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UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

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Quarterly report under section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended June 30, 2003

Commission file number: 000-29105

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1st CENTENNIAL BANCORP(Name of Small Business Issuer as specified in its charter)

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

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

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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  o

The number of shares of Common Stock of the registrant outstanding as of August 13, 2003 was 1,502,281.

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##### Table of Contents

TABLE OF CONTENTS

|        |                                                                                       | PAGE
|------- | ------------------------------------------------------------------------------------- | ----
|PART I  |                                                                                       |     
|ITEM 1  | Financial statements                                                                  | 2   
|ITEM 2  | Managements Discussion and Analysis of Financial Condition and Results of Operations | 10  
|ITEM 3  | Controls and Procedures                                                               | 34  
|        |                                                                                       |     
|PART II |                                                                                       |     
|ITEM 1  | Legal Proceedings                                                                     | 35  
|ITEM 2  | Changes in Securities and Use of Proceeds                                             | 35  
|ITEM 3  | Defaults Upon Senior Securities                                                       | 35  
|ITEM 4  | Submission of Matters to a Vote of Security Holders                                   | 36  
|ITEM 5  | Other Information                                                                     | 36  
|ITEM 6  | Exhibits and Reports on Form 8-K                                                      | 37  
|        | Signature                                                                             | 40  



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##### Table of Contents

1ST CENTENNIAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITIONJune 30, 2003 &
December 31, 2002

|                                                                                                                                                                     |  |  |      |             |      |   |        
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---- | ----------- | ---- | - | -------
|Dollar amounts in thousands                                                                                                                                          |  |  | 2003 |             | 2002
|                                                                                                                                                                     |  |  |      |             |     
|                                                                                                                                                                     |  |  |      | (unaudited) |      |   |        
|ASSETS                                                                                                                                                               |  |  |      |             |      |  
|Cash and due from banks                                                                                                                                              |  |  | $    | 12,024      |      | $ | 12,010 
|Federal funds sold                                                                                                                                                   |  |  |      | 9,995       |      |   | 2,010  
|                                                                                                                                                                     |  |  |     
|Total cash and cash equivalents                                                                                                                                      |  |  |      | 22,019      |      |   | 14,020 
|Interest-bearing deposits in financial institutions                                                                                                                  |  |  |      | 5,071       |      |   | 5,151  
|Investment securities, available for sale                                                                                                                            |  |  |      | 28,668      |      |   | 32,822 
|Federal Home Loan Bank stock                                                                                                                                         |  |  |      | 360         |      |   | 329    
|Loans, net                                                                                                                                                           |  |  |      | 163,317     |      |   | 141,112
|Accrued interest receivable                                                                                                                                          |  |  |      | 793         |      |   | 673    
|Premises and equipment, net                                                                                                                                          |  |  |      | 2,708       |      |   | 2,626  
|Goodwill                                                                                                                                                             |  |  |      | 4,180       |      |   | 4,180  
|Cash surrender value of life insurance                                                                                                                               |  |  |      | 6,069       |      |   | 5,926  
|Other assets                                                                                                                                                         |  |  |      | 1,065       |      |   | 1,019  
|                                                                                                                                                                     |  |  |     
|Total assets                                                                                                                                                         |  |  | $    | 234,250     |      | $ | 207,858
|                                                                                                                                                                     |  |  |     
|LIABILITIES                                                                                                                                                          |  |  |      |             |      |   |        
|Deposits:                                                                                                                                                            |  |  |      |             |      |   |        
|Noninterest-bearing                                                                                                                                                  |  |  | $    | 63,221      |      | $ | 53,896 
|Interest-bearing and NOW accounts                                                                                                                                    |  |  |      | 52,660      |      |   | 48,985 
|Savings                                                                                                                                                              |  |  |      | 17,738      |      |   | 17,676 
|Time deposits $100,000 or greater                                                                                                                                    |  |  |      | 38,406      |      |   | 34,575 
|Other time deposits                                                                                                                                                  |  |  |      | 29,209      |      |   | 28,056 
|                                                                                                                                                                     |  |  |     
|Total deposits                                                                                                                                                       |  |  |      | 201,234     |      |   | 183,188
|Accrued interest payable                                                                                                                                             |  |  |      | 298         |      |   | 264    
|Other liabilities                                                                                                                                                    |  |  |      | 947         |      |   | 1,213  
|Borrowings from Federal Home Loan Bank                                                                                                                               |  |  |      | 2,500       |      |   |       
|Redeemable Preferred Securities of Subsidiary trust holding solely Junior Subordinated Debentures                                                                    |  |  |      | 6,000       |      |   | 6,000  
|                                                                                                                                                                     |  |  |     
|Total liabilities                                                                                                                                                    |  |  |      | 210,979     |      |   | 190,665
|                                                                                                                                                                     |  |  |     
|STOCKHOLDERS EQUITY                                                                                                                                                 |  |  |      |             |      |   |        
|Common stock, no par value; authorized 10,000,000 shares, issued and outstanding 1,500,570 and 1,202,517 shares at June 30, 2003
and December 31, 2002, respectively |  |  |      | 20,431      |      |   | 13,913 
|Retained earnings                                                                                                                                                    |  |  |      | 2,545       |      |   | 2,957  
|Accumulated other comprehensive income                                                                                                                               |  |  |      | 295         |      |   | 323    
|                                                                                                                                                                     |  |  |     
|Total stockholders equity                                                                                                                                           |  |  |      | 23,271      |      |   | 17,193 
|                                                                                                                                                                     |  |  |     
|Total liabilities and stockholders equity                                                                                                                           |  |  | $    | 234,250     |      | $ | 207,858
|                                                                                                                                                                     |  |  |     

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1ST CENTENNIAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGSThree and Six Months Ended June 30, 2003 and 2002 (unaudited)

|                                                      |  |  |                             |       |      |                           |       |  |      |       |  |   |      
|----------------------------------------------------- |  |  | --------------------------- | ----- | ---- | ------------------------- | ----- |  | ---- | ----- |  | - | -----
|                                                      |  |  | Three Months Ended June 30, |       |      | Six Months Ended June 30,
|                                                      |  |  |                             |       |     
|Dollar amounts in thousands, except per share amounts |  |  | 2003                        |       | 2002 |                           | 2003  |  | 2002
|                                                      |  |  |                             |       |      |                           |       |  |     
|Interest income:                                      |  |  |                             |       |      |                           |       |  |      |       |  |   |      
|Interest and fees on loans                            |  |  | $                           | 3,719 |      | $                         | 3,207 |  | $    | 7,237 |  | $ | 6,049
|Deposits in financial institutions                    |  |  |                             | 57    |      |                           | 45    |  |      | 114   |  |   | 105  
|Federal funds sold                                    |  |  |                             | 32    |      |                           | 51    |  |      | 36    |  |   | 84   
|Investments                                           |  |  |                             | 301   |      |                           | 390   |  |      | 597   |  |   | 799  
|                                                      |  |  |                             |       |      |                           |      
|Total interest income                                 |  |  |                             | 4,109 |      |                           | 3,693 |  |      | 7,984 |  |   | 7,037
|                                                      |  |  |                             |       |      |                           |      
|Interest expense:                                     |  |  |                             |       |      |                           |       |  |      |       |  |   |      
|Demand and savings deposits                           |  |  |                             | 134   |      |                           | 102   |  |      | 270   |  |   | 192  
|Time deposits $100,000 or greater                     |  |  |                             | 221   |      |                           | 232   |  |      | 454   |  |   | 489  
|Other time deposits                                   |  |  |                             | 91    |      |                           | 160   |  |      | 194   |  |   | 422  
|Interest on borrowed funds                            |  |  |                             | 94    |      |                           | 94    |  |      | 184   |  |   | 150  
|                                                      |  |  |                             |       |      |                           |      
|Total interest expense                                |  |  |                             | 540   |      |                           | 588   |  |      | 1,102 |  |   | 1,253
|                                                      |  |  |                             |       |      |                           |      
|Net interest income                                   |  |  |                             | 3,569 |      |                           | 3,105 |  |      | 6,882 |  |   | 5,784
|Provision for loan losses                             |  |  |                             | 120   |      |                           | 80    |  |      | 210   |  |   | 161  
|                                                      |  |  |                             |       |      |                           |      
|Net interest income after provision for loan losses   |  |  |                             | 3,449 |      |                           | 3,025 |  |      | 6,672 |  |   | 5,623
|                                                      |  |  |                             |       |      |                           |      
|Other income:                                         |  |  |                             |       |      |                           |       |  |      |       |  |   |      
|Customer service fees                                 |  |  |                             | 334   |      |                           | 264   |  |      | 675   |  |   | 546  
|Gain from sale of loans                               |  |  |                             | 230   |      |                           | 95    |  |      | 327   |  |   | 339  
|Other income                                          |  |  |                             | 231   |      |                           | 198   |  |      | 405   |  |   | 275  
|                                                      |  |  |                             |       |      |                           |      
|Total other income                                    |  |  |                             | 795   |      |                           | 557   |  |      | 1,407 |  |   | 1,160
|                                                      |  |  |                             |       |      |                           |      
|Other expenses:                                       |  |  |                             |       |      |                           |       |  |      |       |  |   |      
|Salaries and employee benefits                        |  |  |                             | 1,959 |      |                           | 1,389 |  |      | 3,794 |  |   | 2,771
|Net occupancy expense                                 |  |  |                             | 403   |      |                           | 352   |  |      | 776   |  |   | 683  
|Other operating expense                               |  |  |                             | 1,176 |      |                           | 1,346 |  |      | 2,075 |  |   | 2,183
|                                                      |  |  |                             |       |      |                           |      
|Total other expenses                                  |  |  |                             | 3,538 |      |                           | 3,087 |  |      | 6,645 |  |   | 5,637
|                                                      |  |  |                             |       |      |                           |      
|Income before provision for income taxes              |  |  |                             | 706   |      |                           | 495   |  |      | 1,434 |  |   | 1,146
|Provision for income taxes                            |  |  |                             | 234   |      |                           | 128   |  |      | 493   |  |   | 353  
|                                                      |  |  |                             |       |      |                           |      
|Net income                                            |  |  | $                           | 472   |      | $                         | 367   |  | $    | 941   |  | $ | 793  
|                                                      |  |  |                             |       |      |                           |      
|Basic earnings per share                              |  |  | $                           | 0.34  |      | $                         | 0.29  |  | $    | 0.71  |  | $ | 0.63 
|                                                      |  |  |                             |       |      |                           |      
|Diluted earnings per share                            |  |  | $                           | 0.33  |      | $                         | 0.29  |  | $    | 0.68  |  | $ | 0.63 
|                                                      |  |  |                             |       |      |                           |      

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1ST CENTENNIAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITYSix Months Ended June 30, 2003 and 2002

|                                                                                             |  |  |              |        |                   |   |                                               |   |       |     |   |   |        |  
|-------------------------------------------------------------------------------------------- |  |  | ------------ | ------ | ----------------- | - | --------------------------------------------- | - | ----- | --- | - | - | ------ | -
|Dollar amounts in thousands                                                                  |  |  | Common Stock |        | Retained Earnings |   | Accumulated Other Comprehensive Income (Loss) |   | Total |    
|                                                                                             |  |  |              |        |                   |   |                                               |   |       |    
|BALANCE, DECEMBER 31, 2001                                                                   |  |  | $            | 12,964 |                   | $ | 2,196                                         |   | $     | 112 |   | $ | 15,272 |  
|Comprehensive income:                                                                        |  |  |              |        |                   |   |                                               |   |       |     |   |   |        |  
|Net income                                                                                   |  |  |              |       |                   |   | 793                                           |   |       |    |   |   | 793    |  
|Change in net unrealized gain on investment securities available for sale, after tax
effects |  |  |              |       |                   |   |                                              |   |       | 200 |   |   | 200    |  
|                                                                                             |  |  |              |        |                   |   |                                               |  
|Total comprehensive income                                                                   |  |  |              |        |                   |   |                                               |   |       |     |   |   | 993    |  
|                                                                                             |  |  |              |        |                   |   |                                               |  
|Stock dividend                                                                               |  |  |              | 942    |                   |   | (942                                          | ) |       |    |   |   |       |  
|Cash paid in lieu of fractional shares                                                       |  |  |              |       |                   |   | (3                                            | ) |       |    |   |   | (3     | )
|Exercise of stock options, including tax benefit                                             |  |  |              | 5      |                   |   |                                              |   |       |    |   |   | 5      |  
|                                                                                             |  |  |              |        |                   |   |                                               |  
|BALANCE, JUNE 30, 2002 (unaudited)                                                           |  |  | $            | 13,911 |                   | $ | 2,044                                         |   | $     | 312 |   | $ | 16,267 |  
|                                                                                             |  |  |              |        |                   |   |                                               |  
|BALANCE, DECEMBER 31, 2002                                                                   |  |  | $            | 13,913 |                   | $ | 2,957                                         |   | $     | 323 |   | $ | 17,193 |  
|Comprehensive income:                                                                        |  |  |              |        |                   |   |                                               |   |       |     |   |   |        |  
|Net income                                                                                   |  |  |              |       |                   |   | 941                                           |   |       |    |   |   | 941    |  
|Change in net unrealized gain on investment securities available for sale, after tax
effects |  |  |              |       |                   |   |                                              |   |       | (28 | ) |   | (28    | )
|                                                                                             |  |  |              |        |                   |   |                                               |  
|Total comprehensive income1                                                                  |  |  |              |        |                   |   |                                               |   |       |     |   |   | 913    |  
|                                                                                             |  |  |              |        |                   |   |                                               |  
|Stock dividend                                                                               |  |  |              | 1,347  |                   |   | (1,347                                        | ) |       |    |   |   |       |  
|Cash paid in lieu of Fractional shares                                                       |  |  |              |       |                   |   | (6                                            | ) |       |    |   |   | (6     | )
|225,000 shares common stock  New Issue                                                      |  |  |              | 4,871  |                   |   |                                               |   |       |     |   |   | 4,871  |  
|Private placement  Common stock (See Note 6)                                                |  |  |              | 168    |                   |   |                                               |   |       |     |   |   | 168    |  
|Exercise of stock options, including tax benefit                                             |  |  |              | 132    |                   |   |                                              |   |       |    |   |   | 132    |  
|                                                                                             |  |  |              |        |                   |   |                                               |  
|BALANCE, JUNE 30, 2003 (unaudited)                                                           |  |  | $            | 20,431 |                   | $ | 2,545                                         |   | $     | 295 |   | $ | 23,271 |  
|                                                                                             |  |  |              |        |                   |   |                                               |  

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1ST CENTENNIAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWSSix Months
Ended June 30, 2003 and 2002

|                                                                                  |                  |  |                  |         |   |   |         |  
|--------------------------------------------------------------------------------- | ---------------- |  | ---------------- | ------- | - | - | ------- | -
|Dollar amounts in thousands                                                       | 2003 (unaudited) |  | 2002 (unaudited) |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |                  |  |                  |         |   |   |         |  
|Net income                                                                        |                  |  | $                | 941     |   | $ | 793     |  
|Adjustments to reconcile net income to net cash provided by operating activities: |                  |  |                  |         |   |   |         |  
|Depreciation and amortization                                                     |                  |  |                  | 335     |   |   | 287     |  
|Provision for loan losses                                                         |                  |  |                  | 210     |   |   | 161     |  
|Loss (Gain) from sale of securities                                               |                  |  |                  | 4       |   |   |        |  
|Loss (Gain) from sale of loans                                                    |                  |  |                  | (327    | ) |   | (339    | )
|Amortization of deferred loan fees                                                |                  |  |                  | (383    | ) |   | (241    | )
|Amortization of excess purchase value of deposits                                 |                  |  |                  | (88     | ) |   | (64     | )
|Amortization of excess purchase value of loans                                    |                  |  |                  |        |   |   | 60      |  
|Deferred income tax (benefit) provision                                           |                  |  |                  | (19     | ) |   | 541     |  
|Amortization of premiums on investment  securities available for sale             |                  |  |                  | 262     |   |   | 154     |  
|Increase in cash surrender value of life insurance                                |                  |  |                  | (154    | ) |   | (94     | )
|Decrease (increase) in assets:                                                    |                  |  |                  |         |   |   |         |  
|Accrued interest receivable                                                       |                  |  |                  | (120    | ) |   | 4       |  
|Other assets                                                                      |                  |  |                  | 240     |   |   | 2,324   |  
|Increase (decrease) in liabilities:                                               |                  |  |                  |         |   |   |         |  
|Accrued interest payable                                                          |                  |  |                  | 34      |   |   | (89     | )
|Other liabilities                                                                 |                  |  |                  | (266    | ) |   | (2,739  | )
|                                                                                  |                  |  |                 
|Net cash provided by operating activities                                         |                  |  |                  | 669     |   |   | 758     |  
|                                                                                  |                  |  |                 
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |                  |  |                  |         |   |   |         |  
|Net decrease in interest-bearing deposits in financial institutions               |                  |  |                  | 80      |   |   | 1,689   |  
|Activity in available for sale securities:                                        |                  |  |                  |         |   |   |         |  
|Net sales and maturities                                                          |                  |  |                  | 3,860   |   |   | 3,347   |  
|Purchases of Federal Home Loan Bank stock                                         |                  |  |                  | (31     | ) |   | (105    | )
|Net increase in loans                                                             |                  |  |                  | (21,705 | ) |   | (12,031 | )
|Additions to bank premises and equipment                                          |                  |  |                  | (417    | ) |   | (236    | )
|                                                                                  |                  |  |                 
|Net cash used in investing activities                                             |                  |  |                  | (18,213 | ) |   | (7,336  | )
|                                                                                  |                  |  |                 

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1ST CENTENNIAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)Six Months Ended June 30, 2003 and 2002

|                                                          |                 |  |                 |        |   |   |        |  
|--------------------------------------------------------- | --------------- |  | --------------- | ------ | - | - | ------ | -
|Dollar amounts in thousands                               | 2003(unaudited) |  | 2002(unaudited) |       
|CASH FLOWS FROM FINANCING ACTIVITIES                      |                 |  |                 |        |   |   |        |  
|Net increase in demand and savings deposits               |                 |  | $               | 13,062 |   | $ | 8,591  |  
|Net increase (decrease) in time deposits                  |                 |  |                 | 4,984  |   |   | (2,855 | )
|Proceeds from Federal Home Loan Bank borrowing            |                 |  |                 | 2,500  |   |   |       |  
|Proceeds from issuance of long-term debt                  |                 |  |                 |       |   |   | 250    |  
|Net proceeds from common stock issuance                   |                 |  |                 | 4,871  |   |   |       |  
|Net proceeds from private placement common stock issuance |                 |  |                 | 130    |   |   |        |  
|Cash paid in lieu of fractional shares                    |                 |  |                 | (6     | ) |   | (3     | )
|Proceeds from exercise of stock options                   |                 |  |                 | 2      |   |   | 5      |  
|                                                          |                 |  |                 |       
|Net cash provided by financing activities                 |                 |  |                 | 25,543 |   |   | 5,988  |  
|                                                          |                 |  |                 |       
|Net (decrease) increase in cash and cash equivalents      |                 |  |                 | 7,999  |   |   | (590   | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD            |                 |  |                 | 14,020 |   |   | 17,543 |  
|                                                          |                 |  |                 |       
|CASH AND CASH EQUIVALENTS, END OF PERIOD                  |                 |  | $               | 22,019 |   | $ | 16,953 |  
|                                                          |                 |  |                 |       
|SUPPLEMENTARY INFORMATION                                 |                 |  |                 |        |   |   |        |  
|Interest paid                                             |                 |  | $               | 1,068  |   | $ | 1,342  |  
|                                                          |                 |  |                 |       
|Income taxes paid                                         |                 |  | $               | 629    |   | $ | 355    |  
|                                                          |                 |  |                 |       

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1ST CENTENNIAL BANCORP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTSJune 30, 2003

Note 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The unaudited financial information included
herein has been prepared in conformity with the accounting principles and practices of 1st Centennial Bancorps (the Company) consolidated financial statements, Note 1, included in the Annual Report for the year ended
December 31, 2002. The accompanying interim consolidated financial statements contained herein are unaudited. However, in the opinion of the Company, all adjustments, consisting of normal recurring items necessary for a fair presentation of the
operating results for the periods shown, have been made. The results of operations for the six months ended June 30, 2003 may not be indicative of operating results for the year ending December 31, 2003. Certain prior year and prior quarter amounts
have been reclassified to conform to current classifications. Cash and cash equivalents consist of cash, due from banks, and federal funds sold.

Note 2.   EARNINGS PER
SHARE

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share
reflects additional common shares that would have been outstanding, if potential dilutive 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 computing basic and diluted earnings per share is as
follows:

|                                        |                                                                                                                 |                         |                  |     |            |                         |                    |  |   |       |   |   |     |  |  |       |  |   |     
|--------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ----------------------- | ---------------- | --- | ---------- | ----------------------- | ------------------ |  | - | ----- | - | - | --- |  |  | ----- |  | - | ----
|                                        | Earnings per share calculation For the three months ended June 30, (in thousands, except for per share amounts)
|                                        |                                                                                                                
|                                        | 2003                                                                                                            |                         | 2002            
|                                        | Net Income                                                                                                      | Weighted Average Shares | Per share Amount |     | Net Income | Weighted Average Shares | Per share Amount 2
|Basic earnings per share                |                                                                                                                 |                         | $                | 472 |            |                         | 1,375              |  | $ | 0.34  |   | $ | 367 |  |  | 1,262 |  | $ | 0.29
|Effect of dilutive shares:              |                                                                                                                 |                         |                  |     |            |                         |                    |  |   |       |   |   |     |  |  |       |  |   |     
|assumed exercise of outstanding options |                                                                                                                 |                         |                  |    |            |                         | 75                 |  |   | (0.01 | ) |   |    |  |  | 8     |  |   |    
|Diluted earnings per share              |                                                                                                                 |                         | $                | 472 |            |                         | 1,450              |  | $ | 0.33  |   | $ | 367 |  |  | 1,270 |  | $ | 0.29

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|                                        |                                                                                                               |                         |                  |     |            |                         |                    |  |   |       |   |   |     |  |  |       |  |   |     
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ----------------------- | ---------------- | --- | ---------- | ----------------------- | ------------------ |  | - | ----- | - | - | --- |  |  | ----- |  | - | ----
|                                        | Earnings per share calculation For the six months ended June 30, (in thousands, except for per share amounts)
|                                        |                                                                                                              
|                                        | 2003                                                                                                          |                         | 2002            
|                                        | Net Income                                                                                                    | Weighted Average Shares | Per share Amount |     | Net Income | Weighted Average Shares | Per share Amount 2
|Basic earnings per share                |                                                                                                               |                         | $                | 941 |            |                         | 1,319              |  | $ | 0.71  |   | $ | 793 |  |  | 1,262 |  | $ | 0.63
|Effect of dilutive shares:              |                                                                                                               |                         |                  |     |            |                         |                    |  |   |       |   |   |     |  |  |       |  |   |     
|assumed exercise of outstanding options |                                                                                                               |                         |                  |    |            |                         | 75                 |  |   | (0.03 | ) |   |    |  |  | 8     |  |   |    
|Diluted earnings per share              |                                                                                                               |                         | $                | 941 |            |                         | 1,394              |  | $ | 0.68  |   | $ | 793 |  |  | 1,270 |  | $ | 0.63

Note 3.   STOCK COMPENSATION PLANS

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.

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 amended 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:

|                                |                              |  |                            |         |       |   |         |  |       |         |  |   |        
|------------------------------- | ---------------------------- |  | -------------------------- | ------- | ----- | - | ------- |  | ----- | ------- |  | - | -------
|                                | Three Months Ending June 30, |  | Six Months Ending June 30,
|                                |                              |  | 2003                       |         | 20022 |   | 2003    |  | 20022
|Net income:                     |                              |  |                            |         |       |   |         |  |       |         |  |   |        
|As reported                     |                              |  | $                          | 472,000 |       | $ | 367,000 |  | $     | 941,000 |  | $ | 793,000
|Pro forma                       |                              |  |                            | 351,000 |       |   | 362,000 |  |       | 720,000 |  |   | 703,000
|Compensation cost, net of taxes |                              |  | $                          | 121,000 |       | $ | 5,000   |  | $     | 221,000 |  | $ | 90,000 
|Basic earnings per share:       |                              |  |                            |         |       |   |         |  |       |         |  |   |        
|As reported                     |                              |  | $                          | 0.34    |       | $ | 0.29    |  | $     | 0.71    |  | $ | 0.63   
|Pro forma                       |                              |  |                            | 0.26    |       |   | 0.29    |  |       | 0.55    |  |   | 0.56   
|Diluted earnings per share:     |                              |  |                            |         |       |   |         |  |       |         |  |   |        
|As reported                     |                              |  | $                          | 0.33    |       | $ | 0.29    |  | $     | 0.68    |  | $ | 0.63   
|Pro forma                       |                              |  |                            | 0.24    |       |   | 0.29    |  |       | 0.52    |  |   | 0.55   

---

2 The 2002 earnings per share calculations have been
adjusted for the 5% stock dividend declared to shareholders of record on February 7, 2003, and distributed March 7, 2003.

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The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for options granted during the
first six months of 2003 and 2002; no dividend yield; expected volatility of 20.28% and 20.08% respectively; risk-free interest rate of 3.33% and 4.05% respectively, and expected life of ten years for both.

Note 4.   OFF-BALANCE SHEET COMMITMENTS

In the normal course of business, there are various commitments outstanding, such as commitments to extend credit, which are
not reflected in the financial statements. At June 30, 2003 and December 31, 2002, such commitments included approximately $1,362,000 and $130,000, respectively, of standby letters of credit, approximately $86,629,000 and $67,545,000, respectively,
of undisbursed lines of credit and undisbursed loans in process, and $2,013,000 and $1,424,000 respectively of available credit card lines. The Companys exposure to credit loss is represented by the contractual amount of these commitments. The
Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Note 5.   MERGER OF PALOMAR COMMUNITY BANK AND 1ST CENTENNIAL
BANK

On May 24, 2002 Palomar Community Bank, which was previously a separate wholly-owned subsidiary of 1st Centennial Bancorp, surrendered its state charter and was merged into and became a branch of
1st Centennial Bank. 1st Centennial Bancorp initially acquired Palomar Community Bank on August 17, 2001.

Note 6.   LAWSUIT SETTLEMENT

Refer to PART II Other Information, Item 1. Legal Proceedings.

Note 7.   COMMON STOCK OFFERING

Refer to
Part II  Other Information, Item 2. Changes In Securities And Use Of Proceeds.

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ITEM 2.   
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

1st Centennial Bancorp (the Company) is the holding company for 1st
Centennial Bank (the Bank) in Redlands, California. This discussion focuses primarily on the results of operations of the Company on a consolidated basis for the six months ended June 30, 2003, and the financial condition of the Company
as of June 30, 2003 and 2002, and December 31, 2002. Consolidated results of operations for the six months ended June 30, 2003 include Palomar Community Bank as a branch of 1st Centennial Bank. Consolidated results of operations for the six months
ended June 30, 2002 include Palomar Community Bank as a separate subsidiary of 1st Centennial Bancorp. (See note 5 on page 9).

Managements discussion and analysis is written to provide
greater insight into the results of operations and the financial condition of the Company and its subsidiaries. For a more complete understanding of the Company and its operations, reference should be made to the financial statements included in
this report and in the Companys 2002 Annual Report on Form 10-KSB.

Certain statements in this Report on Form 10-QSB constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995, which involve risks and uncertainties. The Companys actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include, but
are not limited to, possible future deteriorating economic conditions in the Companys areas of operation; interest rate risk associated with volatile interest rates and related asset-liability matching risk; liquidity risks; risk of
significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; risks of available-for-sale securities declining significantly in value as interest rates
rise or issuers of such securities suffering financial losses; and regulatory risks associated with the variety of current and future regulations to which the Company is subject. All of these risks could have a material adverse impact on the
Companys financial condition, results of operations or prospects, and these risks should be considered in evaluating the Company. For additional information concerning these factors, refer to the Companys 10-KSB for the year ended
December 31, 2002.

CRITICAL ACCOUNTING POLICY

1st Centennials financial statements are prepared in accordance with accounting
principles generally accepted in the United States. The financial information contained within these statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already
occurred. Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, Management has identified its most critical accounting policy to be that related to the allowance for loan losses.
1st Centennial Bancorps allowance for loan loss methodologies incorporate a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan loss that Management believes is appropriate at
each reporting date.

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Quantitative factors include our historical loss experience, delinquency and charge-off trends, collateral values, changes in nonperforming loans, and other factors. Quantitative
factors also incorporate known information about individual loans, including borrowers sensitivity to interest rate movements and borrowers sensitivity to quantifiable external factors including commodity and finished good prices as well
as acts of nature (earthquakes, floods, fires, etc.) that occur in a particular period.

Qualitative factors include the general economic environment in our markets, including economic conditions in Southern
California, and in particular, the state of certain industries. Size and complexity of individual credits in relation to lending officers background and experience levels, loan structure, extent and nature of waivers of existing loan policies
and pace of portfolio growth are other qualitative factors that are considered in our methodologies.

As 1st Centennial adds new products, increases the complexity of its loan portfolio, and
expands its geographic coverage, it will enhance its methodologies to keep pace with the size and complexity of the loan portfolio. Management might report a materially different amount for the provision for loan losses in the statement of
operations to change the allowance for loan losses if its assessment of the above factors were different. This discussion and analysis should be read in conjunction with 1st Centennials financial statements and the accompanying
notes presented elsewhere herein, as well as the portion of this Managements Discussion and Analysis section entitled Financial Condition - Allowance for Loan Losses. Although Management believes the level of the allowance as of
June 30, 2003 is adequate to absorb losses inherent in the loan portfolio, a decline in the local economy may result in increasing losses that cannot reasonably be predicted at this time.

RESULTS OF OPERATIONS

The Company reported net income of $472,000 or $0.34 per basic share and $0.33 per diluted share for the second quarter of 2003 and $941,000 or $0.71 per
basic share and $0.68 per diluted share for the first six months of 2003. This compares to net income of $367,000, or $0.29 per basic share and diluted share, and $793,000 or $0.63 per basic share and diluted share for the same periods in 2002.
Earnings per share for 2002 have been restated to reflect the 5% stock dividends paid in March 2003 and April 2002.

Return on average assets and return on average equity for the second quarter of 2003 was
0.83% and 9.42% respectively, as compared to 0.70% and 9.14% respectively, for the same period in 2002. Return on average assets and return on average equity for the six months ended June 30, 2003 was 0.86% and 10.14% respectively, as compared to
0.78% and 10.00% respectively, for the same period in 2002. Average interest-earning assets for the first six months of 2003 grew $16.4 million or 9.2%, and total income was $1.2 million or 14.6% higher during this same period. This increased the
return on average assets. The Companys focus is on steady, controlled growth while at the same time emphasizing increased income from fee sources.

NET INTEREST INCOME/NET INTEREST
MARGIN

The principal component of the Companys earnings is net interest income, which is the difference between the interest and fees earned on loans and investments, and the interest paid on
deposits and borrowed funds. When net interest income is expressed as a percentage of average earning

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assets, the result is the net interest margin. The net interest spread is the yield on average earning assets minus the average cost of interest-bearing deposits and borrowed funds.
The Companys net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the
strength of the economy, in general, and the local economies in which the Company conducts business.

For the six months ended June 30, 2003, net interest income before the provision for loan losses was $6.9
million. This represented an increase of $1.1 million, or 19.0%, over net interest income of $5.8 million for the six months ended June 30, 2002. The increase in net interest income for the first six months of 2003 compared to 2002 was primarily the
result of a $23.3 million increase in average total loans and a 21 basis point increase in average loan yield for the six months ended June 30, 2003 compared to the same period in 2002. Average total loans increased from $130.6 million for the six
months ended June 30, 2002 to $153.9 million for the same period in 2003. Total interest earning assets averaged $195.2 million for the first six months of 2003. This represented an increase of $16.4 million, or 9.2%, compared to average total
interest earning assets of $178.8 million for the first six months of 2002.

The net interest margin measures net interest income as a percentage of average earning assets. The net interest margin can be
affected by changes in the yield on earning assets and the cost of interest-bearing liabilities, as well as changes in the level of interest-bearing liabilities in proportion to earning assets. The net interest margin can also be affected by changes
in the mix of earning assets as well as the mix of interest-bearing liabilities. The Companys net interest margin was 7.11% for the first six months of 2003, compared to 6.47% for the same 2002 period. The rate paid on total average interest
bearing deposits, other borrowings, and redeemable preferred securities decreased by 0.19% in the first six months of 2003, and the yield on total interest earning assets increased by 0.38%. The primary reason for the increase in the net interest
margin was an increase in the volume of earning assets and an increase in the overall yield discussed below, and a decline in rates on interest-bearing liabilities.

The yield on average interest earning
assets increased in the first six months of 2003 to 8.25% from 7.87% in the same period of 2002. The increase in the yield on average earning assets is primarily due to the $23.3 million increase in average total loans during the first six months of
2003, compared to 2002, as well as an increase in the yield on loans. The continued low interest rates during the first half of 2003 kept many of our variable rate loans at their interest rate floors, which contributed to a higher loan yield in the
first six months of 2003. This increase in average loans, and the 9.48% yield on these average loans during the first six months of 2003, was 21 basis points higher than the first six months of 2002. These two facts contributed to the favorable
higher second quarter yield on average interest earning assets.

The cost of average interest-bearing liabilities, including borrowed funds and redeemable preferred securities, decreased to 1.55% for the six
months ended June 30, 2003, compared to a cost of 1.74% for the first six months of 2002. The decrease was primarily the result of higher rate certificates of deposit maturing and renewed at interest rates that reflect the current lower rate
environment. The decrease in the cost of average interest-bearing liabilities, including borrowed funds, was also influenced by a decrease in the cost of borrowed funds. The cost of borrowed funds was 3.61% for the six months ended June 30, 2003
compared to 3.74% for the same period

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in 2002. The Companys reference rate averaged 4.75% during the first six months of 2002, compared to 4.25% for the first six months of 2003.

The Company reported total interest income of $8.0 million for the six months ended June 30, 2003, which represented an increase of $947,000, or 13.5%, over total interest income of $7.0 million for the six months ended June
30, 2002. The increase in total interest income for the first six months of 2003 compared to 2002 was mainly due to an increase of approximately $1.2 million in interest and fees on loans. The increase in interest and fees on loans was due to an
increase in the average balance of total loans for the first six months of 2003 compared to 2002, coupled with an increase in average loan interest rates.

Interest expense totaled $1.1 million for the six
months ended June 30, 2003, which represented a decrease of $151,000, or 12.1%, over total interest expense of $1.3 million for the six months ended June 30, 2002. The decrease in interest expense was primarily due to certificates of deposit that
have matured and renewed at interest rates which are reflective of the current lower interest rate environment.

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##### Table of Contents

The following tables shows the average interest-earning assets and interest-bearing liabilities; the amount of interest income or interest expense; and the average yield or rate for
each category of interest-earning assets and interest bearing liabilities and the net interest margin (net interest income divided by average earning assets) for the periods indicated.

Distribution, Yield and Rate Analysis of Net Income

|                                                                                                  |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |       |  |  |      |  
|------------------------------------------------------------------------------------------------- | ------------------------------------ |  | ------------------------ | ------- | ------------------- | - | --------------- |  | ------------------------ | ---- | ------------------- | - | ------- |  | - | ----- |  |  | ---- | -
|                                                                                                  |                                      | 
|                                                                                                  | For the Three Months Ending June 30, | 
|                                                                                                  | 2003                                 |  | 2002                     |         |                    
|                                                                                                  | Average Balance                      |  | Interest Income/ Expense |         | Average Rate/Yield3 |   | Average Balance |  | Interest Income/ Expense |      | Average Rate/Yield3 |  
|                                                                                                  | (Dollars in Thousands)               | 
|Interest-earning Assets:                                                                          |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |       |  |  |      |  
|Federal funds sold                                                                                |                                      |  | $                        | 10,616  |                     | $ | 32              |  |                          | 1.21 | %                   | $ | 13,872  |  | $ | 51    |  |  | 1.47 | %
|Interest-bearing deposits in financial institutions                                               |                                      |  |                          | 5,055   |                     |   | 57              |  |                          | 4.52 | %                   |   | 4,077   |  |   | 45    |  |  | 4.42 | %
|Investment securities:4                                                                           |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |       |  |  |      |  
|Taxable                                                                                           |                                      |  |                          | 25,004  |                     |   | 256             |  |                          | 4.11 | %                   |   | 27,636  |  |   | 321   |  |  | 4.65 | %
|Non-taxable                                                                                       |                                      |  |                          | 3,989   |                     |   | 45              |  |                          | 4.52 | %                   |   | 4,101   |  |   | 69    |  |  | 6.73 | %
|                                                                                                  |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |      
|Total investments                                                                                 |                                      |  |                          | 44,664  |                     |   | 390             |  |                          | 3.50 | %                   |   | 49,686  |  |   | 486   |  |  | 3.91 | %
|Loans5                                                                                            |                                      |  |                          | 157,500 |                     |   | 3,719           |  |                          | 9.47 | %                   |   | 133,173 |  |   | 3,207 |  |  | 9.63 | %
|                                                                                                  |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Total interest-earning assets                                                                     |                                      |  | $                        | 202,164 |                     | $ | 4,109           |  |                          | 8.15 | %                   | $ | 182,859 |  | $ | 3,693 |  |  | 8.08 | %
|                                                                                                  |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Interest-bearing Liabilities:                                                                     |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |       |  |  |      |  
|Interest-bearing deposits                                                                         |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |       |  |  |      |  
|Interest-bearing demand deposits                                                                  |                                      |  | $                        | 17,572  |                     | $ | 12              |  |                          | 0.27 | %                   | $ | 22,577  |  | $ | 9     |  |  | 0.16 | %
|Money market deposits                                                                             |                                      |  |                          | 34,405  |                     |   | 94              |  |                          | 1.10 | %                   |   | 33,512  |  |   | 67    |  |  | 0.80 | %
|Savings deposits                                                                                  |                                      |  |                          | 16,921  |                     |   | 28              |  |                          | 0.66 | %                   |   | 19,567  |  |   | 26    |  |  | 0.53 | %
|Time deposits $100,000 or greater                                                                 |                                      |  |                          | 36,792  |                     |   | 221             |  |                          | 2.41 | %                   |   | 29,805  |  |   | 232   |  |  | 3.11 | %
|Other time deposits                                                                               |                                      |  |                          | 28,424  |                     |   | 91              |  |                          | 1.28 | %                   |   | 31,575  |  |   | 160   |  |  | 2.03 | %
|                                                                                                  |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Total interest-bearing deposits                                                                   |                                      |  |                          | 134,114 |                     |   | 446             |  |                          | 1.33 | %                   |   | 137,036 |  |   | 494   |  |  | 1.44 | %
|                                                                                                  |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |  
|FHLB borrowings                                                                                   |                                      |  |                          | 5,290   |                     |   | 17              |  |                          | 1.29 | %                   |   | 7,560   |  |   | 40    |  |  | 2.12 | %
|Federal funds purchased                                                                           |                                      |  |                          |        |                     |   |                |  |                          |     |                     |   |        |  |   |      |  |  |     |  
|Long-term debt                                                                                    |                                      |  |                          |        |                     |   |                |  |                          |     |                     |   | 3,683   |  |   | 54    |  |  | 5.86 | %
|Redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures |                                      |  |                          | 6,000   |                     |   | 77              |  |                          | 5.15 | %                   |   |        |  |   |      |  |  |     |  
|                                                                                                  |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Total borrowings                                                                                  |                                      |  |                          | 11,290  |                     |   | 94              |  |                          | 3.34 | %                   |   | 11,243  |  |   | 94    |  |  | 3.34 | %
|                                                                                                  |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Total interest-bearing liabilities                                                                |                                      |  | $                        | 145,404 |                     | $ | 540             |  |                          | 1.49 | %                   | $ | 148,279 |  | $ | 588   |  |  | 1.59 | %
|                                                                                                  |                                      |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Net interest income                                                                               |                                      |  |                          |         |                     | $ | 3,569           |  |                          |      |                     |   |         |  | $ | 3,105 |  |  |      |  
|                                                                                                  |                                      |  |                          |         |                     |   |                 |  |                         
|Net interest margin6                                                                              |                                      |  |                          |         |                     |   |                 |  |                          | 7.08 | %                   |   |         |  |   |       |  |  | 6.79 | %

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Distribution, Yield and Rate Analysis of Net Income


|                                                                                                  |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |       |  |  |      |  
|------------------------------------------------------------------------------------------------- | ---------------------------------- |  | ------------------------ | ------- | ------------------- | - | --------------- |  | ------------------------ | ---- | ------------------- | - | ------- |  | - | ----- |  |  | ---- | -
|                                                                                                  |                                    | 
|                                                                                                  | For the Six Months Ending June 30, | 
|                                                                                                  | 2003                               |  | 2002                     |        
|                                                                                                  | Average Balance                    |  | Interest Income/ Expense |         | Average Rate/Yield3 |   | Average Balance |  | Interest Income/ Expense |      | Average Rate/Yield3 |  
|                                                                                                  |                                    |  | (Dollars in Thousands)   |        
|Interest-earning Assets:                                                                          |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |       |  |  |      |  
|Federal funds sold                                                                                |                                    |  | $                        | 6,021   |                     | $ | 36              |  |                          | 1.21 | %                   | $ | 10,782  |  | $ | 84    |  |  | 1.56 | %
|Interest-bearing deposits in financial institutions                                               |                                    |  |                          | 5,077   |                     |   | 114             |  |                          | 4.53 | %                   |   | 4,700   |  |   | 105   |  |  | 4.47 | %
|Investment securities:4                                                                           |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |       |  |  |      |  
|Taxable                                                                                           |                                    |  |                          | 26,221  |                     |   | 508             |  |                          | 3.91 | %                   |   | 28,681  |  |   | 681   |  |  | 4.75 | %
|                                                                                                  |                                    |  |                          | 3,986   |                     |   | 89              |  |                          | 4.50 | %                   |   | 4,046   |  |   | 118   |  |  | 5.83 | %
|                                                                                                  |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Non-taxable                                                                                       |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |       |  |  |      |  
|Total investments                                                                                 |                                    |  |                          | 41,305  |                     |   | 747             |  |                          | 3.65 | %                   |   | 48,209  |  |   | 988   |  |  | 4.10 | %
|Loans5                                                                                            |                                    |  |                          | 153,865 |                     |   | 7,237           |  |                          | 9.48 | %                   |   | 130,566 |  |   | 6,049 |  |  | 9.27 | %
|                                                                                                  |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Total interest-earning assets                                                                     |                                    |  | $                        | 195,170 |                     | $ | 7,984           |  |                          | 8.25 | %                   | $ | 178,775 |  | $ | 7,037 |  |  | 7.87 | %
|                                                                                                  |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Interest-bearing Liabilities:                                                                     |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |       |  |  |      |  
|Interest-bearing deposits                                                                         |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |   |         |  |   |       |  |  |      |  
|Interest-bearing demand deposits                                                                  |                                    |  | $                        | 17,154  |                     | $ | 27              |  |                          | 0.32 | %                   | $ | 23,314  |  | $ | 16    |  |  | 0.14 | %
|Money market deposits                                                                             |                                    |  |                          | 34,091  |                     |   | 188             |  |                          | 1.11 | %                   |   | 32,307  |  |   | 128   |  |  | 0.79 | %
|Savings deposits                                                                                  |                                    |  |                          | 16,813  |                     |   | 55              |  |                          | 0.66 | %                   |   | 18,778  |  |   | 48    |  |  | 0.51 | %
|Time deposits $100,000 or greater                                                                 |                                    |  |                          | 36,802  |                     |   | 454             |  |                          | 2.49 | %                   |   | 29,393  |  |   | 489   |  |  | 3.33 | %
|Other time deposits                                                                               |                                    |  |                          | 27,854  |                     |   | 194             |  |                          | 1.40 | %                   |   | 32,328  |  |   | 422   |  |  | 2.61 | %
|                                                                                                  |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Total interest-bearing deposits                                                                   |                                    |  |                          | 132,714 |                     |   | 918             |  |                          | 1.39 | %                   |   | 136,120 |  |   | 1,103 |  |  | 1.62 | %
|                                                                                                  |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |  
|FHLB borrowings                                                                                   |                                    |  |                          | 3,616   |                     |   | 23              |  |                          | 1.28 | %                   |   | 4,314   |  |   | 43    |  |  | 1.99 | %
|Federal funds purchased                                                                           |                                    |  |                          | 663     |                     |   | 6               |  |                          | 1.82 | %                   |   | 49      |  |   | 1     |  |  | 4.08 | %
|Long-term debt                                                                                    |                                    |  |                          |        |                     |   |                |  |                          |     |                     |   | 3,654   |  |   | 106   |  |  | 5.80 | %
|Redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures |                                    |  |                          | 6,000   |                     |   | 155             |  |                          | 5.21 | %                   |   |        |  |   |      |  |  |     |  
|                                                                                                  |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Total borrowings                                                                                  |                                    |  |                          | 10,279  |                     |   | 184             |  |                          | 3.61 | %                   |   | 8,017   |  |   | 150   |  |  | 3.74 | %
|                                                                                                  |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Total interest-bearing liabilities                                                                |                                    |  | $                        | 142,993 |                     | $ | 1,102           |  |                          | 1.55 | %                   | $ | 144,137 |  | $ | 1,253 |  |  | 1.74 | %
|                                                                                                  |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Net interest income                                                                               |                                    |  |                          |         |                     | $ | 6,882           |  |                          |      |                     |   |         |  | $ | 5,784 |  |  |      |  
|                                                                                                  |                                    |  |                          |         |                     |   |                 |  |                          |      |                     |  
|Net interest margin6                                                                              |                                    |  |                          |         |                     |   |                 |  |                          | 7.11 | %                   |   |         |  |   |       |  |  | 6.47 | %

---

3 Average rates/yields for these periods have been annualized
using actual days for 2003.


4 Yields on income have not been computed on a tax equivalent basis, because tax exempt investments are minimal.


5 Loans are gross, which excludes the allowance for loan losses, and net of deferred fees. Nonaccrual loans are included in the table for computation purposes, but the foregone interest of such loans is excluded.
Loan fees were approximately $1,210,000 and $768,000 for the six months ended June 30, 2003 and 2002 respectively.


6 Net interest income as a percentage of average interest-earning
assets.


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##### Table of Contents

The following tables present a rate and volume analysis for changes in interest income, interest expense, and net interest income for the latest quarter and six month period ending June
30, 2003.

Rate/Volume Analysis of Net Interest Income


|                                                                                                  |                                        |  |                        |       |               |   |       |   |   |        |   |   |     |  
|------------------------------------------------------------------------------------------------- | -------------------------------------- |  | ---------------------- | ----- | ------------- | - | ----- | - | - | ------ | - | - | --- | -
|                                                                                                  | Quarter Ended June 30, 2003 vs. 2002   | 
|                                                                                                  | Increases (Decreases) Due to Change In | 
|                                                                                                  | Volume                                 |  | Rate7                  |       | Rate7/ Volume |   | Total |  
|                                                                                                  |                                        |  | (Dollars in Thousands) |      
|Increase (Decrease) in Interest Income:                                                           |                                        |  |                        |       |               |   |       |   |   |        |   |   |     |  
|Federal funds sold                                                                                |                                        |  | $                      | (48   | )             | $ | (36   | ) | $ | 65     |   | $ | (19 | )
|Interest-bearing deposits in financial institutions                                               |                                        |  |                        | 43    |               |   | 4     |   |   | (35    | ) |   | 12  |  
|Investment securities8                                                                            |                                        |  |                        | (130  | )             |   | (240  | ) |   | 281    |   |   | (89 | )
|Loans9                                                                                            |                                        |  |                        | 2,343 |               |   | (215  | ) |   | (1,616 | ) |   | 512 |  
|                                                                                                  |                                        |  |                        |       |               |   |       |   |  
|Total                                                                                             |                                        |  | $                      | 2,208 |               | $ | (487  | ) | $ | (1,305 | ) | $ | 416 |  
|                                                                                                  |                                        |  |                        |       |               |   |       |  
|Increase (Decrease) in Interest Expense:                                                          |                                        |  |                        |       |               |   |       |   |   |        |   |   |     |  
|Interest-bearing demand deposits                                                                  |                                        |  | $                      | (8    | )             | $ | 26    |   | $ | (15    | ) | $ | 3   |  
|Money market deposits                                                                             |                                        |  |                        | 7     |               |   | 99    |   |   | (79    | ) |   | 27  |  
|Savings deposits                                                                                  |                                        |  |                        | (14   | )             |   | 26    |   |   | (10    | ) |   | 2   |  
|Time deposits $100,000 or greater                                                                 |                                        |  |                        | 218   |               |   | (210  | ) |   | (19    | ) |   | (11 | )
|Other time deposits                                                                               |                                        |  |                        | (64   | )             |   | (235  | ) |   | 230    |   |   | (69 | )
|FHLB borrowings                                                                                   |                                        |  |                        | (48   | )             |   | (63   | ) |   | 88     |   |   | (23 | )
|Federal funds purchased                                                                           |                                        |  |                        |      |               |   |      |   |   |       |   |   |    |  
|Long-term debt                                                                                    |                                        |  |                        | (216  | )             |   | (216  | ) |   | 378    |   |   | (54 | )
|Redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures |                                        |  |                        |      |               |   |      |   |   | 77     |   |   | 77  |  
|                                                                                                  |                                        |  |                        |       |               |   |       |  
|Total                                                                                             |                                        |  | $                      | (125  | )             | $ | (573  | ) | $ | 650    |   | $ | (48 | )
|                                                                                                  |                                        |  |                        |       |               |   |       |  
|Total change in net interest income                                                               |                                        |  | $                      | 2,333 |               | $ | 86    |   | $ | (1,955 | ) | $ | 464 |  
|                                                                                                  |                                        |  |                        |       |               |   |       |  

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##### Table of Contents

Rate/Volume Analysis of Net Interest Income

|                                                                                                  |                                         |  |                        |       |               |   |       |   |   |        |   |   |       |  
|------------------------------------------------------------------------------------------------- | --------------------------------------- |  | ---------------------- | ----- | ------------- | - | ----- | - | - | ------ | - | - | ----- | -
|                                                                                                  | Six Months Ended June 30, 2003 vs. 2002 | 
|                                                                                                  | Increases (Decreases) Due to Change In  | 
|                                                                                                  | Volume                                  |  | Rate7                  |       | Rate7/ Volume |   | Total |  
|                                                                                                  |                                         |  | (Dollars in Thousands) |      
|Increase (Decrease) in Interest Income:                                                           |                                         |  |                        |       |               |   |       |   |   |        |   |   |       |  
|Federal funds sold                                                                                |                                         |  | $                      | (74   | )             | $ | (38   | ) | $ | 64     |   | $ | (48   | )
|Interest-bearing deposits in financial institutions                                               |                                         |  |                        | 17    |               |   | 3     |   |   | (11    | ) |   | 9     |  
|Investment securities8                                                                            |                                         |  |                        | (120  | )             |   | (295  | ) |   | 213    |   |   | (202  | )
|Loans9                                                                                            |                                         |  |                        | 2,159 |               |   | 286   |   |   | (1,257 | ) |   | 1,188 |  
|                                                                                                  |                                         |  |                        |       |               |   |       |   |  
|Total                                                                                             |                                         |  | $                      | 1,982 |               | $ | (44   | ) | $ | (991   | ) | $ | 947   |  
|                                                                                                  |                                         |  |                        |       |               |   |       |  
|Increase (Decrease) in Interest Expense:                                                          |                                         |  |                        |       |               |   |       |   |   |        |   |   |       |  
|Interest-bearing demand deposits                                                                  |                                         |  | $                      | (8    | )             | $ | 42    |   | $ | (23    | ) | $ | 11    |  
|Money market deposits                                                                             |                                         |  |                        | 14    |               |   | 103   |   |   | (57    | ) |   | 60    |  
|Savings deposits                                                                                  |                                         |  |                        | (10   | )             |   | 28    |   |   | (11    | ) |   | 7     |  
|Time deposits $100,000 or greater                                                                 |                                         |  |                        | 247   |               |   | (247  | ) |   | (35    | ) |   | (35   | )
|Other time deposits                                                                               |                                         |  |                        | (117  | )             |   | (390  | ) |   | 279    |   |   | (228  | )
|FHLB borrowings                                                                                   |                                         |  |                        | (14   | )             |   | (31   | ) |   | 25     |   |   | (20   | )
|Federal funds purchased                                                                           |                                         |  |                        | 25    |               |   | (1    | ) |   | (19    | ) |   | 5     |  
|Long-term debt                                                                                    |                                         |  |                        | (212  | )             |   | (212  | ) |   | 318    |   |   | (106  | )
|Redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures |                                         |  |                        |      |               |   |      |   |   | 155    |   |   | 155   |  
|                                                                                                  |                                         |  |                        |       |               |   |       |  
|Total                                                                                             |                                         |  | $                      | (75   | )             | $ | (708  | ) | $ | 632    |   | $ | (151  | )
|                                                                                                  |                                         |  |                        |       |               |   |       |  
|Total change in net interest income                                                               |                                         |  | $                      | 2,057 |               | $ | 664   |   | $ | (1,623 | ) | $ | 1,098 |  
|                                                                                                  |                                         |  |                        |       |               |   |       |  

---

7 Rates for these periods on which calculations are based
have been annualized.


8 Yields on income have not been computed on a tax equivalent basis, because tax-exempt investments are minimal.


9 Loans are gross, which excludes the allowance for loan losses, and net of deferred fees. Nonaccrual loans are included in the table for computation purposes, but the foregone interest of such loans is excluded.
Loan fees during the second quarter of 2003 were $629,000 compared to $417,000 in the second quarter of 2002, and loan fees were $1,210,000 and $768,000 for the six months ended June 30, 2003 and 2002 respectively.


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##### Table of Contents

PROVISION FOR LOAN LOSSES

Due to the credit risk inherent in the business of making loans, the Company sets aside an
allowance or reserve for loan losses through charges to earnings. The charges are shown in the income statements as provision for loan losses, and specifically identifiable and quantifiable losses are immediately charged off against the allowance.
The amount of the provision is determined by Management as that required to be added to bring the allowance to a level, which is considered adequate to absorb losses inherent in the loan portfolio, after net charge-offs have been deducted. The
amount of the provision is based on managements regular review of the loan portfolio and consideration of such factors as historical loss experience, general prevailing economic conditions, changes in the size and composition of the loan
portfolio and specific borrower considerations, including repayment ability and the estimated value of the underlying collateral.

For the six months ended June 30, 2003, the provision for loan losses
was $210,000, compared to $161,000 for the same period in 2002. During the second quarter of 2003 loans charged off totaled $49,000 and recoveries were $5,000. This compares to $31,000 and $5,000 respectively for the second quarter of 2002. The
increase in the provision from 2002 to 2003 was the result of increased growth in the loan portfolio netted against an increase in loans charged off during the first half of 2003 compared to 2002. One of the procedures used for monitoring the loan
portfolio is migration analysis. Based on the results of this program, in addition to managements determination, the provision is increased or decreased. The procedures for monitoring the adequacy of the Allowance, as well as detailed
information concerning the allowance itself, are included in the Allowance for Loan Losses section.

OTHER INCOME

Other income for
1st Centennial includes customer service fees, net gain from sale of loans, increase in the cash surrender value of life insurance policies, broker fee income and other miscellaneous income.

For
the quarter ending June 30, 2003, noninterest income rose $238,000 or 42.7% from $557,000 reported in the quarter ending June 30, 2002. The gains on sale of loans increased $135,000 to $230,000, or 142.1% and from 17.1% to 28.9% of total other
income. Broker fee income rose $64,000 or 110.3% and from 10.4% to 15.4% of total other income for the quarter ended June 30, 2003. This was the result of more loans originated and sold through our conduit for loan sales. The increase in this
quarters broker fee income was from refinancing referrals from completed construction loan buildings. The previous dollar and percentage increases reduced the quarterly percentage for customer service fees from 47.4% in the second quarter of
2002 to 42.0% in the second quarter of 2003.

Other income totaled $1,407,000 for the six months ended June 30, 2003. This represented an increase of $247,000, or 21.3%, from other income of $1,160,000 for
the six months ended June 30, 2002. The increase was primarily the result of increases of $129,000 and $87,000 in customer service fees and broker fee income respectively. Customer service fees increased from 47.07% to 47.97% of total other income
for the six months ended June 30, 2003 and 2002 respectively, as a result of increased collection of analysis service charges on home owner association accounts, as well as increased service charges on deposit accounts for growth from the previous
period. The

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dollar and percentage increases in these other income categories reduced the gain on sale of loans percentage from 29.2% for the first six months of 2002 to 23.2% during the similar
2003 six month period.

The following tables sets forth components of 1st Centennials other income for the periods indicated and expresses the amounts as percentage of total other
income:

Other Income

|                                                       |                                     |  |                 |     |        |  |                 |   |   |     |  |  |        |  
|------------------------------------------------------ | ----------------------------------- |  | --------------- | --- | ------ |  | --------------- | - | - | --- |  |  | ------ | -
|                                                       | For the Three Months Ended June 30, | 
|                                                       | 2003                                |  | 2002            |    
|                                                       | Amount                              |  | Percentof Total |     | Amount |  | Percentof Total |  
|
|Customer service fees                                  |                                     |  | $               | 334 |        |  | 42.01           | % | $ | 264 |  |  | 47.40  | %
|Gain from sale of loans                                |                                     |  |                 | 230 |        |  | 28.93           | % |   | 95  |  |  | 17.06  | %
|Increase in cash surrender value of life insurance     |                                     |  |                 | 96  |        |  | 12.08           | % |   | 49  |  |  | 8.80   | %
|Broker fee income                                      |                                     |  |                 | 122 |        |  | 15.35           | % |   | 58  |  |  | 10.41  | %
|Other miscellaneous income                             |                                     |  |                 | 13  |        |  | 1.63            | % |   | 91  |  |  | 16.33  | %
|                                                       |                                     |  |                 |     |        |  |                 |   |   |    
|Total noninterest income                               |                                     |  | $               | 795 |        |  | 100.00          | % | $ | 557 |  |  | 100.00 | %
|                                                       |                                     |  |                 |     |        |  |                 |   |   |    
|As a percentage of average earning assets (annualized) |                                     |  |                 |     |        |  | 1.58            | % |   |     |  |  | 1.22   | %
|                                                       |                                     |  |                 |     |        |  |                 |   |   |     |  | 

Other Income

|                                                       |                                   |  |                 |       |        |  |                 |   |   |       |  |  |        |  
|------------------------------------------------------ | --------------------------------- |  | --------------- | ----- | ------ |  | --------------- | - | - | ----- |  |  | ------ | -
|                                                       | For the Six Months Ended June 30, | 
|                                                       | 2003                              |  | 2002            |      
|                                                       | Amount                            |  | Percentof Total |       | Amount |  | Percentof Total |  
|
|Customer service fees                                  |                                   |  | $               | 675   |        |  | 47.97           | % | $ | 546   |  |  | 47.07  | %
|Gain from sale of loans                                |                                   |  |                 | 327   |        |  | 23.24           | % |   | 339   |  |  | 29.22  | %
|Increase in cash surrender value of life insurance     |                                   |  |                 | 154   |        |  | 10.95           | % |   | 99    |  |  | 8.53   | %
|Broker fee income                                      |                                   |  |                 | 193   |        |  | 13.72           | % |   | 106   |  |  | 9.14   | %
|Other miscellaneous income                             |                                   |  |                 | 58    |        |  | 4.12            | % |   | 70    |  |  | 6.04   | %
|                                                       |                                   |  |                 |       |        |  |                 |   |   |      
|Total noninterest income                               |                                   |  | $               | 1,407 |        |  | 100.00          | % | $ | 1,160 |  |  | 100.00 | %
|                                                       |                                   |  |                 |       |        |  |                 |   |   |      
|As a percentage of average earning assets (annualized) |                                   |  |                 |       |        |  | 1.45            | % |   |       |  |  | 1.31   | %
|                                                       |                                   |  |                 |       |        |  |                 |   |   |       |  | 

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OTHER EXPENSES

Other expenses for the Company include salaries and employee benefits, net occupancy and equipment,
professional services, and other operating expenses. The $570,000 or 41.0% increase in salaries, wages and employee benefits for the second quarter of 2003 as compared to 2002 was caused by staffing for the Palm Desert office, more commissions paid
from the increased gains on sale of loans and broker fee income, and the rise in the employers portion of group insurance coverage expense. This caused the percentage increase for this category to rise from 45.0% in the second quarter of 2002
to 55.4% in the second quarter of 2003. Part of the prior period increase was offset by $262,000 or an 80.1% reduction in legal and consulting expenses incurred last year, which reduced the percentage in professional fees to 1.8% from 10.6% of total
other expenses. During the second quarter of 2003 compared to the similar quarter in 2002, other expense as an annualized percentage of average earning assets rose to 7.02% from 6.77%.

During the first six
months of 2003 other expenses totaled $6,645,000. This represented an increase of $1,008,000 or 17.9%, over other expenses of $5,637,000 for the six months ended June 30, 2002. The primary reason for the increase in other expense is due to the
$1,023,000 increase in salaries, wages and employee benefits. This was caused by additional staffing, salary increases, and opening the new Palm Desert Branch in March of 2003. The dollar increase in this category caused its percentage of
total other expense to rise from 49.2% to 57.1% for the six month periods ending June 30, 2002 and June 30, 2003, respectively. Professional fees decreased $459,000 or 69.1% as a result of decreased legal expense due to the resolution of an on-going
case that was completed in 2002. Other operating expenses of $165,000 for the six months ended June 30, 2003 represented the earnings charge resulting from the sale of 12,960 shares of common stock at $10.01 per share to the Companys former
president as part of the settlement of a lawsuit instituted in 2002. (See Part II  Other Information  Part 1. Legal Proceedings.) Other operating expense increased $119,000 or 16.0% in the six months ended June 30, 2003 compared to six
months ended June 30, 2002, but decreased slightly as a percentage of total other expenses. Training and development expense was up $29,000, expenses related to homeowner association accounts and processing expenses were up $27,000 and net various
other expenses were $63,000 higher compared to last years expenses. The six month increase in other expense increased as a percentage of average earning assets (annualized) to 6.87% on June 30, 2003 from 6.36% on June 30, 2002.

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##### Table of Contents

The following tables sets forth components of 1st Centennials other expenses for the periods indicated and expresses the amounts as a percentage of total other
expenses:

Other Expenses

|                                                       |                                     |  |                 |       |        |  |                 |   |   |       |  |  |        |  
|------------------------------------------------------ | ----------------------------------- |  | --------------- | ----- | ------ |  | --------------- | - | - | ----- |  |  | ------ | -
|                                                       | For the Three Months Ended June 31, | 
|                                                       | 2003                                |  | 2002            |      
|                                                       | Amount                              |  | Percentof Total |       | Amount |  | Percentof Total |  
|
|Salaries, wages and employee benefits                  |                                     |  | $               | 1,959 |        |  | 55.37           | % | $ | 1,389 |  |  | 45.00  | %
|Net occupancy expense                                  |                                     |  |                 | 403   |        |  | 11.39           | % |   | 352   |  |  | 11.40  | %
|Marketing                                              |                                     |  |                 | 127   |        |  | 3.59            | % |   | 48    |  |  | 1.55   | %
|Data processing fees                                   |                                     |  |                 | 194   |        |  | 5.48            | % |   | 189   |  |  | 6.12   | %
|Professional fees                                      |                                     |  |                 | 65    |        |  | 1.84            | % |   | 327   |  |  | 10.59  | %
|Postage, telephone, supplies                           |                                     |  |                 | 177   |        |  | 5.00            | % |   | 154   |  |  | 4.99   | %
|Directors fees                                        |                                     |  |                 | 43    |        |  | 1.22            | % |   | 38    |  |  | 1.23   | %
|Other operating expense                                |                                     |  |                 | 570   |        |  | 16.11           | % |   | 590   |  |  | 19.12  | %
|                                                       |                                     |  |                 |       |        |  |                 |   |   |      
|Total other expenses                                   |                                     |  | $               | 3,538 |        |  | 100.00          | % | $ | 3,087 |  |  | 100.00 | %
|                                                       |                                     |  |                 |       |        |  |                 |   |   |      
|As a percentage of average earning assets (annualized) |                                     |  |                 |       |        |  | 7.02            | % |   |       |  |  | 6.77   | %
|                                                       |                                     |  |                 |       |        |  |                 |   |   |       |  | 

Other Expenses

|                                                       |                                   |  |                  |       |        |  |                  |   |   |       |  |  |        |  
|------------------------------------------------------ | --------------------------------- |  | ---------------- | ----- | ------ |  | ---------------- | - | - | ----- |  |  | ------ | -
|                                                       | For the Six Months Ended June 30, | 
|                                                       | 2003                              |  | 2002             |      
|                                                       | Amount                            |  | Percent of Total |       | Amount |  | Percent of Total |  
|
|Salaries, wages and employee benefits                  |                                   |  | $                | 3,794 |        |  | 57.10            | % | $ | 2,771 |  |  | 49.16  | %
|Net occupancy expense                                  |                                   |  |                  | 776   |        |  | 11.68            | % |   | 683   |  |  | 12.12  | %
|Marketing                                              |                                   |  |                  | 217   |        |  | 3.27             | % |   | 93    |  |  | 1.65   | %
|Data processing fees                                   |                                   |  |                  | 390   |        |  | 5.87             | % |   | 326   |  |  | 5.78   | %
|Professional fees                                      |                                   |  |                  | 205   |        |  | 3.09             | % |   | 664   |  |  | 11.78  | %
|Postage, telephone, supplies                           |                                   |  |                  | 315   |        |  | 4.74             | % |   | 280   |  |  | 4.97   | %
|Directors fees                                        |                                   |  |                  | 87    |        |  | 1.31             | % |   | 78    |  |  | 1.38   | %
|Other operating expense                                |                                   |  |                  | 861   |        |  | 12.94            | % |   | 742   |  |  | 13.16  | %
|                                                       |                                   |  |                  |       |        |  |                  |   |   |      
|Total other expenses                                   |                                   |  | $                | 6,645 |        |  | 100.00           | % | $ | 5,637 |  |  | 100.00 | %
|                                                       |                                   |  |                  |       |        |  |                  |   |   |      
|As a percentage of average earning assets (annualized) |                                   |  |                  |       |        |  | 6.87             | % |   |       |  |  | 6.36   | %
|                                                       |                                   |  |                  |       |        |  |                  |   |   |       |  | 

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FINANCIAL CONDITION

GENERAL

The Companys total assets were $234.3
million at June 30, 2003, an increase of 12.7% or $26.4 million, compared to total assets of $207.9 million at December 31, 2002. Total deposits at June 30, 2003 were $201.2 million, an increase of $18.0 million, or 9.9% from total deposits of
$183.2 million at December 31, 2002. Total loans, net of the allowance for loan losses and unearned income increased 15.7%, or $22.2 million to $163.3 million compared to $141.1 million at December 31, 2002. Strong loan demand in the Companys
market areas contributed to the increase in total assets and total loans. The majority of the deposit increase occurred in demand deposits, which were $9.3 million or 17.3% higher. Also, interest-bearing and NOW accounts rose $3.7 million or 7.5%,
and time deposits $100,000 or greater increased $3.8 million or 11.0% since December 2002.

LOANS

Total gross loans were $165.8 million at June 30, 2003,
compared to $143.5 million at December 31, 2002. Total gross loans represented 70.8% of total assets at June 30, 2003 compared to 69.0% of total assets at December 31, 2002. Total gross loans increased by $22.3 million or 15.6% in the
first six months of 2003. The increase in total gross loans in the first six months of 2003 was due to continued strong loan demand in our market areas.

The following table shows the amounts of total loans
outstanding by category as of the dates indicated:

Loan Portfolio Composition

|                             |               |  |                        |         |        |  |                  |   |   |         |   |  |        |  
|---------------------------- | ------------- |  | ---------------------- | ------- | ------ |  | ---------------- | - | - | ------- | - |  | ------ | -
|                             | June 30, 2003 |  | December 31, 2002      |        
|                             | Amount        |  | Percent of Total       |         | Amount |  | Percent of Total |  
|                             |               |  | (Dollars in Thousands) |        
|Real estate loans:           |               |  |                        |         |        |  |                  |   |   |         |   |  |        |  
|Construction and development |               |  | $                      | 65,874  |        |  | 39.73            | % | $ | 53,246  |   |  | 37.12  | %
|Mortgage loans               |               |  |                        | 53,123  |        |  | 32.04            | % |   | 44,272  |   |  | 30.86  | %
|Commercial loans             |               |  |                        | 40,511  |        |  | 24.43            | % |   | 38,305  |   |  | 26.70  | %
|Consumer loans               |               |  |                        | 1,450   |        |  | 0.87             | % |   | 1,583   |   |  | 1.11   | %
|Equity lines of credit       |               |  |                        | 3,938   |        |  | 2.37             | % |   | 4,697   |   |  | 3.27   | %
|Credit card and other loans  |               |  |                        | 927     |        |  | 0.56             | % |   | 1,351   |   |  | 0.94   | %
|                             |               |  |                        |         |        |  |                  |  
|Total gross loans            |               |  |                        | 165,823 |        |  | 100.00           | % |   | 143,454 |   |  | 100.00 | %
|                             |               |  |                        |         |        |  |                  |  
|Less:                        |               |  |                        |         |        |  |                  |   |   |         |   |  |        |  
|Unearned income              |               |  |                        | (707    | )      |  |                  |   |   | (570    | ) |  |        |  
|Allowance for loan losses    |               |  |                        | (1,799  | )      |  |                  |   |   | (1,772  | ) |  |        |  
|                             |               |  |                        |         |        |  |                  |   |   |         |   | 
|Total net loans              |               |  | $                      | 163,317 |        |  |                  |   | $ | 141,112 |   |  |        |  
|                             |               |  |                        |         |        | 

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NON-PERFORMING ASSETS

1st Centennials policy is to recognize interest income on an accrual basis unless
the full collectibility of principal and interest is uncertain. Loans that are delinquent 90 days or more, unless well secured and in the process of collection, are placed on nonaccrual status on a cash basis, and previously accrued but uncollected
interest is reversed against income. Thereafter, income is recognized only as it is collected in cash. Collectibility is determined by considering the borrowers financial condition, cash flow, quality of management, the existence of collateral
or guarantees and the state of the local economy.

Nonperforming assets include loans for which interest is no longer accruing, loans 90 or more days past due, restructured loans and other real estate owned.
Nonperforming assets at June 30, 2003 increased $175,000 to $756,000, compared to $581,000 at December 31, 2002, representing 0.46% and 0.41% of gross loans, respectively. This increase was caused by one 1  4 family residential
construction loan for $491,000 and six commercial loans for $235,000 placed on nonaccrual status during the second quarter of 2003. There were three mortgage loans for $394,000 on nonaccrual status on December 31, 2002, that were removed from
nonaccrual during the first and second quarters of 2003.

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The following table provides information with respect to all nonperforming assets as of June 30, 2003 and 2002, and December 31, 2002:

Nonperforming Assets

|                                                                                 |               |  |                        |        |               |   |        |   |   |        |  
|-------------------------------------------------------------------------------- | ------------- |  | ---------------------- | ------ | ------------- | - | ------ | - | - | ------ | -
|                                                                                 | June 30, 2003 |  | December 31, 2002      |        | June 30, 2002 |  
|                                                                                 |               |  |                        |       
|                                                                                 |               |  | (Dollars in Thousands) |       
|Nonaccrual loans:10                                                              |               |  |                        |        |               |   |        |   |   |        |  
|Real estate loans:                                                               |               |  |                        |        |               |   |        |   |   |        |  
|Construction and development                                                     |               |  | $                      | 491    |               | $ |       |   | $ |       |  
|Mortgage loans                                                                   |               |  |                        |       |               |   | 394    |   |   | 200    |  
|Commercial loans                                                                 |               |  |                        | 246    |               |   |       |   |   | 7      |  
|Consumer loans                                                                   |               |  |                        |       |               |   |       |   |   |       |  
|Equity lines of credit                                                           |               |  |                        |       |               |   |       |   |   |       |  
|Credit card and other loans                                                      |               |  |                        | 19     |               |   |       |   |   |       |  
|                                                                                 |               |  |                        |        |               |  
|Total nonaccrual loans                                                           |               |  | $                      | 756    |               | $ | 394    |   | $ | 207    |  
|                                                                                 |               |  |                        |        |               |  
|Loans 90 days or more past due (as to principal or interest) and still accruing: |               |  |                        |        |               |   |        |   |   |        |  
|Real estate loans:                                                               |               |  |                        |        |               |   |        |   |   |        |  
|Mortgage loans                                                                   |               |  |                        |       |               |   | 50     |   |   |       |  
|Commercial loans                                                                 |               |  |                        |       |               |   | 137    |   |   |       |  
|Consumer loans                                                                   |               |  |                        |       |               |   |       |   |   |       |  
|Equity lines of credit                                                           |               |  |                        |       |               |   |       |   |   |       |  
|Credit card and other loans                                                      |               |  |                        |       |               |   |       |   |   |       |  
|                                                                                 |               |  |                        |        |               |  
|Total loans 90 days or more past due and still accruing                          |               |  | $                      |       |               | $ | 187    |   | $ |       |  
|                                                                                 |               |  |                        |        |               |  
|Restructured loans11                                                             |               |  | $                      |       |               | $ |       |   | $ |       |  
|                                                                                 |               |  |                        |        |               |  
|Total nonperforming loans                                                        |               |  | $                      | 756    |               | $ | 581    |   | $ | 207    |  
|Other real estate owned                                                          |               |  |                        |       |               |   |       |   |   |       |  
|                                                                                 |               |  |                        |        |               |  
|Total nonperforming assets                                                       |               |  | $                      | 756    |               | $ | 581    |   | $ | 207    |  
|                                                                                 |               |  |                        |        |               |  
|Nonperforming loans as a percentage of total gross loans12                       |               |  |                        | 0.46   | %             |   | 0.41   | % |   | 0.15   | %
|Nonperforming assets as a percentage of total loans and other real estate owned  |               |  |                        | 0.46   | %             |   | 0.41   | % |   | 0.15   | %
|Allowance for loan losses to nonperforming loans                                 |               |  |                        | 237.96 | %             |   | 304.99 | % |   | 769.08 | %
|Allowance for loan losses                                                        |               |  | $                      | 1,799  |               | $ | 1,772  |   | $ | 1,592  |  
|                                                                                 |               |  |                        |        |               |  

---

10 During the six months ended June 30, 2003, no income related to these loans
was included in net income. Additional interest income of approximately $9,000, would have been recorded for the six months ended June 30, 2003 if these loans had been paid in accordance with their original terms and had been outstanding
throughout the applicable period then ended or, if not outstanding throughout the applicable period then ended, since origination.

11 A restructured loan is one the terms of which
were negotiated to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower.

12 Total loans are gross of the allowance for
loan losses and net of deferred fees.

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##### Table of Contents

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses totaled $1.8 million at June 30, 2003 and December 31, 2002. The
procedures for monitoring the adequacy of the allowance, as well as detailed information concerning the allowance itself, are included below.

The allowance for loan losses is increased by the provision for
loan losses and decreased by loan charge-offs, and increased for loan recoveries. The adequacy of the allowance for loan losses is measured in the context of several key ratios and factors including: (1) the ratio of the allowance to total
outstanding loans; (2) the ratio of total nonperforming loans to total loans; and, (3) the ratio of net charge-offs (recoveries) to average loans outstanding. Additional factors considered in establishing an appropriate allowance include a careful
assessment of the financial condition of the borrower; a realistic determination of the value and adequacy of underlying collateral; the condition of the local economy and the condition of the specific industry of the borrower; comprehensive
analysis of the levels and trends of loan categories; and a review of delinquent and classified loans.

Managements evaluation is based on a system whereby each loan is graded at the time
of origination, extension or renewal. Each grade is assessed a risk factor, which is calculated to assess the adequacy of the allowance for loan losses. Further, management considers other factors including changes in the nature and volume of the
loan portfolio, overall portfolio quality, loan concentrations, trends in the level of delinquent and classified loans, specific problem loans and commitments, and current and anticipated economic conditions. Management and the Board of Directors
review the allowance for loan losses monthly. While the Board of Directors believes that it uses the best information available to determine the allowance for loan losses, unforeseen market conditions could result in material adjustments, and net
earnings could be significantly adversely affected, if circumstances differ substantially from the assumptions used in making the final determination.

The allowance for loan losses as a percentage of total
loans outstanding as of June 30, 2003 was 1.09%, as compared to 1.14% at June 30, 2002. The allowance for loan losses as a percentage of total non-performing assets was 237.96% at June 30, 2003 as compared to 769.08% at June 30, 2002. The $22.2
million loan growth from December 31, 2002 through June 30, 2003 caused some of the ratios to decline and others to rise from prior reported periods. However, management has determined that the allowance for loan losses is adequate given the level
of loans and nonperforming assets. One of the procedures used for monitoring the loan portfolio is migration analysis. Based on the results of this program, in addition to managements determination, the amount of the allowance is increased or
decreased. Net loan charge-offs during the first six months of 2003 approximated $183,000 or only 0.12% of average total loans, compared to $29,000 or only 0.02% of average total loans during the same period in 2002.

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The following table summarizes the changes in the allowance for loan losses for the periods indicated:

Allowance for Loan
Losses

|                                                                                |                           |  |                         |         |      |   |         |   |   |         |  
|------------------------------------------------------------------------------- | ------------------------- |  | ----------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                | Six Months Ended June 30, |  | Year Ended December 31, |         |     
|                                                                                | 2003                      |  | 2002                    |         | 2002 |  
|                                                                                |                           |  | (Dollars in Thousands)  |        
|Balances:                                                                       |                           |  |                         |         |      |   |         |   |   |         |  
|Average total loans outstanding during period                                   |                           |  | $                       | 153,865 |      | $ | 130,566 |   | $ | 134,169 |  
|                                                                                |                           |  |                         |         |      |  
|Total loans outstanding at end of period, net of unearned income                |                           |  | $                       | 165,116 |      | $ | 139,677 |   | $ | 142,884 |  
|                                                                                |                           |  |                         |         |      |  
|Allowance for Loan Losses:                                                      |                           |  |                         |         |      |   |         |   |   |         |  
|Balance at beginning of period                                                  |                           |  | $                       | 1,772   |      | $ | 1,460   |   | $ | 1,460   |  
|Charge-offs:                                                                    |                           |  |                         |         |      |   |         |   |   |         |  
|Real estate loans:                                                              |                           |  |                         |         |      |   |         |   |   |         |  
|Construction and development                                                    |                           |  |                         |        |      |   |        |   |   | 49      |  
|Mortgage loans                                                                  |                           |  |                         |        |      |   |        |   |   |        |  
|Commercial loans                                                                |                           |  |                         | 206     |      |   | 16      |   |   | 71      |  
|Consumer loans                                                                  |                           |  |                         | 1       |      |   | 23      |   |   | 65      |  
|Equity lines of credit                                                          |                           |  |                         |        |      |   |        |   |   |        |  
|Credit card and other loans                                                     |                           |  |                         | 2       |      |   | 1       |   |   | 9       |  
|                                                                                |                           |  |                         |         |      |  
|Total charge-offs                                                               |                           |  |                         | 209     |      |   | 40      |   |   | 194     |  
|                                                                                |                           |  |                         |         |      |  
|Recoveries:                                                                     |                           |  |                         |         |      |   |         |   |   |         |  
|Real estate loans:                                                              |                           |  |                         |         |      |   |         |   |   |         |  
|Construction and development                                                    |                           |  |                         |        |      |   |        |   |   | 3       |  
|Mortgage loans                                                                  |                           |  |                         | 4       |      |   | 2       |   |   |        |  
|Commercial loans                                                                |                           |  |                         | 8       |      |   | 3       |   |   | 15      |  
|Consumer loans                                                                  |                           |  |                         | 14      |      |   | 6       |   |   | 11      |  
|Equity lines of credit                                                          |                           |  |                         |        |      |   |        |   |   |        |  
|Credit card and other loans                                                     |                           |  |                         |        |      |   |        |   |   |        |  
|                                                                                |                           |  |                         |         |      |  
|Total recoveries                                                                |                           |  |                         | 26      |      |   | 11      |   |   | 29      |  
|                                                                                |                           |  |                         |         |      |  
|Net charge-offs                                                                 |                           |  |                         | (183    | )    |   | (29     | ) |   | (165    | )
|Provision charged to operations                                                 |                           |  |                         | 210     |      |   | 161     |   |   | 477     |  
|Allowance for loan losses balance, end of period                                |                           |  | $                       | 1,799   |      | $ | 1,592   |   | $ | 1,772   |  
|                                                                                |                           |  |                         |         |      |  
|Ratios:13                                                                       |                           |  |                         |         |      |   |         |   |   |         |  
|Net loan charge-offs to average total loans                                     |                           |  |                         | 0.12    | %    |   | 0.02    | % |   | 0.12    | %
|Allowance for loan losses to average total loans                                |                           |  |                         | 1.17    | %    |   | 1.22    | % |   | 1.32    | %
|Allowance for loan losses to total loans at end of period                       |                           |  |                         | 1.09    | %    |   | 1.14    | % |   | 1.24    | %
|Allowance for loan losses to total  nonperforming loans                         |                           |  |                         | 237.96  | %    |   | 769.08  | % |   | 304.99  | %
|Net loan (charge-offs) recoveries to allowance for loan losses at end of period |                           |  |                         | 10.17   | %    |   | 1.82    | % |   | 9.31    | %
|Net loan (charge-offs) recoveries to provision for loan losses                  |                           |  |                         | 87.14   | %    |   | 18.01   | % |   | 34.59   | %

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##### Table of Contents

The following table summarizes the allocation of the allowance for loan losses at June 30, 2003 and December 31, 2002:

Allocation of Allowance for Loan Losses

|                                       |  |  |                        |         |                                       |  |        |   |                                       |         |  |  |        |  
|-------------------------------------- |  |  | ---------------------- | ------- | ------------------------------------- |  | ------ | - | ------------------------------------- | ------- |  |  | ------ | -
|                                       |  |  | June 30, 2003          |         | December 31, 2002                     | 
|Balance at End of Period Applicable to |  |  | Amount                 |         | % of Loans in Category to Total Loans |  | Amount |   | % of Loans in Category to Total Loans |        
|                                       |  |  | (Dollars in Thousands) |        
|Real estate loans:                     |  |  |                        |         |                                       |  |        |   |                                       |         |  |  |        |  
|Construction and development           |  |  | $                      | 704     |                                       |  | 39.73  | % | $                                     | 671     |  |  | 37.12  | %
|Mortgage loans                         |  |  |                        | 323     |                                       |  | 32.04  | % |                                       | 357     |  |  | 30.86  | %
|Commercial loans                       |  |  |                        | 695     |                                       |  | 24.43  | % |                                       | 596     |  |  | 26.70  | %
|Consumer loans                         |  |  |                        | 45      |                                       |  | 0.87   | % |                                       | 78      |  |  | 1.11   | %
|Equity lines of credit loans           |  |  |                        | 32      |                                       |  | 2.37   | % |                                       | 70      |  |  | 3.27   | %
|Credit card and other loans            |  |  |                        |        |                                       |  | 0.56   | % |                                       |        |  |  | 0.94   | %
|                                       |  |  |                        |         |                                       |  |        |  
|Total allowance for loan loss          |  |  | $                      | 1,799   |                                       |  | 100.00 | % | $                                     | 1,772   |  |  | 100.00 | %
|                                       |  |  |                        |         |                                       |  |        |  
|Total loans net of unearned income     |  |  | $                      | 165,116 |                                       |  |        |   | $                                     | 142,884 |  |  |        |  

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INVESTMENTS

1st Centennials investment portfolio provides income to the Company and also serves as a
source of liquidity. Total yield, maturity and risk are among the factors considered in building the investment portfolio. Pursuant to FASB 115, securities must be classified as held to maturity, available for sale, or
trading securities. Those securities held in the available for sale category must be carried on the Companys books at fair market value. At June 30, 2003 and December 31, 2002, 100% of the investment securities owned by
the Company were classified as Available for Sale.

At June 30, 2003, the Companys investment portfolio at fair value consisted of $23.4 million in mortgage-backed securities, $4.5 million
in municipal bonds, $487,000 of marketable equity securities, and $266,000 in U.S. Treasury obligations for a total of $28.7 million. At December 31, 2002 the totals were $27.6 million, $4.5 million, $487,000 and $269,000 respectively for a total of
$32.8 million. The $4.1 million or 12.5% decrease in the Companys investment portfolio was due to maturities and principal paydowns in mortgage-backed securities.

The Company also has investments in
interest-bearing time certificates of deposit at other financial institutions totaling $5.1 million at June 30, 2003 versus $5.2 million at December 31, 2002. Overnight federal funds sold totaled $10.0 million at June 30, 2003, versus $2.0 million
at December 31, 2002. A portion of the increase in fed funds sold was a result of $4.9 million from the sale of common stock in May, 2003. The rest of the increase came from deposit growth.

The following
table is a comparison of amortized cost and fair value of investment securities at June 30, 2003 and December 31, 2002:

Investment Portfolio

|                                           |                |  |                        |        |                   |   |            |  |                |   |                  |   |                   |  |            |        |  |   |     |  |   |   |  |   |       
|------------------------------------------ | -------------- |  | ---------------------- | ------ | ----------------- | - | ---------- |  | -------------- | - | ---------------- | - | ----------------- |  | ---------- | ------ |  | - | --- |  | - | - |  | - | ------
|                                           | June 30, 2003  |  | December 31, 2002      |        |                   |  
|                                           | Amortized Cost |  | Unrealized Gains       |        | Unrealized Losses |   | Fair Value |  | Amortized Cost |   | Unrealized Gains |   | Unrealized Losses |  | Fair Value
|                                           |                |  | (Dollars in Thousands)
|Available for Sale:                        |                |  |                        |        |                   |   |            |  |                |   |                  |   |                   |  |            |        |  |   |     |  |   |   |  |   |       
|Mortgage-backed securities                 |                |  | $                      | 23,160 |                   | $ | 227        |  | $              |  |                  | $ | 23,387            |  | $          | 27,152 |  | $ | 423 |  | $ |  |  | $ | 27,575
|Obligations of state and local governments |                |  |                        | 4,248  |                   |   | 280        |  |                |  |                  |   | 4,528             |  |            | 4,357  |  |   | 134 |  |   |  |  |   | 4,491 
|Marketable equity securities               |                |  |                        | 487    |                   |   |           |  |                |  |                  |   | 487               |  |            | 487    |  |   |    |  |   |  |  |   | 487   
|U.S. Treasury obligations                  |                |  |                        | 255    |                   |   | 11         |  |                |  |                  |   | 266               |  |            | 256    |  |   | 13  |  |   |  |  |   | 269   
|                                           |                |  |                        |        |                   |   |            |  |                |   |                  |   |                   |  |           
|Total                                      |                |  | $                      | 28,150 |                   | $ | 518        |  | $              |  |                  | $ | 28,668            |  | $          | 32,252 |  | $ | 570 |  | $ |  |  | $ | 32,822
|                                           |                |  |                        |        |                   |   |            |  |                |   |                  |   |                   |  |           

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DEPOSITS

Total deposits increased by $18.0 million, or 9.9%, to $201.2 million at June 30, 2003 from $183.2 million at
December 31, 2002. Noninterest-bearing demand deposits at June 30, 2003, were $63.2 million, an increase of $9.3 million, or 17.3% from $53.9 million at December 31, 2002. Interest bearing and NOW accounts increased 7.5%, or $3.7 million to $52.7
million at June 30, 2003 from $49.0 million at December 31, 2002. Savings and time deposits increased by $5.0 million to $85.4 million at June 30, 2003 from $80.3 million at December 31, 2002. Through June 30, 2003 noninterest bearing demand
deposits and time deposits $100,000 or greater rose as a percentage of average total deposits and increased to 29.92% and 19.43% from 26.03% and 16.95%, respectively, as of December 31, 2002 year-to-date average balances. The increase in the
preceding average deposit balance mixes reduced the deposit mix percentages for the rest of the deposit categories.

The Companys cost of funds is the result of total interest expense on total
deposits and other interest-bearing liabilities as a percent of average total deposits and average other interest-bearing liabilities. For the six months ended June 30, 2003, cost of funds was 1.55% compared to 1.74% for the same period in 2002. The
decrease in the cost of funds is primarily the result of higher rate certificates of deposit maturing and being replaced by certificates of deposit that reflect the current rate environment.

The following
table summarizes the distribution of average deposits and the average rates paid for the periods indicated:

Average Deposits and Other
Borrowings

|                                                                                                  |                                |  |                              |         |                 |  |                |   |   |         |  |  |      |  
|------------------------------------------------------------------------------------------------- | ------------------------------ |  | ---------------------------- | ------- | --------------- |  | -------------- | - | - | ------- |  |  | ---- | -
|                                                                                                  | Six Months Ended June 30, 2003 |  | Year Ended December 31, 2002 |        
|                                                                                                  | Average Balance                |  | Average Rate14               |         | Average Balance |  | Average Rate14 |  
|                                                                                                  |                                |  | (Dollars in Thousands)      
|Demand deposits, noninterest bearing                                                              |                                |  | $                            | 56,664  |                 |  | 0.00           | % | $ | 46,483  |  |  | 0.00 | %
|                                                                                                  |                                |  |                              |         |                 | 
|Interest-bearing deposits:                                                                        |                                |  |                              |         |                 |  |                |   |   |         |  |  |      |  
|Interest-bearing demand deposits                                                                  |                                |  |                              | 17,154  |                 |  | 0.32           | % |   | 19,209  |  |  | 0.21 | %
|Money market deposits                                                                             |                                |  |                              | 34,091  |                 |  | 1.11           | % |   | 33,793  |  |  | 0.88 | %
|Savings deposits                                                                                  |                                |  |                              | 16,813  |                 |  | 0.66           | % |   | 18,145  |  |  | 0.55 | %
|Time deposits $100,000 or greater                                                                 |                                |  |                              | 36,802  |                 |  | 2.49           | % |   | 30,260  |  |  | 3.09 | %
|Other time deposits                                                                               |                                |  |                              | 27,854  |                 |  | 1.40           | % |   | 30,667  |  |  | 2.19 | %
|                                                                                                  |                                |  |                              |         |                 | 
|Total interest-bearing deposits                                                                   |                                |  | $                            | 132,714 |                 |  | 1.39           | % | $ | 132,074 |  |  | 1.55 | %
|                                                                                                  |                                |  |                              |         |                 | 
|Other borrowings                                                                                  |                                |  | $                            | 4,279   |                 |  | 1.37           | % | $ | 3,920   |  |  | 4.23 | %
|                                                                                                  |                                |  |                              |         |                 | 
|Redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures |                                |  | $                            | 6,000   |                 |  | 5.21           | % | $ | 3,046   |  |  | 5.38 | %
|                                                                                                  |                                |  |                              |         |                 | 
|Total deposits and other borrowings                                                               |                                |  | $                            | 199,657 |                 |  | 1.11           | % | $ | 185,523 |  |  | 1.28 | %
|                                                                                                  |                                |  |                              |         |                 | 
|Average rate excluding noninterest bearing demand deposits                                        |                                |  |                              |         |                 |  | 1.55           | % |   |         |  |  | 1.71 | %

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##### Table of Contents

The following tables sets forth the scheduled maturities of time certificates of deposit accounts outstanding in amounts of $100,000 or more at June 30, 2003 and December 31,
2002:

Maturities of Time Deposits of$100,000 or More at June 30, 2003(Dollars in
Thousands)

|                                        |  |  |   |       
|--------------------------------------- |  |  | - | ------
|Three months or less                    |  |  | $ | 10,284
|Over three months through twelve months |  |  |   | 24,714
|Over one year through three years       |  |  |   | 1,239 
|Over three years                        |  |  |   | 2,169 
|                                        | 
|Total                                   |  |  | $ | 38,406
|                                        | 

Maturities of Time Deposits of$100,000 or More at December 31, 2002(Dollars in Thousands)

|                                        |  |  |   |       
|--------------------------------------- |  |  | - | ------
|Three months or less                    |  |  | $ | 11,525
|Over three months through twelve months |  |  |   | 20,478
|Over one year through three years       |  |  |   | 450   
|Over three years                        |  |  |   | 2,122 
|                                        | 
|Total                                   |  |  | $ | 34,575
|                                        | 

LIQUIDITY

The Companys liquidity is primarily a reflection of 1st Centennials ability to acquire funds to meet loan demand and deposit withdrawals, and to service other liabilities as they come due.
1st Centennial has adopted policies to maintain a relatively liquid position so it can respond to changes in the financial environment and ensure sufficient funds are available to meet those needs. Generally, 1st
Centennials major sources of liquidity are customer deposits, sales and maturities of investment securities, the use of federal funds markets, borrowings from the Federal Home Loan Bank (FHLB) and net cash provided by operating activities.
Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and unscheduled loan prepayments, which are influenced by general interest rate levels, interest rates available on other investments, competition, economic
conditions, and other factors, are not. Liquid asset balances include cash, amounts due from other banks, federal funds sold, and securities available-for-sale. To augment liquidity, 1st Centennial Bank has Federal Funds borrowing
arrangements with three correspondent banks totaling $8 million, and a secured line of credit with the FHLB.

The Companys liquidity ratio, which is a measure of liquid assets to deposits
and short-term liabilities, showed a decline at the end of the second quarter of 2003 due to an increase in pledged securities to securitize short-term borrowings from the FHLB. The liquidity ratio to ending assets and ending deposits was 24.97% and
28.81% at the end of December 2002, respectively, and dropped to 18.06% and 21.02% by the end of June 2003. Managements goal is to maintain a ratio of liquidity to assets of 20% or greater. Liquidity to assets is temporarily below
managements goal of 20%, but expected cash flows from loan payoffs and new incoming deposits should result in the Companys ratio returning to 20% or greater. Management is also of the opinion that the standby funding sources it has
arranged are more than sufficient to meet 1st Centennials current and anticipated short-term liquidity needs.

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The following table sets forth certain information with respect to 1st Centennials liquidity as of June 30, 2003 and December 31, 2002.

Liquidity

|                                             |               |  |                        |        |   |   |        |  
|-------------------------------------------- | ------------- |  | ---------------------- | ------ | - | - | ------ | -
|                                             | June 30, 2003 |  | December 31, 2002      |       
|                                             |               |  | (Dollars in Thousands)
|Cash and due from banks                      |               |  | $                      | 12,024 |   | $ | 12,010 |  
|Federal funds sold                           |               |  |                        | 9,995  |   |   | 2,010  |  
|Interest earning deposits                    |               |  |                        | 5,071  |   |   | 5,151  |  
|Unpledged securities, at fair market value15 |               |  |                        | 15,213 |   |   | 32,734 |  
|                                             |               |  |                        |       
|Total liquid assets                          |               |  | $                      | 42,303 |   | $ | 51,905 |  
|                                             |               |  |                        |       
|Liquidity ratios:                            |               |  |                        |        |   |   |        |  
|Ending assets                                |               |  |                        | 18.06  | % |   | 24.97  | %
|Ending deposits16                            |               |  |                        | 21.02  | % |   | 28.81  | %

ASSET/LIABILITY MANAGEMENT

1st Centennial seeks to control its
interest rate risk exposure in a manner that will allow for adequate levels of earnings and capital over a range of possible interest rate environments. 1st Centennial has adopted formal policies and practices to monitor and manage
interest rate risk exposure. As part of this effort, 1st Centennial measures interest rate risk utilizing both a modeling program from an outside vendor, as well as third party sources reports, which can be compared and analyzed together,
enabling management to better manage economic risk and interest rate risk.

The fundamental objective of 1st Centennials management of its assets and liabilities is to maximize the economic
value of 1stCentennial while maintaining adequate liquidity and an exposure to interest rate risk deemed by management to be acceptable. Management believes an acceptable degree of exposure to interest rate risk results from the
management of assets and liabilities through maturities, pricing and mix to attempt to neutralize the potential impact of changes in market interest rates. 1stCentennials profitability is dependent to a large extent upon its net
interest income, which is the difference between its interest income on interest-earning assets such as loans and securities, and its interest expense on interest-bearing liabilities, such as deposits and borrowings. 1st Centennial, like
other financial institutions, is subject to interest rate risk to the degree that their interest-earning assets reprice differently than their interest-bearing liabilities, and not at the same time, or to the same magnitude. 1st
Centennial manages their mix of assets and liabilities with the goal of limiting its exposure to interest rate risk, ensuring adequate liquidity, and coordinating its sources and uses of funds. Interest income and interest expense are affected by
general economic conditions and by competition in the marketplace. 1st Centennials interest and pricing strategies are driven by its asset-liability management analyses and by local market conditions.

---

15 The decrease in unpledged securities of $17.5 million was the result of increased collateral at the Federal Home Loan Bank to support a secured borrowing
line of credit.16 Less pledged public deposits of zero on June 30, 2003 and $3,000 on December 31, 2002.

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In addition, 1st Centennial studies the net change in interest income and net interest margin given immediate, parallel interest rate shocks over a 12-month horizon.
1st Centennials goal is to manage the effect of these changes within Board-established parameters for up/down 100 and 200 basis points. Shown below are possible changes to the net interest margin based upon the models program
under 100 and 200 basis point increases or decreases as of June 30, 2003:

|                         |  |                                          |   |                               |  |                                 |        |                     |  |        |    |  |      |  
|------------------------ |  | ---------------------------------------- | - | ----------------------------- |  | ------------------------------- | ------ | ------------------- |  | ------ | -- |  | ---- | -
|Change (in Basis Points) |  | Net Interest Income (next twelve months) |   | Change in Net Interest Income |  | % Change in Net Interest Income |        | Net Interest Margin | 
|(Dollars in Thousands)  
|+ 200                    |  |                                          | $ | 13,874                        |  | $                               | 1,906  |                     |  | 15.93  | %  |  | 6.67 | %
|+ 100                    |  |                                          |   | 12,891                        |  |                                 | 923    |                     |  | 7.71   | %  |  | 6.20 | %
|0                        |  |                                          |   | 11,968                        |  |                                 |       |                     |  |       |    |  | 5.76 | %
|- 100                    |  |                                          |   | 11,096                        |  |                                 | (872   | )                   |  | (7.29  | %) |  | 5.34 | %
|- 200                    |  |                                          |   | 10,190                        |  |                                 | (1,778 | )                   |  | (14.86 | %) |  | 4.91 | %

These results indicate the effect of immediate rate changes, and does not consider the yield from reinvesting in short-term versus long-term
instruments. The above table shows values in a sudden, significant upward or downward movement, which is highly unlikely due to the historically low rates at 1st Centennial at June 30, 2003. However, the results indicated by the report,
are considered acceptable by management.

CAPITAL RESOURCES

The Federal Reserve Board and the FDIC have established similar guidelines to
implement risk-based capital requirements. Falling below minimum established levels may limit the bank holding company or bank from certain activities. Failure to satisfy applicable guidelines may also subject a banking institution to a variety of
enforcement actions by federal regulatory authorities.

The Company and its subsidiary are required to maintain the following minimum ratios: Total risk based capital ratio of at least 8%, Tier 1 Risk-based
capital ratio of at least 4%, and a leverage ratio of at least 4%. Total capital is classified into two components: Tier 1 (common shareholders equity, qualifying perpetual preferred stock to certain limits, trust preferred securities to certain
limits, and minority interests in equity accounts of consolidated subsidiaries, less goodwill and other intangibles) and Tier 2 (supplementary capital including allowance for possible credit losses, certain preferred stock, eligible subordinated
debt, and other qualifying instruments). Under the established guidelines, the Company has attained the highest level of capitalization, characterized as Well Capitalized. It is the intent of the Company to continue to maintain
Well Capitalized risk-based capital ratios.

Total stockholders equity was $23.3 million at June 30, 2003, compared to $17.2 million at December 31, 2002. The increase of $6.1 million
or 35.5% in the second quarter of 2003 was primarily due to $4,871,000 in net proceeds from the sale of 225,000 shares of common stock and $941,000 in year-to-date net income.

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The following table illustrates the capital and prompt corrective action guidelines applicable to the Company and 1st Centennial Bank, as well as their total risk-based capital ratios,
Tier 1 capital ratios and leverage ratios as of June 30, 2003 and December 31, 2002:



|                                |            |  | Risk-based capital ratios |       |                                                                          |  |                            
|------------------------------- | ---------- |  | ------------------------- | ----- | ------------------------------------------------------------------------ |  | ---------------------------
|                                |            |  |                           |      
|                                | At 6/30/03 |  | At 12/31/02               |       | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions |  | Minimum Capital Requirement
|1st Centennial Bancorp:         |            |  |                           |       |                                                                          |  |                            
|Total Risk-Based capital ratio  |            |  |                           | 14.74 | %                                                                        |  | 13.27                      
|Tier 1 Risk-Based capital ratio |            |  |                           | 13.08 | %                                                                        |  | 10.87                      
|Tier 1 Leverage Ratio           |            |  |                           | 10.67 | %                                                                        |  | 8.28                       
|1st Centennial Bank:            |            |  |                           |       |                                                                          |  |                            
|Total Risk-Based capital ratio  |            |  |                           | 13.56 | %                                                                        |  | 11.84                      
|Tier 1 Risk-Based capital ratio |            |  |                           | 12.43 | %                                                                        |  | 10.58                      
|Tier 1 Leverage Ratio           |            |  |                           | 10.17 | %                                                                        |  | 8.09                       

Of the Companys $23.8 million of Tier 1 capital at June 30, 2003, $5.0 million consisted of Trust Preferred Securities. Trust Preferred
Securities up to the amount of 25% of Tier 1 capital are considered to be Tier 1 capital for regulatory purposes, but long-term debt in accordance with generally accepted accounting principles. The remainder of the $6 million in Trust Preferred
Securities is considered Tier 2 capital.

On May 21, 2003, the Company completed a public stock offering of 225,000 shares of its Common Stock at a purchase price of $23.00 per share. The offering was fully
subscribed and the net proceeds to the Company were approximately $4.9 million.

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##### Table of Contents

ITEM 3.  
CONTROLS AND PROCEDURES

(a)     Evaluation of Disclosure Controls and Procedures

1st
Centennials Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of 1st Centennials disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c) as of a date within
45 days of the filing date of this quarterly report (the Evaluation Date) have concluded that as of the Evaluation Date, 1st Centennials disclosure controls and procedures were adequate and effective to ensure that material
information relating to 1st Centennial and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this quarterly report was being prepared.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in
the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b)     Changes in Internal Controls

There were no significant changes in the Companys internal controls or in other factors that
could significantly affect the Companys internal controls subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such controls requiring corrective actions. As a result, no corrective actions were
taken.

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##### Table of Contents

PART II  OTHER INFORMATION

ITEM 1.  
LEGAL PROCEEDINGS

In March of 2003 the Company entered into a settlement agreement as a result of a mediation with respect to two actions brought by the former president of
1st Centennial against us and certain of our officers and employees. The actions, as described in the Company's March 2003 10QSB, filed May 15, 2003, have been settled. Both actions were settled by payment to plaintiff of a cash
settlement of $25,000 by us plus an additional payment by our insurance company, and the agreement of 1st Centennial to issue an aggregate of 12,960 shares of its common stock in a private placement to Mr. Spencer. Pursuant to the
settlement agreement, Mr. Spencer purchased these shares on April 3, 2003 at a cost of $10.01 per share, which is equivalent to the average price of stock options, which were cancelled when Mr. Spencer was terminated by 1st Centennial.
The issuance of these shares to Mr. Spencer resulted in an increase in the Companys contributed capital in the amount of $130,000. However, from an earnings standpoint, the transaction resulted in an earnings charge to the Company during the
second quarter of 2003 in the amount of $165,000 representing the difference between the aggregate purchase price of the shares paid to the Company and the fair market value of those shares at the time of the purchase.

ITEM 2.  
CHANGES IN SECURITIES AND USE OF PROCEEDS

In April 2003 the Company commenced an offering of 225,000 shares of common stock at a price of $23.00 per share, pursuant to a
Registration Statement filed on Form SB-2 (Registration No. 333-10374), which was declared effective on April 18, 2003. The offering was conducted on a best efforts basis by the Company together with Western Financial Corporation as
standby placement agent. The offering was fully subscribed and terminated on May 22, 2003. The total gross proceeds were $5,175,000 with a cost of $304,000 leaving net proceeds of $4,871,000.

On May 24,
2003 1st Centennial contributed all of the net proceeds of the offering to its subsidiary, 1stCentennial Bank, as a capital infusion. The Bank used the proceeds for general working capital purposes, including the repurchase of
loan participations previously sold to other financial institutions, funding for loans and to support future growth.

ITEM 3.  
DEFAULTS UPON SENIOR SECURITIES

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##### Table of Contents

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

The annual meeting of shareholders was held on April 22, 2003, but because a quorum was not present, it was adjourned to May 13,
2003. At the meeting, the following individuals were elected to serve as members of the Companys Board of Directors until the 2004 Annual Meeting of Shareholders and until their successors are elected and have qualified:

|                       |     |         |                                |       |                  |   | 
|---------------------- | --- | ------- | ------------------------------ | ----- | ---------------- | - | 
|                       | For |         | Against or Withheld/ Abstained |       | Broker Non-Votes |  
|James R.Appleton       |     | 685,648 |                                | 2,447 |                  | 0 | 
|Bruce J.Bartells       |     | 685,648 |                                | 2,447 |                  | 0 | 
|Carole H.Beswick       |     | 683,895 |                                | 4,200 |                  | 0 | 
|Irving M.Feldkamp, III |     | 685,648 |                                | 2,447 |                  | 0 | 
|Larry Jacinto          |     | 683,723 |                                | 4,372 |                  | 0 | 
|Ronald J.Jeffrey       |     | 685,648 |                                | 2,447 |                  | 0 | 
|William A.McCalmon     |     | 683,723 |                                | 4,372 |                  | 0 | 
|Patrick J.Meyer        |     | 685,648 |                                | 2,447 |                  | 0 | 
|Richard Sanborn        |     | 685,648 |                                | 2,447 |                  | 0 | 
|Timothy P.Walbridge    |     | 685,648 |                                | 2,447 |                  | 0 | 
|Stanley C.Weisser      |     | 683,895 |                                | 4,200 |                  | 0 | 
|Douglas F.Welebir      |     | 685,648 |                                | 2,447 |                  | 0 | 

ITEM 5.  
OTHER INFORMATION

None.

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##### Table of Contents

ITEM 6.  
EXHIBITS 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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##### Table of Contents

|      |                                                                                                                                                                                                         
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7  | Employment Agreement of Timothy P. Walbridge, dated December 1, 2001 (Incorporated by reference from Exhibit to the Companys Form 10-KSB for the fiscal year ended December 31,
2001.)                 
|      |                                                                                                                                                                                                         
|10.8  | Employment Agreement of Beth Sanders, dated December 1, 2001 (Incorporated by reference from Exhibit to the Companys Form 10-KSB for the fiscal year ended December 31, 2001.)                         
|      |                                                                                                                                                                                                         
|10.9  | Amendment to Salary Continuation plan of Timothy P. Walbridge, dated December 1, 2001 (Incorporated by reference from Exhibit to the Companys Form 10-KSB for the fiscal year ended December 31,
2001.)
|      |                                                                                                                                                                                                         
|10.10 | Amendment to Salary Continuation plan of Richard Sanborn, dated December 1, 2001 (Incorporated by reference from Exhibit to the Companys Form 10-KSB for the fiscal year ended December 31,
2001.)     
|      |                                                                                                                                                                                                         
|10.11 | Redlands Centennial Bank Employee Stock Ownership Plan, dated February 1, 2000 (Incorporated by reference from Exhibit to Form 10-QSB for the fiscal quarter ended March 31, 2000.)                     
|      |                                                                                                                                                                                                         
|10.12 | Centennial First Financial Services 2001 Stock Option Plan, as Amended, dated February 20, 2002 (Incorporated by reference from Exhibit to Form 10-QSB for the fiscal quarter ended September 30,
2002.)
|      |                                                                                                                                                                                                         
|10.13 | Palomar Community Bank lease dated April 15, 1987 (Incorporated by reference from Exhibit to Form 10-QSB for the fiscal quarter ended March 31, 2002.)                                                  
|      |                                                                                                                                                                                                         
|10.14 | Indenture for Trust Preferred Securities dated July 11, 2002 (Incorporated by reference from Exhibit to Form 10-QSB for the fiscal quarter ended September 30, 2002.)                                   
|      |                                                                                                                                                                                                         
|10.15 | Amended and Restated Declaration of Trust for trust preferred securities dated July 11, 2002 (Incorporated by reference from Exhibit to Form 10-QSB for the fiscal quarter ended September 30,
2002.)   
|      |                                                                                                                                                                                                         
|10.16 | Guarantee Agreement for Trust Preferred Securities dated July 11, 2002 (Incorporated by reference from Exhibit to Form 10-QSB for the fiscal quarter ended September 30, 2002.)                         
|      |                                                                                                                                                                                                         
|10.17 | Salary Continuation Agreement of Suzanne Dondanville, dated December 17, 2002, filed as exhibit to Form SB-2 dated March 13, 2003.                                                                      
|      |                                                                                                                                                                                                         
|10.18 | Salary Continuation Agreement of Clifford Schoonover, dated December 17, 2002, filed as exhibit to Form SB-2 dated March 13, 2003.                                                                      

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|      |                                                                                                                       
|----- | ----------------------------------------------------------------------------------------------------------------------
|10.19 | Salary Continuation Agreement of John Drake, dated August 1, 2002, filed as exhibit to Form SB-2 dated March 13, 2003.
|      |                                                                                                                       
|10.20 | Amendment to construction department lease dated August 28, 2002, filed as exhibit to Form SB-2 dated March 13, 2003. 
|      |                                                                                                                       
|10.21 | Commercial Lending Group Lease, dated December 23, 2002, filed as exhibit to Form SB-2 dated March 13, 2003.          
|      |                                                                                                                       
|10.22 | Palm Desert Branch lease, dated November 13, 2002, filed as exhibit to Form 10-KSB dated March 17, 2003.              
|      |                                                                                                                       
|10.23 | Amendment to Escondido Branch lease, dated June 6, 2001, filed as exhibit to Form 10-KSB, dated March 17, 2003.       
|      |                                                                                                                       
|31.1  | Certification of Chief Executive Officer (Section 302 Certification)                                                  
|      |                                                                                                                       
|31.2  | Certification of Chief Financial Officer (Section 302 Certification)                                                  
|      |                                                                                                                       
|32    | Certification of Periodic Financial Report (Section 906 Certification)                                                

(B)  REPORTS ON FORM 8-K

1st Centennial Bancorp filed a form 8-K on April 10, 2003 about the Companys press release that announced its earnings for the first quarter of 2003.

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SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

| |                       
| | ----------------------
| | 1ST CENTENNIAL BANCORP
| | (Registrant)          

|     |                 |  |                                                                                           
|---- | --------------- |  | ------------------------------------------------------------------------------------------
|Date | August 13, 2003 |  | /s/ BETH SANDERS                                                                          
|     |                 |  |                                                                                           
|     |                 |  | Beth Sanders                                                                              
|     |                 |  | Chief Financial Officer                                                                   
|     |                 |  | (Principal Accounting Officer, and officer authorized to sign on behalf of the registrant)

40