additional amounts with respect thereto, and the term “Tax” means any one of the foregoing Taxes.

“USPTO” shall mean the United States Patent and Trademark Office and its affiliated offices.

ARTICLE 2                                

SALE OF STOCK BY SHAREHOLDERS

2.1Sale of Stock by Company.  Upon the terms and subject to the conditions set forth in this Agreement, at the Closing effective as of the Closing Date, each and all of the Shareholders shall sell, convey, assign, transfer and deliver to Buyer, and Buyer shall purchase and acquire from the Shareholders, free and clear of any and all liens, claims, charges, security interests, encumbrances and restrictions of any kind whatsoever (except for restrictions under the Securities Act of 1933, as amended) (“Liens”) all of the issued and outstanding shares of Bay View’s Common Stock owned immediately prior to the Closing Date ("Purchased Shares”).

2.2Purchase Price.  Subject to Section 2.3 and Section 2.4, the purchase price (“Purchase Price”) for the Purchased Shares shall be computed and paid in accordance with the pricing and payment provisions set forth on Exhibit 2.2. 

2.3Holdback.  An amount equal to ten percent (10%) of the portion of the Purchase Price calculated pursuant to Sections 1 and 2 of Exhibit 2.2 (the “Holdback Amount”) shall be retained by Buyer pending the determination each of Company’s and Shareholders’ indemnification obligations, if any, as set forth in Section 10.1.  On the second anniversary of the Closing Date, the Holdback Amount, less any amounts set-off pursuant to Section 10.5, shall be paid to the Shareholders in proportion to their respective percentage ownership interests in Bay View’s Common Stock as set forth in Schedule 4.3(b).

2.4Installment Payment.  An amount equal to five percent (5%) of the portion of the Purchase Price calculated pursuant to Sections 1 and 2 of Exhibit 2.2 (the “Installment Payment”) shall be retained by the Buyer until the first anniversary of the Closing Date and shall be paid to the Shareholders in proportion to their respective percentage ownership interests in Bay View’s Common Stock as set forth in Schedule 4.3(b).

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ARTICLE 3                                

CLOSING

3.1Closing Date.  The closing with respect to the transactions provided for in this Agreement (the “Closing”) shall take place on the last calendar day of the calendar month in which receipt of final Requisite Regulatory Approvals takes place, and in no case later than October 31, 2007.  The day upon which the Closing occurs shall be the “Closing Date.”

3.2Delivery of Share Certificates.  At the Closing, the Shareholders shall deliver to Buyer share certificates evidencing ownership of the Purchased Shares.

3.3Payment.  The payment required under Section 2.2 above shall be paid to each of the Shareholders at the Closing, pro-rata, by check or wire transfer, as Buyer may elect. 

ARTICLE 4                                

REPRESENTATIONS AND WARRANTIES OF COMPANY

Company hereby represents and warrants to Buyer as of the date hereof, and as of the Closing, as follows:

4.1Organization; Power; Good Standing.  Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California.  Company has all requisite corporate power and authority to own, operate and lease its properties, to carry on its business as now being conducted and to enter into this Agreement and perform its obligations hereunder.  Company has furnished to the Buyer true, correct and complete copies of Company’s Articles of Incorporation, as amended and as in effect on the date hereof (the “Articles of Incorporation”), and Company's Bylaws, as amended and as in effect on the date hereof (the “Bylaws”).  The minute books (containing the records of meetings of the shareholders, the board of directors, and any committees of the board of directors of the Company), the stock certificate books, and the stock record books of Company are correct and complete.  Company is not in default under or in violation of any provision of its Articles of Incorporation or Bylaws.  Company maintains and operates offices in the locations set forth in Schedule 4.1.  Except as set forth in Schedule 4.1, neither the scope of the business of Company nor the location of any of its respective employees, operations or properties requires that Company be licensed or qualified to conduct business in any jurisdiction other than the State of California, where the failure to be so licensed and qualified would have a Material Adverse Effect on Company.

4.2Licenses and Permits.  Company and its Affiliates have all material licenses, certificates, franchises, rights and permits that are necessary for the conduct of Company’s business, and such licenses are in full force and effect, except for any failure to be in full force and effect that would not, individually or in the aggregate, have a Material Adverse Effect on Company or on the ability of Company to consummate the transactions contemplated by this Agreement.  The properties, assets, operations and businesses of Company are and have been maintained and conducted, in all material respects, in compliance with all applicable licenses, certificates, franchises, rights and permits.  The Company’s licenses and expiration dates of such licenses are set forth in Schedule 4.2.

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4.3Subsidiaries; Capital Stock; Financial Statements.

(a)Except for CSNK, Bay View has no, and has never had any, Subsidiaries.  Company does not own or have a right to acquire the equity securities of any Person.

(b)The authorized capital stock of Bay View consists of 1,000,000 shares of Common Stock, of which 480,271 shares are outstanding.  Bay View has no other classes of stock authorized or outstanding.  All of such shares issued and outstanding have been duly authorized, are validly issued, fully paid for and non-assessable, and are held of record and legally and beneficially owned by the respective Shareholders as set forth in Schedule 4.3(b).  Bay View holds no shares of its Common Stock or Preferred Stock in its treasury.  There are no outstanding or authorized subscriptions, options, warrants, calls, rights, commitments or any other agreements of any character obligating Bay View to issue any additional shares of its Common Stock, Preferred Stock or any other stock, securities or interests of Bay View or any securities convertible into, or evidencing the right to subscribe for any shares of its Common Stock or Preferred Stock or any other stock, securities or interests of Bay View. There are no voting trusts or any other agreements or understandings with respect to the voting capital stock of Bay View.  There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Bay View.

(c)The authorized capital stock of CSNK consists of 1,000 shares of common stock, of which 1,000 shares are outstanding.  Bay View directly owns one hundred percent of the ownership interests in CSNK, free and clear of any and all liens, claims, charges, security interests, encumbrances and restrictions of any kind whatsoever or any other limitation or restriction.  All of such shares issued and outstanding have been duly authorized, are validly issued, fully paid for and non-assessable, and are held of record and legally and beneficially owned by Bay View.  CSNK holds no shares of its capital stock in its treasury.  There are no outstanding or authorized subscriptions, options, warrants, calls, rights, commitments or any other agreements of any character obligating Bay View or CSNK to issue any additional shares of CSNK’s common stock or any other stock, securities or interests of CSNK or any securities convertible into, or evidencing the right to subscribe for any shares of CSNK’s common stock or any other stock, securities or interests of CSNK. There are no voting trusts or any other agreements or understandings with respect to the voting capital stock of CSNK.  There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to CSNK.

(d)Attached hereto as Exhibit 4.3(d) are the following financial statements (collectively the “Company Financial Statements”): (i) audited consolidated and consolidating balance sheets and statements of income, changes in stockholders’ equity, and cash flow as of and for the fiscal years ended May 31, 2006, May 31, 2005, and May 31, 2004 for Company; and (ii) unaudited consolidated and consolidating balance sheets and statements of income, changes in stockholders’ equity, and cash flow (the “Most Recent Financial Statements”) as of and for the twelve (12) months ended May 31, 2007 for Company.  The Company Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of Company as of such dates and the results of operations of Company for such periods, are correct and complete in all material respects, and are consistent with the books and records of Company (which books and records are correct and complete in all material respects).  Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed with management’s authorizations, (ii) transactions are recorded as necessary to permit preparation of the Company Financial Statements and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management’s authorization and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

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4.4Authority Relative to Agreement.  Company has all necessary power and authority to enter into this Agreement and any other documents and agreements contemplated by this Agreement to which it is a party and has taken all action necessary to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder.  The execution and delivery by Company of this Agreement and each other document and agreement contemplated by this Agreement to which it is a party, and the performance by Company of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the board of directors or other appropriate governing body of Company.  This Agreement has been duly executed and delivered by Company and is a legal, valid and binding obligation of Company, enforceable against Company in accordance with its terms, except that enforceability may be limited by the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors.  Each other document and agreement contemplated by this Agreement to which Company is a party will have been, as of the Closing, duly and validly executed by Company, and will be a legal, valid and binding obligation of Company, enforceable against Company in accordance with its terms, except that enforceability may be limited by the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors.

4.5Noncontravention.  Neither the execution, delivery or performance of this Agreement or any other documents and agreements contemplated by this Agreement to which Company is a party, the consummation of the transactions contemplated hereby or thereby, nor compliance by Company with any of the provisions hereof or thereof, will  (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Entity to which Company is subject or any provision of its Articles of Incorporation or Bylaws or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Company is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any security interest, encumbrance or lien upon any of its assets).  Company is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Entity in order for the parties to consummate the transactions contemplated by this Agreement.

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4.6No Other Agreements.  Company does not have any obligation, absolute of contingent, to any other Person to sell all or substantially all of the assets or business of Company or to sell any Common Stock, Preferred Stock or other capital stock, securities or interests of Company, or to effect any merger, consolidation or other reorganization of Company or to enter into any agreement with respect thereto.

4.7Undisclosed Liabilities.  Except to the extent disclosed therein, Company had, at the Closing Date no material liabilities or obligations of any kind, whether accrued, absolute, contingent or otherwise that should have appeared on the Company Financial Statements that were not on the Company Financial Statements as of the Closing Date prepared in accordance with GAAP consistently applied.  To the Company’s Knowledge, except claims or liabilities that occur in the ordinary course of business, there are no reasonable grounds for any basis for assertion against Company of any claim or liability of any nature in any amount not fully disclosed in the Company Financial Statements.

4.8Absence of Certain Changes or Events.  Since April 30, 2007, the Company has not, except as set forth in detail in Schedule 4.8:

(a)incurred, assumed or become subject to, whether directly or by way of any guarantee or otherwise, any obligations or liabilities (absolute, accrued, contingent or otherwise) except normal trade or business obligations incurred in the ordinary course of business, the performance of which will not, individually or in the aggregate, have a Material Adverse Effect on Company;

(b)Discharged or satisfied any Lien or paid any obligation or liability (contingent or otherwise), except current liabilities included in the Company Financial Statements.

(c)Mortgaged, pledged or subjected to any Lien any of the assets of Company (whether tangible or intangible), other than statutory Liens not yet delinquent;

(d)Made any material modifications to agreements to sell, assign, transfer, convey, lease or otherwise dispose of, or agreed to sell, assign, transfer, convey, lease or otherwise dispose of any of its assets or properties, except for fair consideration in the ordinary course of business.

(e)Canceled or compromised any debt or claim, except for adjustments made in the ordinary course of business which, in the aggregate, are not material;

(f)Waived or released any rights, other than in the ordinary course of business;

(g)Transferred or granted any rights under any concessions, leases, licenses, patents, inventions, trademarks, trade names, copyrights, or with respect to any know-how;

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(h)Made, promised or granted any wage or salary increase, given or paid any service award, severance payment, bonus, incentive compensation or like benefit to or for the credit of any director, officer, employee or agent or entered into any employment or consulting contract or other agreement with any director, officer or employee or adopted, amended or terminated any pension, employee welfare, retirement, stock purchase, stock option, stock appreciation rights, termination, severance, income protection, golden parachute, savings or profit-sharing plan (including trust agreements and insurance contracts embodying such plans), any deferred compensation, or collective bargaining agreement, any group insurance contract or any other incentive, welfare or employee benefit plan, program or agreement maintained by the Company for the directors, employees or former employees of Company;

(i)Entered into any transaction, contract or commitment other than in the ordinary course of business.  Ordinary course of business is defined to mean (i) such action is consistent with the past practices and is taken in the ordinary course of the normal day-to-day operations, (ii) such action is not required to be authorized by the board of directors of such entity (or by any person or group of persons exercising similar authority) or by the shareholders or other equity owners (if any) and (iii) such action is similar in nature and magnitude to actions customarily taken in the ordinary course of the normal day-to-day operations of other persons that are in the same line of business of the Company;

(j)Made any unbudgeted capital expenditure or entered into any commitment therefor;

(k)Directly or indirectly declared, set aside or paid any dividend or made any distribution in respect to its capital stock or redeemed, purchased or otherwise acquired, or arranged for the redemption, purchase or acquisition of, any shares of its capital stock or other of its securities;

(l)Purchased, redeemed, issued, sold or otherwise acquired or disposed of any shares of Common Stock or Preferred Stock, any evidence of its indebtedness or other of its securities or granted any options, warrants or other rights to purchase or convert any obligation into any shares of Common Stock or Preferred Stock, any evidence of indebtedness or other securities of Company;

(m)Lost the employment of any employee or employees which loss or losses, individually or in the aggregate, has or may have a Material Adverse Effect on Company;

(n)Lost the benefit of contracts or arrangements with any customer or customers which loss or losses, individually or in the aggregate, has or may have a Material Adverse Effect on Company or experienced any material adverse change in relations with any customer or client of the Company;

(o)Amended its charter documents or merged with or into or consolidated with any other entity, or voluntarily or involuntarily dissolved or liquidated or changed or agreed to change in any manner the rights of Common Stock or Preferred Stock;

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(p)Paid any expenses of, or made any advances to, any affiliated parties or incur any liabilities to, or otherwise became indebted to, any affiliated parties except in the ordinary course of business;

(q)Entered into any transactions with any affiliated parties or any other entity other than on an arm’s-length basis;

(r)Made or authorized any change in its authorized or outstanding capital stock;

(s)Issued, reserved for issuance, granted, sold or authorized the issuance of any shares of its capital stock or subscriptions, options, warrants, calls, rights or commitments of any kind relating to the issuance or sale of or conversion into shares of its capital stock;

(t)Made any or acquiesced with any change in any accounting methods, principles or practices except changes required by changes in GAAP or regulatory requirements;

(u)Except as permitted hereunder, entered into any transaction, or entered into, modified or amended any contract or commitment, or engaged in any transactions affecting the Company’s business or properties, other than in the ordinary course of business;

(v)Discharged or satisfied any Lien, or paid any obligation or liability, absolute or contingent, other than current liabilities shown on the balance sheet, and current liabilities incurred since that date in the ordinary course of business;

(w)Suffered any damage, destruction, or loss (whether or not covered by insurance) materially and adversely affecting its properties or business, or of any item carried in its property account at more than $10,000;

(x)Experienced any labor trouble, or any event or condition of any character, that has or may have a Material Adverse Effect on Company;

(y)Agreed, whether in writing or otherwise, to take any action the performance of which would change the representations contained in this Agreement in the future so that any such representation would not be true in all material respects as of the Closing Date;

(z)Settled or agreed to settle any material claim, action, suit, proceeding or investigation; or

(aa)Terminated or amended, or failed in any material respect to perform obligations or suffered the occurrence of any default under, any material contract, lease, agreement or license.

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4.9Tax Matters.

(a)Since May 31, 2003, Company has duly filed, or has obtained extensions of the deadline to file and will duly file within the extended deadline, with all appropriate Governmental Entities, all Returns required to be filed, which Returns were and are correct, accurate and complete.  Company is not a party to any pending action or proceeding, nor is any action or proceeding threatened in writing, by any Governmental Entity for assessment or collection of Taxes.  No claim for assessment or collection of Taxes has been asserted against Company except to the extent properly accrued on the Most Recent Financial Statements.

(b)Except as disclosed on Schedule 4.9, there is no review or audit by any taxing authority of any Tax liability of Company currently in progress.  Except as disclosed on Schedule 4.9, Company has not received any written notices within the three years preceding the Closing Date of any pending or threatened audit, by the Internal Revenue Service or any state, local or foreign agency, for any Returns or Tax liability of Company for any period.  Company currently has no unpaid deficiencies assessed by the Internal Revenue Service or any state, local or foreign taxing authority arising out of any examination of any of the Returns of Company filed for fiscal years ended on or after May 31, 2003, nor to the Knowledge of Company is there reason to believe that any material deficiency will be assessed.

(c)Except as disclosed on Schedule 4.9, no agreements are in force or are currently being negotiated by or on behalf of Company for any waiver or for the extension of any statute of limitations governing the time of assessments or collection of any Tax.  No Closing agreements or compromises concerning Taxes of Company are currently pending.

(d)Company has withheld from each payment made to any of their respective officers, directors and employees, the amount of all applicable Taxes, including, but not limited to, income tax, social security contributions, unemployment contributions, backup withholding and other deductions required to be withheld therefrom by any Tax law and have paid the same to the proper taxing authorities within the time required under any applicable Tax law.

(e)There are no Tax Liens, whether imposed by any federal, state, local or foreign taxing authority, outstanding against any assets owned by Company, except for Liens for Taxes that are not yet due and payable.

(f)Company has made full and adequate provision and reserve for all federal, state, local or foreign Taxes for the current period for which Returns are not yet required to be filed.  The Company Financial Statements contain fair and sufficient accruals for the payment of all Taxes for the periods covered by the Company Financial Statements and all periods prior thereto.

4.10Environmental Matters.  Except as set forth on Schedule 4.10, no toxic, hazardous, explosive or otherwise dangerous materials, substances, pollutants or wastes, as those terms are used in the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act of 1976, the Hazardous Materials Transportation Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), the Emergency Planning and Community Right-to-Know Act or in any other federal, state or local environmental law (collectively, “Environmental Laws”), petroleum products, polychlorinated biphenyis, urea-formaldehyde foam, or radioactive materials (all of the above being collectively referred to herein as “Hazardous Materials”) have been or are stored, treated, disposed of managed, generated, manufactured, produced, released (as defined in CERCLA Section 101(22)), emitted or discharged by the Company either on any of its real property or elsewhere.

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(a)Except as set forth on Schedule 4.10, to the Company’s Knowledge, the Company has been and is in compliance in all material respects with all Environmental Laws, and has obtained all environmental licenses, permits, approvals, registrations and authorizations (federal, state and local) material to the business.  Except as set forth on Schedule 4.10, all such licenses, permits, approvals, registrations and authorizations will remain in full force and effect as of the Closing and may be effectively transferred or assigned to Buyer on or after the Closing Date without materially and adversely affecting the operation of the Company’s business by Buyer after the Closing.

(b)Except as set forth on Schedule 4.10, to the Company’s Knowledge, no governmental or private action, suit or proceeding to enforce or impose liability under any Environmental Laws is pending or threatened against the Company and, to the Company’s Knowledge, no Lien has been created on the Company’s real estate under any Environmental Laws.

4.11Transactions with Management.  Except as set forth in Schedule 4.11, Company is not a party to any contract, lease or commitment with any officer, director or shareholder (or any affiliate of any such officer, director or shareholder) of Company, nor are there any loans outstanding to any of such persons (or any affiliates of any such person) from Company.

4.12Company Filings.  Since January 1, 2002, Company has timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that were required to be filed with all applicable Governmental Entities (the “Company Filings”).  Except to the extent prohibited by law, copies of the Company Filings have been made available to Buyer.  As of their respective filing or mailing dates, each of the past Company Filings (a) was true and complete in all material respects (or was amended so as to be so promptly following discovery of any discrepancy); and (b) complied in all material respects with all of the statutes, rules and regulations enforced or promulgated by the Governmental Entity with which it was filed (or was amended so as to be so promptly following discovery of any such noncompliance) and none contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

4.13Accuracy of Information Supplied.  Except to the extent expressly qualified as to materiality or Knowledge, the information concerning the Company set forth in this Agreement, the Company Financial Statements, the Schedules and Exhibits and any document to be delivered by the Company at the Closing to Buyer pursuant hereto, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated herein or therein or necessary to make the statements and facts contained herein or therein, in light of the circumstances in which they are made, not misleading.  Copies of all documents heretofore or hereafter delivered or made available to Buyer pursuant hereto were or will be complete and accurate copies of such documents.

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4.14Litigation.  Except as set forth in Schedule 4.14, there is no suit, action, proceeding or investigation pending or, to the Company’s Knowledge, threatened against the Company which, if adversely determined, would have a Material Adverse Effect on Company; nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Company that has, or which, insofar as reasonably can be foreseen, in the future would have, any such Material Adverse Effect.  Schedule 4.14 contains a true, correct and complete list, including identification of the applicable insurance policy covering such litigation, if any, subject to reservation of rights, if any, the applicable deductible and the amount of any reserve therefor, of all pending litigation in which Company is a named party, and except as disclosed on Schedule 4.14, all of the litigation shown on such Schedule is adequately covered by insurance in force, except for applicable deductibles, or has been adequately reserved for in accordance with Company’s prior business practices.

4.15Insurance.  Schedule 4.15 contains a list of all policies of insurance and bonds carried and owned by Company since June 1, 2002.  Company is not in default under any such policy of insurance or bond such that it can be canceled and all material claims thereunder have been filed in timely fashion.  Company has filed claims with, or given notice of claim to, their insurers or bonding companies in timely fashion with respect to all material matters and occurrences for which they believe they have coverage.  Except as disclosed on Schedule 4.15, to the Company’s Knowledge, there are no outstanding requirements or recommendations by any insurance company or by any Board of Underwriters or other similar body exercising similar functions or by any Governmental Entity exercising similar functions which require or recommend any changes in the conduct of the business, or any repairs or other work to be done on or with respect to any of the properties or assets of the Company.  Except as set forth on Schedule 4.15, the Company has received no written notice or other written communication from any such insurance company within the two (2) years preceding the date canceling or materially amending any insurance policies or materially increasing the annual or other premiums payable under any of such insurance policies and no such cancellation, amendment or material increase of premiums is, to the Company’s Knowledge, threatened.  Except as set forth on Schedule 4.15, there have been no errors or omissions claims asserted against the Company for the last five (5) years and to the best of the Company’s Knowledge no such claims may exist or will be asserted in the future.

4.16Bonds. Schedule 4.16 sets forth each bond that is required to be maintained in connection with the operation of Company’s business.  Each of such bonds is in full force and effect and Company has not received any notice of cancellation with respect thereto.  No application by Company for any bond has been denied.  There are no changes, notices, filings or consents required with respect to such bonds (including with respect to the amount thereof) as a result of the transactions contemplated by this Agreement.

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4.17Title to Assets other than Real Property.  Except as set forth in Schedule 4.17, Company has good and marketable title to all its properties and assets, owned or leased by Company, free and clear of all mortgages, Liens, pledges, or prior assignments of any kind or nature and except for: (a) encumbrances as set forth in the Company Financial Statements; (b) Liens for current Taxes not yet due which have been fully reserved for; and (c) encumbrances, if any, that are not substantial in character, amount or extent and do not detract materially from the value, or interfere with present use or the sale or other disposition of the property subject thereto or affected thereby.  All such properties and assets are, and require only routine maintenance to keep them in, good working condition, normal wear and tear excepted.

4.18Real Property.  Schedule 4.18 is an accurate list and general description of all real property owned or leased by Company.

Except as indicated in Schedule 4.18:

(a)No officer, director, shareholder or employee of the Company, nor any spouse, child or other relative or affiliate thereof, owns directly or indirectly (other than through Seller), in whole or in part, any of the real properties described on Schedule 4.18 or any interest therein;

(b)The Company is not in default with respect to any term or condition of any such lease or sublease, nor, to the Company’s Knowledge, has any event occurred which, through the passage of time or the giving of notice, or both, would constitute a default thereunder, would cause the acceleration of any obligation of Seller under such lease or sublease or the creation of any claim or Lien upon any asset thereof or interfere with Seller’s right to occupy any leasehold;

(c)All of the buildings, fixtures and other improvements described on Schedule 4.18 are in good operating condition, subject to ordinary wear and tear, and have been maintained as required by Seller, and Seller has not received any written notice that any such building, fixtures or improvements is in violation of any applicable building code, zoning ordinance, land use or other similar law or regulation.

4.19Material Contracts.  Schedule 4.19 to this Agreement contains a complete and accurate written list of all material agreements, obligations or understandings, written and oral, to which Company is a party as of the date of this Agreement (“Contract”), including a separate summary narrative description of any transfer of ownership penalties and fees that will be incurred upon the consummation of the transactions contemplated in this Agreement.

(a)True, complete and correct copies of each of the Contracts, or where they are oral, true and complete written summaries thereof, have been delivered to Buyer by Seller.  Schedule 4.19(a) also sets forth a complete and accurate description of all Contracts containing termination fees and penalties in excess of $10,000 per contract, including the specific amount of all termination fees and penalties for each such Contract(s).  Except in each case as listed in Schedule 4.19, the Company is not a party to any material written or oral Contract.

(b)Except as expressly described on Schedule 4.19(b):

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(i)The Company has fulfilled all material obligations required pursuant to each Contract to have been performed by the Company, and there is no reason to believe that the Company through the Closing Date, will not be able to fulfill, when due, all of its respective obligations under the Contracts which remain to be performed after the Closing Date;

(ii)There has not occurred any material default under any of the Contracts on the part of the Company or is there expected to be any material default under any of the Contracts to the Company’s or Shareholders’ Knowledge, nor has the Company received notice of default under any of the Contracts from any other party thereof or sent notice of default under any of the Contracts to any other party thereof, nor to the Company’s Knowledge has any event occurred which, with the giving of notice or the lapse of time, or both, would constitute a default on the part of the Company under any of the Contracts, nor, to the Company’s Knowledge, has any event occurred which, with the giving of notice or the lapse of time, or both, would constitute a default on the part of any other party to any of the Contracts; and

(iii)No consent of any party to any of the Contracts which is material to the continued operation of the business after the Closing or to the financial prospects of the business after the Closing is required for the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby or the assignment of any Contract to Buyer.

4.20Employees; Employee Benefit Plans; ERISA.

(a)Company has delivered as Schedule 4.20(a) a complete list of:  (i)  all current employees of Company together with each employee’s tenure with Company, title or job classification, and the current annual rate of compensation anticipated to be paid to each such employee; and (ii) all employee plans and benefit arrangements, including all plans or practices providing for current compensation or accruals for active employees, including, but not limited to, all employee benefit plans, all pension, profit-sharing, retirement, bonus, stock option, incentive, deferred compensation, severance, long-term disability, medical, dental, health, hospitalization, life insurance or other insurance plans or related benefits.  Except as indicated in Schedule 4.20(a), all current and former employees of Company have executed a non-disclosure agreement with the Company.

(b)Except as disclosed on Schedule 4.20(b), Company does not sponsor, maintain, administer or otherwise act as a fiduciary with respect to any “employee benefit plan,” as defined in Section 3(3) of ERISA, which is subject to any provisions of ERISA and covers any employee, whether active or retired, of Company (any such plan being herein referred to as an “Employee Plan”).  True and complete copies of each such Employee Plan, including amendments thereto, have been previously delivered to Buyer, together with (i) all agreements regarding plan assets with respect to such Employee Plans, (ii) a true and complete copy of the annual reports for the most recent three years (Form 5500 Series including, if applicable, Schedules A and B thereto) prepared in connection with any such Employee Plan, (iii) a true and complete copy of the actuarial valuation reports for the most recent three years, if any, prepared in connection with any such Employee Plan covering any active employee of Company, (iv) a copy of the most recent summary plan description of each such Employee Plan, together with any modifications thereto, and (v) a copy of the most recent favorable determination letter (if applicable) from the Internal Revenue Service, and any letter (if applicable) from the Internal Revenue Service pursuant to the Employee Plans Compliance Resolution System, for each Employee Plan.  None of the Employee Plans is a “multi-employer plan” as defined in Section 3(37) of ERISA or a “multiple employer plan” as covered in Section 412 of the IRC, and Company has not been obligated to make a contribution to any such multi-employer or multiple employer plan within the past five years.  None of the Employee Plans of Company is, or for the last five years has been, subject to Title IV of ERISA.  To the Company’s Knowledge, each Employee Plan which is intended to be qualified under Section 401(a) of the IRC is so qualified and each trust maintained pursuant thereto is exempt from income tax under Section 501(a) of the IRC, and Company is not aware of any fact which has occurred which would cause the loss of such qualification or exemption.

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(c)Except as disclosed in Schedule 4.20(c), Company does not maintain (other than base salary and base wages) any form of current or deferred compensation, bonus, stock option, stock appreciation right, severance pay, salary continuation, retirement or incentive plan or arrangement for the benefit of any director, officer or employee, whether active or retired, of Company or for any class or classes of such directors, officers or employees.  Except as disclosed in Schedule 4.20(c), Company does not maintain any group or individual health insurance, welfare or similar plan or arrangement for the benefit of any director, officer or employee of Company, whether active or retired, or for any class or classes of such directors, officers or employees.  Any such plan or arrangement described in this Section 4.20, copies of which have been delivered to Buyer, shall be herein referred to as a “Benefit Arrangement.”

(d)Except as set forth on Schedule 4.20(d), no Employee Plan or Benefit Arrangement has any material funding, compliance or fiduciary liability, accrued or contingent, including, without limitation, liabilities for federal, state, local or foreign taxes, interest or penalty, other than liability for claims arising in the course of the administration of each such Employee Plan.  Except as set forth on Schedule 4.20(d), there is no pending legal action, proceeding or, to the Company’s Knowledge, investigation, against any Employee Plan which would reasonably be expected to result in material liability to such Employee Plan, other than routine claims for benefits, and there is no basis for any such legal action, proceeding or investigation.

(e)Moreover, with respect to any Employee Plan, the following is true and correct:

(i)Schedule 4.20(e) sets forth the amount of any liability of the Company or ERISA affiliates for contributions more than thirty days past due with respect to each Employee Plan as of the date and as of the end of any subsequent month ending prior to the Closing.  Except for group life insurance plans, no Employee Plan (as defined in Section 3(1) of ERISA) provides for continuing benefits or coverage for any participant, beneficiary or former employee after such participant’s or former employee’s termination of employment except as may be required by Section 4980B of the Code and Sections 601 - 608 of ERISA or similar state law;

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(ii)Each Employee Plan complies currently, in all material respects, and have complied in all material respects in the past, both as to form and operation, with the provisions of ERISA, the Internal Revenue Code of 1986, as amended (“Code”) and with all other applicable laws, rules and regulations; all reports and disclosures that are required have been timely made and filed; and with respect to each Employee Plan that is intended to be tax-qualified, a favorable determination letter as to the qualification under the Code of each such Employee Plan and each material amendment thereof has been issued by the Internal Revenue Service (and, to the Company’s Knowledge, nothing has occurred since the date of the last such determination letter which resulted in or is likely to result in the revocation of such determination);

(iii)To the Knowledge of the Company, no plan fiduciary of any such Employee Plan has engaged in any non-exempt prohibited transaction in violation of Section 406 of ERISA or in any “prohibited transaction” as defined in Section 4975(c)(1) of the Code;

(iv)Neither the Company nor any ERISA affiliate is, or has been, a contributing sponsor or has maintained or participated in any Employee Plan subject to the provisions of Title IV of ERISA.  In addition, neither the Company nor any ERISA affiliate (1) is a party to a collective bargaining agreement, or (2) has maintained or contributed to, or has participated in or agreed to participate in, a multiemployer plan (as defined in Section 3(37) of ERISA);

(v)True and complete copies of each Employee Plan (except for Pension Benefit Plans not currently maintained by Company), and, as applicable for each such Employee Plan, any related trust agreements, annuity contracts (or any other funding instruments), summary plan descriptions, the most recent determination letter issued by the Internal Revenue Service with respect to each pension benefit Plan, any letters issued pursuant to the Employee Plans Compliance Resolution System, and Annual Reports on Form 5500 Series filed for each Pension Benefit Plan for the three most recent plan years, have been made available to Buyer;

(vi)Except as set forth in Schedule 4.20(e), all Employee Plans (except for Employee Plans not currently maintained by the Company) and related trust agreements (or any other funding instruments), are, to the Company’s Knowledge, legally valid and binding and in full force and effect, and there are no promised increases in benefits (whether expressed, implied, oral or written) under any of these plans nor any obligations, commitments or understandings to continue any of these plans, (whether expressed, implied, oral or written) except as required by Section 4980B of the Code and Sections 601-608 of ERISA or applicable laws;

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(vii)There are no claims pending with respect to, or under, any Employee Plan, other than routine claims for plan benefits, and there are no disputes or litigation pending or, to the Knowledge of the Company, threatened with respect to any such plans;

(viii)To the Company’s Knowledge, no action has been taken, nor has there been a failure to take any action, that would subject any person to any liability for any income, excise or other tax or penalty in connection with any Employee Plan, other than for income taxes due with respect to benefits paid;

(ix)Except as set forth in Schedule 4.20(e), the Company is not obligated to pay deferred compensation (within the meaning of Section 409A of the Code and related regulations) to any current or former employee, independent contractor, shareholder, or any other person; and

(x)Except as otherwise set forth in Schedule 4.20(e), neither the execution and delivery of this Agreement nor the consummation of the transaction contemplated hereby will (1) result in any payment to be made by the Company or any ERISA affiliate (including, without limitation, severance, unemployment compensation, golden parachute (defined in Section 280G of the Code), or otherwise) becoming due to any employee, director or consultant, or (2) increase any benefits otherwise payable under any Employee Plan.

(f)Except as set forth on Schedule 4.20(f) (a) there are no claims by any employee, former employee, independent contractor or former independent contractor of the Company or a predecessor of the Company against the Company other than for compensation and benefits due in the ordinary course of employment or engagement; (b) there are no claims against the Company arising out of any statute, ordinance or regulation relating to employment practices or occupational or safety and health standards; (c) there are no pending or, to the Company’s Knowledge, threatened labor disputes, strikes or work stoppages against the Company; (d) there are no union organizing activities in process or contemplated with respect to the business; (e) the Company is not a party to any oral or written contracts or agreements granting benefits or rights to employees or any collective bargaining agreement or to any conciliation agreement with the Department of Labor, the Equal Employment Opportunity Commission or any federal, state or local agency which requires equal employment opportunities or affirmative action in employment; (f) there are no unfair labor practice complaints pending against the Company or similar claims pending before any similar state, local or foreign agency.  Schedule 4.20(f) identifies all Company employees on leave of absence.  Notice of the availability of health care continuation coverage for Company employees, former Company employees and their respective dependents and qualified beneficiaries, in accordance with the requirements of COBRA and applicable state law, has been provided to all persons entitled thereof, and all persons electing such coverage are being (or have been, if applicable) provided such coverage.  In addition, Schedule 4.20(f) sets forth a list of names, titles (if applicable) and compensation of all independent contractors of Seller.  Except as indicated in Schedule 4.20(f), such independent contractors have executed non-competition and/or non-disclosure agreements with the Company.

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(g)To the Knowledge of Company, no executive, key employee, or group of employees has any plans to terminate employment with, or materially modify its services to, Company.

4.21Powers of Attorney.  No power of attorney or similar authorization given by Company is presently in effect or outstanding other than powers of attorney given in the ordinary course of business with respect to routine matters.

4.22Tangible Personal Property Other than Inventory.  Except as indicated on Schedule 4.22:

(a)The Company has good and marketable title to each item of tangible personal property included in the most recent Company Financial Statements which it owns free and clear of all Liens, leases, claims under bailment and storage agreements, equities, conditional sales contracts, security interests, charges and restrictions except for liens, if any, for personal property taxes not yet due and payable;

(b)Each item of tangible personal property included in the most recent Company Financial Statements not owned by the Company is currently in such condition that, upon the return of such property to its owner in its present condition at the end of the relevant lease term or as otherwise contemplated by the applicable agreement between Seller and the owner or lessor thereof, the obligations of Seller to such owner or lessor would be discharged without further obligation or the payment of any termination fee, penalty or other fees;

(c)Each material item of tangible personal property included in the most recent Company Financial Statements is, and as of the Closing Date shall be, in good operating condition and repair, ordinary wear and tear excepted;

(d)The Company owns or otherwise has the right to use all of the tangible personal property now used by it in the operation of the business or the use of which is necessary for the performance of any contract to which the Company is a party; and

(e)Each item of tangible personal property owned by the Company and included in the most recent Company Financial Statements has been used by Seller in the ordinary course of the business.

4.23Intangible Personal Property.

(a)Schedule 4.23 include:  (i) a list and description of all intangible personal property included in the most recent Company Financial Statements owned by the Company or used in the business, including but not limited to, computer software and programs, software in progress, computer operating systems and applications, United States and foreign patents, patent applications, trade names, trademarks, trade name and trademark registrations, copyright registrations and applications for any of the foregoing; and (ii) a true and complete list of all licenses or similar agreements or arrangements to which the Company is a party either as licensee or licensor for each such item of intangible personal property (other than “shrink-wrap,” “click-through” or similar licenses to commercially available products that sell for less than $1,000).

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(b)Except as indicated on Schedule 4.23:

(i)the Company owns or has the right to use such intangible personal property, free and clear of all Liens, equities and other adverse claims;

(ii)To the Company’s Knowledge, no interference actions or other judicial or adversary proceedings concerning any of such items of intangible personal property are pending, and to the Company’s Knowledge, no such action or proceeding is threatened;

(iii)To its Knowledge, the Company has the right and authority to use such items of intangible personal property in connection with the conduct of the business in the manner presently conducted, and, to the Company’s Knowledge, such use does not conflict with, infringe upon or violate any rights of any other person, firm or corporation;

(iv)There are no outstanding or, to the Company’s Knowledge, threatened disputes or other disagreements to which the Company is or may become a party with respect to any licenses or similar agreements or arrangements described on Schedule 4.23;

(v)The Company has the right to use and assign and/or transfer to Buyer all of its intangible property, including with limitation, all right and title to the names “Bay View Funding”, “Bay View Business Manager”, and “CSNK Working Capital Finance Corp.”; and

(vi)There is no intangible personal property currently used in the operations of the business as presently conducted which is not owned by or licensed to the Company.

4.24Compliance with Law.  The Company has held and continues to hold all licenses and permits in all applicable jurisdictions necessary in a material respect to conduct its business, and has and continues to conduct and operate its business in compliance with all applicable laws and regulations, including without limitation, the State of California as well as all applicable laws and regulations regarding lending, and there are no material violations thereof except as disclosed on Schedule 4.24.  Company has not received any notices of violation of any applicable zoning regulation or order, or other law, order, regulation, or requirement relating to the operation of its business or to its properties, except as shown on Schedule 4.24.

4.25Other Material Circumstances.  To the Company’s Knowledge, there is no material fact or circumstance related to the Company’s business which constitutes a serious threat to the viability or survival of the Company’s business.  Buyer acknowledges that the Company is unable to guaranty future financial results of the Company.

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4.26Conflicts of Interest.  Except as disclosed in Schedule 4.26, no officer, director or shareholder of the Company, or any affiliate of any such person, now has or within the last three years had, either directly or indirectly:  (a) an equity or debt interest in any corporation, partnership, joint venture, association, organization or other person or entity which furnishes or sells, or during such period furnished or sold, any services or products to the Company, or purchases, or during such period purchased, from the Company any goods or services, or otherwise does, or during such period did, business with the Company; or (b) a beneficial interest in any contract, commitment or agreement to which the Company is or was a party or under which the Company was obligated or bound or to which its properties may be or may have been subject.

4.27Accounts Receivable.  Except as set forth on Schedule 4.27, the accounts receivable arising out of the operations of the Company (and not accounts receivable of other entities purchased by the Company):  (a) arose out of the services rendered by the Company in the ordinary course of the Company’s business; (b) have been billed or invoiced in the ordinary course of the Company’s business and in accordance in all material respects with all applicable laws, regulations, administrative rulings and procedures; (c) represent bona fide indebtedness of the applicable account debtor, not subject to any defense, set-off or counterclaim; and (d) are collectible in full, net of the reserves set forth on the Most Recent Financial Statements.

4.28Statement.  As set forth in Schedule 4.28, the Company has accurately reflected a true and complete list, as of the date of this Agreement and certified by Company’s Chief Executive Officer, showing the names of all persons who are currently paid compensation (in any form) from Company, together with a statement of the full amount paid or payable to each such person for services rendered since December 31, 2006, and the basis therefore.

4.29Condition of Assets.  The assets of the Company are in good operating condition and repair, and conform in all material respects with all applicable ordinances, regulations, zoning, commercial standards and other laws.

4.30Title to Properties; Encumbrances.  Except as set forth on Schedule 4.30, the Company has unencumbered, good, legal, and indefeasible title to all its properties and assets, real and personal, including, without limitation, all the properties and assets reflected in the financial statements and has good and legal title or good and valid leasehold rights to all assets that are necessary for it to conduct its business as it is currently being conducted.  The Company owns all furniture, equipment, art and other property used to transact business presently located on its premises.  No Property has been deed recorded or otherwise been identified in public records or should have been recorded or so identified as containing Hazardous Substances.  Schedule 4.30 sets forth a list of personal property belonging to the Company which is located on the premises of the Company.

4.31Major Customers and Suppliers. Schedule 4.31 sets forth (a) the twenty (20) largest customers of Company based on balances outstanding at April 30, 2007, and (b) the five (5) largest suppliers of Company, taken as a whole, on the basis of cost of goods or services purchased for the most recently completed fiscal year.  Unless otherwise specified in writing by Company to Buyer prior to Closing, no such customer or supplier has ceased or materially reduced its purchases from, or sales or provision of services to, Company since the most recently completed fiscal year nor has Company received any communication or notice from such customer or supplier to materially reduce purchases from, or sales or provision of services to, Company.

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4.32Broker’s Fees.  Company does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

4.33Guaranties.  Company is not a guarantor or otherwise liable for any liability or obligation (including indebtedness) of any other Person.

4.34Officers and Directors. Schedule 4.34 contains a true and complete list of all of the officers, members of the board of directors and committees thereof or similar governing bodies of Company.

4.35Bank Accounts. Schedule 4.35 contains a list of all Company bank accounts and safe deposit boxes and the Persons authorized to draw thereon or have access thereto.

ARTICLE 5                                

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to Company as of the date hereof, and as of the Closing, as follows:

5.1Organization; Power; Good Standing; Regulation.  Buyer is a California corporation duly incorporated, validly existing and in good standing.  Buyer has all requisite corporate power and authority to enter into this Agreement and perform its obligations hereunder.  Buyer as a registered bank holding company is supervised and regulated by the Federal Reserve Board and is limited in its activities and investments under federal banking law and regulations.

5.2Authority Relative to Agreement.  The execution, delivery and performance by Buyer of this Agreement has been duly and effectively authorized by all necessary corporate action by Buyer.  This Agreement has been duly executed by Buyer and is valid, legally binding and enforceable obligation of the Buyer.

5.3Financial Capacity.  Buyer has adequate resources to complete the purchase of the Purchased Shares as contemplated by this Agreement.

ARTICLE 6                                

TRANSACTIONS PRIOR TO THE CLOSING

6.1Access to Information.  Company shall give to Buyer, its employees, counsel, accountants and other consultants and representatives, full access upon reasonable notice during normal business hours throughout the period to the Closing to the assets, books, contracts, commitments and records of Company for such purposes as Buyer deems appropriate and will furnish to Buyer during such period all such information concerning the affairs of Company as Buyer or their representatives may reasonably request.  Buyer shall cause their representatives to hold in strict confidence all information so obtained from Company and, if the transaction herein provided for is not consummated as contemplated herein, Buyer will return all such data as Company may reasonably request.

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6.2Conduct of Company’s Business Pending the Closing.  Prior to the Closing, Company and directors and management of Company shall conduct Company business consistent with its past practices and shall:

(a)Operate Company’s business only in the usual, regular and ordinary manner and, to the extent consistent with such operation, use its commercially reasonable efforts to preserve its present business organization and reputation intact, keep available the services of its present officers and employees and preserve its present relationships and goodwill with persons having business dealings with it;

(b)Maintain all of Company’s properties in customary repair, order and condition, reasonable wear and use excepted, and maintain insurance upon all of its properties and with respect to the conduct of its business in such amounts and of such kinds comparable to that in effect on the date hereof;

(c)Maintain Company’s books, accounts and records in accordance with GAAP, consistently applied and on a basis consistent with prior years;

(d)Materially comply with all laws and contractual obligations applicable to Company and to the conduct of its business and perform all of its obligations without default;

(e)Make no amendment or modification to the Articles of Incorporation or Bylaws;

(f)Not enter into, or agree to enter into, a merger or consolidation with, or sale of a significant amount of its assets to, any Person, nor change the character of its business in any material respect;

(g)Not change the number of shares of Common Stock or Preferred Stock issued and outstanding, nor grant, issue or approve any option, warrant or any other right to purchase or to convert any obligation into shares of Common Stock or Preferred Stock;

(h)Not declare, pay or make any dividend or other distribution or payment in respect of shares of Common Stock or Preferred Stock other than quarterly dividends payable in June, September, December and March, the amount of each such dividend, if any, set forth on Schedule 6.2(h); nor purchase or redeem any such shares or dispose of any indebtedness or other security of Company;

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(i)Not terminate the employment of any employee of Company or take any other material adverse action against any employee of Company without prior notice to Buyer;

(j)Neither (i) pay or provide for any bonus, stock option, stock purchase, profit sharing, deferred compensation, pension, multi-employer pension, retirement or other similar payment or arrangement other than annual performance bonuses paid to qualified employees normally paid in July of each year in such amounts as are consistent with the Company’s historical practice, nor (ii) enter into an employment or consulting agreement or sales agency with respect to the performance of personal services which is not terminable without liability by Company on thirty days notice or less;

(k)Not (i) incur or become subject to, or agree to incur or become subject to, any obligation or liability (contingent or otherwise), except in the ordinary course of business (without limiting the foregoing or otherwise defining ordinary course of business, any contract for the extension of credit or renewal of an extension of credit to the Company in excess of $1,000,000 shall not be considered in the ordinary course of business); (ii) discharge or satisfy any Lien or pay any obligation or liability (contingent or otherwise), except in the ordinary course of business; (iii) mortgage, pledge or subject to Lien on any of its assets or properties; (iv) sell, assign, transfer, convey, lease or otherwise dispose of, or agree to sell, assign, transfer, convey, lease or otherwise dispose of, any of its assets or properties, except for fair consideration in the ordinary course of business; (v) acquire or lease (other than a renewal of an existing lease in the ordinary course of business), or agree to acquire or lease (other than a renewal of any existing lease in the ordinary course of business) any material assets or property; (vi) waive or release any rights except in the ordinary course of business; (viii) transfer or grant any rights under any concessions, leases, licenses, agreements, patents, inventions, trade names, trademarks, copyrights, or with respect to any know-how or intellectual property rights except in the ordinary course of business; (ix) modify, change or terminate any existing license, lease, contract or other document except in the ordinary course of business; (x) except in the ordinary course of business, make any capital expenditures or enter into any commitments therefor; (xi) enter into any collective bargaining agreement or, through negotiation or otherwise, make any commitment or incur any liability to any labor organization; or (xii) enter into any transaction and make or enter into no contract or commitment which by reason of its size or otherwise is not in the ordinary course of business or is reasonably likely to have a Material Adverse Effect on the Company;

(l)Make no change in the banking and safe deposit arrangements without prior written notice to Buyer, giving the details of such change, nor grant any powers of attorney;

(m)Make no renovation of property involving any obligation on the part of Company in excess of $5,000 in the aggregate without the written consent of Buyer;

(n)Make no change in its accounting procedures except as required by law or GAAP;

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(o)Use its commercially reasonable efforts not to permit any event to occur which would result in any of Company’s representations and warranties contained in this Agreement not being true and correct; and

(p)Take no actions, directly or indirectly, to authorize or knowingly permit any of its representatives, directly or indirectly, to solicit or encourage any Acquisition Proposal (as hereinafter defined) or participate in any discussions or negotiations with, or provide any nonpublic information to, any Person or group of persons (other than Buyer, and its representatives) concerning any such solicited Acquisition Proposal.  Company shall notify Buyer immediately in writing if any inquiry regarding an Acquisition Proposal is received by Company, or any affiliate of the Company, including the terms thereof.  For purposes of this Section 6.2, “Acquisition Proposal” shall mean any (a) proposal pursuant to which any Person other than Buyer would acquire or participate in a merger or other business combination or reorganization involving Company; (b) proposal by which any Person or group, other than Buyer, would acquire the right to vote any shares of capital stock of Company; (c) acquisition of all or a substantial portion of the assets of Company; or (d) acquisition of any of the outstanding capital stock of Company, other than as contemplated by this Agreement.

For this Section 6.2, Buyer shall have consented to the action by Company if Buyer has been given written notice by the Company receipt of which has been acknowledged in writing by Buyer and Buyer has not provided written objection within ten (10) Business Days of such written notice by Company.

6.3Consents.  The Company shall use its commercially reasonable efforts to obtain prior to the Closing Date all such consents, assignments, and approvals as may be required in order to enable it to perform its respective obligations hereunder, including, but not limited to, all consents and approvals required so that Company may continue to enjoy after the Closing Date all rights and benefits presently enjoyed by it.

6.4Applications.  Buyer and Company shall cooperate and jointly prepare and file as promptly as practicable the applications, correspondence or forms to be filed with appropriate Regulatory Authorities, and the statements, correspondence or applications to be filed to obtain the Requisite Regulatory Approvals to consummate the transactions contemplated by this Agreement.

ARTICLE 7                                

CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

The obligations of Buyer under this Agreement are subject to the satisfaction at or prior to the Closing of each of the following conditions:

7.1Accuracy of Representations and Warranties.  The representations and warranties of Company herein contained shall be true and correct in all material respects (provided that representations and warranties already so qualified shall not be ready to be doubly so qualified) on and as of the Closing with the same force and effect as though made on and as of such date, except as affected by transactions contemplated hereby and as to representations and warranties made as of a specified date.

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7.2Performance of Agreements.  The Company shall have performed all obligations and agreements and complied with all covenants and conditions contained in this Agreement to be performed or complied with by it/them at or prior to the Closing in all material respects.

7.3Resolutions of Board of Directors.  Buyer shall have received from Company certified copies of resolutions of the Board of Directors of Company approving this Agreement and authorizing the consummation of the transactions contemplated hereby.

7.4Company’s Certificate.  Company shall have furnished Buyer with a certificate dated as of the Closing Date and signed by its chief executive officer and chief financial officer as follows:

(a)Company has fulfilled the conditions specified in Sections 7.1 and 7.2 hereof.

(b)Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and Company and Shareholders have all requisite corporate power to enter into this Agreement and to perform their obligations hereunder.

(c)The Articles of Incorporation and Bylaws are true, correct and complete copies of Company’s articles of incorporation and bylaws and no action has been taken to further amend, modify or repeal such Articles of Incorporation or Bylaws, the same being in full force and effect as of the Closing.

7.5Actions; Proceedings.  There shall not be any actual or, in the good faith opinion of Buyer, threatened action or proceeding by or before any Governmental Entity, arbitrator, mediator or other body or agency which shall seek to impede, restrain, prohibit or invalidate the transactions contemplated by this Agreement or which might affect the right of Buyer to own the Purchased Shares after the Closing Date.

7.6Consents.  All required consents shall have been received by Company including, but not limited to, all consents and approvals required to permit Company to enjoy after the Closing Date all rights and benefits presently enjoyed by Company, including without limitation, such consents and approvals as are required to avoid a default or event that, with the passage of time or giving of notice, will be a default under any agreement between Company and its customers or any other Contract.

7.7Financial Statements.  On the Closing, Company shall deliver to Buyer the Company Financial Statements.

7.8Regulatory Approvals.  All permits, approvals and consents required to be obtained for Buyer to consummate the transactions contemplated by this Agreement, and all waiting periods required to expire under applicable federal laws of the United States or applicable laws of any state having jurisdiction over the transactions contemplated by this Agreement, shall have been obtained or expired, as the case may be (all such permits, approvals and consents and the lapse of all such waiting periods being referred to as the “Requisite Regulatory Approvals”), without the imposition of any condition which in the reasonable judgment of Buyer is materially burdensome upon Buyer.  The Company shall have the approval of the California Department of Corporations to continue its commercial finance lenders license with the change in ownership after the Closing Date.

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7.9Employment Agreements.  At or prior to the Closing, Vince Narez and Glen Shu shall each enter into an Employment Agreement with Bay View substantially in the forms attached as Exhibit 7.9.1 and Exhibit 7.9.2, respectively.

7.10Director Resignations.  At or prior to the Closing, the directors of Bay View and CSNK (except for Vince Narez with respect to the Bay View board of directors) shall each provide his/her written resignation which shall be accepted by the Company effective as of immediately prior to the Closing, and Buyer shall appoint new directors of Bay View by appropriate resolution effective as of immediately after the Closing.  The directors of CSNK shall be determined and appointed immediately after Closing in accordance with the articles of incorporation and bylaws of CSNK.

7.11Stock Certificates.  Each of the Shareholders shall have delivered his/her/its certificate(s) evidencing ownership of such Shareholder’s respective holdings of the Purchased Shares which, in the aggregate constitutes, all the issued and outstanding capital stock of the Company.

7.12Letter of Transmittal.  Each of the Shareholders shall have executed the Letter of Transmittal (“Letter of Transmittal”) in substantially the form attached as Exhibit 7.12.

7.13Due Diligence; No Material Adverse Changes.  Buyer shall have satisfactorily completed its due diligence investigation and between April 30, 2007 and the Closing Date, there shall not have occurred any damage or destruction of, or loss to, any of the assets of Company, whether or not covered by insurance, which has had or may reasonably be expected to have a Material Adverse Effect on the Company, nor shall there have occurred any other event or condition which has had or which reasonably may be expected to have a Material Adverse Effect on the Company, including without limitation, any material adverse change in proposed legislation, regulations or practices in any state in which Company transacts business, which would have a Material Adverse Effect on the Company.

ARTICLE 8                                

CONDITIONS PRECEDENT FOR ALL PARTIES

8.1Regulatory Approvals.  All Requisite Regulatory Approvals shall have been obtained or expired, as the case may be, without the imposition of any condition which in the reasonable judgment of Buyer is materially burdensome upon Buyer.

8.2No Action or Proceeding.  No claim, action, suit, investigation or other proceeding brought by any Governmental Entity or other third party shall be pending or threatened before any Governmental Entity which presents a substantial risk of the restraining or prohibition of the transactions contemplated by this Agreement or the obtaining of material damages from any of the parties hereto or other relief in connection therewith.

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ARTICLE 9                                

TERMINATION, AMENDMENTS AND WAIVERS

9.1Termination.  This Agreement may be terminated at any time prior to the Closing:

(a)By mutual consent of the parties hereto;

(b)By Buyer, if an Acquisition Event involving Company shall have occurred;

(c)By Company if there shall have been a material breach of any of the representations or warranties of Buyer set forth in this Agreement, which breach, in the reasonable opinion of Company, by its nature cannot be cured or is not cured prior to the Closing and which breach would, in the reasonable opinion of the Company have or be reasonably likely to have, a Material Adverse Effect on Buyer or Company or upon the consummation of the transactions contemplated hereby;

(d)By Buyer if there shall have been a material breach of any of the representations or warranties of Company set forth in this Agreement or a material breach of any of the representations or warranties of any Shareholder set forth in such Shareholder’s Letter of Transmittal, not otherwise waived by Buyer, which breach, in the reasonable opinion of Buyer, by its nature cannot be cured or is not cured prior to the Closing and which breach would, in the reasonable opinion of Buyer have, or be reasonably likely to have, a Material Adverse Effect on Buyer or Company or upon the consummation of the transactions contemplated hereby;

(e)By Company after the occurrence of a Default by Buyer and the continuance of such Default for a period of 10 Business Days after written notice of such Default, if such Default, in the reasonable opinion of Company, cannot be cured prior to the Closing or, even though curable by the Closing, it is not cured prior to the Closing;

(f)By Buyer after the occurrence of a Default by Company and the continuance of such Default for a period of ten (10) Business Days after written notice of such Default, if such Default, in the reasonable opinion of Buyer, cannot be cured prior to the Closing or, even though curable by the Closing, it is not cured prior to the Closing;

(g)By Company upon the failure of any of the conditions specified in Article 8 to have been satisfied prior to Closing;

(h)By Buyer upon the failure of any of the conditions specified in Article 7 or 8 to have been satisfied prior to Closing; or

(i)By either Company or Buyer if the Closing shall not have occurred on or before October 31, 2007 for any reason.

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9.2Effect of Termination; Survival.  Except as provided in Section 9.3, no termination of this Agreement as provided in Section 9.1 for any reason or in any manner shall release, or be construed as so releasing, any party hereto from its obligations pursuant to Sections 9.3 or 9.4 hereof or from any liability or damage to any other party hereto arising out of, in connection with, or otherwise relating to, directly or indirectly, said party’s material breach, Default or failure in performance of any of its covenants, agreements, duties or obligations arising hereunder, or any breaches of any representation or warranty contained herein arising prior to the date of termination of this Agreement.

9.3Liquidated Damages; Cancellation Fee.

(a)In the event of (i) the occurrence of an Acquisition Event involving Company other than as contemplated by this Agreement or (ii) termination of this Agreement by Buyer pursuant to (A) Section 9.1(d) (breach of representations or warranties of Company) where such breach of representation or warranty, shall have been caused in whole or in material part by any action or inaction within the control of Company or Shareholders or (B) Section 9.1(f) (Default), where such Default shall have been caused in whole or in material part by any action or inaction within the control of Company or Shareholders, then Company shall pay to Buyer the sum of $250,000 in cash.

(b)In the event of termination of this Agreement by Company pursuant to  (i) Section 9.1(c) (breach of representations or warranties of Buyer) where such breach of representation or warranty, shall have been caused in whole or in material part by any action or inaction within the control of Buyer, (ii) Section 9.1(e) (Default), where such Default shall have been caused in whole or in material part by any action or inaction within the control of Buyer, or (iii) the Closing has not occurred on or before October 31, 2007 through no fault of Company or any Shareholder, then Buyer shall pay to Company the sum of $250,000, in cash.

(c)The parties have determined that the occurrence of any of the events or circumstances set forth in Article 9 would cause a substantial damage and loss and lost business opportunities to the party terminating this Agreement as a result thereof and that the payments contemplated by this Section 9.3 above provide reasonable and fair compensation for such damage, loss and lost business opportunities and are not intended to be and do not constitute a penalty or forfeiture.  Such payments will be made within 10 Business Days following a termination of the Agreement that gives rise to the payment of such liquidated damages pursuant to this Sections 9.3, as applicable.  Upon the making and receipt of payments due under this Section 9.3 neither party, nor any Affiliates of any party, shall have any further obligation or liability of any kind under this Agreement to the other party, except pursuant to Section 11.4.

(d)In the event of the termination of this Agreement by Company or Buyer and for any reason other than as specified in Section 9.3 (a), (b) and (c) above, none of the parties hereto, including any Shareholder, nor any Affiliates of any such parties, inclusive of officers and directors, shall have any further obligation or liability of any kind to the other party, except pursuant to Section 11.4.

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ARTICLE 10                                

NATURE AND SURVIVAL OF

REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION

10.1Indemnification by Company. Company agrees to defend, indemnify and hold Buyer, its respective officers, directors, agents, representatives, subsidiary and Company entities and affiliates and its successors and assigns, harmless from and against any claim, demand, action, lawsuit, proceedings, liability, expense, judgment, loss or other damage (including, without limitation, reasonable attorneys’ fees and expenses) (collectively, “Claims”) in respect of: any and all Claims resulting from any misrepresentation, inaccuracy or breach of warranty or violation of any covenant made by Shareholders or Company hereunder, or in any Schedule, Exhibit or certificate furnished or to be furnished by Shareholders or Company hereunder.

10.2Indemnification by Buyer.  Buyer agrees to protect, defend, indemnify and hold harmless Company and Shareholders from and against any and all Claims arising out of or that may result from any misrepresentation, inaccuracy or breach of warranty of any of the representations and warranties set forth in Article 6 or any failure by Buyer to comply with any of its covenants and agreements set forth herein or in any other document executed in connection with the transactions contemplated hereby.

10.3Limitations on Indemnification.  Except as otherwise described below in this Section 10.3, Company, Shareholders and Buyer will have no indemnification obligations or liabilities under this Agreement arising from any Claim described in a notice delivered in accordance with Section 10.4 below after the second anniversary of the Closing Date.  The limitations on liability and indemnification in the foregoing sentence will not apply to any Claim based on fraud of Shareholders or Company.

10.4Notification.  Buyer, Shareholders or Company, as the case may be, will promptly notify the other of the existence or occurrence of any facts or events which give rise to the assertion of any Claim under the provisions of this Article 10.  If such Claims are due to the claims of third parties, the indemnifying parties promptly and diligently shall take such actions as may be reasonably required to defend or settle such claims and shall keep the indemnified parties advised of the current status thereof.  The indemnified parties, at the indemnifying parties’ expense, reasonably shall cooperate with the indemnifying parties’ defense and the indemnifying parties reasonably shall consider the indemnified parties’ advice.

10.5Set-Off.  Subject to and in accordance with the provisions of this Section 10.5, Buyer is hereby authorized at any time after giving notice to Shareholders, and from time to time, to set-off and apply (i) the Holdback Amount, or any portions thereof, and (ii) any and all other amounts owing by Buyer or its Affiliates to Shareholders or their respective Affiliates under this Agreement or any Agreements entered into in connection with this Agreement, against any amounts to which Company is obligated to indemnify Buyer pursuant to any provision of this Article 10 (individually, a “Loss” and collectively, “Losses”).  The rights of Buyer under this Section 10.5 are the Buyer’s sole and exclusive remedy for breaches of representations, warranties and covenants under this Agreement other than any Claim based on fraud or active concealment of Shareholders or Company.

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(a)In the event that Buyer delivers in accordance with Section 11.5 a Claim Notice to the Shareholder Representative, upon receipt by the Shareholder Representative of such Claim Notice from Buyer, the Shareholder Representative shall have a 30-day period to object to the claim(s) made by Buyer in the Claim Notice in a written statement to Buyer (the “Objection Notice”).  For purposes hereof, the term “Claim Notice” shall mean a certificate signed by Buyer or any officer of Buyer (A) stating that Buyer has paid, sustained, incurred or accrued a Loss or Losses, and (B) specifying in reasonable detail the individual items of the Loss or Losses included in the amount so stated, the date each such item was paid, sustained, incurred or accrued, and the nature of the misrepresentation, breach of warranty or covenant to which such item is related.  In case the Shareholder Representative delivers an Objection Notice, Buyer and Shareholder Representative shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claim(s).  If the Shareholder Representative and Buyer should so agree, a memorandum setting forth such agreement shall be prepared and signed by Shareholder Representative and Buyer.  If no such agreement can be reached after good faith negotiation and prior to 30 days after delivery of an Objection Notice, either Buyer or the Shareholder Representative may demand arbitration of the matter unless the amount of the Loss that is at issue is the subject of a pending litigation, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration, and in either such event the matter shall be settled by arbitration conducted by one arbitrator mutually agreeable to Buyer and the Shareholder Representative.  In the event that, within 30 days after submission of any dispute to arbitration, Buyer and the Shareholder Representative cannot mutually agree on one arbitrator, then, within 15 days after the end of such 30-day period, Buyer and the Shareholder Representative shall each select one arbitrator.  The two arbitrators so selected shall select a third arbitrator.

(b)Any arbitration in accordance with this Section 10.5 shall be held in Sacramento, California under the rules then in effect of the American Arbitration Association.  The arbitrator(s) shall determine how all expenses relating to the arbitration shall be paid, including without limitation, the respective expenses of each party, the fees of each arbitrator and the administrative fee of the American Arbitration Association.  The arbitrator or arbitrators, as the case may be, shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrator or majority of the three arbitrators, as the case may be, to discover relevant information from the opposing parties about the subject matter of the dispute.  The arbitrator, or a majority of the three arbitrators, as the case may be, shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys’ fees and costs, to the same extent as a competent court of law or equity, should the arbitrators or a majority of the three arbitrators, as the case may be, determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of the arbitrator or a majority of the three arbitrators, as the case may be, as to the validity and amount of any claim in such Claim Notice shall be final, binding, and conclusive upon the parties to this Agreement, the Shareholders and Buyer.  Such decision shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrator(s).  Judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction.

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10.6Shareholder Representative.

(a)By virtue of delivery of a Letter of Transmittal, each Shareholder shall be deemed to have agreed to appoint Vince Narez as its agent and attorney-in-fact, as the Shareholder Representative for and on behalf of the Shareholders to act as the Shareholders’ representative and agent for all purposes under this Agreement including without limitation to give and receive notices and communications, to authorize payment to Buyer in satisfaction of claims by Buyer, to object to such payments, to agree to negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, to assert, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to, any other claim by Buyer and to take all other actions that are either (i) necessary or appropriate in the judgment of the Shareholder Representative for the accomplishment of the foregoing or (ii) specifically mandated by the terms of this Agreement.  Such agency may be changed by the Shareholders from time to time upon not less than 30 days prior written notice to Buyer; provided, however, that the Shareholder Representative may not be removed unless holders of two-thirds of the Purchased Shares agree to such removal and to the identity of the substituted agent.  A vacancy in the position of Shareholder Representative may be filled by the holders of a majority of the Preferred Shares.  No bond shall be required of the Shareholder Representative, and the Shareholder Representative shall not receive any compensation for his or its services.  Notices or communications to or from the Shareholder Representative shall constitute notice to or from the Shareholders.

(b)The Shareholder Representative shall not be liable for any act done or omitted hereunder as Shareholder Representative while acting in good faith and in the exercise of reasonable judgment. The Shareholders shall indemnify the Shareholder Representative and hold the Shareholder Representative harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Shareholder Representative and arising out of or in connection with the acceptance or administration of the Shareholder Representative’s duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Shareholder Representative.  A decision, act, consent or instruction of the Shareholder Representative shall constitute a decision of the Shareholders and shall be final, binding and conclusive upon the Shareholders; and Buyer may rely upon any such decision, act, consent or instruction of the Shareholder Representative as being the decision, act, consent or instruction of the Shareholders.  Buyer is hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Shareholder Representative.

10.7Basket.  Notwithstanding anything to the contrary contained in this Article 10, no Claim for indemnification shall be made unless the aggregate amount of all Claims made is in excess of $100,000 (the “Basket”); provided, however, that this limitation shall not apply to any Claim resulting from a breach of the representations or warranties contained in Sections 4.3(a), 4.3(b), 4.3(c), 4.9 or 4.27.  If the aggregate amount of Claims should ever exceed the Basket, then such Claims for indemnification shall be satisfied to the full amount, including the amount of the Basket.

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ARTICLE 11                                

MISCELLANEOUS

11.1Waivers and Amendments.  This Agreement may be amended, modified or supplemented only by a written instrument executed by all the parties hereto.  Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein.  The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.

11.2Expenses.  Whether or not the transactions contemplated by this Agreement are consummated, each party shall pay the fees and expenses of his counsel, accountants, other experts and all other expenses incurred by it incident to the negotiation, preparation and execution of this Agreement and the performance by the parties of their obligations hereunder.

11.3Occurrences of Conditions Precedent.  Each of the parties hereto agrees to use its commercially efforts to cause all conditions precedent to its obligations under this Agreement to be satisfied.

11.4Press Releases; Confidentiality.  No press releases or public announcement regarding the transactions contemplated by this Agreement shall be issued by either party without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed, except in the event that the parties are unable to agree on a press release or public announcement and legal counsel for one party provides a written statement to both parties that such press release is required by law (including, but not limited to, a press release, a Form 8-K or other filing pursuant to the requirements of the Securities Exchange Act of 1934, as amended), then such party may issue the legally required press release or filing.  In addition, except as disclosure may otherwise be required by law or deemed necessary or advisable by counsel of both parties, the parties shall use reasonable efforts to maintain the confidentiality of the terms of this Agreement.

11.5Notices.  Any notices or other communications required or permitted under this Agreement shall be sufficiently given if in writing and (i) hand-delivered, including delivery by courier service, (ii) sent by certified mail, return receipt requested, postage pre-paid addressed to the recipient at the address stated below, or to such other address as the party concerned may substitute by written notice to the other parties.

If to Company: Bay View Funding

2121 South El Camino Real

San Mateo, California 94403, Suite B100

Attention: President/CEO

Fax: (650) 294-7250

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With a copy to: Ray Quinney & Nebeker

36 South State Street

Salt Lake City, Utah  84111

Fax: (801) 532-7543

Attn: Mark Bonham

If to Buyer: Capital Corp of the West

550 West Main Street

Merced, California 95340

Attention: Thomas T. Hawker, President/CEO

Fax: (209) 725-4550

With a copy to: Capital Corp of the West

550 West Main Street

Merced, California 95340

Attention: Richard de la Pena, Executive VP and General Counsel

Fax: (209) 725-4550

And a copy to: Gary Steven Findley and Associates

1470 N. Hundley

Anaheim, California 92806

Attention: Gary Steven Findley

Fax: (714) 630-7910

All notices hand-delivered shall be deemed received on the day of the delivery.  All notices forwarded by mail shall be deemed received on the date three (3) days (excluding Sundays and any legal holidays when the U.S. mail is not delivered) immediately following date of deposit in the U.S. mail; provided, however, the return receipt indicating the date upon which the notice is received shall be prima facie evidence that such notice was received on the date of the return receipt.  Addresses may be changed by giving notice of such change in the manner provided herein.  Unless and until such written notice is received, the last address given shall be deemed to continue in effect for all purposes.

11.6Binding Effect; Benefits.  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their heirs, personal representatives, successors and assigns; nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto, or their heirs, personal representatives, successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

11.7Non-assignability.  This Agreement and any rights pursuant hereto shall not be assignable by either party without the prior written consent of the other; provided, however, that Buyer may assign this Agreement to an Affiliate of Buyer without the consent of Company or any Shareholder.

11.8Applicable Law.  This Agreement shall in all respects be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California, without regard to conflict of laws rules.  The agreed upon venue and jurisdiction for any action or proceeding based on or arising out of this Agreement shall be the state and federal courts located in Sacramento, California.

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11.9Attorney’s Fees.  Each party agrees to reimburse the other party/parties for reasonable costs, fees and expenses (including, without limitation, reasonable attorneys’ and experts’ costs, fees and expenses) incurred by the nonbreaching party/parties in connection with a successful legal action to enforce the terms of this Agreement.

11.10Section and Other Headings.  The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretations of this Agreement.

11.11Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

11.12Effect of Investigation.  Except as specifically set forth herein, no investigation by the parties hereto in connection with this Agreement or otherwise shall affect the representations and warranties of the parties contained herein or in any certificate or other document delivered in connection herewith and each such representation and warranty shall survive such investigation.

ARTICLE 12                                

POST PURCHASE COMPANY AND BUYER COVENANTS

12.1Special Bonus Pool.  The Company shall establish a special bonus plan with an aggregate bonus pool amount of $300,000 (the “Special Bonus Pool Amount”) which is to be used to supplement the Company’s current bonus pool to retain key employees of the Company after the Closing Date.  The costs of the special bonus plan (including, without limitation, amounts paid into the special bonus plan and all applicable federal and state payroll and similar taxes) shall be borne equally (50% each) by the Company and the Shareholders, with the Shareholders’ portion of such costs to be deducted by Buyer from any Purchase Price earn outs owing to Shareholders.  On the date that is two (2) years subsequent to the Closing, if the Company has achieved the Extended Earn Out (as defined in Exhibit 2.2), then the Special Bonus Pool Amount shall be paid.  Additional terms of the special bonus plan are set forth in Exhibit 12.1.  Any funds not expended pursuant to the special bonus plan shall revert to the Company.  The key employees and allocation of the special bonus pool shall be determined by the Company’s board of directors as it will exist after the Closing.

12.2Employee Benefits.  Following the Closing Date, Buyer shall arrange for each Company employee who becomes a Buyer employee (or an employee of any Buyer subsidiary or affiliate) after the Closing Date (the “Transferred Employees”) to be eligible for at least substantially the same benefits in the aggregate as those provided to similarly situated employees of Buyer.  Each Transferred Employee (including without limitation all eligible dependents) shall, to the extent permitted by law and applicable tax qualification requirements, and subject to any applicable break in service or similar rule, receive credit including for eligibility to participate and vesting under Buyer employee benefit plans for years of service with the Company (and its subsidiaries, affiliates, and predecessors) prior to the Closing Date (except where doing so would cause a duplication of benefits).  If applicable, Buyer shall cause any and all pre-existing condition (or actively at work or similar) limitations, eligibility waiting periods and evidence of insurability requirements under any group health plans to be waived with respect to such Transferred Employees and their eligible dependents in accordance with applicable laws and shall provide them with credit for any co-payments, deductibles, and offsets (or similar payments) made during the plan year including the Closing Date for the purposes of satisfying any applicable deductible, out-of-pocket, or similar requirements under any Buyer employee benefit plans or programs in which they are eligible to participate after the Closing Date.

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The undersigned, intending to be legally bound hereby, have duly executed and delivered this Agreement as of the date first above written.

CAPITAL CORP OF THE WEST

By:

Thomas T. Hawker, President and ChiefExecutive Officer

BAY VIEW FUNDING

By:

Its:

SHAREHOLDER REPRESENTATIVE:By:

Vince Narez

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EXHIBIT 2.2

1.  There will be a cash payment at Closing in an amount equal to 85% of 3.25 times the trailing twelve months earnings of Company before interest, taxes, depreciation and amortization (the “EBITDA”) as calculated as of April 30, 2007 at $4,225,044.54.  Such EBITDA could be subjected to certain adjustments for non-recurring items, extraordinary revenue and expenses, and known material changes each as identified during the due diligence process and mutually agreed to by the parties in writing prior to the Closing.  The parties expressly agree that no allocation of expenses or overhead from Buyer will be included unless mutually agreed in writing by both parties prior to the Closing.  For purposes of the computations detailed in sections 3 and 4 below, the Earn Out calculations begin the day following the Closing Date.  Set forth in Attachment 2.2 are examples of the calculation of EBITDA for illustrative purposes.

2.  The remaining 15% of 3.25 times the EBITDA (the “Installment”) will be paid out over a two-year period in equal installments, paid out each anniversary of the Closing, together with interest at 7% per annum, as follows:

(a)  on the first anniversary of the Closing Date, an Installment payment equal to 5% of 3.25 times the EBITDA amount outlined in part 1 above together with interest at 7% per annum from the Closing date; and

(b) on the second anniversary of the Closing Date, an Installment payment equal to 10% of 3.25 times the EBITDA amount outlined in part 1 above. Together with interest at 7% per annum from the Closing date.

3.  An additional .375 times the EBITDA (the “Earn Out”) will be paid out over a two-year period in equal installments, paid out on each anniversary of the Closing Date, as detailed below:

(a)  1/2 of the Earn Out payment (“Revenue Earn Out”) will be contingent on Company achieving revenue growth equal to an established Revenue Growth Threshold (“Revenue Growth Threshold”).  Revenue Growth Threshold will be established as 7.5% of total net revenue growth (represents Interest Income and Non-Interest Income) over the previous twelve-month period as calculated as of April 30, 2007 at $9,482,069.  If Company achieves total net revenue growth over the previous twelve month period of 5%, it will be eligible to receive 1/2 of this Revenue Earn Out; and

(b)  1/2 of the Earn Out payment (“EBITDA Earn Out”) will be contingent on Company achieving EBITDA growth equal to an established EBITDA Growth Threshold (“EBITDA Growth Threshold”).  EBITDA Growth Threshold will be established as 7.5% of total EBITDA growth over the previous twelve-month period as calculated as of April 30, 2007 at $4,225,044.54.  If Company achieves total EBITDA growth over the previous twelve month period of 5%, it will be eligible to receive 1/2 of the EBITDA Earn Out.

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4.  An additional .375 times the EBITDA (the “Extended Earn Out”) will be paid out over a two-year period if both of the following have been achieved:

(a)  1/2 of the Extended Earn Out payment (“Extended Revenue Earn Out”) will be contingent on Company achieving revenue growth equal to an established Revenue Growth Threshold (“Extended Revenue Growth Threshold”).  Extended Revenue Growth Threshold will be established as 15% of total net revenue growth (represents Interest Income and Non-Interest Income) over the previous twenty-four month period.  If Company achieves total net revenue growth over the previous twenty-four month period of 7.5% and 7.5% EBITDA growth as detailed below, it will be eligible to receive 1/2 of this Extended Revenue Earn Out; and

(b)  1/2 of the Extended Earn Out payment (“Extended EBITDA Earn Out”) will be contingent on Company achieving EBITDA growth equal to an established EBITDA Growth Threshold (“Extended EBITDA Growth Threshold”).  Extended EBITDA Growth Threshold will be established as 15% of total EBITDA growth over the previous twenty-four month period.  If Company achieves total EBITDA growth over the previous twenty-four month period of 7.5% and 7.5% revenue growth as detailed above, it will be eligible to receive 1/2 of the Extended EBITDA Earn Out.

5.  EBITDA.  EBITDA shall mean net income before interest, taxes, depreciation and amortization adjusted as follows:

·   In the calculation of Base Price, the parties expressly agree that no allocation of expenses or overhead from Buyer will be included unless mutually agreed in writing by both parties.

·   Actual losses, not a loan loss provision, shall be used for adjustment of the annual prospective EBITDA measurement for calculating the earn out.  A special provision shall be included for purposes of any final earn-out payment to allow a 90 day period following the expiration of the second year to make sure there are no charge offs that are taken immediately after the expiration (during the 90 day period) that are over and above the reserves that Company holds back for their customers.  The existing loan loss reserve must be adequate to address any current losses not yet recognized as of the transaction date.

·   Revenue and costs associated with any acquisition shall be excluded from the EBITDA computation.

·   Compliance costs associated with BSA, SOX, etc. shall be includable in the EBITDA computation  but not exceed $20,000 per annum.

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·   Costs associated with any name change of the Company including marketing, UCC amendments, factoring agreement amendments shall be excluded from the EBITDA computation.

·   The EBITDA computation shall include all costs associated with the compensation, bonuses  and benefits provided to employees.

·   Costs associated with termination of the Wells Fargo Foothill funding arrangement shall be excluded from the EBITDA computation.

·   The parties agree to continue to charge and collect at the existing rate for Wire and ACH transfer fees.

The parties agree that any Special Employee Bonus Pool payments will be excluded from any of the EBITDA computations hereunder.

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Thomas T. Hawker, certify that:

1.   I have reviewed this report on Form 10-Q of Capital Corp of the West (“Registrant”) for the third quarter of 2007;

2.   Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,  to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the third quarter of 2007 that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 9, 2007	By:       /s/ Thomas T. Hawker
	Thomas T. Hawker
	President and
	Chief Executive Officer

EX-31.2

                                            Exhibit  31.2

CERTIFICATIONS

I, David A. Heaberlin, certify that:

1.   I have reviewed this report on Form 10-Q of Capital Corp of the West (“Registrant”) for the third quarter of 2007;

2.   Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,  to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the third quarter of 2007 that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2007	By:       /s/ David A. Heaberlin
	David A. Heaberlin
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Capital Corp of the West (the "Company") on Form 10-Q for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas T. Hawker, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  November 9, 2007	By:       /s/ Thomas T. Hawker
	Thomas T. Hawker
	President and
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Capital Corp of the West (the "Company") on Form 10-Q for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David A. Heaberlin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2007	By:       /s/ David A. Heaberlin
	David A. Heaberlin
	Chief Financial Officer