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UNITED
STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20006



FORM 10-KSB/A



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

For the fiscal year ended December 31, 2002

Commission file number: 000-29105



1STCENTENNIAL BANCORP

(Name of Small Business Issuer as specified in its charter)



|California (State of Incorporation)                                                 |  | 91-1995265 (I.R.S. Employer Identification Number)
|----------------------------------------------------------------------------------- |  | --------------------------------------------------
|                                                                                   
|218 East State Street Redlands, California (Address of Principal
Executive Offices) |  | 92373 (Zip Code)                                  



Issuers telephone number, including area code:(909) 798-3611



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



Securities registered pursuant to Section 12(g) of the
Act:Common Stock, No Par Value



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



Yes X                 No



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



The registrants revenues for its most recent fiscal year
were $16,918,000.



As of March 10, 2003, the
aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $21.1 million (as quoted by Yahoo! at $22.50 per share).



The number of shares of Common Stock of the registrant outstanding as of March 10, 2003 was 1,262,505.





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PURPOSE FOR
AMENDMENT



The registrant hereby amends Part
II, Item 7 of its Annual Report for the fiscal year ended December 31, 2002 for the purpose of correcting a typographical error in the Independent Auditors Report on the consolidated financial statements for the year ended December 31, 2002.
The name of the accounting firm who opined on the financial statements contained herein, and the city and state where issued were inadvertently omitted. No other revisions have been made.



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TABLE OF CONTENTS



|         |  |                                  |  | PAGE
|-------- |  | -------------------------------- |  | ----
|        
|PART II  |  |                                  |  |     
|        
|ITEM 7   |  | Financial Statements             |  | 4   
|        
|PART III |  |                                  |  |     
|        
|ITEM 13  |  | Exhibits and Reports on Form 8-K |  | 43  
|        
|         |  | Signatures                       |  | 46  
|        
|         |  | Certification of CEO and CFO     |  | 47  





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PART II



ITEM 7.    FINANCIAL STATEMENTS



The following financial statements and report of independent auditors are included in herein:



|                                                                                                                |  | Page
|--------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                               
|Independent Auditors Report                                                                                    |  | 5   
|                                                                                                               
|Consolidated Statements of Condition, December 31, 2002 and 2001                                                |  | 6   
|                                                                                                               
|Consolidated Statements of Earnings for the Years Ended December 31, 2002, 2001 and
2000                        |  | 7   
|                                                                                                               
|Consolidated Statements of Changes in Shareholders Equity for the Years Ended
December 31, 2002, 2001 and 2000 |  | 8   
|                                                                                                               
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and
2000                      |  | 9   
|                                                                                                               
|Notes to Consolidated Financial Statements                                                                      |  | 11  



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INDEPENDENT
AUDITORS REPORT



To the Board of
Directors and Stockholders of

Centennial First Financial Services



We have audited the accompanying consolidated statements of
condition of Centennial First Financial Services and subsidiaries, as of December 31, 2002 and 2001, and the related consolidated statements of earnings, stockholders equity, and cash flows for each of the years in the three-year period ended
December 31, 2002. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



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



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Centennial First Financial Services and subsidiaries as of
December 31, 2002 and 2001, and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.







HUTCHINSON AND BLOODGOOD LLP

Glendale, California



January 27,
2003





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CONDITION

December 31, 2002 and 2001



|                                                                                                                                                            |  | 2002 |             | 2001
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ----
|ASSETS                                                                                                                                                      |  |      |             |     
|Cash and due from banks                                                                                                                                     |  | $    | 12,010,000  |     
|Federal funds sold                                                                                                                                          |  |      | 2,010,000   |     
|                                                                                                                                                            |  |      |             |     
|Total cash and cash equivalents                                                                                                                             |  |      | 14,020,000  |     
|Interest-bearing deposits in financial institutions                                                                                                         |  |      | 5,151,000   |     
|Investment securities, available for sale                                                                                                                   |  |      | 32,822,000  |     
|Federal Home Loan Bank stock                                                                                                                                |  |      | 329,000     |     
|Loans, net                                                                                                                                                  |  |      | 141,112,000 |     
|Accrued interest receivable                                                                                                                                 |  |      | 673,000     |     
|Premises and equipment, net                                                                                                                                 |  |      | 2,626,000   |     
|Goodwill                                                                                                                                                    |  |      | 4,180,000   |     
|Cash surrender value of life insurance                                                                                                                      |  |      | 5,926,000   |     
|Other assets                                                                                                                                                |  |      | 1,019,000   |     
|                                                                                                                                                            |  |      |             |     
|Total assets                                                                                                                                                |  | $    | 207,858,000 |     
|                                                                                                                                                            |  |      |             |     
|                                                                                                                                                           
|LIABILITIES                                                                                                                                                 |  |      |             |     
|Deposits:                                                                                                                                                   |  |      |             |     
|Noninterest-bearing                                                                                                                                         |  | $    | 53,896,000  |     
|Interest-bearing and money market accounts                                                                                                                  |  |      | 48,985,000  |     
|Savings                                                                                                                                                     |  |      | 17,676,000  |     
|Time deposits $100,000 or greater                                                                                                                           |  |      | 34,575,000  |     
|Other time deposits                                                                                                                                         |  |      | 28,056,000  |     
|                                                                                                                                                            |  |      |             |     
|Total deposits                                                                                                                                              |  |      | 183,188,000 |     
|Accrued interest payable                                                                                                                                    |  |      | 264,000     |     
|Long-term debt                                                                                                                                              |  |      | -          |     
|Other liabilities                                                                                                                                           |  |      | 1,213,000   |     
|Redeemable preferred securities of subsidiary trust holding solely junior
subordinated debentures                                                           |  |      | 6,000,000   |     
|                                                                                                                                                            |  |      |             |     
|Total liabilities                                                                                                                                           |  |      | 190,665,000 |     
|                                                                                                                                                            |  |      |             |     
|                                                                                                                                                           
|STOCKHOLDERS EQUITY                                                                                                                                        |  |      |             |     
|Common stock, no par value; authorized 10,000,000 shares, issued and outstanding
1,202,517 and 1,144,440 shares at December 31, 2002 and 2001, respectively |  |      | 13,913,000  |     
|Retained earnings                                                                                                                                           |  |      | 2,957,000   |     
|Accumulated other comprehensive income                                                                                                                      |  |      | 323,000     |     
|                                                                                                                                                            |  |      |             |     
|Total stockholders equity                                                                                                                                  |  |      | 17,193,000  |     
|                                                                                                                                                            |  |      |             |     
|Total liabilities and stockholders equity                                                                                                                  |  | $    | 207,858,000 |     
|                                                                                                                                                            |  |      |             |     



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





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF EARNINGS

Years Ended December 31, 2002, 2001 and 2000



|                                                         |  | 2002 |            | 2001 |   | 2000      
|-------------------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|Interest income:                                         |  |      |            |      |   |           
|Interest and fees on loans                               |  | $    | 12,586,000 |      | $ | 9,201,000 
|Deposits in financial institutions                       |  |      | 220,000    |      |   | 298,000   
|Federal funds sold                                       |  |      | 152,000    |      |   | 385,000   
|Investments                                              |  |      | 1,536,000  |      |   | 920,000   
|                                                         |  |      |            |      |   |           
|Total interest income                                    |  |      | 14,494,000 |      |   | 10,804,000
|                                                         |  |      |            |      |   |           
|Interest expense:                                        |  |      |            |      |   |           
|Demand and savings deposits                              |  |      | 438,000    |      |   | 829,000   
|Time deposits $100,000 or greater                        |  |      | 936,000    |      |   | 980,000   
|Other time deposits                                      |  |      | 673,000    |      |   | 806,000   
|Interest on borrowed funds                               |  |      | 330,000    |      |   | 79,000    
|                                                         |  |      |            |      |   |           
|Total interest expense                                   |  |      | 2,377,000  |      |   | 2,694,000 
|                                                         |  |      |            |      |   |           
|Net interest income                                      |  |      | 12,117,000 |      |   | 8,110,000 
|Provision for loan losses                                |  |      | 477,000    |      |   | 411,000   
|                                                         |  |      |            |      |   |           
|Net interest income after provision for loan losses      |  |      | 11,640,000 |      |   | 7,699,000 
|                                                         |  |      |            |      |   |           
|Other income:                                            |  |      |            |      |   |           
|Customer service fees                                    |  |      | 1,417,000  |      |   | 1,385,000 
|Gain from sale of loans                                  |  |      | 547,000    |      |   | 413,000   
|Gain from sale of investment securities                  |  |      | -         |      |   | 16,000    
|Gain from sale of investment in Bancdata Solutions, Inc. |  |      | -         |      |   | -        
|Other income                                             |  |      | 460,000    |      |   | 179,000   
|                                                         |  |      |            |      |   |           
|Total other income                                       |  |      | 2,424,000  |      |   | 1,993,000 
|                                                         |  |      |            |      |   |           
|Other expenses:                                          |  |      |            |      |   |           
|Salaries and wages                                       |  |      | 4,769,000  |      |   | 3,630,000 
|Employee benefits                                        |  |      | 1,285,000  |      |   | 735,000   
|Net occupancy expense                                    |  |      | 1,394,000  |      |   | 1,100,000 
|Other operating expense                                  |  |      | 4,108,000  |      |   | 2,605,000 
|                                                         |  |      |            |      |   |           
|Total other expenses                                     |  |      | 11,556,000 |      |   | 8,070,000 
|                                                         |  |      |            |      |   |           
|Income before provision for income taxes                 |  |      | 2,508,000  |      |   | 1,622,000 
|Provision for income taxes                               |  |      | 802,000    |      |   | 575,000   
|                                                         |  |      |            |      |   |           
|Net income                                               |  | $    | 1,706,000  |      | $ | 1,047,000 
|                                                         |  |      |            |      |   |           
|Basic earnings per share                                 |  | $    | 1.42       |      | $ | 1.12      
|                                                         |  |      |            |      |   |           
|Diluted earnings per share                               |  | $    | 1.41       |      | $ | 1.11      
|                                                         |  |      |            |      |   |           



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





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years Ended December 31, 2002, 2001 and 2000



|                                                                                                    |  | Common Stock |            |   | Retained Earnings |   |           | Accumulated Other Comprehensive Income (Loss) |  |   | Total    |  
|--------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ----------------- | - | --------- | --------------------------------------------- |  | - | -------- | -
|BALANCE, DECEMBER 31, 1999                                                                          |  | $            | 5,368,000  |   |                   | $ | 1,165,000 |                                               |  | $ | (205,000 | )
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Comprehensive income:                                                                               |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Net income                                                                                          |  |              | -         |   |                   |   | 907,000   |                                               |  |   | -       |  
|Change in net unrealized gain (loss) on investment securities available for sale, after
tax effects |  |              | -         |   |                   |   | -        |                                               |  |   | 163,000  |  
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Total comprehensive income                                                                          |  |              |            |   |                   |   |           |                                               |  |   |          |  
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Cash and stock dividends                                                                            |  |              | 547,000    |   |                   |   | (618,000  | )                                             |  |   | -       |  
|Exercise of stock options, including tax benefit                                                    |  |              | 194,000    |   |                   |   | -        |                                               |  |   | -       |  
|Purchase and retirement of common stock and stock options                                           |  |              | (381,000   | ) |                   |   | (270,000  | )                                             |  |   | -       |  
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|BALANCE, DECEMBER 31, 2000                                                                          |  |              | 5,728,000  |   |                   |   | 1,184,000 |                                               |  |   | (42,000  | )
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Comprehensive income:                                                                               |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Net income                                                                                          |  |              | -         |   |                   |   | 1,047,000 |                                               |  |   | -       |  
|Change in net unrealized gain on investment securities available for sale, after tax
effects        |  |              | -         |   |                   |   | -        |                                               |  |   | 154,000  |  
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Total comprehensive income                                                                          |  |              |            |   |                   |   |           |                                               |  |   |          |  
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Cash dividends                                                                                      |  |              | -         |   |                   |   | (35,000   | )                                             |  |   | -       |  
|Exercise of stock options, including tax benefit                                                    |  |              | 183,000    |   |                   |   | -        |                                               |  |   | -       |  
|Purchase and retirement of common stock                                                             |  |              | 7,053,000  |   |                   |   | -        |                                               |  |   | -       |  
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|BALANCE, DECEMBER 31, 2001                                                                          |  |              | 12,964,000 |   |                   |   | 2,196,000 |                                               |  |   | 112,000  |  
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Comprehensive income:                                                                               |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Net income                                                                                          |  |              | -         |   |                   |   | 1,706,000 |                                               |  |   | -       |  
|Change in net unrealized gain on investment securities available for sale, after tax
effects        |  |              | -         |   |                   |   | -        |                                               |  |   | 211,000  |  
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Total comprehensive income                                                                          |  |              |            |   |                   |   |           |                                               |  |   |          |  
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|Stock dividend                                                                                      |  |              | 942,000    |   |                   |   | (942,000  | )                                             |  |   | -       |  
|Cash paid in lieu of fractional shares                                                              |  |              | -         |   |                   |   | (3,000    | )                                             |  |   | -       |  
|Exercise of stock options, including tax benefit                                                    |  |              | 7,000      |   |                   |   | -        |                                               |  |   | -       |  
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  
|BALANCE, DECEMBER 31, 2002                                                                          |  | $            | 13,913,000 |   |                   | $ | 2,957,000 |                                               |  | $ | 323,000  |  
|                                                                                                    |  |              |            |   |                   |   |           |                                               |  |   |          |  



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





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2002, 2001 and 2000



|                                                                                  |  | 2002 |             |   | 2001 |   |             | 2000 | 
|--------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |      |             |   |      |   |             |      | 
|Net income                                                                        |  | $    | 1,706,000   |   |      | $ | 1,047,000   |      | 
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |      |             |   |      |   |             |      | 
|Depreciation and amortization                                                     |  |      | 658,000     |   |      |   | 521,000     |      | 
|Provision for loan losses                                                         |  |      | 477,000     |   |      |   | 411,000     |      | 
|Loss on sale of other real estate owned                                           |  |      | -          |   |      |   | -          |      | 
|Gain from sale of investments                                                     |  |      | -          |   |      |   | (16,000     | )    | 
|Gain from sale of loans                                                           |  |      | (547,000    | ) |      |   | (413,000    | )    | 
|Gain from sale of investment in Bancdata Solutions, Inc.                          |  |      | -          |   |      |   | -          |      | 
|Amortization of deferred loan fees                                                |  |      | (559,000    | ) |      |   | (585,000    | )    | 
|Amortization of excess purchase value of deposits                                 |  |      | (177,000    | ) |      |   | (71,000     | )    | 
|Deferred income tax provision (benefit)                                           |  |      | (219,000    | ) |      |   | 302,000     |      | 
|Amortization of premiums on investment securities available for sale              |  |      | 248,000     |   |      |   | 127,000     |      | 
|Increase in cash surrender value of life insurance                                |  |      | (198,000    | ) |      |   | (79,000     | )    | 
|Decrease (increase) in assets:                                                    |  |      |             |   |      |   |             |      | 
|Accrued interest receivable                                                       |  |      | 259,000     |   |      |   | (199,000    | )    | 
|Other assets                                                                      |  |      | 2,652,000   |   |      |   | (2,995,000  | )    | 
|Increase (decrease) in liabilities:                                               |  |      |             |   |      |   |             |      | 
|Accrued interest payable                                                          |  |      | 41,000      |   |      |   | (275,000    | )    | 
|Other liabilities                                                                 |  |      | (3,490,000  | ) |      |   | 3,231,000   |      | 
|                                                                                  |  |      |             |   |      |   |             |      | 
|Net cash provided by operating activities                                         |  |      | 851,000     |   |      |   | 1,006,000   |      | 
|                                                                                  |  |      |             |   |      |   |             |      | 
|                                                                                 
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |      |             |   |      |   |             |      | 
|Net decrease (increase) in interest-bearing deposits in financial
institutions    |  |      | 803,000     |   |      |   | (1,174,000  | )    | 
|Activity in available for sale securities:                                        |  |      |             |   |      |   |             |      | 
|Net sales, maturities and (purchases)                                             |  |      | 1,155,000   |   |      |   | (21,314,000 | )    | 
|Acquisition of Palomar Community Bank                                             |  |      | -          |   |      |   | 15,278,000  |      | 
|Purchases of Federal Home Loan Bank stock                                         |  |      | -          |   |      |   | (20,000     | )    | 
|Proceeds from redemption of Federal Home Loan Bank stock                          |  |      | 67,000      |   |      |   | -          |      | 
|Net increase in loans                                                             |  |      | (14,788,000 | ) |      |   | (21,570,000 | )    | 
|Proceeds from sales of other real estate owned                                    |  |      | -          |   |      |   | 24,000      |      | 
|Proceeds from sale of investment in Bancdata Solutions, Inc.                      |  |      | -          |   |      |   | -          |      | 
|Additions to bank premises and equipment                                          |  |      | (637,000    | ) |      |   | (618,000    | )    | 
|Purchases of life insurance, net of redemptions                                   |  |      | (2,515,000  | ) |      |   | (1,304,000  | )    | 
|                                                                                  |  |      |             |   |      |   |             |      | 
|Net cash used in investing activities                                             |  |      | (15,915,000 | ) |      |   | (30,698,000 | )    | 
|                                                                                  |  |      |             |   |      |   |             |      | 



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





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Years Ended December 31, 2002, 2001 and 2000



|                                                     |  | 2002 |            |   | 2001 |   |            | 2000 | 
|---------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|CASH FLOWS FROM FINANCING ACTIVITIES                 |  |      |            |   |      |   |            |      | 
|Net increase in demand and savings deposits          |  | $    | 9,572,000  |   |      | $ | 15,092,000 |      | 
|Net increase (decrease) in time deposits             |  |      | (535,000   | ) |      |   | 5,733,000  |      | 
|Cash dividends                                       |  |      | -         |   |      |   | (35,000    | )    | 
|Cash dividends paid in lieu of fractional shares     |  |      | (3,000     | ) |      |   | -         |      | 
|Proceeds from issuance of long-term debt             |  |      | 6,000,000  |   |      |   | 3,500,000  |      | 
|Repayment of long-term debt                          |  |      | (3,500,000 | ) |      |   | -         |      | 
|Proceeds from common stock issuance                  |  |      | -         |   |      |   | 7,053,000  |      | 
|Payments to acquire common stock and stock options   |  |      | -         |   |      |   | -         |      | 
|Proceeds from exercise of stock options              |  |      | 7,000      |   |      |   | 183,000    |      | 
|                                                     |  |      |            |   |      |   |            |      | 
|Net cash provided by financing activities            |  |      | 11,541,000 |   |      |   | 31,526,000 |      | 
|                                                     |  |      |            |   |      |   |            |      | 
|Net increase (decrease) in cash and cash equivalents |  |      | (3,523,000 | ) |      |   | 1,834,000  |      | 
|                                                    
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR         |  |      | 17,543,000 |   |      |   | 15,709,000 |      | 
|                                                     |  |      |            |   |      |   |            |      | 
|                                                    
|CASH AND CASH EQUIVALENTS, END OF YEAR               |  | $    | 14,020,000 |   |      | $ | 17,543,000 |      | 
|                                                     |  |      |            |   |      |   |            |      | 
|                                                    
|SUPPLEMENTARY INFORMATION                            |  |      |            |   |      |   |            |      | 
|Interest paid                                        |  | $    | 2,336,000  |   |      | $ | 2,968,000  |      | 
|                                                     |  |      |            |   |      |   |            |      | 
|Income taxes paid                                    |  | $    | 945,000    |   |      | $ | 468,000    |      | 
|                                                     |  |      |            |   |      |   |            |      | 



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





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



The accounting and reporting policies of Centennial First Financial Services, and its wholly owned subsidiaries, Redlands Centennial Bank (Redlands) and Centennial Capital Trust I (the Trust), herein
referred to as (the Company), are in accordance with accounting principles generally accepted in the United States of America and general practices within the financial services industry.



The Company, through its wholly owned subsidiary, Redlands Centennial Bank, provides banking services to
individuals and business customers in Redlands, Escondido, North Orange County and surrounding communities.



Redlands formed Centennial Financial Services (CFS) as a wholly owned subsidiary. CFS began operations during March 2000 and sells
investment and insurance products to the Banks customers.



On August 17, 2001, the Company acquired the stock of Palomar Community Bank in Escondido California for $10.5 million cash (see Note 2). Palomar Community Bank was a California state chartered bank, providing banking services to
individuals and business customers in Escondido and surrounding communities. On May 24, 2002, Palomar Community Bank surrendered its charter and was merged into Redlands Centennial Bank.



On July 10, 2002, the Company formed and acquired a 100% interest in Centennial Capital Trust I. The Trust
was formed in order to facilitate the issuance of $6 million in Redeemable Preferred Securities (see Note 8).



Basis of Presentation and Consolidation



The consolidated financial statements include the accounts of Centennial First Financial Services and its
wholly-owned subsidiaries, Redlands Centennial Bank and Centennial Capital Trust I. The consolidated financial statements of Redlands Centennial Bank include the accounts of the Bank and its wholly owned subsidiary, Centennial Financial Services.
All significant intercompany balances and transactions have been eliminated in consolidation.





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Use of Estimates



In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of condition and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate, the
valuation of deferred tax assets, and other-than-temporary impairment losses.



Reclassification



Certain amounts have been reclassified in the 2001 and 2000 financial statements to conform to the 2002 financial statement presentation.



Interest-Bearing Deposits in Financial Institutions



Interest-bearing deposits in financial institutions mature
within ten years and are carried at fair market value which approximates cost.



Investment Securities



Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at cost. Securities not classified as held to
maturity or trading, including equity securities with readily determinable fair values, are classified as available for sale and recorded at fair value, with unrealized gains or losses excluded from earnings and reported in other
comprehensive income.



Purchase premiums and
discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held-to-maturity and available for sale securities below their cost that are deemed to be other than temporary are
reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers independent price quotations, projected target prices of investment analysts within the short-term and the financial condition of
the issuer. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.







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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|Note |  | 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|---- |  | ------------------------------------------------------------



Federal Home Loan Bank Stock



Federal Home Loan Bank stock is carried at cost.



Loans



The Company grants construction, real estate, commercial and consumer loans to customers. A substantial
portion of the loan portfolio is represented by construction and real estate loans throughout Southern California. The ability of the Companys debtors to honor their contracts is dependent upon the real estate and general economic conditions
in this area.



Loans that management has the
intent and ability to hold for the foreseeable future or until maturity or pay-off, generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on
originated loans.



Interest on loans is accrued
daily as earned, except when serious doubt concerning collectibility arises, at which time such loans are placed on a nonaccrual basis, and all accrued and uncollected interest income is reversed against current period operations. Interest income on
nonaccrual loans is recognized only to the extent of interest payments received.



Unearned income on installment loans is recognized as income over the term of the loans using a method that approximates the interest method.



Loan origination fees, to the extent they represent
reimbursement for initial direct costs, are recognized as income at the time of loan closing. The excess of fees over costs, if any, are deferred and credited to income over the term of the loan using a method which approximates the interest method.
Amortization of loan origination fees are included in revenues as an element of interest on loans. If a loan is paid in full, any deferred fees not yet amortized are recognized as income.







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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Loans (continued)



Loans which are deemed impaired by management are loans whereby it is probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of the loan agreement. Losses on impaired loans are measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the
loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Larger groups of smaller balance homogenous loans are collectively evaluated for impairment.
Accordingly, the Company does not separately identify individual consumer loans for impairment disclosures.



Loans Held for Sale



Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate.
Fair value is based on commitments on hand from investors or prevailing market prices. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.



Allowance for Loan Losses



The allowance for loan losses is established as losses are estimated to have occurred through a provision for
loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.



The allowance for loan losses is evaluated on a regular basis
by management and is based upon managements periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to
repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.





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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Allowance for Loan Losses (continued)



A loan is considered impaired when, based on current information and events, it is probable that the Company
will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payment when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the
amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans
effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.



The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as
either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than that
of the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect
managements estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the
portfolio.







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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Loan Servicing



Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets.
Capitalized servicing rights are reported in other assets and are amortized into other income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for
impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights by predominant characteristics, such as interest rates and terms. Fair value is determined using prices for similar
assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the
capitalized amount for the stratum.



Goodwill and Other Intangible Assets



Goodwill is carried as an asset on the Companys balance sheet, and is evaluated at least once per year for impairment. If the carrying value of the goodwill is determined to be impaired, the Company will write down the
amount of goodwill to its estimated value. The amount of goodwill written off will be expensed in the year impairment is determined.



Other intangible assets consist of one-time loan and deposit fair value adjustments. These fair value adjustments are amortized on a
straight-line basis with remaining lives up to 4 years.



Premises, Equipment and Depreciation



Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their
estimated service lives on a straight-line basis, which range from three to thirty-nine years.

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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Foreclosed Real Estate



Foreclosed real estate is held for sale and carried at the lower of cost or fair value less estimated costs to sell and an allowance for
losses. Troubled loans are transferred to foreclosed real estate upon completion of formal foreclosure proceedings.



Costs relating to development and improvement of foreclosed real estate are capitalized, whereas costs relating to holding property are
expensed. The portion of interest costs relating to development of real estate is capitalized.



Valuations are periodically performed by management, and an allowance for losses is established through a charge to operations if the carrying value of a property exceeds its fair value, less estimated
costs to sell.



Transfers of Financial
Assets



Transfers of financial assets
are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their
maturity.



Income Taxes



Deferred income taxes are recognized
for estimated future tax effects attributable to temporary differences between income tax and financial reporting purposes and carry forwards. Valuation allowances are established when necessary to reduce the deferred tax asset to the amount
expected to be realized. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws
or rates are enacted, deferred tax assets and liabilities are adjusted accordingly through the provision for income taxes.



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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Stock Compensation Plans



Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as superceded
by SFAS 148, Accounting for Stock Based Compensation  Transition and Disclosure, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured
at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date
over the amount an employee or a director must pay to acquire the stock. Stock options issued under the Companys stock option plan have no intrinsic value at the grant date, and under Opinion No. 25 no compensation cost is recognized for them.
Under the Companys stock option plan, compensation cost is recognized to the extent that the quoted market price of the stock on the date of grant exceeds the amount that the employee is required to pay.



As discussed above, the Company applies APB 25 and related
interpretations in accounting for the Plan. Accordingly, no compensation cost has been recognized for the stock option plan. Had compensation cost for the Companys stock option plan been determined based on the fair value at the grant date for
awards under the Plan consistent with the method prescribed by SFAS No. 123 as superceded by SFAS 148, the Companys net income and earnings per share would have been reduced by the compensation cost net of taxes to the pro forma amounts
indicated below:





|                                |  | Years Ended December 31,
|------------------------------- |  | ------------------------
|                                |  | 2002                    
|Net income:                     |  |                         
|As reported                     |  | $                       
|Pro forma                       |  |                         
|                               
|Compensation cost, net of taxes |  | $                       
|                               
|Basic earnings per share:       |  |                         
|As reported                     |  | $                       
|Pro forma                       |  |                         
|                               
|Diluted earnings per share:     |  |                         
|As reported                     |  | $                       
|Pro forma                       |  |                         



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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Stock Compensation Plans (continued)



The fair value of each option granted is estimated on the date of grant using the Black-Scholes
option-pricing model, with the following weighted assumptions used for option grants in 2002 and 2001; no dividend yield; expected volatility of 20.08% and 16.89% in 2002 and 2001 respectively; risk-free interest rates of 4.05% and 5.17% for 2002
and 2001 respectively, and expected lives of ten years for both years. There were no options granted during 2000. The compensation cost for the year 2000 represents compensation cost associated with options granted prior to 2000.



Employee Stock Ownership Plan (ESOP)



Compensation expense is recognized
based on cash contributions paid or committed to be paid to the ESOP. All shares held by the ESOP are deemed outstanding for purposes of earnings per share calculations. Dividends declared on all shares held by the ESOP are charged to retained
earnings.



Earnings Per Share



Basic earnings per share represent
income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common
shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock
method.



The weighted average number of shares
used in the computation of basic earnings per share was 1,201,887 for 2002, 935,602 for 2001 and 737,388 for 2000. The weighted average number of shares used in the computation of diluted earnings per share was 1,213,182 for 2002, 946,737 for 2001
and 784,226 for 2000.



Statement of Cash
Flows



For the purposes of reporting
cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold.



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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Comprehensive Income



Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain
changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of
comprehensive income.



The components of other
comprehensive income are as follows:





|                                                          |  | 2002 |          |   | 2001 |   |          | 2000 | 
|--------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- | 
|Unrealized holding gains on available for sale securities |  | $    | 364,000  |   |      | $ | 273,000  |      | 
|Reclassification adjustment for gains realized in income  |  |      |         |   |      |   | (16,000  | )    | 
|                                                          |  |      |          |   |      |   |          |      | 
|Net unrealized gains                                      |  |      | 364,000  |   |      |   | 257,000  |      | 
|Tax effect                                                |  |      | (153,000 | ) |      |   | (103,000 | )    | 
|                                                          |  |      |          |   |      |   |          |      | 
|Net-of-tax amount                                         |  | $    | 211,000  |   |      | $ | 154,000  |      | 
|                                                          |  |      |          |   |      |   |          |      | 



Accounting Changes



The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002. Accordingly, goodwill is no longer subject to amortization over its
estimated useful life, but is subject to at least an annual assessment for impairment by applying a fair value test. Additionally, under SFAS No. 142, acquired intangible assets (such as core deposit intangibles) are separately recognized if the
benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged and amortized over their useful life. Branch acquisition transactions were
outside the scope of SFAS No. 142 and accordingly, intangible assets related to such transactions continue to amortize upon the adoption of SFAS No. 142. On October 31, 2002, the Company adopted SFAS No. 147, Acquisitions of Certain Financial
Institutions.



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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Accounting Changes (continued)



This Statement amends (except for transactions between two or more mutual enterprises) previous interpretive financial guidance on the
purchase method of accounting to acquisitions of financial institutions and requires the application of SFAS No. 141, Business Combinations and SFAS No. 142 to branch acquisitions if such transactions meet the definition of a business
combination. This Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope, core deposit intangibles of financial institutions. Accordingly, such intangibles are subject to a
recoverability test based on undiscounted cash flows, and to impairment recognition and measurement provisions that are required for other long-lived assets that are held and used. The adoption of SFAS Nos. 141, 142 and 147 did not have a material
impact on the Companys consolidated financial statements.



In December 2001, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 01-6, Accounting by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance
the Activities of Others, to reconcile and conform the accounting and financial reporting provisions established by various AICPA industry guides. This Statement is effective for annual and interim financial statements issued for fiscal years
beginning after December 15, 2001 and did not have a material impact on the Companys consolidated financial statements.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure,
which provides for transition methods for companies electing to record compensation expense associated with stock options, as well as enhanced disclosures for companies which elect to retain the intrinsic value method of accounting as prescribed by
APB No. 25. The provisions of this statement are effective for fiscal years ending after December 15, 2002. The adoption of this Statement did not have a material impact on the consolidated financial statements.



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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 2.    ACQUISITION OF PALOMAR COMMUNITY BANK



On August 17, 2001, the Company acquired Palomar Community Bank from Community West Bancshares for $10,500,000 in cash. The total purchase price was allocated as follows:



|Cash and cash equivalents            |  | $ | 25,966,000  |  
|------------------------------------ |  | - | ----------- | -
|Investment securities                |  |   | 3,447,000   |  
|Net loans                            |  |   | 44,764,000  |  
|Equipment and leasehold improvements |  |   | 241,000     |  
|Other assets                         |  |   | 336,000     |  
|Goodwill                             |  |   | 4,180,000   |  
|Intangible asset                     |  |   | 68,000      |  
|Deposits                             |  |   | (67,191,000 | )
|Other liabilities                    |  |   | (1,123,000  | )
|Closing costs                        |  |   | (188,000    | )
|                                     |  |   |             |  
|                                     |  | $ | 10,500,000  |  
|                                     |  |   |             |  



In
accordance with SFAS 142, the goodwill in connection with this transaction has been recorded but is not being amortized. The intangible asset represents a core deposit premium and is being amortized over the average life of the corresponding
deposits using the straight-line method.



Note
3.    INVESTMENT SECURITIES



The following is a comparison of amortized cost and fair value of investment securities at December 31, 2002 and 2001:





|                                            |  | 2002          
|------------------------------------------- |  | --------------
|                                            |  | Amortized Cost
|Available for sale:                         |  |               
|Mortgage-backed securities                  |  | $             
|Obligations of states and local governments |  |               
|Marketable equity securities                |  |               
|U.S. Treasury Obligations                   |  |               
|                                            |  |               
|                                            |  | $             
|                                            |  |               





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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 3.    INVESTMENT SECURITIES (Continued)



|                                            |  | 2001          
|------------------------------------------- |  | --------------
|                                            |  | Amortized Cost
|Available for sale:                         |  |               
|Mortgage-backed securities                  |  | $             
|Obligations of states and local governments |  |               
|Marketable equity securities                |  |               
|U.S. Treasury Obligations                   |  |               
|                                            |  |               
|                                            |  | $             
|                                            |  |               



The
amortized cost and fair value of investment securities available for sale at December 31, 2002, by contractual maturity, are shown below. Expected maturities for mortgage-backed securities may differ from contractual maturities because borrowers may
have the right to call or retire obligations with or without call or prepayment penalties.



|                             |  | Amortized Cost |             | Fair Value
|---------------------------- |  | -------------- | ----------- | ----------
|Due within one year          |  | $              | 265,000     |           
|Due after one year           |  |                | 1,511,000   |           
|Due after five years         |  |                | 2,004,000   |           
|Due after ten years          |  |                | 833,000     |           
|                             |  |                |             |           
|                             |  |                | 4,613,000   |           
|Marketable equity securities |  |                | 487,000     |           
|Mortgage-backed securities   |  |                | 27,152,000  |           
|                             |  |                |             |           
|                             |  |                | $32,252,000 |           
|                             |  |                |             |           



As of
December 31, 2002 and 2001, U.S. Treasury Obligations and mortgage-backed securities with amortized cost of $5,557,000 and $2,570,000 and fair values of $5,818,000 and $2,637,000, respectively, were pledged as collateral as required or permitted by
law.



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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 4.    LOANS



The
composition of the Companys loan portfolio at December 31, 2002 and 2001 is as follows:



|                               |  | 2002 |             |   | 2001 |  
|------------------------------ |  | ---- | ----------- | - | ---- | -
|Real estate loans              |  |      |             |   |      |  
|Construction and development   |  | $    | 53,246,000  |   |      | $
|Mortgage loans                 |  |      | 44,272,000  |   |      |  
|Commercial loans               |  |      | 38,049,000  |   |      |  
|Automobile loans               |  |      | 1,574,000   |   |      |  
|Indirect loans                 |  |      | 9,000       |   |      |  
|Equity loans                   |  |      | 4,953,000   |   |      |  
|Consumer and other loans       |  |      | 1,351,000   |   |      |  
|                               |  |      |             |   |      |  
|Total loans                    |  |      | 143,454,000 |   |      |  
|Less unearned income           |  |      | (570,000    | ) |      |  
|Less allowance for loan losses |  |      | (1,772,000  | ) |      |  
|                               |  |      |             |   |      |  
|Net loans                      |  | $    | 141,112,000 |   |      | $
|                               |  |      |             |   |      |  



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



|                                                   |  | 2002 |           |   | 2001 |   |           | 2000 | 
|-------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- | 
|Balance as of January 1                            |  | $    | 1,460,000 |   |      | $ | 868,000   |      | 
|Allowance for loan losses, Palomar Community Bank  |  |      | -        |   |      |   | 603,000   |      | 
|Provision charged to expense                       |  |      | 477,000   |   |      |   | 411,000   |      | 
|Loans charged off                                  |  |      | (194,000  | ) |      |   | (306,000  | )    | 
|Reclassification for off-balance sheet commitments |  |      | -        |   |      |   | (129,000  | )    | 
|Recoveries of loans previously charged-off         |  |      | 29,000    |   |      |   | 13,000    |      | 
|                                                   |  |      |           |   |      |   |           |      | 
|Balance as of December 31                          |  | $    | 1,772,000 |   |      | $ | 1,460,000 |      | 
|                                                   |  |      |           |   |      |   |           |      | 



Loans
serviced for others are not included in the accompanying statements of condition. The unpaid principal balances of loans serviced for others were $14,928,000 and $30,509,000 at December 31, 2002 and 2001, respectively.





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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 4.    LOANS (Continued)



The balance of capitalized loan servicing rights included in other assets was $119,000 and $121,000 at December 31, 2002 and 2001, respectively.



The following table is a summery of information pertaining to impaired loans as of December 31, 2002 and
2001:



|                                                                   |  | 2002 |         | 2001
|------------------------------------------------------------------ |  | ---- | ------- | ----
|Non-accrual loans                                                  |  | $    | 394,000 |     
|                                                                   |  |      |         |     
|Total impaired loans                                               |  | $    | 394,000 |     
|                                                                   |  |      |         |     
|Interest income that would have been recorded on non-accrual loans |  | $    | 30,000  |     
|                                                                   |  |      |         |     
|Allowance for loan losses on impaired loans                        |  | $    | 85,000  |     
|                                                                   |  |      |         |     



Note
5.    PREMISES, EQUIPMENT AND ACCUMULATED DEPRECIATION



Premises, equipment and accumulated depreciation at December 31, 2002 and 2001 consist of the following:



|                                  |  | 2002 |            | 2001
|--------------------------------- |  | ---- | ---------- | ----
|Land                              |  | $    | 132,000    |     
|Building                          |  |      | 1,116,000  |     
|Equipment, furniture and fixtures |  |      | 3,627,000  |     
|Construction in progress          |  |      | 59,000     |     
|                                  |  |      |            |     
|                                  |  |      | 4,934,000  |     
|Less accumulated depreciation     |  |      | 2,308,000  |     
|                                  |  |      |            |     
|                                  |  |      | $2,626,000 |     
|                                  |  |      |            |     



Total
depreciation expense amounted to $658,000, $521,000 and $324,000 for the years ended December 31, 2002, 2001 and 2000, respectively.



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##### Table of Contents



CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 5.    PREMISES, EQUIPMENT AND ACCUMULATED DEPRECIATION (Continued)



The Company leases space for branch and loan premises. The Company also subleases a portion of the building in which the Palomar branch is
located. Pursuant to the terms of the noncancelable operating lease agreements in effect at December 31, 2002, future minimum rent commitments under these leases are as follows:



|            |  | Operating Lease Expense |           | Sublease Income |   | Net Lease Expense
|----------- |  | ----------------------- | --------- | --------------- | - | -----------------
|2003        |  | $                       | 558,570   |                 | $ | 71,940           
|2004        |  |                         | 603,762   |                 |   | 35,970           
|2005        |  |                         | 608,317   |                 |   | -               
|2006        |  |                         | 447,120   |                 |   | -               
|2007        |  |                         | 168,736   |                 |   | -               
|Beyond 2007 |  |                         | 37,884    |                 |   | -               
|            |  |                         |           |                 |   |                  
|            |  | $                       | 2,424,389 |                 | $ | 107,910          
|            |  |                         |           |                 |   |                  



Total
rent expense for the years ended December 31, 2002, 2001 and 2000 amounted to $491,000, $303,000 and $42,000, respectively.



Note 6.    DEPOSITS



A summary of time deposits by maturity at December 31, 2002 and 2001 is as follows:



|                              |  | 2002 |             | 2001
|----------------------------- |  | ---- | ----------- | ----
|Within 1 year                 |  | $    | 58,513,000  |     
|After 1 year through 3 years  |  |      | 1,762,000   |     
|After 3 years through 5 years |  |      | 2,299,000   |     
|After 5 years                 |  |      | 57,000      |     
|                              |  |      |             |     
|                              |  |      | $62,631,000 |     
|                              |  |      |             |     





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 7.    LONG-TERM DEBT



The Company had a seven year $2,000,000 unsecured note payable to United Security Bank at an interest rate of prime plus 1.125%. The terms of the note called for interest only payments though July 2003. Principal and
interest payments were to commence beginning August 2003. The note was paid off during July 2002.



The Company also had a two year $2,000,000 note payable to United Security Bank at an interest rate of prime plus 1.0%. The note was
secured by the stock of Redlands Centennial Bank and Palomar Community Bank. The terms of the note called for interest only payments though July 2003, at which point all unpaid principal and accrued interest were due. The outstanding balance on the
note at December 31, 2001 was $1,500,000. The note was paid off during July 2002.



Note 8.    ISSUANCE OF REDEEMABLE PREFERRED SECURITIES



On July 11, 2002, Centennial Capital Trust I, a newly formed Delaware statutory business trust and a wholly-owned subsidiary of the
Company (the Trust), issued an aggregate of $6,000,000 of principal amount of Floating Rate TRUPS® (Capital Trust Pass-through Securities of the Trust) (the Trust Preferred Securities). Salomon Smith Barney,
Inc. acted as placement agent in connection with the offering of the Trust Preferred Securities. The securities issued by the Trust are fully guaranteed by the Company with respect to distributions and amounts payable upon liquidation, redemption or
repayment. The entire proceeds to the Trust from the sale of the Trust Preferred Securities were used by the Trust in order to purchase $6,000,000 in principal amount of the Floating Rate Junior Subordinated Deferrable Interest Debentures due 2032
issued by the Company (the Subordinated Debt Securities).



The Subordinated Debt Securities bear a variable interest rate equal to LIBOR plus 3.65% (1.775% + 3.65% = 5.425% at December 31, 2002), with a maximum rate of 12.5% through the first call date in July 2007. The Company used
approximately $4 million of the approximately $5.8 million in net proceeds it received from the Subordinated Debt Securities to retire existing long-tem debt. Total broker and legal costs associated with the issuance of $191,500 will be amortized
over a 10-year period starting in July 2002.



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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 9.    RELATED PARTY TRANSACTIONS



In the ordinary course of business, the Company has granted loans to certain directors, principal officers, their immediate families, and affiliated companies in which they are principal stockholders.
All loans were made under terms which are consistent with the Companys normal lending policies.



Aggregate related party loan transactions were as follows:

|                          |  | 2002 |           | 2001
|------------------------- |  | ---- | --------- | ----
|Balance as of January 1   |  | $    | 2,197,000 |     
|Net borrowings            |  |      | 464,000   |     
|                          |  |      |           |     
|Balance as of December 31 |  | $    | 2,661,000 |     
|                          |  |      |           |     



Deposits
from related parties held by the Company at December 31, 2002 and 2001 totaled $863,000 and $1,688,000, respectively.



Note 10.    STOCK OPTIONS



The Company has a combined incentive and nonqualified stock option plan, which authorizes the issuance of stock options to full-time
salaried employees and non-employee directors. The incentive portion of the Plan is only available to employees of the Company, while the nonqualified portion is also available to directors of the Company.



The Companys Board of Directors is responsible for
administrating the Plan. Option prices are determined by the Companys directors and must be equal to or greater than the prevailing market price of the Companys common stock at the time the option is granted. Options are vested at a rate
of 20% a year for five years and expire ten years from the date the options are granted. The maximum number of shares reserved for issuance upon exercise of options under the Plan is 360,498 shares of the Companys capital stock. Options issued
have an exercise price ranging from $5.08 to $21.00 per share.





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 10.    STOCK OPTIONS (Continued)



The following is a summary of the Companys stock option activity for 2002 and 2001:



|                                                           |  | 2002    |   |  | 2001                           
|---------------------------------------------------------- |  | ------- | - |  | -------------------------------
|                                                           |  | Shares  |   |  | Weighted Average Exercise Price
|Options granted and outstanding                            |  |         |   |  |                                
|at beginning of year                                       |  | 173,030 |   |  | $                              
|Stock dividend                                             |  | 7,853   |   |  |                                
|Options granted                                            |  | 104,150 |   |  |                                
|Options canceled                                           |  | (15,765 | ) |  |                                
|Options exercised                                          |  | (1,045  | ) |  |                                
|                                                           |  |         |   |  |                                
|Options granted and outstanding at end of year             |  | 268,223 |   |  | $                              
|                                                           |  |         |   |  |                                
|Options exercisable at year-end                            |  | 57,437  |   |  | $                              
|Weighted average fair value of options granted during year |  |         |   |  | $                              



Information pertaining to options outstanding at December 31, 2002 is as follows:



|                                   |  | Options Outstanding |  | Options Exercisable                        
|---------------------------------- |  | ------------------- |  | -------------------------------------------
|Range of Exercise Prices           |  | Number Outstanding  |  | Weighted Average Remaining Contractual Life
|                                   |  |                     |  |                                            
|                                   |  |                     |  |                                            
|                                   |  |                     |  |                                            
|                                   |  |                     |  |                                            
|$5.08 to $13.97                    |  | 45,627              |  | 5.6 years                                  
|$16.50 to $21.00                   |  | 222,596             |  | 9.3 years                                  
|                                   |  |                     |  |                                            
|                                   |  |                     |  |                                            
|Options outstanding at end of year |  | 268,223             |  | 8.6 years                                  
|                                   |  |                     |  |                                            





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 11.    INCOME TAXES



The components of the provision for income taxes at December 31 are as follows:



|                                  |  | 2002 |           |   | 2001 |   | 2000    | 
|--------------------------------- |  | ---- | --------- | - | ---- | - | ------- | 
|Current tax provision:            |  |      |           |   |      |   |         | 
|Federal                           |  | $    | 747,000   |   |      | $ | 175,000 | 
|State                             |  |      | 274,000   |   |      |   | 98,000  | 
|                                  |  |      |           |   |      |   |         | 
|                                  |  |      | 1,021,000 |   |      |   | 273,000 | 
|                                  |  |      |           |   |      |   |         | 
|Deferred tax provision (benefit): |  |      |           |   |      |   |         | 
|Federal                           |  |      | (271,000  | ) |      |   | 250,000 | 
|State                             |  |      | 52,000    |   |      |   | 52,000  | 
|                                  |  |      |           |   |      |   |         | 
|                                  |  |      | (219,000  | ) |      |   | 302,000 | 
|                                  |  |      |           |   |      |   |         | 
|                                  |  | $    | 802,000   |   |      | $ | 575,000 | 
|                                  |  |      |           |   |      |   |         | 



The
reasons for the differences between the statutory federal income tax rate and the effective tax rates are summarized as follows:



|                                        |  | 2002 |   |  | 2001 |   |  | 2000 |  
|--------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|Statutory tax rate                      |  | 34.0 | % |  | 34.0 | % |  | 34.0 | %
|Increase (decrease) resulting from:     |  |      |   |  |      |   |  |      |  
|State taxes, net of federal tax benefit |  | 7.2  |   |  | 7.2  |   |  | 7.2  |  
|Change in valuation allowance           |  |     |   |  |     |   |  | 3.8  |  
|Municipal bond income                   |  | (4.5 | ) |  | (3.5 | ) |  | (3.8 | )
|Cash surrender value of life insurance  |  | (5.5 | ) |  | (2.3 | ) |  | (2.1 | )
|Other, net                              |  | 0.8  |   |  | 0.1  |   |  | (4.9 | )
|                                        |  |      |   |  |      |   |  |      |  
|Effective tax rates                     |  | 32.0 | % |  | 35.5 | % |  | 34.2 | %
|                                        |  |      |   |  |      |   |  |      |  





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 11.    INCOME TAXES (Continued)



The tax effects of the temporary differences in income and expense items that give rise to deferred taxes at December 31 are as follows:



|                                                                |  | 2002 |          |   | 2001 |  
|--------------------------------------------------------------- |  | ---- | -------- | - | ---- | -
|Deferred tax assets:                                            |  |      |          |   |      |  
|Allowance for loan losses                                       |  | $    | 477,000  |   |      | $
|Employee benefit plans                                          |  |      | 79,000   |   |      |  
|Organizational costs                                            |  |      | 3,000    |   |      |  
|State income taxes                                              |  |      | 93,000   |   |      |  
|                                                                |  |      |          |   |      |  
|                                                                |  |      | 652,000  |   |      |  
|                                                                |  |      |          |   |      |  
|Deferred tax liabilities:                                       |  |      |          |   |      |  
|Net unrealized gain on investment securities available for sale |  |      | (227,000 | ) |      |  
|Depreciation and amortization                                   |  |      | (110,000 | ) |      |  
|                                                                |  |      |          |   |      |  
|                                                                |  |      | (337,000 | ) |      |  
|                                                                |  |      |          |   |      |  
|Net deferred tax asset                                          |  | $    | 315,000  |   |      | $
|                                                                |  |      |          |   |      |  



Note
12.    COMMITMENTS AND CONTINGENCIES



Financial Instruments with Off-Balance-Sheet Risk



The Company is a party to credit related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments
include commitments to extend credit, standby letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance
sheets.



The Companys exposure to credit
loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.





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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 12.    COMMITMENTS AND CONTINGENCIES (Continued)



Financial Instruments with Off-Balance-Sheet Risk (continued)



As of December 31, 2002 and 2001, the following financial instruments were outstanding whose contract amounts represent credit risk:



|                                           |  | 2002 |            | 2001
|------------------------------------------ |  | ---- | ---------- | ----
|Unfunded commitments under lines of credit |  | $    | 67,545,000 |     
|Commercial and standby letters of credit   |  |      | 130,000    |     
|Available credit card lines                |  |      | 1,424,000  |     
|                                           |  |      |            |     
|                                           |  | $    | 69,099,000 |     
|                                           |  |      |            |     



Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitments amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is
deemed necessary by the Bank, is based on managements credit evaluation of the customer.



Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements, are commitments for possible future extensions of credit to existing customers. These
lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Bank is committed.



Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved
in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments if deemed necessary.



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FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 12.    COMMITMENTS AND CONTINGENCIES (Continued)



Legal Proceedings



Roberts Litigation



Redlands Centennial Bank was a defendant in a civil action filed by a former employee relating to employee matters. On July 10, 2002,
the Company settled this lawsuit for $425,000, all of which has been expensed.



Other Litigation



Various legal claims also arise from time to time in the normal course of business, which in the opinion of management, will have no material effect on the Companys financial statements.



Employment Agreements and Special
Termination Agreements



The Company has
entered into employment agreements with several of its key officers. The agreements provide for a specified minimum annual compensation and the continuation of benefits currently received. However, employment under the agreements may be terminated
for cause, as defined, without incurring any continuing obligations. The agreements also provide for the establishment of a salary continuation plan to provide benefits to various executive officers at the age of retirement. (See Note 15)



All of the employment agreements contain special
termination clauses which provide for certain lump sum severance payments within a specified period following a change in control, as defined in the agreements.



Note 13.    EMPLOYEE BENEFIT PLANS



401(k) Plan



The Company has a 401(k) savings and retirement plan that includes substantially all employees. The employees
attain vesting in the Companys contribution over six years. Employees may contribute up to 15% of their compensation, subject to certain limits based on federal tax laws. Under the terms of the Plan, the Company may make matching contributions
at the discretion of the Board of Directors. Contributions to the Plan by the Company amounted to $92,000, $56,000 and $43,000 for the years ended December 31, 2002, 2001 and 2000, respectively.



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CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 13.    EMPLOYEE BENEFIT PLANS (Continued)



Employee Stock Ownership Plan



The Company has established an
employee stock ownership plan covering substantially all employees of the Company. An employee becomes eligible to participate in the Plan upon employment with the Company and becomes fully vested after five years of service. Contributions to the
Plan, whether in cash or securities, are made at the discretion of the Companys Board of Directors in an amount not to exceed the maximum allowable as an income tax deduction. The Company contributed $100,000 to the plan for the year ended
December 31, 2000. No contributions to the Plan were made during the years ended December 31, 2002 or 2001.



Note 14.    CONCENTRATION OF CREDIT RISK



The Company services customers in Redlands, Escondido, North Orange County and surrounding communities and has no concentration of
deposits with any one particular customer or industry. At December 31, 2002 and 2001, the Company had approximately $11,177,000 and $15,329,000, respectively, of Federal funds sold, interest-bearing deposits and noninterest-bearing deposits with its
correspondent banks and one other financial institution. At December 31, 2002 and 2001, approximately 68% and 56%, respectively of the Companys loan portfolio consisted of construction and real estate loans.



Note 15.    SALARY CONTINUATION PLANS



The Company has established salary continuation plans, which
provide for payments to certain officers at the age of retirement. The Company also had a retirement continuation plan for its directors. During May 2001, the retirement continuation plan for the directors was cancelled and the directors were each
paid a settlement equal to the cash surrender value at that time. Included in other liabilities at December 31, 2002 and 2001, respectively, is $191,000 and $135,000 of deferred compensation related to the continuation plans. The plans are funded
through life insurance policies that generate a cash surrender value to fund the future benefits.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 16.    STOCKHOLDERS EQUITY



Minimum Regulatory Requirements



The Company (on a consolidated basis) and its subsidiaries are
subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Companys and its subsidiaries financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its subsidiaries must meet
specific capital guidelines that involve quantitative measures of Redlands and Palomars assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications
are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors.



Quantitative measures established by the regulations to ensure capital adequacy require the Company and its subsidiaries to maintain
minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as
of December 31, 2002 and 2001, that the Company and its subsidiaries met all capital adequacy requirements to which it is subject.



As of December 31, 2002, the most recent notification from the Federal Deposit Insurance Corporation categorized Redlands as well
capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, a bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There
are no conditions or events since the notification that management believes have changed Redlands or the Companys category.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 16.    STOCKHOLDERS EQUITY (Continued)



Minimum Regulatory Requirements
(continued)



The Companys and the
Banks actual capital amounts and ratios as of December 31, 2002 and 2001 are as follows:



|                                        |  | Actual |            |       | Minimum Capital Requirement |   |        | Minimum To Be Well Capitalized Under Prompt Corrective Action
Provisions |           
|--------------------------------------- |  | ------ | ---------- | ----- | --------------------------- | - | ------ | ------------------------------------------------------------------------ | ----------
|                                        |  | Amount |            | Ratio |                             |   | Amount |                                                                          | Ratio     
|As of December 31, 2002:                |  |        |            |       |                             |   |        |                                                                          |           
|Total capital to risk-weighted assets:  |  |        |            |       |                             |   |        |                                                                          |           
|Consolidated                            |  | $      | 20,561,000 |       | 13.27                       | % |        | $                                                                        | 12,394,000
|Redlands Centennial                     |  |        | 18,289,000 |       | 11.84                       | % |        |                                                                          | 12,362,000
|                                       
|Tier 1 capital to risk-weighted assets: |  |        |            |       |                             |   |        |                                                                          |           
|Consolidated                            |  |        | 16,845,000 |       | 10.87                       | % |        |                                                                          | 6,197,000 
|Redlands Centennial                     |  |        | 16,356,000 |       | 10.58                       | % |        |                                                                          | 6,181,000 
|                                       
|Tier 1 capital to average assets:       |  |        |            |       |                             |   |        |                                                                          |           
|Consolidated                            |  |        | 16,845,000 |       | 8.28                        | % |        |                                                                          | 8,142,000 
|Redlands Centennial                     |  |        | 16,356,000 |       | 8.09                        | % |        |                                                                          | 8,087,000 
|                                       
|As of December 31, 2001:                |  |        |            |       |                             |   |        |                                                                          |           
|Total capital to risk-weighted assets:  |  |        |            |       |                             |   |        |                                                                          |           
|Consolidated                            |  | $      | 14,546,000 |       | 11.07                       | % |        | $                                                                        | 10,509,000
|Redlands Centennial                     |  |        | 8,508,000  |       | 10.04                       | % |        |                                                                          | 6,778,000 
|Palomar Community                       |  |        | 7,311,000  |       | 15.19                       | % |        |                                                                          | 3,850,000 
|                                       
|Tier 1 capital to risk-weighted assets: |  |        |            |       |                             |   |        |                                                                          |           
|Consolidated                            |  |        | 10,904,000 |       | 8.30                        | % |        |                                                                          | 5,255,000 
|Redlands Centennial                     |  |        | 7,540,000  |       | 8.90                        | % |        |                                                                          | 3,389,000 
|Palomar Community                       |  |        | 6,709,000  |       | 13.94                       | % |        |                                                                          | 1,925,000 
|                                       
|Tier 1 capital to average assets:       |  |        |            |       |                             |   |        |                                                                          |           
|Consolidated                            |  |        | 10,904,000 |       | 5.69                        | % |        |                                                                          | 7,669,000 
|Redlands Centennial                     |  |        | 7,540,000  |       | 7.09                        | % |        |                                                                          | 4,255,000 
|Palomar Community                       |  |        | 6,709,000  |       | 8.32                        | % |        |                                                                          | 3,227,000 



Note
17.    RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES



Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Company. The total amount of dividends, which may be paid at any date,
is generally limited to the retained earnings of the Bank, and loans or advances are limited to 25% of the Banks primary capital plus the allowance for loan losses on a secured basis and 15% on an unsecured basis.



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CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 17.    RESTRICTIONS ON DIVIDENDS, LOANS AND
ADVANCES (Continued)



In addition, dividends
paid by the bank to the Company would be prohibited if the effect thereof would cause the banks capital to be reduced below applicable minimum capital requirements.



Note 18.    DIVIDENDS PAID



The Company paid a cash dividend of $.05 per share in 2001 and $0.05 per share during January and August
2000.



During 2002, the Board of Directors
approved a 5% stock dividend, which resulted in the issuance of 57,032 shares. There were no stock dividends during 2001. The Company issued a 5% stock dividend in January 2000, resulting in the issuance of 33,645 shares.



Note 19.    CONDENSED FINANCIAL STATEMENTS OF PARENT
COMPANY



Following is the parent company only
financial information for Centennial First Financial Services:



STATEMENTS OF CONDITION

December 31, 2002 and 2001



|ASSETS                                     |  | 2002 |            | 2001
|------------------------------------------ |  | ---- | ---------- | ----
|Cash                                       |  | $    | 1,836,000  |     
|Investment in subsidiaries                 |  |      | 21,115,000 |     
|Other assets                               |  |      | 439,000    |     
|                                           |  |      |            |     
|Total assets                               |  | $    | 23,390,000 |     
|                                           |  |      |            |     
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |      |            |     
|Long-term debt                             |  | $    | -         |     
|Borrowings from subsidiary trust           |  |      | 6,006,000  |     
|Other liabilities                          |  |      | 191,000    |     
|                                           |  |      |            |     
|                                           |  |      | 6,197,000  |     
|                                           |  |      |            |     
|Stockholders equity                       |  |      |            |     
|Common stock                               |  |      | 4,810,000  |     
|Additional paid-in-capital                 |  |      | 9,103,000  |     
|Retained earnings                          |  |      | 2,957,000  |     
|Accumulated other comprehensive income     |  |      | 323,000    |     
|                                           |  |      |            |     
|Total stockholders equity                 |  |      | 17,193,000 |     
|                                           |  |      |            |     
|Total liabilities and stockholders equity |  | $    | 23,390,000 |     
|                                           |  |      |            |     





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 19.    CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (Continued)



STATEMENTS OF EARNINGS

Years Ended December
31, 2002, 2001 and 2000



|                                                                        |  | 2002 |           |   | 2001 |   |           | 2000
|----------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ----
|Dividend received from Redlands                                         |  | $    |          |   |      | $ | 125,000   |     
|Interest income on capital securities of subsidiary trust               |  |      | 3,000     |   |      |   |          |     
|Interest expense                                                        |  |      | 164,000   |   |      |   | 79,000    |     
|Other expense                                                           |  |      | 477,000   |   |      |   | 224,000   |     
|                                                                        |  |      |           |   |      |   |           |     
|Income (loss) before equity in undistributed net income of subsidiaries |  |      | (638,000  | ) |      |   | (178,000  | )   
|Tax benefit                                                             |  |      | 259,000   |   |      |   | 118,000   |     
|                                                                        |  |      |           |   |      |   |           |     
|                                                                        |  |      | (379,000  | ) |      |   | (60,000   | )   
|Equity in undistributed net income of subsidiaries                      |  |      | 2,085,000 |   |      |   | 1,107,000 |     
|                                                                        |  |      |           |   |      |   |           |     
|Net income                                                              |  | $    | 1,706,000 |   |      | $ | 1,047,000 |     
|                                                                        |  |      |           |   |      |   |           |     



STATEMENTS OF CASH FLOWS

Years Ended December 31, 2002, 2001 and 2000



|                                                                                           |  | 2002 |            |   | 2001 |   |            | 2000 | 
|------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|OPERATING ACTIVITIES                                                                       |  |      |            |   |      |   |            |      | 
|Net income                                                                                 |  | $    | 1,706,000  |   |      | $ | 1,047,000  |      | 
|Adjustment to reconcile net income to net cash provided by (used in) operating
activities: |  |      |            |   |      |   |            |      | 
|Equity in undistributed income of subsidiaries                                             |  |      | (2,085,000 | ) |      |   | (1,107,000 | )    | 
|Amortization                                                                               |  |      | 1,000      |   |      |   | -         |      | 
|Decrease (increase) in other assets                                                        |  |      | (256,000   | ) |      |   | 16,000     |      | 
|Increase in other liabilities                                                              |  |      | 191,000    |   |      |   | -         |      | 
|                                                                                           |  |      |            |   |      |   |            |      | 
|Net cash provided by (used in) operating activities                                        |  |      | (443,000   | ) |      |   | (44,000    | )    | 
|                                                                                           |  |      |            |   |      |   |            |      | 



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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 19.    CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (Continued)



STATEMENTS OF CASH FLOWS (Continued)

Years
Ended December 31, 2002, 2001 and 2000



|                                                           |  | 2002 |            |   | 2001 |   |             | 2000 | 
|---------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ----------- | ---- | 
|INVESTING ACTIVITIES                                       |  |      |            |   |      |   |             |      | 
|Acquisition of Palomar Community Bank                      |  | $    |           |   |      | $ | (10,688,000 | )    | 
|Legal costs associated with investment in subsidiary trust |  |      | (12,000    | ) |      |   |            |      | 
|Advance to subsidiary trust                                |  |      | (83,000    | ) |      |   |            |      | 
|                                                           |  |      |            |   |      |   |             |      | 
|Net cash used in investing activities                      |  |      | (95,000    | ) |      |   | (10,688,000 | )    | 
|                                                           |  |      |            |   |      |   |             |      | 
|                                                          
|FINANCING ACTIVITIES                                       |  |      |            |   |      |   |             |      | 
|Proceeds from long-term debt                               |  |      | 5,820,000  |   |      |   | 4,000,000   |      | 
|Repayment of long-term debt                                |  |      | (3,500,000 | ) |      |   | (500,000    | )    | 
|Proceeds from issuance of common stock                     |  |      |           |   |      |   | 7,053,000   |      | 
|Cash dividends paid                                        |  |      |           |   |      |   | (35,000     | )    | 
|Cash dividends paid in lieu of fractional shares           |  |      | (3,000     | ) |      |   |            |      | 
|Payments to acquire common stock and stock options         |  |      |           |   |      |   |            |      | 
|Proceeds from exercise of stock options                    |  |      | 7,000      |   |      |   | 183,000     |      | 
|                                                           |  |      |            |   |      |   |             |      | 
|Net cash provided by (used in) financing activities        |  |      | 2,324,000  |   |      |   | 10,701,000  |      | 
|                                                           |  |      |            |   |      |   |             |      | 
|                                                          
|Net increase in cash and cash equivalents                  |  |      | 1,786,000  |   |      |   | (31,000     | )    | 
|                                                          
|Cash and cash equivalents, beginning of year               |  |      | 50,000     |   |      |   | 81,000      |      | 
|                                                           |  |      |            |   |      |   |             |      | 
|                                                          
|Cash and cash equivalents, end of year                     |  | $    | 1,836,000  |   |      | $ | 50,000      |      | 
|                                                           |  |      |            |   |      |   |             |      | 





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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 20.    FEDERAL HOME LOAN BANK LINE OF CREDIT



Redlands is a member of the Federal Home Loan Bank of San Francisco (FHLB). Redlands has an available line of credit with the FHLB at an interest rate, which is determined daily. Borrowings under the
line are limited to eligible collateral. All borrowings from the FHLB are secured by a blanket lien on qualified collateral. There were no outstanding advances at December 31, 2002 and 2001.



Note 21.    SALE OF INVESTMENT IN BANCDATA SOLUTIONS,
INC.



During April 2000, Redlands sold its
investment in Bancdata Solutions, Inc., its data processing center. The gain from the sale amounted to $906,000.



Note 22.    FAIR VALUE OF FINANCIAL INSTRUMENTS



SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosures of estimated fair values of all
financial instruments where it is practicable to estimate such values. In cases where quoted market prices are not available, fair values are based upon estimates using present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying
value of the Corporation.



The following methods
and assumptions were used by the Company is estimating fair value disclosures for financial instruments:



Cash and Cash Equivalents The carrying amounts of cash and short-term instruments approximate fair values.



Interest-Bearing Deposits in Financial
Institutions  The carrying amounts of interest-bearing deposits, which mature within ninety days, approximate their fair values.



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CENTENNIAL
FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 22.    FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)



Investment Securities  Fair values for securities, excluding Federal Home Loan Bank stock, are based on quoted market
prices. The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.



Loans Held for Sale  Fair values of loans held for sale are based on commitments on hand from investors or prevailing
market prices.



Loans  For
variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (e.g., one-to-four family residential), credit card loans, and other consumer
loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans (e.g., commercial real estate and investment property
mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for non- performing
loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.



Accrued Interest Receivable  The carrying amounts of accrued interest receivable approximate fair value.



Cash Surrender Value of Life Insurance 
The carrying amounts of life insurance approximate fair value.



Deposits  The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.



Long-Term Debt  The fair values of the
Companys long-term debt is estimated using discounted cash flow analyses based on the Companys current incremental borrowing rates for similar types of borrowing arrangements.



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CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 22.    FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)



Accrued Interest
Payable  The carrying amounts of accrued interest payable approximate fair value.



Off-Balance-Sheet Instruments  Fair values for off-balance-sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the counterparties credit standing. The carrying amount of commitments to extend credit approximates fair value.



The estimated fair value and related carrying or notional amounts of the Companys financial instruments
are as follows:



|                                                                                                  |  | December 31, 2002 |             | December 31, 2001
|------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | -----------------
|                                                                                                  |  | Carrying Amount   |             | Fair Value       
|Financial assets:                                                                                 |  |                   |             |                  
|Cash and cash equivalents                                                                         |  | $                 | 14,020,000  |                  
|Interest bearing deposits in financial institutions                                               |  |                   | 5,151,000   |                  
|Investment securities, available for sale                                                         |  |                   | 32,822,000  |                  
|Federal Home Loan Bank stock                                                                      |  |                   | 329,000     |                  
|Loans, net                                                                                        |  |                   | 141,112,000 |                  
|Accrued interest receivable                                                                       |  |                   | 673,000     |                  
|Cash surrender value of life insurance                                                            |  |                   | 5,926,000   |                  
|Financial liabilities:                                                                            |  |                   |             |                  
|Deposits                                                                                          |  |                   | 183,188,000 |                  
|Accrued interest payable                                                                          |  |                   | 264,000     |                  
|Long-term debt                                                                                    |  |                   |            |                  
|Redeemable preferred securities of subsidiary trust holding solely junior subordinated
debentures |  |                   | 6,000,000   |                  
|Off-balance sheet credit related to financial instruments:                                        |  |                   |             |                  
|Commitments to extend credit                                                                      |  | $                 | 69,099,000  |                  



The fair
value estimates presented herein are based on pertinent information available to management as of December 31, 2002 and 2001. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and therefore, current estimates of fair value may differ significantly from the amounts presented herein.



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ITEM 13.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



(A) EXHIBITS



|Exhibit Number |  | Description of Exhibits                                                                                                                                                                             
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Articles of Incorporation of Centennial First Financial Services. (Incorporated by reference from Exhibit to the
Companys Registration Statement on Form S-4 filed on October 20, 1999.)           
|              
|3.2            |  | Amendment to Articles of Incorporation of Centennial First Financial Services filed May 5, 2000 (Incorporated by
reference to Exhibit to Companys Form 10-QSB for the quarter ended June 30, 2002.)
|              
|3.3            |  | Amendment to Articles of Incorporation of Centennial First Financial Services filed February 18, 2003 (Incorporated by
reference to Exhibit to Companys Form SB-2 filed on March 13, 2003.         
|              
|3.4            |  | Restated By-Laws of Centennial First Financial Services (Incorporated by reference from Exhibit to the Companys
Form 10-QSB for the quarter ended June 30, 2002.)                                  
|              
|10.1           |  | Brea Branch Lease, dated September 20, 2000 (Incorporated by reference from Exhibit to the Companys Registration
Statement on Form SB-2 filed on March 21, 2001.)                                  
|              
|10.2           |  | Form of Indemnification Agreement (Incorporated by reference from Exhibit to the Companys Registration Statement
on Form SB-2 filed on March 21, 2001.)                                            
|              
|10.3           |  | Employment Agreement of Richard Sanborn, dated December 1, 2000 (Incorporated by reference from Exhibit to the
Companys Form 10-KSB for the fiscal year ended December 31, 2001.)                  
|              
|10.4           |  | Salary Continuation plan of Timothy P. Walbridge, dated August 1, 2001 (Incorporated by reference from Exhibit to the
Companys Form 10-KSB for the fiscal year ended December 31, 2001.)           
|              
|10.5           |  | Salary Continuation plan for Beth Sanders, dated October 1, 2001 (Incorporated by reference from Exhibit to the
Companys Form 10-KSB for the fiscal year ended December 31, 2001.)                 
|              
|10.6           |  | Salary Continuation plan of Richard Sanborn, dated October 1, 2001 (Incorporated by reference from Exhibit to the
Companys Form 10-KSB for the fiscal year ended December 31, 2001.)               



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|     
|-----
|10.7 
|     
|10.8 
|     
|10.9 
|     
|10.10
|     
|10.11
|     
|10.12
|     
|10.13
|     
|10.14
|     
|10.15
|     
|10.16
|     
|10.17
|     
|10.18



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|     
|-----
|10.19
|     
|10.20
|     
|10.21
|     
|10.22
|     
|10.23
|     
|11.1 
|     
|21.1 
|     
|23.1 
|     
|99.1 



(B) REPORTS ON FORM 8-K



1st Centennial Bancorp filed no reports on form 8-K during the fourth quarter of 2002.





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Signatures



Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amendment on Form 10-KSB/A to be signed on its behalf by the undersigned, thereunto duly authorized, on the 24thday of April, 2003.



/s/ Timothy P. WalbridgeTimothy P. Walbridge President and Chief Executive Officer






/s/ Beth SandersBeth Sanders Executive Vice President
and Chief Financial
Officer




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Certification of Chief Financial Officer



I, Beth Sanders, certify that:



1.    I have reviewed this amendment to annual report on Form 10-KSB/A of 1st Centennial Bancorp;



2.    Based on my knowledge, this annual 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 annual report;



3.    Based on my knowledge, the financial
statements, and other financial information included in this annual 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 annual
report;



Date: April 24, 2003







|                                                             
|-------------------------------------------------------------
|/s/ Beth Sanders                                             
|Beth Sanders Executive Vice President/Chief Financial Officer



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Certification of Chief Executive Officer



I, Timothy P. Walbridge, certify that:



1.    I have reviewed this amendment to annual report on Form 10-KSB/A of 1st Centennial Bancorp;



2.    Based on my knowledge, this annual 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 annual report;



3.    Based on my knowledge, the financial
statements, and other financial information included in this annual 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 annual
report;



Date: April 24, 2003







|                                                          
|----------------------------------------------------------
|/s/ Timothy P. Walbridge                                  
|Timothy P. Walbridge President and Chief Executive Officer







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