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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly report pursuant to section 13 or 15(d) of the Securities

Exchange Act of 1934

For the quarterly period ended September 30, 2006

Commission file number: 000-29105

1stCENTENNIAL BANCORP

(Exact Name of
Registrant as specified in its charter)



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|California                                                     |  | 91-1995265                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



|                                           |  |           
|------------------------------------------ |  | ----------
|218 East State Street Redlands, California |  | 92373     
|(Address of principal executive offices)   |  | (Zip Code)

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

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

Yes  þ    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  þ

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).

Yes ̈No  þ

APPLICABLE TO CORPORATE ISSUER

The number of shares of Common Stock of the registrant outstanding as of November 7, 2006 was 3,203,941.



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TABLE OF CONTENTS



|                               |  |                                                                                       |  |     
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | ----
|ITEM                           |  |                                                                                       |  | PAGE
|PART I  Financial Information |  |                                                                                      
|                               |  |                                                                                      
|ITEM 1                         |  | Unaudited Consolidated Financial Statements                                           |  | 2   
|                               |  | Consolidated statements of condition                                                  |  | 2   
|                               |  | Consolidated statements of earnings                                                   |  | 3   
|                               |  | Consolidated statements of shareholders equity                                       |  | 4   
|                               |  | Consolidated statements of cash flows                                                 |  | 5   
|                               |  | Notes to unaudited consolidated financial statements                                  |  | 7   
|                               |  |                                                                                      
|ITEM 2                         |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11  
|                               |  |                                                                                      
|ITEM 3                         |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 34  
|                               |  |                                                                                      
|ITEM 4                         |  | Controls and Procedures                                                               |  | 35  
|                               | 
|PART II  Other Information    |  |                                                                                      
|                               |  |                                                                                      
|ITEM 1                         |  | Legal Proceedings                                                                     |  | 36  
|                               |  |                                                                                      
|ITEM 1A                        |  | Risk Factors                                                                          |  | 36  
|                               |  |                                                                                      
|ITEM 2                         |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 36  
|                               |  |                                                                                      
|ITEM 3                         |  | Defaults Upon Senior Securities                                                       |  | 36  
|                               |  |                                                                                      
|ITEM 4                         |  | Submission of Matters to a Vote of Security Holders                                   |  | 36  
|                               |  |                                                                                      
|ITEM 5                         |  | Other Information                                                                     |  | 36  
|                               |  |                                                                                      
|ITEM 6                         |  | Exhibits                                                                              |  | 37  
|                               |  |                                                                                      
|                               |  | Signatures                                                                            |  | 39  



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##### Table of Contents

PART I  FINANCIAL INFORMATION



|ITEM 1. | UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|------- | -------------------------------------------

1STCENTENNIAL BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CONDITION

September 30, 2006 and December 31, 2005



|                                                                                                                                                                          |  |             |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | ---- | - | -------
|Dollar amounts in thousands                                                                                                                                               |  | 2006        |         | 2005
|                                                                                                                                                                          |  | (unaudited) |         |     
|ASSETS                                                                                                                                                                    |  |             |         |      |   |        
|Cash and due from banks                                                                                                                                                   |  | $           | 14,322  |      | $ | 16,862 
|Federal funds sold                                                                                                                                                        |  |             | 10,605  |      |   | 21,505 
|                                                                                                                                                                          |  |             |         |      |   |        
|Total cash and cash equivalents                                                                                                                                           |  |             | 24,927  |      |   | 38,367 
|Interest-bearing deposits in financial institutions                                                                                                                       |  |             | 3,037   |      |   | 2,334  
|Investment securities, available for sale                                                                                                                                 |  |             | 58,854  |      |   | 12,208 
|Stock investments restricted, at cost                                                                                                                                     |  |             | 1,665   |      |   | 1,620  
|Loans, net of allowance for loan losses of $5,837 and $5,376                                                                                                              |  |             | 425,726 |      |   | 381,153
|Accrued interest receivable                                                                                                                                               |  |             | 2,854   |      |   | 2,425  
|Premises and equipment, net                                                                                                                                               |  |             | 3,291   |      |   | 3,652  
|Goodwill                                                                                                                                                                  |  |             | 4,180   |      |   | 4,180  
|Cash surrender value of life insurance                                                                                                                                    |  |             | 11,526  |      |   | 6,735  
|Other assets                                                                                                                                                              |  |             | 3,652   |      |   | 3,518  
|                                                                                                                                                                          |  |             |         |      |   |        
|Total assets                                                                                                                                                              |  | $           | 539,712 |      | $ | 456,192
|                                                                                                                                                                          |  |             |         |      |   |        
|LIABILITIES                                                                                                                                                               |  |             |         |      |   |        
|Deposits:                                                                                                                                                                 |  |             |         |      |   |        
|Noninterest-bearing demand deposits                                                                                                                                       |  | $           | 112,814 |      | $ | 106,121
|Interest-bearing deposits                                                                                                                                                 |  |             | 335,007 |      |   | 295,154
|                                                                                                                                                                          |  |             |         |      |   |        
|Total deposits                                                                                                                                                            |  |             | 447,821 |      |   | 401,275
|Accrued interest payable                                                                                                                                                  |  |             | 355     |      |   | 170    
|Repurchase agreement                                                                                                                                                      |  |             | 30,000  |      |   |       
|Other liabilities                                                                                                                                                         |  |             | 3,339   |      |   | 3,020  
|Subordinated notes payable to subsidiary trusts                                                                                                                           |  |             | 18,306  |      |   | 18,306 
|                                                                                                                                                                          |  |             |         |      |   |        
|Total liabilities                                                                                                                                                         |  |             | 499,821 |      |   | 422,771
|                                                                                                                                                                          |  |             |         |      |   |        
|SHAREHOLDERS EQUITY                                                                                                                                                      |  |             |         |      |   |        
|Common stock, no par value; authorized 10,000,000 shares, issued and outstanding 3,203,219 and 2,100,075 shares at September 30, 2006 and
December 31, 2005, respectively |  |             | 27,712  |      |   | 26,803 
|Retained earnings                                                                                                                                                         |  |             | 12,023  |      |   | 6,617  
|Accumulated other comprehensive income                                                                                                                                    |  |             | 156     |      |   | 1      
|                                                                                                                                                                          |  |             |         |      |   |        
|Total shareholders equity                                                                                                                                                |  |             | 39,891  |      |   | 33,421 
|                                                                                                                                                                          |  |             |         |      |   |        
|Total liabilities and shareholders equity                                                                                                                                |  | $           | 539,712 |      | $ | 456,192
|                                                                                                                                                                          |  |             |         |      |   |        

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



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1STCENTENNIAL BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF EARNINGS

Three and Nine Months Ended September 30, 2006 and 2005 (unaudited)



|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|----------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ----- |  | ---- | ------ |  | - | ------
|                                                      |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|Dollar amounts in thousands, except per share amounts |  | 2006                            |        | 2005                           |   | 2006  |  | 2005
|Interest income:                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Interest and fees on loans                            |  | $                               | 9,696  |                                | $ | 8,265 |  | $    | 27,570 |  | $ | 23,206
|Deposits in financial institutions                    |  |                                 | 29     |                                |   | 32    |  |      | 88     |  |   | 105   
|Federal funds sold                                    |  |                                 | 224    |                                |   | 80    |  |      | 776    |  |   | 122   
|Investments                                           |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Taxable                                               |  |                                 | 279    |                                |   | 100   |  |      | 475    |  |   | 351   
|Tax-exempt                                            |  |                                 | 110    |                                |   | 41    |  |      | 220    |  |   | 124   
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Total interest income                                 |  |                                 | 10,338 |                                |   | 8,518 |  |      | 29,129 |  |   | 23,908
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Interest expense:                                     |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Interest bearing demand and savings deposits          |  |                                 | 1,575  |                                |   | 733   |  |      | 4,164  |  |   | 1,508 
|Time deposits $100,000 or greater                     |  |                                 | 894    |                                |   | 533   |  |      | 2,092  |  |   | 1,321 
|Other time deposits                                   |  |                                 | 369    |                                |   | 301   |  |      | 1,034  |  |   | 769   
|Interest on borrowed funds                            |  |                                 | 470    |                                |   | 425   |  |      | 1,165  |  |   | 1,296 
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Total interest expense                                |  |                                 | 3,308  |                                |   | 1,992 |  |      | 8,455  |  |   | 4,894 
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Net interest income                                   |  |                                 | 7,030  |                                |   | 6,526 |  |      | 20,674 |  |   | 19,014
|Provision for loan losses                             |  |                                 | 200    |                                |   | 300   |  |      | 820    |  |   | 1,310 
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Net interest income after provision for loan losses   |  |                                 | 6,830  |                                |   | 6,226 |  |      | 19,854 |  |   | 17,704
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Noninterest income:                                   |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Customer service fees                                 |  |                                 | 303    |                                |   | 342   |  |      | 988    |  |   | 1,017 
|Gains from sale of loans                              |  |                                 | 2      |                                |   | 661   |  |      | 319    |  |   | 966   
|Conduit loan referral income                          |  |                                 | 80     |                                |   | 17    |  |      | 638    |  |   | 663   
|Other income                                          |  |                                 | 204    |                                |   | 165   |  |      | 458    |  |   | 574   
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Total noninterest income                              |  |                                 | 589    |                                |   | 1,185 |  |      | 2,403  |  |   | 3,220 
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Noninterest expense:                                  |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Salaries and employee benefits                        |  |                                 | 2,302  |                                |   | 2,863 |  |      | 7,254  |  |   | 8,777 
|Net occupancy expense                                 |  |                                 | 551    |                                |   | 544   |  |      | 1,673  |  |   | 1,474 
|Other operating expense                               |  |                                 | 1,396  |                                |   | 1,861 |  |      | 4,363  |  |   | 4,878 
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Total noninterest expense                             |  |                                 | 4,249  |                                |   | 5,268 |  |      | 13,290 |  |   | 15,129
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Income before provision for income taxes              |  |                                 | 3,170  |                                |   | 2,143 |  |      | 8,967  |  |   | 5,795 
|Provision for income taxes                            |  |                                 | 1,321  |                                |   | 844   |  |      | 3,555  |  |   | 2,257 
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Net income                                            |  | $                               | 1,849  |                                | $ | 1,299 |  | $    | 5,412  |  | $ | 3,538 
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Basic earnings per share1                             |  | $                               | 0.58   |                                | $ | 0.41  |  | $    | 1.70   |  | $ | 1.13  
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Diluted earnings per share1                           |  | $                               | 0.52   |                                | $ | 0.38  |  | $    | 1.54   |  | $ | 1.04  
|                                                      |  |                                 |        |                                |   |       |  |      |        |  |   |       

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

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|1 | As adjusted to reflect the 50% stock distribution paid on April 3, 2006 to shareholders of record as of March 3, 2006.
|- | ----------------------------------------------------------------------------------------------------------------------



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1STCENTENNIAL BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

Nine Months Ended September 30, 2006 and 2005
(unaudited)

Dollar amounts in thousands, except share amounts



|                                                                                             |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|-------------------------------------------------------------------------------------------- |  | --------- | - |  | ------------ | ------ | ----------------- | - | ------ | -------------------------------------------- |  | - | ----- | - |  | - | ------ | -
|                                                                                             |  | Shares    |   |  | Common Stock |        | Retained Earnings |   |        | AccumulatedOther Comprehensive Income
(loss) |  |   | Total |  
|BALANCE, DECEMBER 31, 2004                                                                   |  | 1,939,611 |   |  | $            | 21,208 |                   | $ | 6,706  |                                              |  | $ | 87    |   |  | $ | 28,001 |  
|                                                                                             |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|Comprehensive income:                                                                        |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|Net income                                                                                   |  |          |   |  |              |       |                   |   | 3,538  |                                              |  |   |      |   |  |   | 3,538  |  
|Change in net unrealized gain on investment securities available for sale, after tax effects |  |          |   |  |              |       |                   |   |       |                                              |  |   | (57   | ) |  |   | (57    | )
|                                                                                             |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|Total comprehensive income                                                                   |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   | 3,481  |  
|                                                                                             |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|Stock dividend                                                                               |  | 135,815   |   |  |              | 5,161  |                   |   | (5,161 | )                                            |  |   |      |   |  |   |       |  
|Cash paid in lieu of fractional shares                                                       |  |          |   |  |              |       |                   |   | (11    | )                                            |  |   |      |   |  |   | (11    | )
|Compensation expense on incentive stock options                                              |  |          |   |  |              | 6      |                   |   |       |                                              |  |   |      |   |  |   | 6      |  
|Exercise of stock options, including tax benefit                                             |  | 20,418    |   |  |              | 315    |                   |   |       |                                              |  |   |      |   |  |   | 315    |  
|                                                                                             |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|BALANCE, SEPTEMBER 30, 2005                                                                  |  | 2,095,844 |   |  | $            | 26,690 |                   | $ | 5,072  |                                              |  | $ | 30    |   |  | $ | 31,792 |  
|                                                                                             |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|                                                                                             |  |           |   |  |             
|BALANCE, DECEMBER 31, 2005                                                                   |  | 2,100,075 |   |  | $            | 26,803 |                   | $ | 6,617  |                                              |  | $ | 1     |   |  | $ | 33,421 |  
|                                                                                             |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|Comprehensive income:                                                                        |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|Net income                                                                                   |  |          |   |  |              |       |                   |   | 5,412  |                                              |  |   |      |   |  |   | 5,412  |  
|Change in net unrealized gain on investment securities available for sale, after tax effects |  |          |   |  |              |       |                   |   |       |                                              |  |   | 155   |   |  |   | 155    |  
|                                                                                             |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|Total comprehensive income                                                                   |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   | 5,567  |  
|                                                                                             |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|Stock distribution                                                                           |  | 1,062,656 |   |  |              |       |                   |   |       |                                              |  |   |      |   |  |   |       |  
|Cash paid in lieu of fractional shares                                                       |  |          |   |  |              |       |                   |   | (6     | )                                            |  |   |      |   |  |   | (6     | )
|Retirement of unvested restricted stock awards                                               |  | (578      | ) |  |              |       |                   |   |       |                                              |  |   |      |   |  |   |       |  
|Compensation expense on incentive stock options                                              |  |          |   |  |              | 398    |                   |   |       |                                              |  |   |      |   |  |   | 398    |  
|Exercise of stock options, including tax benefit                                             |  | 41,066    |   |  |              | 511    |                   |   |       |                                              |  |   |      |   |  |   | 511    |  
|                                                                                             |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  
|BALANCE, SEPTEMBER 30, 2006                                                                  |  | 3,203,219 |   |  | $            | 27,712 |                   | $ | 12,023 |                                              |  | $ | 156   |   |  | $ | 39,891 |  
|                                                                                             |  |           |   |  |              |        |                   |   |        |                                              |  |   |       |   |  |   |        |  

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



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1STCENTENNIAL BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2006 and 2005 (unaudited)



|                                                                                        |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|Dollar amounts in thousands                                                             |  | 2006 |         |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                    |  |      |         |   |      |   |         |  
|Net income                                                                              |  | $    | 5,412   |   |      | $ | 3,538   |  
|Adjustments to reconcile net income to net cash provided by operating activities:       |  |      |         |   |      |   |         |  
|Depreciation and amortization                                                           |  |      | 517     |   |      |   | 480     |  
|Loss (gain) on sale of fixed assets                                                     |  |      | (7      | ) |      |   | 16      |  
|Loss from sale of investments                                                           |  |      |        |   |      |   | 5       |  
|Provision for loan losses                                                               |  |      | 820     |   |      |   | 1,310   |  
|Amortization of deferred loan fees                                                      |  |      | (1,334  | ) |      |   | (1,590  | )
|Amortization of excess purchase value of deposits                                       |  |      | 9       |   |      |   | 10      |  
|Amortization of excess purchase value of loans                                          |  |      |        |   |      |   | 38      |  
|Fair value of stock options and restricted stock awards in noninterest expense          |  |      | 425     |   |      |   | 6       |  
|Deferred income tax (benefit) provision                                                 |  |      | (44     | ) |      |   | 38      |  
|Net amortization of premiums and discounts on investments and interest-bearing deposits |  |      | 82      |   |      |   | 174     |  
|Increase in cash surrender value of life insurance                                      |  |      | (291    | ) |      |   | (182    | )
|Increase in assets:                                                                     |  |      |         |   |      |   |         |  
|Accrued interest receivable                                                             |  |      | (429    | ) |      |   | (761    | )
|Other assets                                                                            |  |      | (144    | ) |      |   | (960    | )
|Increase in liabilities:                                                                |  |      |         |   |      |   |         |  
|Accrued interest payable                                                                |  |      | 185     |   |      |   | 8       |  
|Other liabilities                                                                       |  |      | 292     |   |      |   | 698     |  
|                                                                                        |  |      |         |   |      |   |         |  
|Net cash provided by operating activities                                               |  |      | 5,493   |   |      |   | 2,828   |  
|                                                                                        |  |      |         |   |      |   |         |  
|                                                                                        |  |     
|CASH FLOWS FROM INVESTING ACTIVITIES                                                    |  |      |         |   |      |   |         |  
|Net decrease (increase) in interest-bearing deposits in financial institutions          |  |      | (654    | ) |      |   | 1,485   |  
|Activity in available for sale securities:                                              |  |      |         |   |      |   |         |  
|Purchases of securities                                                                 |  |      | (49,266 | ) |      |   |        |  
|Proceeds from sales, maturities and principal repayments of securities                  |  |      | 2,689   |   |      |   | 6,614   |  
|Purchases of Federal Home Loan Bank stock                                               |  |      | (45     | ) |      |   | (799    | )
|Net increase in loans                                                                   |  |      | (44,059 | ) |      |   | (67,620 | )
|Additions to bank premises and equipment                                                |  |      | (149    | ) |      |   | (1,276  | )
|Purchases of life insurance                                                             |  |      | (4,500  | ) |      |   |        |  
|                                                                                        |  |      |         |   |      |   |         |  
|Net cash used in investing activities                                                   |  |      | (95,984 | ) |      |   | (61,596 | )
|                                                                                        |  |      |         |   |      |   |         |  

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



5



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##### Table of Contents

1STCENTENNIAL BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Nine Months Ended September 30, 2006 and 2005 (unaudited)



|                                                     |  |      |         |   |      |   |         |  
|---------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|Dollar amounts in thousands                          |  | 2006 |         |   | 2005 |  
|CASH FLOWS FROM FINANCING ACTIVITIES                 |  |      |         |   |      |   |         |  
|Net increase in noninterest-bearing demand deposits  |  |      | 6,693   |   |      |   | 23,844  |  
|Net increase in interest-bearing deposits            |  |      | 39,853  |   |      |   | 67,867  |  
|Repayments of federal funds purchased                |  |      |        |   |      |   | (475    | )
|Repayments of Federal Home Loan Bank borrowings      |  |      |        |   |      |   | (12,000 | )
|Proceeds from repurchase agreement                   |  |      | 30,000  |   |      |   |        |  
|Issuance of Trust Preferred Securities               |  |      |        |   |      |   | 5,155   |  
|Cash paid in lieu of fractional shares               |  |      | (6      | ) |      |   | (11     | )
|Proceeds from exercise of stock options              |  |      | 511     |   |      |   | 315     |  
|                                                     |  |      |         |   |      |   |         |  
|Net cash provided by financing activities            |  |      | 77,051  |   |      |   | 84,695  |  
|                                                     |  |      |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents |  |      | (13,440 | ) |      |   | 25,927  |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD       |  |      | 38,367  |   |      |   | 5,695   |  
|                                                     |  |      |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD             |  | $    | 24,927  |   |      | $ | 31,622  |  
|                                                     |  |      |         |   |      |   |         |  
|SUPPLEMENTARY INFORMATION                            |  |      |         |   |      |   |         |  
|Interest paid                                        |  | $    | 8,261   |   |      | $ | 4,876   |  
|                                                     |  |      |         |   |      |   |         |  
|Income taxes paid                                    |  | $    | 3,987   |   |      | $ | 2,527   |  
|                                                     |  |      |         |   |      |   |         |  

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



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##### Table of Contents

1STCENTENNIAL BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Note 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of
Business

1stCentennial Bancorp (the Company) is a California corporation registered as a bank holding company under the Bank Holding Company Act of 1956, and is headquartered in Redlands, California. The Company was incorporated in August 1999 and
acquired 100% of the outstanding shares of 1stCentennial Bank (the Bank) in December 1999. The Bank
operates six branches and three loan production offices, which provide commercial and consumer banking services and also a broad array of products and services throughout its operating areas in Southern California.

Basis of Presentation

The unaudited financial information
included herein has been prepared in conformity with the accounting principles and practices disclosed in the consolidated financial statements, Note 1, included in the Companys Annual Report on Form 10-K, as amended for the year ended
December 31, 2005. 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 three and nine months ended September 30, 2006 may not be indicative of operating results for the full year ending December 31, 2006. Certain prior
year and prior quarter amounts have been reclassified to conform to current classifications.

Note 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 123R (Revised 2004), (Share-Based Payment), which is a revision of SFAS No. 123,Accounting for Stock-Based Compensation.SFAS No. 123R supersedes APB No. 25 and amends FASB Statement No. 95, Statement of Cash Flows. SFAS No. 123R requires all share-based payments to employees, including grants of
employee stock options, to be recognized as compensation expense through the income statement based on their fair values at issue date. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating cash flow required under current guidelines.

Effective January 1, 2006, the Company
began recording compensation expense associated with stock-based awards in accordance with SFAS No. 123R. Stock-based compensation expense was $398,000 during the first nine months of 2006. It is expected that stock-based compensation expense
will increase in subsequent quarters, as additional stock options will have been granted.

The fair value of each option granted is estimated on the date
of grant using the Binomial option-pricing model. The Company uses the following input variables as of the grant date, to arrive at the fair value for each grant:



| | 1) | Grant date;
| | -- | -----------



| | 2) | Options granted;
| | -- | ----------------



| | 3) | Exercise price;
| | -- | ---------------



| | 4) | Stock price on date of grant;
| | -- | -----------------------------



| | 5) | Expected dividend rate;
| | -- | -----------------------



| | 6) | Expected volatility;
| | -- | --------------------



| | 7) | Risk free interest rate on grant date;
| | -- | --------------------------------------



| | 8) | Expected term; and
| | -- | ------------------



| | 9) | Expected forfeiture rate.
| | -- | -------------------------

In June 2006, the Financial Accounting
Standards Board (the FASB) issued FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109) which is effective for fiscal years beginning after
December 15, 2006 with earlier adoption encouraged. This interpretation was issued to clarify the accounting for uncertainty in income taxes recognized in the financial statements by prescribing a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company is currently evaluating the potential impact of this interpretation.



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##### Table of Contents

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but applies under other existing accounting pronouncements that require or
permit fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement and, therefore, should be determined based on the assumptions that market participants would use in
pricing that asset or liability. SFAS No. 157 also establishes a fair value hierarchy that distinguishes between market participant assumptions developed based on market data obtained from independent sources and the Companys own
assumptions about market participant assumptions based on the best information available. SFAS No. 157 is effective for the Company on January 1, 2008 with earlier adoption permitted. The Company does not expect adoption to have a
significant impact on the consolidated financial statements, results of operations or liquidity of the Company.

In September 2006, the FASB issued
SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires employers to recognize the
overfunded or underfunded status of defined benefit postretirement plans, other than multiemployer plans, as assets or liabilities on the balance sheet and to recognize changes in the funded status in the year in which the changes occur through
comprehensive income. The recognition and disclosure provisions of SFAS No. 158 are effective for the Company as of December 31, 2006. The Company does not expect adoption of SFAS No. 158, to have a significant impact on the
consolidated financial statements, results of operations or liquidity of the Company.

In September 2006, the Emerging Issues Task Force
(EITF) reached a final consensus on Issue No. 06-4 (EITF 06-4), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF 06-4
requires employers to recognize a liability for future benefits provided through endorsement split-dollar life insurance arrangements that extend into postretirement periods in accordance with SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions or APB Opinion No. 12, Omnibus Opinion  1967. The provisions of EITF 06-4 are effective for the Company on January 1, 2007 and are to be applied as a change in accounting
principle either through a cumulative-effect adjustment to retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the year of adoption; or through retrospective application to all
prior periods. The Company is currently evaluating the financial statement impact of adoption of EITF 06-4.

In September 2006, the EITF reached a
final consensus on Issue No. 06-5 (EITF 06-5), Accounting for Purchase of Life InsuranceDetermining the Amount That Could be Realized in Accordance with FASB Technical Bulletin No. 85-4. EITF 06-5 requires
that the cash surrender value and any amounts provided by the contractual terms of an insurance policy that are realizable at the balance sheet date be considered in determining the amount that could be realized under Technical Bulletin
No. 85-4. The provisions of EITF 06-5 require (1) consideration of the effect of contractual restrictions that limit amounts that could be realized, (2) exclusion from the amount that could be realized of amounts recoverable at the
discretion of the insurance company, (3) amounts that are recoverable by the policyholder in periods beyond one year from the surrender of the policy be discounted, and (4) an assumption that policies will be surrendered on an individual
lifebyindividual life basis. The provisions of EITF 06-5 are effective for the Company on January 1, 2007 and are to be applied as a change in accounting principle either through a cumulative-effect adjustment to retained earnings
or other components of equity or net assets in the statement of financial position as of the beginning of the year of adoption; or through retrospective application to all prior periods. The Company is currently evaluating the financial statement
impact of adoption of EITF 06-5.



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##### Table of Contents

Note 3. EARNINGS PER SHARE2

Basic earnings per share represents income available to common shareholders 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 September 30,

(In thousands, except per share amounts)



|                                        |  |           |       |                       |       |                 |   |       |           |  |                       |       |                 |       |  |   |       |  
|--------------------------------------- |  | --------- | ----- | --------------------- | ----- | --------------- | - | ----- | --------- |  | --------------------- | ----- | --------------- | ----- |  | - | ----- | -
|                                        |  | 2006      |       |                       | 2005  |                
|                                        |  | NetIncome |       | Weightedaverageshares |       | Per shareamount |   |       | NetIncome |  | Weightedaverageshares |       | Per shareamount |      
|Basic earnings per share                |  | $         | 1,849 |                       | 3,194 |                 | $ | 0.58  |           |  | $                     | 1,299 |                 | 3,131 |  | $ | 0.41  |  
|Effect of dilutive shares:              |  |           |       |                       |       |                 |   |       |           |  |                       |       |                 |       |  |   |       |  
|assumed exercise of outstanding options |  |           |      |                       | 336   |                 |   | (0.06 | )         |  |                       |      |                 | 275   |  |   | (0.03 | )
|Diluted earnings per share              |  | $         | 1,849 |                       | 3,530 |                 | $ | 0.52  |           |  | $                     | 1,299 |                 | 3,406 |  | $ | 0.38  |  

Earnings per share calculation

For the nine months ended September 30,

(In thousands, except per share amounts)



|                                        |  |           |       |                       |       |                 |   |       |           |  |                       |       |                 |       |  |   |       |  
|--------------------------------------- |  | --------- | ----- | --------------------- | ----- | --------------- | - | ----- | --------- |  | --------------------- | ----- | --------------- | ----- |  | - | ----- | -
|                                        |  | 2006      |       |                       | 2005  |                
|                                        |  | NetIncome |       | Weightedaverageshares |       | Per shareamount |   |       | NetIncome |  | Weightedaverageshares |       | Per shareamount |      
|Basic earnings per share                |  | $         | 5,412 |                       | 3,183 |                 | $ | 1.70  |           |  | $                     | 3,538 |                 | 3,123 |  | $ | 1.13  |  
|Effect of dilutive shares:              |  |           |       |                       |       |                 |   |       |           |  |                       |       |                 |       |  |   |       |  
|assumed exercise of outstanding options |  |           |      |                       | 336   |                 |   | (0.16 | )         |  |                       |      |                 | 275   |  |   | (0.09 | )
|Diluted earnings per share              |  | $         | 5,412 |                       | 3,519 |                 | $ | 1.54  |           |  | $                     | 3,538 |                 | 3,398 |  | $ | 1.04  |  

Note 4. OFF-BALANCE SHEET COMMITMENTS

Commitments to extend credit are agreements to lend to customers, provided there is no violation of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Commitments are generally variable rate, and many of these commitments are expected to expire without being drawn upon. As such, the total commitment amounts do not necessarily represent future cash
requirements. The Companys exposure to credit losses is represented by the contractual amount of these commitments. The Company uses the same credit underwriting policies in granting or accepting such commitments as it does for
on-balance-sheet instruments, which consist of evaluating customers creditworthiness individually.

---

|2 | As adjusted to reflect the 50% stock distribution paid on April 3, 2006 to shareholders of record as of March 3, 2006.
|- | ----------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Standby letters of credit are conditional commitments issued by the Company to guarantee the financial performance of a
customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
When deemed necessary, the Company holds appropriate collateral supporting those commitments. Management does not anticipate any material losses as a result of these transactions.

The following table shows the amounts of total off-balance sheet commitments by category as of the dates indicated:

Off-Balance sheet commitments



|                                      |  |                        |         |                  |   |        
|------------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                      |  | September 30, 2006     |         | December 31,2005
|                                      |  | (Dollars in Thousands)
|Standby letters of credit             |  | $                      | 2,826   |                  | $ | 2,642  
|Undisbursed loans and lines of credit |  |                        | 219,057 |                  |   | 193,672
|Available credit card lines           |  |                        | 2,861   |                  |   | 2,090  
|                                      |  |                        |         |                  |   |        
|Total off-balance sheet commitments   |  | $                      | 224,744 |                  | $ | 198,404
|                                      |  |                        |         |                  |   |        



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

This discussion focuses primarily on the results of operations of the Company on a consolidated basis for the three and nine months ended September 30, 2006 and 2005, and the financial condition of the Company as
of September 30, 2006 and December 31, 2005.

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 subsidiary. 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
2005 Annual Report on Form 10-K, as amended.

Certain statements in this Report on Form 10-Q constitute forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 (the Exchange Act), 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. Segment reporting is not presented since the
Companys revenue is attributed to a single reportable segment. For additional information concerning these factors, refer to the Companys Form 10-K for the year ended December 31, 2005, as amended.

CRITICAL ACCOUNTING POLICIES

The Company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. The Companys allowance for loan loss methodologies incorporate a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan losses that Management believes
is appropriate at each reporting date.

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, the 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 the Company adds new products and expands its geographic coverage, it increases the complexity of its loan portfolio. The Company 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 if its assessment of the above factors were different. This discussion and analysis should be read
in conjunction with the Company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 September 30, 2006 was 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.



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##### Table of Contents

SUMMARY OF PERFORMANCE

Results of operations summary

Third quarter analysis. Net income for the quarter ended September 30, 2006 was $1.8 million, which is $550,000 or 42% higher than net income of $1.3 million for the same period in 2005. Basic and diluted earnings per share were
$0.58 and $0.52 respectively, for the quarter ended September 30, 2006. This compares to $0.41 and $0.38 respectively, for the same period in 2005. Earnings per share calculations were adjusted to give retroactive effect to stock dividends and
distributions, including the 50% stock distribution paid on April 3, 2006 to shareholders of record as of March 3, 2006. Return on average assets and return on average equity for the quarter ended September 30, 2006 were 1.46% and
18.92% respectively, as compared to 1.18% and 16.68% respectively, for the same period in 2005.

The primary drivers behind the variance in net
income for the quarter ended September 30, 2006 relative to the same period in 2005 are as follows:



| |  |  | Net interest income before the provision for loan losses increased by $504,000 or 8%, primarily due to the increase in average total loans.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The provision for loan losses decreased $100,000 or 33%. The allowance for loan losses at September 30, 2006 was at 1.35% of total gross loans and was determined to be
acceptable by management after our analysis.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Gains from the sale of loans decreased by $659,000 or 99.7% as a result of unanticipated personnel changes in the SBA department, which resulted in a temporary decrease in SBA loans
sold during the third quarter of 2006 as compared to the same period in 2005.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the first quarter of 2006, the Company updated and redesigned its Loan Production Commissions and Incentives Policy. As a result, commissions and incentives expense decreased
$205,000. This reduction coupled with an increase in deferred loan origination costs applied against salary expense were the primary drivers behind the $561,000 or 20% decrease in salaries and employee benefits expense.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Marketing expense decreased $182,000 or 37%. The decrease in marketing expense was attributable to a decrease in public relations and advertising expenses.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Professional fees expense decreased $142,000 or 40% as a result of a decrease in legal and other professional fees expense. Expenses related to the compliance of the Sarbanes Oxley
Act of 2002 decreased during the three months ended September 30, 2006 when compared to the same period in 2005.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The provision for income taxes increased $477,000 or 57% as a direct result of increased earnings for the quarter ended September 30, 2006 when compared to the same period in
2005.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Nine-month analysis. Net income for the first nine months of 2006 was $5.4 million, which is $1.9 million or 53% higher than
net income of $3.5 million for the first nine months of 2005. Basic and diluted earnings per share were $1.70 and $1.54 respectively, for the first nine months of 2006. This compares to $1.13 and $1.04 respectively, for the first nine months of
2005. Earnings per share calculations were adjusted to give retroactive effect to stock dividends and distributions, including the 50% stock distribution paid on April 3, 2006 to shareholders of record as of March 3, 2006. Return on
average assets and return on average equity for the nine months ended September 30, 2006 were 1.51% and 19.60% respectively, as compared to 1.17% and 15.96% respectively, for the same period in 2005. The increase in the return on average assets
and return on average equity for the nine months ended September 30, 2006 when compared to the same period in 2005 is due in part, to the increase in interest income as a result of growth in average interest earning assets. Due to our strong
business climate and loan demand, average interest-earning assets grew $69.3 million or 18%, from September 2005 to September 2006, primarily in non-real estate commercial loans and real estate construction and development loans.



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##### Table of Contents

The primary drivers behind the variance in net income for the first nine months of 2006 relative to the first nine months
of 2005 are as follows:



| |  |  | Net interest income before the provision for loan losses increased by $1.7 million or 9%, primarily due to the increase in average total loans.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The provision for loan losses decreased $490,000 or 37%. As of September 30, 2006 net charge-offs were $359,000 compared to $456,000 for the same period in 2005. Despite the
decrease in the provision, the allowance for loan losses as of September 30, 2006 and September 30, 2005 was 1.35% and 1.31% respectively, of total gross loans net of unearned income. Our analysis of the allowance for loan losses showed
these amounts to be adequate given the risk of the loan portfolio.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Gains from the sale of loans decreased by $647,000 or 67% as a result of unanticipated personnel changes in the SBA department, which resulted in a temporary decrease in SBA loans
sold during the first nine months of 2006 as compared to the same period in 2005.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other income decreased $116,000 or 20%, primarily as a result of less fee income associated with participated loan activity during the first nine months of 2006 as compared to the
same period in 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the first quarter of 2006, the Company updated and redesigned its Loan Production Commissions and Incentives Policy. As a result, commissions and incentives expense decreased
$966,000. This reduction coupled with an increase in deferred loan origination costs applied against salary expense were the primary drivers behind the $1.5 million or 17% decrease in salaries and employee benefits expense.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Professional fees expense decreased $306,000 or 30%. Expenses related to the compliance of the Sarbanes Oxley Act of 2002 decreased during the first nine months of 2006 when
compared to the same period in 2005, coupled with a decrease in staff recruiting expense.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The provision for income taxes increased $1.3 million or 58% as a direct result of increased earnings for the nine months ended September 30, 2006 when compared to the same
period in 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Financial Condition Summary

The Companys total assets were $539.7 million at September 30, 2006, an increase of $83.5 million, or 18%, compared to total assets of $456.2 million at
December 31, 2005. The most significant changes in the Companys balance sheet during the first nine months of 2006 are outlined below:



| |  |  | The Companys investment portfolio increased $46.6 million or 382% to $58.8 million. During the third quarter of 2006, the Company entered into a $30 million repurchase
agreement that included an interest rate floor to mitigate interest rate risk in a declining rate environment. The repurchase agreement is collateralized by the purchase of a $30 million FNMA U.S. agency security. In addition, the Company added
approximately $11.7 million in federal agency mortgage-backed securities, however such securities had a net increase of $9.0 million due to principal paydowns. Obligations of states and local government securities increased $7.6 million as the
Company took advantage of relative value in that sector.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net loans increased $44.6 million or 12% from December 31, 2005. Strong loan demand in the Companys market areas contributed to the increase in net loans.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Noninterest-bearing demand deposits increased $6.7 million or 6% from December 31, 2005. During the third quarter of 2006 the Company launched a noninterest bearing deposit
sales campaign. As of September 30, 2006 the Bank was able to attract approximately $1.7 million in new noninterest bearing deposits. The campaign, new deposit relationships established prior to the campaign, and an increase in deposits with
our existing customers, were the primary contributors to the increase in noninterest-bearing demand deposits.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest-bearing deposits increased $39.9 million or 14% from December 31, 2005. The increase in interest-bearing deposits was primarily the result of the Companys
continued emphasis to attract new customers, coupled with additional brokered certificates of deposit acquired to support our loan growth.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Nonaccrual loans at September 30, 2006 increased $2.7 million to $3.7 million, from $994,000 at December 31, 2005 due to the addition of five commercial loans totaling
$3.0 million, of which $2.5 million was attributed to one commercial loan. The Company establishes a plan with each borrower that falls into nonaccrual status that is based on receiving payments, however, it is uncertain whether such a plan will
prove to be successful.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

RESULTS OF OPERATIONS

The Company earns income from two primary sources. The first is net interest income, which is interest income generated by interest-earning assets less interest expense on interest-bearing liabilities. The second is noninterest income,
which primarily consists of customer service fees but also comes from non-customer sources such as loan sales, bank-owned life insurance, and other income. The majority of the Companys noninterest expenses are operating costs that relate to
providing a full range of banking services to our customers.

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 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, net interest margin and interest spread 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, and the local economies in which the Company conducts business.

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.

Third quarter analysis. The
Companys net interest margin as of the quarter ended September 30, 2006 was 5.93% compared to 6.31% for the same period in 2005. The increase in rates paid for money market deposits, time deposits, subordinated notes payable to subsidiary
trusts, coupled with the increase in the average balances of these liabilities and the addition of the repurchase agreement, were the major contributors toward compressing our net interest margin. For the quarter ended September 30, 2006 as
compared to the quarter ended September 30, 2005 the percentage of total average interest-bearing deposits represented by money market deposits, changed to 50% from 42% and the percentage of total average borrowings represented by subordinated
notes payable to subsidiary trusts changed to 74% from 37%.

For the quarter ended September 30, 2006, total interest earning assets averaged $470.6
million, which represented an increase of $60.1 million or 15%, as compared to $410.5 million for the same period in 2005. This increase is primarily attributable to the increases in loans as a result of our strong business climate and loan demand
and investments as a result of the Companys strategic plan to rebalance the balance sheet and invest excess liquidity in securities, while managing its loan demand. Total interest-bearing deposits and other interest-bearing liabilities
averaged $350.7 million, which represented an increase of $58.3 million or 20%, as compared to $292.4 million for the same period in 2005. This increase is primarily attributable to the increases in money market deposit accounts and time deposits of
$100,000 or more. There were no Federal Home Loan Bank borrowings outstanding during the quarter ended September 30, 2006 compared to an average of $22.9 million for the same period in 2005 while average federal funds sold increased $8.0
million for the quarter ended September 30, 2006.

The Company reported total interest income of $10.3 million for the quarter ended
September 30, 2006, which represented an increase of $1.8 million or 21%, over total interest income of $8.5 million for the same period in 2005. The increase is primarily the result of increases in interest and fees on loans of approximately
$1.4 million that resulted from an increase of $34.8 million in average loans as of the quarter ended September 30 2006, as compared to the same period in 2005.

The Company reported total interest expense of $3.3 million for the quarter ended September 30, 2006, which represented an increase of $1.3 million or 66%, over total interest expense of $2.0 million for the same
period in 2005. This increase is primarily attributable to the increases of $55.8 million in the average balance of money market deposit accounts and $15.1 million in the average balance of time deposits of $100,000 or more.



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##### Table of Contents

For the quarter ended September 30, 2006, net interest income before provision for loan losses was $7.0 million,
which represents an increase of $504,000 or 8%, over net interest income before provision for loan losses of $6.5 million for the same period in 2005. The increase in net interest income for the quarter ended September 30, 2006 as compared to
2005 was primarily due to the increase in average total loans.

Nine-month analysis. The Companys year-to-date net interest margin as of
September 30, 2006 was 6.16% compared to 6.70% for the same period in 2005. The increase in rates paid for money market deposits, time deposits and subordinated notes payable to subsidiary trusts, coupled with the increase in the average
balance on these liabilities, were the major contributors toward compressing our net interest margin. From September 30, 2005 to September 30, 2006 the percentage of total average deposits represented by money market deposits changed to
50% from 39%. The shift in this average deposit mix also contributed to the reduction of the net interest margin in the first nine months of 2006 versus 2005.

For the first nine months of 2006, total interest-earning assets averaged $448.8 million, which represented an increase of $69.3 million or 18%, as compared to $379.5 million for the same period in 2005. This increase is primarily
attributable to the increase in loans as a result of our strong business climate and loan demand. Total interest-bearing deposits and other interest-bearing liabilities averaged $333.1 million, which represented an increase of $62.6 million or 23%,
as compared to $270.5 million for the same period in 2005. This increase is primarily attributable to the increase in money market deposit and time deposit accounts. There were no Federal Home Loan Bank borrowings outstanding during the nine months
ended September 30, 2006 compared to an average of $29.2 million for the same period in 2005 while average federal funds sold increased $16.5 million. The overall increase in deposits has helped maintain the Companys liquidity position
during 2006.

The Company reported total interest income of $29.1 million for the nine months ended September 30, 2006, which represented an increase
of $5.2 million or 22%, over total interest income of $23.9 million for the same period in 2005. The increase is primarily the result of increases in interest and fees on loans of approximately $4.4 million that resulted from an increase of $50.1
million in average loans as of September 30, 2006, as compared to the same period in 2005.

The Company reported total interest expense of $8.5
million for the nine months ended September 30, 2006, which represented an increase of $3.6 million or 73%, over total interest expense of $4.9 million for the same period in 2005. This increase is primarily attributable to an increase in the
average balance of money market deposit and time deposit accounts.

For the nine months ended September 30, 2006, net interest income before provision
for loan losses was $20.7 million, which represented an increase of $1.7 million or 9%, over net interest income before provision for loan losses of $19.0 million for the same period in 2005. The increase in net interest income for the first nine
months of 2006 as compared to 2005 was primarily due to the increase in average total loans.



15



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##### Table of Contents

The following tables show 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 Interest Income



|                                                    |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|--------------------------------------------------- |  | ----------------------------------------- | ------- | ------------------------ | ---- | ------------------- |  | ---- | -------------- |  | ------------------------ | ------- | ------------------- | - | ----- |  | ---- | -
|                                                    |  | For the Three Months Ending September 30, |        
|                                                    |  | 2006                                      |         |                          | 2005 |                    
|                                                    |  | Average Balance                           |         | Interest Income/ Expense |      | Average3 Rate/Yield |  |      | AverageBalance |  | Interest Income/ Expense |         | Average3 Rate/Yield |  
|                                                    |  | (Dollars in Thousands)                    |        
|Interest-earning Assets:                            |  |                                           |         |                         
|Federal funds sold                                  |  | $                                         | 17,030  |                          | $    | 224                 |  | 5.22 | %              |  | $                        | 9,057   |                     | $ | 80    |  | 3.50 | %
|Interest-bearing deposits in financial institutions |  |                                           | 2,614   |                          |      | 29                  |  | 4.40 | %              |  |                          | 2,613   |                     |   | 32    |  | 4.86 | %
|Investment securities:4                             |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Taxable                                             |  |                                           | 21,376  |                          |      | 279                 |  | 5.18 | %              |  |                          | 10,549  |                     |   | 100   |  | 3.76 | %
|Non-taxable                                         |  |                                           | 10,351  |                          |      | 110                 |  | 4.22 | %              |  |                          | 3,861   |                     |   | 41    |  | 4.21 | %
|                                                    |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total investments                                   |  |                                           | 51,371  |                          |      | 642                 |  | 4.96 | %              |  |                          | 26,080  |                     |   | 253   |  | 3.85 | %
|Loans5                                              |  |                                           | 419,268 |                          |      | 9,696               |  | 9.17 | %              |  |                          | 384,487 |                     |   | 8,265 |  | 8.53 | %
|                                                    |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total interest-earning assets                       |  | $                                         | 470,639 |                          |      | 10,338              |  | 8.71 | %              |  | $                        | 410,567 |                     |   | 8,518 |  | 8.23 | %
|                                                    |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Interest-bearing Liabilities:                       |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Interest-bearing deposits                           |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Interest-bearing demand deposits                    |  | $                                         | 24,617  |                          |      | 24                  |  | 0.39 | %              |  | $                        | 21,490  |                     |   | 13    |  | 0.24 | %
|Money market deposits                               |  |                                           | 164,114 |                          |      | 1,498               |  | 3.62 | %              |  |                          | 108,349 |                     |   | 673   |  | 2.46 | %
|Savings deposits                                    |  |                                           | 18,566  |                          |      | 53                  |  | 1.13 | %              |  |                          | 23,118  |                     |   | 47    |  | 0.81 | %
|Time deposits $100,000 or greater                   |  |                                           | 78,922  |                          |      | 894                 |  | 4.49 | %              |  |                          | 63,816  |                     |   | 533   |  | 3.31 | %
|Other time deposits                                 |  |                                           | 39,642  |                          |      | 369                 |  | 3.69 | %              |  |                          | 39,430  |                     |   | 301   |  | 3.03 | %
|                                                    |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total interest-bearing deposits                     |  |                                           | 325,861 |                          |      | 2,838               |  | 3.46 | %              |  |                          | 256,203 |                     |   | 1,567 |  | 2.43 | %
|                                                    |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|FHLB borrowings                                     |  |                                           |        |                          |      |                    |  | 0.00 | %              |  |                          | 22,886  |                     |   | 190   |  | 3.29 | %
|Repurchase agreement                                |  |                                           | 6,522   |                          |      | 94                  |  | 5.72 | %              |  |                          |        |                     |   |      |  | 0.00 | %
|Subordinated notes payable to subsidiary trusts     |  |                                           | 18,306  |                          |      | 376                 |  | 8.15 | %              |  |                          | 13,319  |                     |   | 235   |  | 7.00 | %
|                                                    |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total borrowings                                    |  |                                           | 24,828  |                          |      | 470                 |  | 7.51 | %              |  |                          | 36,205  |                     |   | 425   |  | 4.66 | %
|                                                    |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total interest-bearing liabilities                  |  | $                                         | 350,689 |                          |      | 3,308               |  | 3.74 | %              |  | $                        | 292,408 |                     |   | 1,992 |  | 2.70 | %
|                                                    |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Net interest income                                 |  |                                           |         |                          | $    | 7,030               |  |      |                |  |                          |         |                     | $ | 6,526 |  |      |  
|                                                    |  |                                           |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Net interest margin6                                |  |                                           |         |                          |      |                     |  | 5.93 | %              |  |                          |         |                     |   |       |  | 6.31 | %



16



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##### Table of Contents

Distribution, Yield and Rate Analysis of Net Interest Income



|                                                    |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|--------------------------------------------------- |  | ---------------------------------------- | ------- | ------------------------ | ---- | ------------------- |  | ---- | -------------- |  | ------------------------ | ------- | ------------------- | - | ------ |  | ---- | -
|                                                    |  | For the Nine Months Ending September 30, |        
|                                                    |  | 2006                                     |         |                          | 2005 |                    
|                                                    |  | Average Balance                          |         | Interest Income/ Expense |      | Average3 Rate/Yield |  |      | AverageBalance |  | Interest Income/ Expense |         | Average3 Rate/Yield |  
|                                                    |  | (Dollars in Thousands)                   |        
|Interest-earning Assets:                            |  |                                          |         |                         
|Federal funds sold                                  |  | $                                        | 21,501  |                          | $    | 776                 |  | 4.83 | %              |  | $                        | 5,015   |                     | $ | 122    |  | 3.25 | %
|Interest-bearing deposits in financial institutions |  |                                          | 2,462   |                          |      | 88                  |  | 4.78 | %              |  |                          | 3,051   |                     |   | 105    |  | 4.60 | %
|Investment securities:4                             |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Taxable                                             |  |                                          | 12,953  |                          |      | 475                 |  | 4.90 | %              |  |                          | 12,649  |                     |   | 351    |  | 3.71 | %
|Non-taxable                                         |  |                                          | 6,898   |                          |      | 220                 |  | 4.26 | %              |  |                          | 3,872   |                     |   | 124    |  | 4.28 | %
|                                                    |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Total investments                                   |  |                                          | 43,814  |                          |      | 1,559               |  | 4.76 | %              |  |                          | 24,587  |                     |   | 702    |  | 3.82 | %
|Loans5                                              |  |                                          | 405,009 |                          |      | 27,570              |  | 9.10 | %              |  |                          | 354,895 |                     |   | 23,206 |  | 8.74 | %
|                                                    |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Total interest-earning assets                       |  | $                                        | 448,823 |                          |      | 29,129              |  | 8.68 | %              |  | $                        | 379,482 |                     |   | 23,908 |  | 8.42 | %
|                                                    |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Interest-bearing Liabilities:                       |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Interest-bearing deposits                           |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Interest-bearing demand deposits                    |  | $                                        | 26,364  |                          |      | 69                  |  | 0.35 | %              |  | $                        | 20,219  |                     |   | 36     |  | 0.24 | %
|Money market deposits                               |  |                                          | 157,411 |                          |      | 3,926               |  | 3.33 | %              |  |                          | 88,491  |                     |   | 1,342  |  | 2.03 | %
|Savings deposits                                    |  |                                          | 21,842  |                          |      | 169                 |  | 1.03 | %              |  |                          | 23,620  |                     |   | 130    |  | 0.74 | %
|Time deposits $100,000 or greater                   |  |                                          | 68,446  |                          |      | 2,092               |  | 4.09 | %              |  |                          | 57,678  |                     |   | 1,321  |  | 3.06 | %
|Other time deposits                                 |  |                                          | 38,549  |                          |      | 1,034               |  | 3.59 | %              |  |                          | 37,202  |                     |   | 769    |  | 2.76 | %
|                                                    |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Total interest-bearing deposits                     |  |                                          | 312,612 |                          |      | 7,290               |  | 3.12 | %              |  |                          | 227,210 |                     |   | 3,598  |  | 2.12 | %
|                                                    |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|FHLB borrowings                                     |  |                                          |        |                          |      |                    |  | 0.00 | %              |  |                          | 29,161  |                     |   | 632    |  | 2.90 | %
|Federal funds purchased                             |  |                                          |        |                          |      |                    |  | 0.00 | %              |  |                          | 947     |                     |   | 19     |  | 2.68 | %
|Repurchase agreement                                |  |                                          | 2,198   |                          |      | 94                  |  | 5.72 | %              |  |                          |        |                     |   |       |  | 0.00 | %
|Subordinated notes payable to subsidiary trusts     |  |                                          | 18,306  |                          |      | 1,071               |  | 7.82 | %              |  |                          | 13,207  |                     |   | 645    |  | 6.53 | %
|                                                    |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Total borrowings                                    |  |                                          | 20,504  |                          |      | 1,165               |  | 7.60 | %              |  |                          | 43,315  |                     |   | 1,296  |  | 4.00 | %
|                                                    |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Total interest-bearing liabilities                  |  | $                                        | 333,116 |                          |      | 8,455               |  | 3.39 | %              |  | $                        | 270,525 |                     |   | 4,894  |  | 2.42 | %
|                                                    |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Net interest income                                 |  |                                          |         |                          | $    | 20,674              |  |      |                |  |                          |         |                     | $ | 19,014 |  |      |  
|                                                    |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Net interest margin6                                |  |                                          |         |                          |      |                     |  | 6.16 | %              |  |                          |         |                     |   |        |  | 6.70 | %

---

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



|4 | Yields on securities have not been adjusted to a tax equivalent basis because the impact is not material.
|- | ---------------------------------------------------------------------------------------------------------



|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 on such loans is excluded.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



17



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##### Table of Contents

The following table shows a rate and volume analysis for changes in interest income, interest expense, and net interest
income for the periods indicated.

Rate7/Volume Analysis of Net Interest Income



|                                                    |  |                                               |      |   |                                              |   |      |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |       |  
|--------------------------------------------------- |  | --------------------------------------------- | ---- | - | -------------------------------------------- | - | ---- | ----- |  | - | ------ | - |  | ---- | ----- | - | ----- | - | ------ | - |  | - | ----- | -
|                                                    |  | Three Months EndedSeptember 30, 2006 vs. 2005 |      |   | Nine Months EndedSeptember 30, 2006 vs. 2005 |  
|                                                    |  | Increases (Decreases) Due to                  |      |   | Increases (Decreases) Due to                 |  
|                                                    |  | Volume                                        |      |   | Rate                                         |   |      | Total |  |   | Volume |   |  | Rate |       |   | Total |  
|                                                    |  | (Dollars in Thousands)                        |     
|Increase (Decrease) in Interest Income:             |  |                                               |      |  
|Federal funds sold                                  |  | $                                             | 70   |   |                                              | $ | 74   |       |  | $ | 144    |   |  | $    | 401   |   |       | $ | 253    |   |  | $ | 654   |  
|Interest-bearing deposits in financial institutions |  |                                               |     |   |                                              |   | (3   | )     |  |   | (3     | ) |  |      | (20   | ) |       |   | 3      |   |  |   | (17   | )
|Investment securities:8                             |  |                                               |      |   |                                              |   |      |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |       |  
|Taxable                                             |  |                                               | 103  |   |                                              |   | 76   |       |  |   | 179    |   |  |      | 8     |   |       |   | 116    |   |  |   | 124   |  
|Non-taxable                                         |  |                                               | 69   |   |                                              |   |     |       |  |   | 69     |   |  |      | 97    |   |       |   | (1     | ) |  |   | 96    |  
|Loans9                                              |  |                                               | 748  |   |                                              |   | 683  |       |  |   | 1,431  |   |  |      | 3,277 |   |       |   | 1,087  |   |  |   | 4,364 |  
|                                                    |  |                                               |      |   |                                              |   |      |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |       |  
|Total                                               |  | $                                             | 990  |   |                                              | $ | 830  |       |  | $ | 1,820  |   |  | $    | 3,763 |   |       | $ | 1,458  |   |  | $ | 5,221 |  
|                                                    |  |                                               |      |   |                                              |   |      |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |       |  
|Increase (Decrease) in Interest Expense:            |  |                                               |      |   |                                              |   |      |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |       |  
|Interest-bearing demand deposits                    |  | $                                             | 2    |   |                                              | $ | 9    |       |  | $ | 11     |   |  | $    | 11    |   |       | $ | 22     |   |  | $ | 33    |  
|Money market deposits                               |  |                                               | 346  |   |                                              |   | 479  |       |  |   | 825    |   |  |      | 1,045 |   |       |   | 1,539  |   |  |   | 2,584 |  
|Savings deposits                                    |  |                                               | (9   | ) |                                              |   | 15   |       |  |   | 6      |   |  |      | (10   | ) |       |   | 49     |   |  |   | 39    |  
|Time deposits $100,000 or greater                   |  |                                               | 126  |   |                                              |   | 235  |       |  |   | 361    |   |  |      | 247   |   |       |   | 524    |   |  |   | 771   |  
|Other time deposits                                 |  |                                               | 2    |   |                                              |   | 66   |       |  |   | 68     |   |  |      | 28    |   |       |   | 237    |   |  |   | 265   |  
|FHLB borrowings                                     |  |                                               | (190 | ) |                                              |   |     |       |  |   | (190   | ) |  |      | (632  | ) |       |   |       |   |  |   | (632  | )
|Federal funds purchased                             |  |                                               |     |   |                                              |   |     |       |  |   |       |   |  |      | (19   | ) |       |   |       |   |  |   | (19   | )
|Repurchase agreement                                |  |                                               |     |   |                                              |   | 94   |       |  |   | 94     |   |  |      |      |   |       |   | 94     |   |  |   | 94    |  
|Subordinated notes payable to subsidiary trusts     |  |                                               | 88   |   |                                              |   | 53   |       |  |   | 141    |   |  |      | 249   |   |       |   | 177    |   |  |   | 426   |  
|                                                    |  |                                               |      |   |                                              |   |      |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |       |  
|Total                                               |  | $                                             | 365  |   |                                              | $ | 951  |       |  | $ | 1,316  |   |  | $    | 919   |   |       | $ | 2,642  |   |  | $ | 3,561 |  
|                                                    |  |                                               |      |   |                                              |   |      |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |       |  
|Total change in net interest income                 |  | $                                             | 625  |   |                                              | $ | (121 | )     |  | $ | 504    |   |  | $    | 2,844 |   |       | $ | (1,184 | ) |  | $ | 1,660 |  
|                                                    |  |                                               |      |   |                                              |   |      |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |       |  

PROVISION FOR LOAN LOSSES

Credit risk is inherent in the business of making loans. The Company sets aside an allowance or reserve for loan losses through charges to earnings, which are shown in the income statement as the provision for loan
losses. Specifically identifiable and quantifiable losses are immediately charged off against the allowance. The loan loss provision is determined by conducting a monthly evaluation of the adequacy of the Companys allowance for loan losses,
and charging the shortfall, if any, to the current months expense. This has the effect of creating variability in the amount and frequency of charges to the Companys earnings.

The provision for loan losses totaled $820,000 for the nine months ended September 30, 2006. This represented a decrease of $490,000 or 37% when compared to $1.3
million for the same period in 2005. As of September 30, 2006 net charge-offs were $359,000 compared to $456,000 for the same period in 2005. Despite the decrease in the provision, the allowance for loan losses as of September 30, 2006 and
September 30, 2005 was 1.35% and 1.31% respectively, of total gross loans net of unearned income. Our analysis of the allowance for loan losses showed these amounts to be adequate given the risk of the loan portfolio.

---

|7 | Rates for these periods on which calculations are based have been annualized using actual days.
|- | -----------------------------------------------------------------------------------------------



|8 | Yields on securities have not been adjusted to a tax equivalent basis because the impact is not material.
|- | ---------------------------------------------------------------------------------------------------------



|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 on such loans is excluded.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18



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##### Table of Contents

NONINTEREST INCOME

Noninterest income for the Company includes customer service fees, gains from sale of loans, increases in the cash surrender value of life insurance policies, broker fee income, conduit loan referral income and other miscellaneous income.
The revenue from conduit loan referral income is referral or brokerage fee income. The loans are never recorded on the Companys books; therefore, the recognized income is not recorded as gain on the sale of loans. The loans are packaged and
referred to other lenders. The Company recognizes noninterest income as a result of the referral.

Third quarter analysis. Noninterest income
totaled $589,000 for the quarter ended September 30, 2006. This represented a decrease of $596,000, or 50% when compared to $1.185 million for the same period in 2005.

The decrease in noninterest income was primarily attributable to the decrease in gains from the sale of SBA loans of $659,000 or 99.7% as a result of unanticipated personnel changes in the SBA department, which
resulted in a temporary decrease in SBA loans sold during the third quarter of 2006 as compared to the same period in 2005.

For the quarter ended
September 30, 2006 as compared to 2005, noninterest income as an annualized percentage of average earning assets decreased to 0.50% from 1.15%.

Nine-month analysis. Noninterest income totaled $2.403 million for the nine months ended September 30, 2006. This represented a decrease of $817,000, or 25% when compared to $3.220 million for the same period in 2005.

The decrease in noninterest income was attributable to the decrease in gains from the sale of SBA loans of $647,000 as a result of unanticipated personnel
changes in the SBA department, which resulted in a temporary decrease in SBA loans sold during the first nine months of 2006 as compared to the same period in 2005. It is the Companys intention to increase noninterest income by increasing the
volume of SBA loan sales in the future, however, it is uncertain whether such an increase will occur. The decrease of $136,000 in other miscellaneous income was primarily the result of less fee income associated with participated loan activity
during the first nine months of 2006 as compared to the same period in 2005.

For the nine months ended September 30, 2006 as compared to 2005,
noninterest income as an annualized percentage of average earning assets decreased to 0.72% from 1.13%.

The following tables set forth components of the
Companys noninterest income for the periods indicated and expresses the amounts as a percentage of total noninterest income:

Noninterest Income



|                                                       |  |                                         |     |                  |        |   |        |   |                  |  |        |  
|------------------------------------------------------ |  | --------------------------------------- | --- | ---------------- | ------ | - | ------ | - | ---------------- |  | ------ | -
|                                                       |  | For the Three Months EndedSeptember 30, |    
|                                                       |  | 2006                                    |     |                  | 2005   |  
|                                                       |  | Amount                                  |     | Percent of Total |        |   | Amount |   | Percent of Total | 
|                                                       |  | (Dollars in Thousands)                  |    
|Customer service fees                                  |  | $                                       | 303 |                  | 51.44  | % |        | $ | 342              |  | 28.86  | %
|Gains from sale of loans                               |  |                                         | 2   |                  | 0.34   | % |        |   | 661              |  | 55.78  | %
|Increase in cash surrender value of life insurance     |  |                                         | 140 |                  | 23.77  | % |        |   | 68               |  | 5.74   | %
|Broker fee income                                      |  |                                         | 18  |                  | 3.06   | % |        |   | 57               |  | 4.81   | %
|Conduit loan referral income                           |  |                                         | 80  |                  | 13.58  | % |        |   | 17               |  | 1.43   | %
|Other miscellaneous income                             |  |                                         | 46  |                  | 7.81   | % |        |   | 40               |  | 3.38   | %
|                                                       |  |                                         |     |                  |        |   |        |   |                  |  |        |  
|Total noninterest income                               |  | $                                       | 589 |                  | 100.00 | % |        | $ | 1,185            |  | 100.00 | %
|                                                       |  |                                         |     |                  |        |   |        |   |                  |  |        |  
|As a percentage of average earning assets (annualized) |  |                                         |     |                  | 0.50   | % |        |   |                  |  | 1.15   | %
|                                                       |  |                                         |     |                  |        |   |        |   |                  |  |        |  



19



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##### Table of Contents

Noninterest Income



|                                                       |  |                                        |       |                  |        |   |        |   |                  |  |        |  
|------------------------------------------------------ |  | -------------------------------------- | ----- | ---------------- | ------ | - | ------ | - | ---------------- |  | ------ | -
|                                                       |  | For the Nine Months EndedSeptember 30, |      
|                                                       |  | 2006                                   |       |                  | 2005   |  
|                                                       |  | Amount                                 |       | Percent of Total |        |   | Amount |   | Percent of Total | 
|                                                       |  | (Dollars in Thousands)                 |      
|Customer service fees                                  |  | $                                      | 988   |                  | 41.11  | % |        | $ | 1,017            |  | 31.59  | %
|Gains from sale of loans                               |  |                                        | 319   |                  | 13.28  | % |        |   | 966              |  | 30.00  | %
|Increase in cash surrender value of life insurance     |  |                                        | 321   |                  | 13.36  | % |        |   | 198              |  | 6.15   | %
|Broker fee income                                      |  |                                        | 79    |                  | 3.29   | % |        |   | 182              |  | 5.65   | %
|Conduit loan referral income                           |  |                                        | 638   |                  | 26.55  | % |        |   | 663              |  | 20.59  | %
|Other miscellaneous income                             |  |                                        | 58    |                  | 2.41   | % |        |   | 194              |  | 6.02   | %
|                                                       |  |                                        |       |                  |        |   |        |   |                  |  |        |  
|Total noninterest income                               |  | $                                      | 2,403 |                  | 100.00 | % |        | $ | 3,220            |  | 100.00 | %
|                                                       |  |                                        |       |                  |        |   |        |   |                  |  |        |  
|As a percentage of average earning assets (annualized) |  |                                        |       |                  | 0.72   | % |        |   |                  |  | 1.13   | %
|                                                       |  |                                        |       |                  |        |   |        |   |                  |  |        |  

NONINTEREST EXPENSE

Noninterest expense for the Company includes salaries and employee benefits, net occupancy and equipment expense, marketing expense, data processing and professional fees, and other operating expenses.

Third quarter analysis. Noninterest expense totaled $4.249 million for the quarter ended September 30, 2006. This represented a decrease of $1.019 million,
or 19% when compared to $5.268 million for the same period in 2005. The decrease in noninterest expense was primarily due to decreases of $561,000, $182,000 and $142,000 in salaries and employee benefits, marketing expense and professional expense,
respectively.

During the first quarter of 2006, the Company updated and redesigned its Loan Production Commissions and Incentives Policy. As a result,
commissions and incentives expense decreased $205,000. Additional declines are expected for the remainder of the year due to this policy change. This reduction coupled with an increase in deferred loan origination costs offset in salary expense were
the major contributors in the reduction of salaries and employee benefits expense of $561,000. Marketing expense decreased $182,000 as a result of a decrease in advertising expenses. Professional fees expense decreased $142,000 as a result of a
decrease in legal and other professional fees expense. Expenses related to the compliance of the Sarbanes Oxley Act of 2002 decreased during the three months ended September 30, 2006 when compared to the same period in 2005.

For the quarter ended September 30, 2006 as compared to 2005, noninterest expense as an annualized percentage of average earning assets decreased to 3.58% from
5.09%.

Nine-month analysis. Noninterest expense totaled $13.290 million for the nine months ended September 30, 2006. This represented a
decrease of $1.839 million, or 12% when compared to $15.129 million for the same period in 2005. The decrease in noninterest expense was primarily due to decreases of $1.523 million and $306,000 in salaries and employee benefits and professional
fees expense, respectively.

During the first quarter of 2006, the Company updated and redesigned its Loan Production Commissions and Incentives Policy. As
a result, commissions and incentives expense decreased $966,000. Additional declines are expected for the remainder of the year due to this policy change. This reduction coupled with an increase in deferred loan origination costs offset in salary
expense were the major contributors in the reduction of salaries and employee benefits expense of $1.523 million. Professional fees expense decreased $306,000. Expenses related to the compliance of the Sarbanes Oxley Act of 2002 decreased in during
the first nine months of 2006 when compared to the same period in 2005, coupled with a decrease in staff recruiting expense.



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##### Table of Contents

For the nine months ended September 30, 2006 as compared to 2005, noninterest expense as an annualized percentage of
average earning assets decreased to 3.96% from 5.33%. This decrease is reflective of Managements continuing efforts to control overhead expenses.

The following tables set forth components of the Companys noninterest expense for the periods indicated and express the amounts as a percentage of total noninterest expense:

Noninterest Expense



|                                                       |  |                                          |        |                 |        |   |        |   |                 |  |        |  
|------------------------------------------------------ |  | ---------------------------------------- | ------ | --------------- | ------ | - | ------ | - | --------------- |  | ------ | -
|                                                       |  | For the Three Months Ended September 30, |       
|                                                       |  | 2006                                     |        |                 | 2005   |  
|                                                       |  | Amount                                   |        | Percentof Total |        |   | Amount |   | Percentof Total | 
|                                                       |  | (Dollars in Thousands)                   |       
|Salaries and employee benefits                         |  | $                                        | 2,302  |                 | 54.16  | % |        | $ | 2,863           |  | 54.35  | %
|Net occupancy expense                                  |  |                                          | 551    |                 | 12.97  | % |        |   | 544             |  | 10.33  | %
|Marketing                                              |  |                                          | 310    |                 | 7.30   | % |        |   | 492             |  | 9.34   | %
|Data processing fees                                   |  |                                          | 223    |                 | 5.25   | % |        |   | 258             |  | 4.90   | %
|Professional fees                                      |  |                                          | 217    |                 | 5.11   | % |        |   | 359             |  | 6.81   | %
|Postage, telephone, supplies                           |  |                                          | 129    |                 | 3.04   | % |        |   | 154             |  | 2.92   | %
|Directors fees                                        |  |                                          | 54     |                 | 1.27   | % |        |   | 60              |  | 1.14   | %
|Other operating expense                                |  |                                          | 463    |                 | 10.90  | % |        |   | 538             |  | 10.21  | %
|                                                       |  |                                          |        |                 |        |   |        |   |                 |  |        |  
|Total noninterest expense                              |  | $                                        | 4,249  |                 | 100.00 | % |        | $ | 5,268           |  | 100.00 | %
|                                                       |  |                                          |        |                 |        |   |        |   |                 |  |        |  
|As a percentage of average earning assets (annualized) |  |                                          |        |                 | 3.58   | % |        |   |                 |  | 5.09   | %
|                                                       |  |                                          |        |                 |        |   |        |   |                 |  |        |  
|                                                      
|Noninterest Expense                                    | 
|                                                       | 
|                                                       |  | For the Nine Months Ended September 30,  |       
|                                                       |  | 2006                                     |        |                 | 2005   |  
|                                                       |  | Amount                                   |        | Percentof Total |        |   | Amount |   | Percentof Total | 
|                                                       |  | (Dollars in Thousands)                   |       
|Salaries and employee benefits                         |  | $                                        | 7,254  |                 | 54.58  | % |        | $ | 8,777           |  | 58.02  | %
|Net occupancy expense                                  |  |                                          | 1,673  |                 | 12.59  | % |        |   | 1,474           |  | 9.74   | %
|Marketing                                              |  |                                          | 1,126  |                 | 8.47   | % |        |   | 1,110           |  | 7.34   | %
|Data processing fees                                   |  |                                          | 611    |                 | 4.60   | % |        |   | 740             |  | 4.89   | %
|Professional fees                                      |  |                                          | 706    |                 | 5.31   | % |        |   | 1,012           |  | 6.69   | %
|Postage, telephone, supplies                           |  |                                          | 413    |                 | 3.11   | % |        |   | 434             |  | 2.87   | %
|Directors fees                                        |  |                                          | 165    |                 | 1.24   | % |        |   | 179             |  | 1.18   | %
|Other operating expense                                |  |                                          | 1,342  |                 | 10.10  | % |        |   | 1,403           |  | 9.27   | %
|                                                       |  |                                          |        |                 |        |   |        |   |                 |  |        |  
|Total noninterest expense                              |  | $                                        | 13,290 |                 | 100.00 | % |        | $ | 15,129          |  | 100.00 | %
|                                                       |  |                                          |        |                 |        |   |        |   |                 |  |        |  
|As a percentage of average earning assets (annualized) |  |                                          |        |                 | 3.96   | % |        |   |                 |  | 5.33   | %
|                                                       |  |                                          |        |                 |        |   |        |   |                 |  |        |  

PROVISION FOR INCOME TAXES

The Company sets aside a provision for income taxes on a monthly basis. This tax provision was $3.6 million for the first nine months of 2006 and $2.3 million for the first nine months of 2005, representing 39.6% and
38.9%, respectively, of pre-tax income for those periods. The amount of the tax provision is determined by applying the Companys statutory income tax rates to pre-tax book income, adjusted for permanent differences between pre-tax



21



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##### Table of Contents

book income and actual taxable income. Such permanent differences include but are not limited to tax-exempt interest income, increases in the cash surrender
value of bank-owned life insurance, compensation expense on incentive stock options and certain other expenses that are not allowed as tax deductions, and tax credits.

FINANCIAL CONDITION

GENERAL

The Companys total assets were $539.7 million at September 30, 2006, an increase of $83.5 million, or 18%, compared to total assets of $456.2 million at December 31, 2005. Investment securities,
available for sale increased $46.6 million or 382% to $58.8 million at September 30, 2006 as compared to $12.2 million at December 31, 2005. Nearly as substantial was the increase in total net loans of $44.5 million, or 12%, to $425.7
million at September 30, 2006 as compared to $381.2 million at December 31, 2005. Total deposits at September 30, 2006 were $447.8 million, which represented an increase of $46.5 million, or 12% from total deposits of $401.3 million
at December 31, 2005. The increase was primarily in interest-bearing deposits, which increased $39.8 million or 14% to $335.0 million at September 30, 2006 compared to $295.2 million at December 31, 2005. Noninterest bearing demand
deposits increased $6.7 million or 6% to $112.8 million at September 30, 2006 compared to $106.1 million at December 31, 2005. The major components of the Companys balance sheet are individually analyzed below, along with off-balance
sheet information.

LOANS

Total gross loans were
$432.8 million at September 30, 2006 as compared to $388.5 million at December 31, 2005. Total gross loans increased by $44.3 million, or 11% for the first nine months of 2006. Total gross loans represented 80% and 85% of total assets at
September 30, 2006 and December 31, 2005, respectively. Real estate loans, which includes construction and development loans increased $26.2 million or 12% during the first nine months of 2006 and represented approximately 59% of the total
loan growth of $44.3 million. This was due to the continuing strong demand for affordable housing in our market areas. Commercial loans increased $16.6 million or 11% during the first nine months of 2006 due to the continued success of our business
development efforts in and around the marketplaces the Company serves.

LOANS HELD FOR SALE

The Company actively generates Small Business Administration (SBA) loans as part of its primary operating activity of making loans. The guaranteed portion of each
individual loan is sold on the secondary market simultaneously with the booking, and therefore the Company has no inventory held-for-sale, unlike some institutions that warehouse loans to sell as pools. The Company retains
the unguaranteed portion of the SBA loans. The total gain on sale of loans was $319,000 or 1.0% of total interest and noninterest income as of September 30, 2006 and $966,000 or 3.6% of total interest and noninterest income as of
September 30, 2005. The Company reported the gain on sale of loans as operating activities on the Statement of Cash Flows.



22



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

Loan Portfolio Composition



|                             |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|---------------------------- |  | ---------------------- | ------- | - | ----------------- | ------ | - | ------ | - | ------- | --------------- |  | ------ | -
|                             |  | September 30, 2006     |         |   | December 31, 2005 |       
|                             |  | Amount                 |         |   | Percentof Total   |        |   | Amount |   |         | Percentof Total | 
|                             |  | (Dollars in Thousands) |        
|Real estate loans:           |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Construction and development |  | $                      | 168,875 |   |                   | 39.02  | % |        | $ | 137,292 |                 |  | 35.34  | %
|Residential loans            |  |                        | 3,091   |   |                   | 0.71   | % |        |   | 3,440   |                 |  | 0.89   | %
|Commercial and multi-family  |  |                        | 79,813  |   |                   | 18.44  | % |        |   | 84,813  |                 |  | 21.83  | %
|Commercial loans             |  |                        | 167,766 |   |                   | 38.77  | % |        |   | 151,207 |                 |  | 38.91  | %
|Consumer loans               |  |                        | 4,446   |   |                   | 1.03   | % |        |   | 2,784   |                 |  | 0.72   | %
|Equity lines of credit       |  |                        | 7,087   |   |                   | 1.64   | % |        |   | 7,644   |                 |  | 1.97   | %
|Credit card and other loans  |  |                        | 1,674   |   |                   | 0.39   | % |        |   | 1,304   |                 |  | 0.34   | %
|                             |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Total gross loans            |  |                        | 432,752 |   |                   | 100.00 | % |        |   | 388,484 |                 |  | 100.00 | %
|                             |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Less:                        |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Unearned income              |  |                        | (1,189  | ) |                   |        |   |        |   | (1,955  | )               |  |        |  
|Allowance for loan losses    |  |                        | (5,837  | ) |                   |        |   |        |   | (5,376  | )               |  |        |  
|                             |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Total net loans              |  | $                      | 425,726 |   |                   |        |   |        | $ | 381,153 |                 |  |        |  
|                             |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  

NONPERFORMING ASSETS

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.

The Company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 and on a cash basis, and previously accrued but uncollected interest is reversed against current 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. The Company establishes a plan with each borrower that falls into
nonaccrual status that is based on receiving payments, however, it is uncertain whether such a plan will prove to be successful.

December 31, 2005
to September 30, 2006 analysis. Nonaccrual loans at September 30, 2006 increased $2.7 million to $3.7 million, from $994,000 at December 31, 2005, and represented 1.12% and 0.26% of total gross loans, respectively. The increase
was primarily attributable to the addition of five commercial loans totaling $3.0 million of which, $2.5 million was attributed to one commercial loan. There was also an addition of one commercial and multi-family loan totaling $375,000. The
additions were offset by the payoff of three commercial loans totaling $330,000. There were two commercial loans charged-off totaling $119,000 and three commercial loans with principal paydowns totaling $172,000.

September 30, 2005 to September 30, 2006 analysis. Nonaccrual loans at September 30, 2006 increased $3.3 million to $3.7 million, from $383,000 at
September 30, 2005, and represented 1.12% and 0.10% of total gross loans, respectively. The increase was primarily attributable to the addition of six commercial loans totaling $3.3 million of which, $2.5 million was attributed to one
commercial loan. There was also an addition of one commercial and multi-family loan totaling $375,000. The additions were offset by the payoff of two commercial loans totaling $183,000. There were two commercial loans charged-off totaling $154,000
and two commercial loans with principal paydowns totaling $33,000.



23



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##### Table of Contents

The following table provides information with respect to the components of the Companys nonperforming assets as of
the dates indicated:

Nonperforming Assets



|                                                                                 |  |                        |        |   |                  |   |        |                    |  |   |          |  
|-------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | ------------------ |  | - | -------- | -
|                                                                                 |  | September 30, 2006     |        |   | December 31,2005 |   |        | September 30, 2005 | 
|                                                                                 |  | (Dollars in Thousands) |       
|Nonaccrual loans:10                                                              |  |                        |        |   |                  |   |        |                    |  |   |          |  
|Real estate loans:                                                               |  |                        |        |   |                  |   |        |                    |  |   |          |  
|Construction and development                                                     |  | $                      |       |   |                  | $ |       |                    |  | $ |         |  
|Residential loans                                                                |  |                        |       |   |                  |   |       |                    |  |   |         |  
|Commercial and multi-family                                                      |  |                        | 375    |   |                  |   |       |                    |  |   |         |  
|Commercial loans                                                                 |  |                        | 3,352  |   |                  |   | 994    |                    |  |   | 357      |  
|Consumer loans                                                                   |  |                        |       |   |                  |   |       |                    |  |   |         |  
|Equity lines of credit                                                           |  |                        |       |   |                  |   |       |                    |  |   |         |  
|Credit card and other loans                                                      |  |                        |       |   |                  |   |       |                    |  |   | 25       |  
|                                                                                 |  |                        |        |   |                  |   |        |                    |  |   |          |  
|Total nonaccrual loans                                                           |  |                        | 3,727  |   |                  |   | 994    |                    |  |   | 382      |  
|                                                                                 |  |                        |        |   |                  |   |        |                    |  |   |          |  
|Loans 90 days or more past due (as to principal or interest) and still accruing: |  |                        |        |   |                  |   |        |                    |  |   |          |  
|Real estate loans:                                                               |  |                        |        |   |                  |   |        |                    |  |   |          |  
|Construction and development                                                     |  |                        |       |   |                  |   |       |                    |  |   |         |  
|Residential loans                                                                |  |                        | 18     |   |                  |   |       |                    |  |   |         |  
|Commercial and multi-family                                                      |  |                        | 237    |   |                  |   |       |                    |  |   |         |  
|Commercial loans                                                                 |  |                        | 831    |   |                  |   |       |                    |  |   |         |  
|Consumer loans                                                                   |  |                        |       |   |                  |   |       |                    |  |   |         |  
|Equity lines of credit                                                           |  |                        |       |   |                  |   |       |                    |  |   |         |  
|Credit card and other loans                                                      |  |                        |       |   |                  |   |       |                    |  |   |         |  
|                                                                                 |  |                        |        |   |                  |   |        |                    |  |   |          |  
|Total loans 90 days or more past due and still accruing                          |  |                        | 1,086  |   |                  |   |       |                    |  |   |         |  
|                                                                                 |  |                        |        |   |                  |   |        |                    |  |   |          |  
|Restructured loans11                                                             |  |                        |       |   |                  |   |       |                    |  |   |         |  
|                                                                                 |  |                        |        |   |                  |   |        |                    |  |   |          |  
|Total nonperforming loans                                                        |  |                        | 4,813  |   |                  |   | 994    |                    |  |   | 382      |  
|Other real estate owned                                                          |  |                        |       |   |                  |   |       |                    |  |   |         |  
|                                                                                 |  |                        |        |   |                  |   |        |                    |  |   |          |  
|Total nonperforming assets                                                       |  | $                      | 4,813  |   |                  | $ | 994    |                    |  | $ | 382      |  
|                                                                                 |  |                        |        |   |                  |   |        |                    |  |   |          |  
|Nonperforming loans as a percentage of total loans12                             |  |                        | 1.12   | % |                  |   | 0.26   | %                  |  |   | 0.10     | %
|Nonperforming assets as a percentage of total loans and other real estate owned  |  |                        | 1.12   | % |                  |   | 0.26   | %                  |  |   | 0.10     | %
|Allowance for loan losses to nonperforming loans                                 |  |                        | 121.28 | % |                  |   | 540.85 | %                  |  |   | 1,306.54 | %
|Allowance for loan losses                                                        |  | $                      | 5,837  |   |                  | $ | 5,376  |                    |  | $ | 4,991    |  
|                                                                                 |  |                        |        |   |                  |   |        |                    |  |   |          |  

---

|10 | During the nine months ended September 30, 2006, no income related to these loans was included in net income. Additional interest income of approximately
$27,000, would have been recorded for the nine months ended September 30, 2006 if these loans had been paid or accrued 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 | Restructured loans are loans where the terms are renegotiated to provide a reduction or deferral of interest or principal due to deterioration in the financial
position of the borrower.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|12 | Total loans are gross loans, which excludes the allowance for loan losses, and net of deferred fees.
|-- | ----------------------------------------------------------------------------------------------------



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##### Table of Contents

ALLOWANCE FOR LOAN LOSSES

Arriving at an appropriate level of an allowance for loan losses involves a high degree of judgment. Our allowance for loan losses provides for probable losses based upon an evaluation of known and inherent risks in the loan portfolio. The
determination of the balance in the allowance for loan losses is based on an analysis of the loans receivable portfolio using a systematic methodology that reflects an amount that, in our judgment, is adequate to provide for probable loan losses
inherent in the portfolio.

The allowance for loan losses totaled $5.8 million at September 30, 2006 compared to $5.4 million at December 31,
2005 and as a percentage of total loans outstanding was 1.35% and 1.39%, respectively. The process for monitoring the adequacy of the allowance, as well as supporting documentation regarding the allowance follows.

In originating loans, the Company recognizes that credit losses will be experienced and that the risk of loss will vary with the type of loan being made and a number of
other factors, including collateral and the creditworthiness of the borrower over the term of the loan. It is Managements policy to maintain an adequate allowance for loan losses based on a number of factors, including the Companys loan
loss experience, economic conditions, and regular reviews of delinquencies and loan portfolio quality.

The Company establishes an Allowance for Loan
Losses (ALL) through charges to earnings based on Managements evaluation of the loan portfolio and a number of other criteria. If warranted, the allowance may be increased by regular provisions in order to maintain a proper relationship to the
aggregate funded and unfunded loan portfolio. The provision may be influenced by the amount of charge-offs and/or recoveries. The adequacy of the ALL is determined by a number of factors that are included in the Companys ALL methodology.

Two primary forms of analysis are used as tools to determine the adequacy of the ALL. The Portfolio Risk Analysis takes into consideration key
components of the aggregate loan portfolio and selected risk weight factors are used based on the perceived risk associated with each loan category. Heavier weight factors are assigned to delinquent loans and adversely risk rated loans. Adversely
classified loans (loans rated special mention, substandard and doubtful) are assessed for the proper amount to be used in determining the adequacy of the ALL. The other categories have formulae used to determine the needed allowance amount. Special
circumstances are identified and a selected risk factor prescribed to allocate an appropriate portion of the reserve to mitigate that specific risk. For example, because of the high concentration of construction loans, a construction
concentration risk has been established as one of the components of the ALL methodology.

Another analytical tool used is a Migration Analysis.
This tool tracks loan losses and recoveries over reasonable time horizons to determine a level of ALL based on historical loss history by loan category. This methodology is structured such that the amount allocated to the reserve is based on
analysis of historical losses or other risk weight factors consistent with those utilized in the Portfolio Risk Analysis. This approach attempts to prevent an unreasonably low reserve level in the event actual loan loss history is low.

Other factors considered in the ALL methodology include the following: quality and scope of lending policies and procedures, national and local economic
conditions, peer bank data, concentration or other special circumstances, and overall quality of the loan portfolio, determined by quality of underwriting, level of loan delinquencies, non-accrual loans, and non-performing loans. An important
indicator is the risk rating quality of the aggregate loan portfolio. The Company conducts semi-annual risk rating certifications in order to maintain the integrity of the risk rating process. The risk ratings are stratified by loan type and
according to risk rating.

The aggregate loan portfolio risk ratings were stratified as follows for the period indicated:



|                   |  |                    |   |  |                 |   |  |              |   |  |           |   |  |       |   |  |        |  
|------------------ |  | ------------------ | - |  | --------------- | - |  | ------------ | - |  | --------- | - |  | ----- | - |  | ------ | -
|                   |  | Pass/ Homogeneous: |   |  | SpecialMention: |   |  | Substandard: |   |  | Doubtful: |   |  | Loss: |   |  | Total: |  
|September 30, 2006 |  | 92.58              | % |  | 6.34            | % |  | 0.99         | % |  | 0.09      | % |  | 0.00  | % |  | 100.00 | %
|                   |  |                    |   |  |                 |   |  |              |   |  |           |   |  |       |   |  |        |  



25



---

##### Table of Contents

For the first nine months ended September 30, 2006 and 2005, the Company had net charge-offs of $359,000 and
$456,000, respectively. Implicit in lending activity is the risk that losses will occur and that the amount of such loss will vary over time. In many cases Management exercises considerable judgment in determining the timing of the recognition of
inherent losses with the objective to present a realistic presentation of the quality of the loan portfolio. Because of Managements conservative timing of loss recognition, it is Managements opinion that there could be a possibility of
future recoveries, although no assurance can be given that this will occur.

Except for nonperforming assets, and impaired loans, Management is not aware
of any loans as of September 30, 2006 for which known credit problems of the borrower would cause serious doubt as to the ability of such borrowers to comply with their present loan repayment terms. Management cannot, however, predict the
extent to which the deterioration in general economic conditions, real estate values, increase in general rates of interest, changing financial conditions or business of a borrower may adversely affect a borrowers ability to repay. The ratio
of the allowance for loan losses to total loans was determined by Management to be adequate at September 30, 2006 and December 31, 2005.



26



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##### Table of Contents

The following table summarizes the activity in the Companys allowance for loan
losses for the periods indicated:

Allowance for Loan Losses



|                                                                                |  |                        |         |    |                  |   |         |                   |  |   |          |   
|------------------------------------------------------------------------------- |  | ---------------------- | ------- | -- | ---------------- | - | ------- | ----------------- |  | - | -------- | --
|                                                                                |  | September 30,2006      |         |    | December 31,2005 |   |         | September 30,2005 | 
|                                                                                |  | (Dollars in Thousands) |        
|Balances:                                                                       |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Average total loans outstanding during period                                   |  | $                      | 405,009 |    |                  | $ | 362,231 |                   |  | $ | 354,895  |   
|                                                                                |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Total loans outstanding at end of period, net of unearned income                |  | $                      | 431,563 |    |                  | $ | 386,529 |                   |  | $ | 380,883  |   
|                                                                                |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Allowance for Loan Losses:                                                      |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Balance at beginning of period                                                  |  | $                      | 5,376   |    |                  | $ | 4,137   |                   |  | $ | 4,137    |   
|Charge-offs:                                                                    |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Real estate loans:                                                              |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Construction and development                                                    |  |                        |        |    |                  |   |        |                   |  |   |         |   
|Residential loans                                                               |  |                        |        |    |                  |   |        |                   |  |   |         |   
|Commercial and multi-family                                                     |  |                        |        |    |                  |   |        |                   |  |   |         |   
|Commercial loans                                                                |  |                        | 443     |    |                  |   | 996     |                   |  |   | 488      |   
|Consumer loans                                                                  |  |                        |        |    |                  |   | 2       |                   |  |   |         |   
|Equity lines of credit                                                          |  |                        | 55      |    |                  |   |        |                   |  |   |         |   
|Credit card and other loans                                                     |  |                        | 4       |    |                  |   | 10      |                   |  |   | 9        |   
|                                                                                |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Total charge-offs                                                               |  |                        | 502     |    |                  |   | 1,008   |                   |  |   | 497      |   
|                                                                                |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Recoveries:                                                                     |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Real estate loans:                                                              |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Construction and development                                                    |  |                        |        |    |                  |   |        |                   |  |   |         |   
|Residential loans                                                               |  |                        | 2       |    |                  |   | 2       |                   |  |   | 1        |   
|Commercial and multi-family                                                     |  |                        |        |    |                  |   |        |                   |  |   |         |   
|Commercial loans                                                                |  |                        | 138     |    |                  |   | 105     |                   |  |   | 40       |   
|Consumer loans                                                                  |  |                        | 3       |    |                  |   |        |                   |  |   |         |   
|Equity lines of credit                                                          |  |                        |        |    |                  |   |        |                   |  |   |         |   
|Credit card and other loans                                                     |  |                        |        |    |                  |   |        |                   |  |   |         |   
|                                                                                |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Total recoveries                                                                |  |                        | 143     |    |                  |   | 107     |                   |  |   | 41       |   
|                                                                                |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Net (charge-offs) recoveries                                                    |  |                        | (359    | )  |                  |   | (901    | )                 |  |   | (456     | ) 
|                                                                                |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Provision charged to operations                                                 |  |                        | 820     |    |                  |   | 2,140   |                   |  |   | 1,310    |   
|                                                                                |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Allowance for loan losses balance, end of period                                |  | $                      | 5,837   |    |                  | $ | 5,376   |                   |  | $ | 4,991    |   
|                                                                                |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Ratios:13                                                                       |  |                        |         |    |                  |   |         |                   |  |   |          |   
|Net loan charge-offs to average total loans                                     |  |                        | 0.09    | %  |                  |   | 0.25    | %                 |  |   | 0.13     | % 
|Allowance for loan losses to average total loans                                |  |                        | 1.44    | %  |                  |   | 1.48    | %                 |  |   | 1.41     | % 
|Allowance for loan losses to total loans at end of period                       |  |                        | 1.35    | %  |                  |   | 1.39    | %                 |  |   | 1.31     | % 
|Allowance for loan losses to total nonperforming loans                          |  |                        | 121.28  | %  |                  |   | 540.85  | %                 |  |   | 1,306.54 | % 
|Net loan (charge-offs) recoveries to allowance for loan losses at end of period |  |                        | (6.15   | )% |                  |   | (16.76  | )%                |  |   | (9.14    | )%
|Net loan (charge-offs) recoveries to provision for loan losses                  |  |                        | (43.78  | )% |                  |   | (42.10  | )%                |  |   | (34.81   | )%

---

|13 | Total loans are gross loans, which excludes the allowance for loan losses, and net of deferred fees.
|-- | ----------------------------------------------------------------------------------------------------



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##### Table of Contents

INVESTMENTS

The
Companys investment portfolio provides income to the Company and also serves as a source of liquidity. Total yield, risk and maturity 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 September 30, 2006 and December 31, 2005, 100% of the investment securities owned by the Company were classified as Available for Sale.

At September 30, 2006, the Companys investment portfolio at fair value consisted of $30.0 million in U.S. government agency securities, $17.2 million in federal agency mortgage-backed securities and $11.6 million in obligations
of states and local government securities for a total of $58.8 million. At December 31, 2005, the portfolio consisted of $8.2 million in federal agency mortgage-backed securities and $4.0 million in obligations of states and local government
securities for a total of $12.2 million.

The Companys investment portfolio increased $46.6 million or 382% to $58.8 million. During the third
quarter of 2006, the Company entered into a $30 million repurchase agreement that included an interest rate floor to mitigate interest rate risk in a declining rate environment. The repurchase agreement is collateralized by the purchase of a $30
million FNMA U.S. agency security. In addition, the Company added approximately $11.7 million in federal agency mortgage-backed securities, however such securities had a net increase of $9.0 million due to principal paydowns. Obligations of states
and local government securities increased $7.6 million as the Company took advantage of relative value in that sector. It is the Companys intention and strategic plan to rebalance the balance sheet and invest excess liquidity in securities,
while managing its loan demand.

The following table is a comparison of amortized cost and fair value of investment
securities as of the dates indicated:

Investment Portfolio



|                                                      |  |                        |        |                   |   |                   |  |   |            |   |               |   |                  |  |                   |        |  |            |     |  |   |      |   |  |   |       
|----------------------------------------------------- |  | ---------------------- | ------ | ----------------- | - | ----------------- |  | - | ---------- | - | ------------- | - | ---------------- |  | ----------------- | ------ |  | ---------- | --- |  | - | ---- | - |  | - | ------
|                                                      |  | September 30, 2006     |        | December 31, 2005
|                                                      |  | AmortizedCost          |        | Unrealized Gains  |   | Unrealized Losses |  |   | Fair Value |   | AmortizedCost |   | Unrealized Gains |  | Unrealized Losses |        |  | Fair Value
|                                                      |  | (Dollars in Thousands)
|Available for Sale:                                   |  |                        |        |                   |   |                   |  |   |            |   |               |   |                  |  |                   |        |  |            |     |  |   |      |   |  |   |       
|U.S. government agency securities                     |  | $                      | 30,000 |                   | $ | 38                |  | $ |           |   |               | $ | 30,038           |  | $                 |       |  | $          |    |  | $ |     |   |  | $ |      
|Federal agency mortgage-backed securities             |  |                        | 17,256 |                   |   | 58                |  |   | (96        | ) |               |   | 17,218           |  |                   | 8,242  |  |            | 51  |  |   | (120 | ) |  |   | 8,173 
|Obligations of states and local government securities |  |                        | 11,338 |                   |   | 260               |  |   |           |   |               |   | 11,598           |  |                   | 3,937  |  |            | 98  |  |   |     |   |  |   | 4,035 
|                                                      |  |                        |        |                   |   |                   |  |   |            |   |               |   |                  |  |                   |        |  |            |     |  |   |      |   |  |   |       
|Total                                                 |  | $                      | 58,594 |                   | $ | 356               |  | $ | (96        | ) |               | $ | 58,854           |  | $                 | 12,179 |  | $          | 149 |  | $ | (120 | ) |  | $ | 12,208
|                                                      |  |                        |        |                   |   |                   |  |   |            |   |               |   |                  |  |                   |        |  |            |     |  |   |      |   |  |   |       

The Company also has investments in interest-bearing time certificates of deposit at other financial institutions
totaling $3.0 million at September 30, 2006 and $2.3 million at December 31, 2005.



28



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##### Table of Contents

DEPOSITS

Total
deposits increased $46.5 million, or 12%, to $447.8 million at September 30, 2006 from $401.3 million at December 31, 2005. Noninterest-bearing demand deposits increased $6.7 million or 6% at September 30, 2006 as compared to
December 31, 2005. Interest bearing and money market deposit accounts increased $21.9 million, or 12% at September 30, 2006 as compared to December 31, 2005. Savings deposit accounts decreased $9.7 million or 35% at September 30,
2006 as compared to December 31, 2005. Time deposits of $100,000 or greater increased $26.6 million, or 44% at September 30, 2006 as compared to December 31, 2005, and other time deposits increased $1.1 million, or 3%. The overall
increase in deposits has helped maintain the Companys liquidity position during 2006.

During the third quarter of 2006 the Bank launched a
noninterest-bearing deposit sales campaign. As of September 30, 2006 the Bank was able attract approximately $1.7 million in new noninterest-bearing deposits. The Campaign, new deposit relationships established prior to the campaign, and an
increase in deposits with our existing customers, were the primary contributors to the increase in noninterest-bearing demand deposits from December 31, 2005 to September 30, 2006. The increase in interest-bearing and money market deposit
accounts was primarily the result of the Companys efforts to attract new customers. The increase in time deposits $100,000 or greater was primarily the result of additional brokered certificates of deposit acquired to support our loan growth.

Cost of funds

The Companys cost of funds is
calculated as total interest expense on interest-bearing deposits and other interest-bearing liabilities, annualized as a percentage of average interest-bearing deposits and other interest-bearing liabilities.

The rate paid on the Banks interest-bearing deposits increased to 3.12% for the nine months ended September 30, 2006 from 2.12% for the same period in 2005.
For all interest bearing liabilities, the average rate for the nine months ended September 30, 2006 was 3.39% as compared to 2.42% for the same period in 2005. Market rate increases, coupled with the increase in rates paid on money market
deposit accounts as a result of the Companys efforts to attract new customers impacted the Companys cost of funds.

From September 30,
2005 to September 30, 2006 the percentage of total average deposits represented by money market deposits changed to 38% from 27% while average noninterest-bearing demand deposits changed to 25% from 31%. The shift in this average deposit mix
also contributed to the increased cost of funds in the first nine months of 2006 versus 2005.



29



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##### Table of Contents

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

Average Deposits and Other Borrowings



|                                                           |  |                                     |         |               |                                     |   |                |   |               |  |      |  
|---------------------------------------------------------- |  | ----------------------------------- | ------- | ------------- | ----------------------------------- | - | -------------- | - | ------------- |  | ---- | -
|                                                           |  | Nine Months EndedSeptember 30, 2006 |         |               | Nine Months EndedSeptember 30, 2005 |  
|                                                           |  | Average Balance                     |         | Average14Rate |                                     |   | AverageBalance |   | Average14Rate | 
|                                                           |  | (Dollars in Thousands)              |        
|Demand deposits, noninterest bearing                       |  | $                                   | 106,168 |               | 0.00                                | % |                | $ | 103,185       |  | 0.00 | %
|                                                           |  |                                     |         |               |                                     |   |                |   |               |  |      |  
|Interest-bearing deposits:                                 |  |                                     |         |               |                                     |   |                |   |               |  |      |  
|Interest-bearing demand deposits                           |  |                                     | 26,364  |               | 0.35                                | % |                |   | 20,219        |  | 0.24 | %
|Money market deposits                                      |  |                                     | 157,411 |               | 3.33                                | % |                |   | 88,491        |  | 2.03 | %
|Savings deposits                                           |  |                                     | 21,842  |               | 1.03                                | % |                |   | 23,620        |  | 0.74 | %
|Time deposits $100,000 or greater                          |  |                                     | 68,446  |               | 4.09                                | % |                |   | 57,678        |  | 3.06 | %
|Other time deposits                                        |  |                                     | 38,549  |               | 3.59                                | % |                |   | 37,202        |  | 2.76 | %
|                                                           |  |                                     |         |               |                                     |   |                |   |               |  |      |  
|Total interest-bearing deposits                            |  |                                     | 312,612 |               | 3.12                                | % |                |   | 227,210       |  | 2.12 | %
|                                                           |  |                                     |         |               |                                     |   |                |   |               |  |      |  
|FHLB borrowings                                            |  |                                     |        |               | 0.00                                | % |                |   | 29,161        |  | 2.90 | %
|Federal funds purchased                                    |  |                                     |        |               | 0.00                                | % |                |   | 947           |  | 2.68 | %
|Repurchase agreement                                       |  |                                     | 2,198   |               | 5.72                                | % |                |   |              |  | 0.00 | %
|Subordinated notes payable to subsidiary trusts            |  |                                     | 18,306  |               | 7.82                                | % |                |   | 13,207        |  | 6.53 | %
|                                                           |  |                                     |         |               |                                     |   |                |   |               |  |      |  
|Total deposits and other borrowings                        |  | $                                   | 439,284 |               | 2.57                                | % |                | $ | 373,710       |  | 1.75 | %
|                                                           |  |                                     |         |               |                                     |   |                |   |               |  |      |  
|Average rate excluding noninterest bearing demand deposits |  |                                     |         |               | 3.39                                | % |                |   |               |  | 2.42 | %
|                                                           |  |                                     |         |               |                                     |   |                |   |               |  |      |  

The following table summarizes the composition of average deposits as a percentage of total average deposits for
the periods indicated:

Percent of Total Average Deposit Composition



|                                     |  |                   |   |  |                   |  
|------------------------------------ |  | ----------------- | - |  | ----------------- | -
|                                     |  | September 30,2006 |   |  | September 30,2005 |  
|                                     |  | Percent of Total  |   |  | Percent ofTotal   |  
|Demand deposits, noninterest bearing |  | 25.35             | % |  | 31.23             | %
|Interest-bearing deposits:           |  |                   |   |  |                   |  
|Interest-bearing demand deposits     |  | 6.30              | % |  | 6.12              | %
|Money market deposits                |  | 37.58             | % |  | 26.78             | %
|Savings deposits                     |  | 5.22              | % |  | 7.15              | %
|Time deposits $100,000 or greater    |  | 16.34             | % |  | 17.46             | %
|Other time deposits                  |  | 9.21              | % |  | 11.26             | %
|                                     |  |                   |   |  |                   |  
|Total average deposits               |  | 100.00            | % |  | 100.00            | %
|                                     |  |                   |   |  |                   |  

---

|14 | Rates for these periods on which calculations are based have been annualized using actual days.
|-- | -----------------------------------------------------------------------------------------------



30



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##### Table of Contents

The following table sets forth the scheduled maturities of time certificates of deposit accounts outstanding in amounts
of $100,000 or more for the periods indicated:



|                   |  |                        |        |                               |   |                               |  |               |        |       |   |        |  |   |       
|------------------ |  | ---------------------- | ------ | ----------------------------- | - | ----------------------------- |  | ------------- | ------ | ----- | - | ------ |  | - | ------
|                   |  | 3 Monthsor Less        |        | Over 3 Months Through 6Months |   | Over 6 MonthsThrough 12Months |  | Over 12Months |        | Total
|                   |  | (Dollars in Thousands)
|September 30, 2006 |  | $                      | 30,279 |                               | $ | 27,073                        |  | $             | 19,311 |       | $ | 9,989  |  | $ | 86,652
|                   |  |                        |        |                               |   |                               |  |               |        |       |   |        |  |   |       
|December 31, 2005  |  | $                      | 15,061 |                               | $ | 11,100                        |  | $             | 18,925 |       | $ | 15,007 |  | $ | 60,093
|                   |  |                        |        |                               |   |                               |  |               |        |       |   |        |  |   |       

LIQUIDITY AND MARKET RISK MANAGEMENT

Liquidity

The Companys liquidity is primarily a reflection of the Companys ability to raise money
quickly, without principal loss and at a reasonable cost to meet loan demand and deposit withdrawals, and to service other liabilities as they come due. The Company has adopted policies to manage its liquidity position so it can respond to changes
in the financial environment and ensure that sufficient funds are available to meet those needs. Generally, the Companys major sources of liquidity are customer deposits, maturities, paydowns and sales of investment securities, the use of
federal funds markets, borrowings from correspondent banks, 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 assets include cash and due from banks, less the
federal reserve requirement, federal funds sold, interest-bearing deposits in financial institutions, unpledged investment securities available-for-sale, Federal Home Loan Bank stock investment, less the stock requirement, restricted at cost,
Pacific Coast Bankers Bank stock investment, restricted at cost, and cash surrender value of life insurance policies.

In order to augment liquidity,
as of September 30, 2006 the Company has Federal Funds borrowing arrangements with five correspondent banks totaling $45.0 million, and a secured line of credit with the FHLB totaling approximately $35.1 million.

The Companys liquidity ratio, with policy guidelines of above 10% is a measure of liquid assets to deposits, plus short-term liabilities, plus Federal
Home Loan Bank borrowings due within one year, less pledged deposits for treasury tax and loan. On a consolidated basis, the liquidity ratio increased to 15.10% at September 30, 2006 from 14.98% at December 31, 2005. The Company also
monitors its net non-core funding dependence ratio, with policy guidelines of less than 25%. The net non-core dependence ratio is a measure of non-core liabilities less short-term investments, divided by long-term earning assets. The
ratio was 11.78% at September 30, 2006 and 7.08% at December 31, 2005.

The Company believes it is beneficial to take advantage of the earnings
opportunity presented by current loan demand, and to make certain arrangements to ensure adequate liquidity. In order to enhance deposit growth, the Company has a plan in place to increase deposits by:



| | 1) | Encouraging deposit relationships with all loan customers;
| | -- | ----------------------------------------------------------



| | 2) | A revised incentive program for business development officers to reward deposit growth;
| | -- | ---------------------------------------------------------------------------------------



| | 3) | Hiring personnel whose primary focus is deposit growth;
| | -- | -------------------------------------------------------



| | 4) | Advertising competitive deposit rates;
| | -- | --------------------------------------



| | 5) | Offering deposit promotions; and
| | -- | --------------------------------



| | 6) | Buying brokered deposits and public funds to a limit of 15% of total deposits.
| | -- | ------------------------------------------------------------------------------

As of September 30, 2006, brokered deposits and public funds totaled $38.3 million and were 8.56% of total deposits.

In addition, to the extent that we are not able to generate sufficient deposit growth to maintain our target liquidity ratio, we will continue to utilize the FHLB for
borrowings, as well as short-term borrowings from our correspondent banks, and will also, where appropriate, sell loan participations to other banks.

Management is of the opinion that the standby funding sources it has in place are adequate and reliable to meet the Companys current and anticipated short-term liquidity needs.



31



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##### Table of Contents

The following table sets forth certain information with respect to the Companys liquidity as of the periods
indicated:

Liquidity



|                                                         |  |                       |        |   |                  |   |        |  
|-------------------------------------------------------- |  | --------------------- | ------ | - | ---------------- | - | ------ | -
|                                                         |  | September 30,2006     |        |   | December 31,2005 |  
|                                                         |  | (Dollars inThousands) |        |   |                  |  
|Cash and due from banks (net of FRB reserve requirement) |  | $                     | 13,724 |   |                  | $ | 16,015 |  
|Federal funds sold                                       |  |                       | 10,605 |   |                  |   | 21,505 |  
|Interest-bearing deposits in financial institutions      |  |                       | 3,037  |   |                  |   | 2,334  |  
|Unpledged investment securities, available-for-sale      |  |                       | 27,060 |   |                  |   | 11,904 |  
|Stock investments, restricted at cost                    |  |                       | 1,665  |   |                  |   | 1,620  |  
|Cash surrender value of life insurance                   |  |                       | 11,526 |   |                  |   | 6,735  |  
|                                                         |  |                       |        |   |                  |   |        |  
|Total liquid assets                                      |  | $                     | 67,617 |   |                  | $ | 60,113 |  
|                                                         |  |                       |        |   |                  |   |        |  
|Liquidity ratio:                                         |  |                       |        |   |                  |   |        |  
|Percentage of ending deposits and short-term liabilities |  |                       | 15.10  | % |                  |   | 14.98  | %

Market Risk Management

Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Companys market risk exposure is primarily that of interest rate risk, and it has established policies
and procedures to monitor and limit earnings and balance sheet exposure to changes in interest rates. The Company does not engage in the trading of financial instruments, nor does the Company have exposure to currency exchange rates. The
Companys earnings depend primarily upon the difference between the income it receives from its interest earning assets and its cost of funds, principally interest expense incurred on interest-bearing liabilities. Interest rates charged by the
Company on its loans are affected principally by the demand for loans, the supply of money available for lending purposes, and competitive factors. In turn, these factors are influenced by general economic conditions and other constraints beyond the
Companys control, such as governmental economic and tax policies, general supply of money in the economy, governmental budgetary actions and the actions of the FRB.

Interest Rate Risk Management

The principal objective of interest rate risk management (often referred to as
asset/liability management) is to manage the financial components of the Company in a manner that will optimize the risk/reward equation for earnings and capital in relation to changing interest rates. The Company has adopted formal
policies and practices to monitor and manage interest rate risk exposure. As part of this effort, the Company measures interest rate risk utilizing both a modeling program from an outside vendor, as well as reports from third party sources, which
can be compared and analyzed together, enabling Management to better manage economic risk and interest rate risk.

The fundamental objective of the
Companys Management of its assets and liabilities is to maximize the economic value of the Company 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. The Company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. The Company, like other financial institutions, is subject to interest rate risk to the degree that its interest-earning assets reprice differently than its interest-bearing liabilities, i.e., not at the same time, or to the
same magnitude. The Company manages its 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. The Companys interest and pricing strategies are driven by its asset/liability management analyses and by local market conditions.



32



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##### Table of Contents

In connection with the foregoing strategy, the Company studies the change in net interest income and net interest margin
given immediate and parallel interest rate shocks over a 12-month horizon. The Companys goal is to manage the effect of these changes within Board-established parameters of less than a 15% change for up/down 100 and 200 basis
points. Shown below are possible changes to net interest income and the net interest margin based upon the models program under 100 and 200 basis point increases or decreases as of September 30, 2006:



|                         |  |                                          |  |                               |  |                                 |  |                    
|------------------------ |  | ---------------------------------------- |  | ----------------------------- |  | ------------------------------- |  | -------------------
|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                     |  | $29,979                                  |  | $2,338                        |  | 8.46%                           |  | 6.68%              
|+100                     |  | 28,822                                   |  | 1,181                         |  | 4.27%                           |  | 6.42%              
|0                        |  | 27,641                                   |  |                              |  | 0.00%                           |  | 6.16%              
| 100                    |  | 26,508                                   |  | (1,133)                       |  | (4.10%)                         |  | 5.91%              
| 200                    |  | 25,351                                   |  | (2,290)                       |  | (8.28%)                         |  | 5.65%              

These results indicate the effect of immediate rate changes, which are unlikely and do not consider the yield from
reinvesting in short-term versus long-term instruments. This report shows liquidation values in an extremely downward movement, which is highly unlikely. The net interest margin will improve if rates rise and decline if rates fall. Management and
the Board of Directors consider the results indicated by the report acceptable.

CAPITAL RESOURCES

The Federal Reserve Board and the FDIC have both established guidelines to implement risk-based capital requirements. Falling below minimum established levels might limit
a bank or bank holding company 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 the Bank 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, minority interests in equity accounts of consolidated
subsidiary and trust preferred securities to certain limits, including notes payable to unconsolidated special purpose entities that issue trust preferred securities, less goodwill and other intangibles) and Tier 2 (supplementary capital including
allowance for possible credit losses to certain limits, certain preferred stock, eligible subordinated debt, and trust preferred securities, including notes payable to unconsolidated special purpose entities that issue trust preferred securities
that are in excess of the limits for inclusion in Tier 1 capital). 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 shareholders equity was $39.9 million at September 30, 2006,
compared to $33.4 million at December 31, 2005. The increase of $6.5 million, or 19% during the first nine months of 2006 was primarily due to $5,412,000 in year-to-date net income, $398,000 credited to capital in relation to compensation
expense associated with the issuance of stock options and the proceeds of $511,000 from the exercise of stock options.



33



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##### Table of Contents

The following table illustrates the capital and prompt corrective action guidelines applicable to the Company and the
Bank, as well as their total risk-based capital ratios, Tier 1 capital ratios and leverage ratios as of the dates indicated:



|                                        |  |                     |        |  |                                       |   |  |                                                                                       |        |  |      |   |  |   |        |  |       |  
|--------------------------------------- |  | ------------------- | ------ |  | ------------------------------------- | - |  | ------------------------------------------------------------------------------------- | ------ |  | ---- | - |  | - | ------ |  | ----- | -
|                                        |  | Actual Amount/Ratio |        |  | MinimumCapitalRequirementAmount/Ratio |   |  | Minimum To Be Well Capitalized
Under Prompt Corrective Action Provisions Amount/Ratio |       
|As of September, 2006:                  |  |                     |        |  |                                       |   |  |                                                                                       |        |  |      |   |  |   |        |  |       |  
|                                        |  |                     |        |  |                                       |  
|Total capital to risk-weighted assets:  |  |                     |        |  |                                       |   |  |                                                                                       |        |  |      |   |  |   |        |  |       |  
|The Company                             |  | $                   | 59,399 |  | 12.64                                 | % |  | $                                                                                     | 37,594 |  | 8.00 | % |  | $ | 46,993 |  | 10.00 | %
|The Bank                                |  |                     | 58,197 |  | 12.38                                 | % |  |                                                                                       | 37,607 |  | 8.00 | % |  |   | 47,009 |  | 10.00 | %
|                                        |  |                     |        |  |                                       |  
|Tier 1 capital to risk-weighted assets: |  |                     |        |  |                                       |   |  |                                                                                       |        |  |      |   |  |   |        |  |       |  
|The Company                             |  |                     | 48,758 |  | 10.37                                 | % |  |                                                                                       | 18,807 |  | 4.00 | % |  |   | 28,211 |  | 6.00  | %
|The Bank                                |  |                     | 52,310 |  | 11.13                                 | % |  |                                                                                       | 18,800 |  | 4.00 | % |  |   | 28,199 |  | 6.00  | %
|                                        |  |                     |        |  |                                       |  
|Tier 1 capital to average assets:       |  |                     |        |  |                                       |   |  |                                                                                       |        |  |      |   |  |   |        |  |       |  
|The Company                             |  |                     | 48,758 |  | 9.77                                  | % |  |                                                                                       | 19,962 |  | 4.00 | % |  |   | 24,953 |  | 5.00  | %
|The Bank                                |  |                     | 52,310 |  | 10.49                                 | % |  |                                                                                       | 19,947 |  | 4.00 | % |  |   | 24,933 |  | 5.00  | %
|                                        |  |                     |        |  |                                       |  
|As of December 31, 2005:                |  |                     |        |  |                                       |   |  |                                                                                       |        |  |      |   |  |   |        |  |       |  
|                                        |  |                     |        |  |                                       |  
|Total capital to risk-weighted assets:  |  |                     |        |  |                                       |   |  |                                                                                       |        |  |      |   |  |   |        |  |       |  
|The Company                             |  | $                   | 52,283 |  | 12.86                                 | % |  | $                                                                                     | 32,524 |  | 8.00 | % |  | $ | 40,656 |  | 10.00 | %
|The Bank                                |  |                     | 50,779 |  | 12.49                                 | % |  |                                                                                       | 32,525 |  | 8.00 | % |  |   | 40,656 |  | 10.00 | %
|                                        |  |                     |        |  |                                       |  
|Tier 1 capital to risk-weighted assets: |  |                     |        |  |                                       |   |  |                                                                                       |        |  |      |   |  |   |        |  |       |  
|The Company                             |  |                     | 40,327 |  | 9.92                                  | % |  |                                                                                       | 16,261 |  | 4.00 | % |  |   | 24,391 |  | 6.00  | %
|The Bank                                |  |                     | 45,697 |  | 11.24                                 | % |  |                                                                                       | 16,262 |  | 4.00 | % |  |   | 24,393 |  | 6.00  | %
|                                        |  |                     |        |  |                                       |  
|Tier 1 capital to average assets:       |  |                     |        |  |                                       |   |  |                                                                                       |        |  |      |   |  |   |        |  |       |  
|The Company                             |  |                     | 40,327 |  | 9.02                                  | % |  |                                                                                       | 17,883 |  | 4.00 | % |  |   | 22,354 |  | 5.00  | %
|The Bank                                |  |                     | 45,697 |  | 10.21                                 | % |  |                                                                                       | 17,903 |  | 4.00 | % |  |   | 22,379 |  | 5.00  | %

Of the Companys $48.8 million of Tier 1 capital at September 30, 2006, $13.2 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 classified as long-term debt in accordance with generally accepted accounting principles.
The remaining $4.8 million of Trust Preferred Securities is included in Tier 2 capital.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

The
information concerning quantitative and qualitative disclosures about market risk is included as part of Part I, Item 2 above. See Managements Discussion and Analysis of Financial Condition and Results of Operations  Liquidity
and Market Risk Management.



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##### Table of Contents

|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

The Companys Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Companys
disclosure controls and procedures (as defined in Exchange Act Rules 13a  15(e) promulgated under the Exchange Act as of the end of the period covered by this quarterly report (the Evaluation Date) have concluded that as of the
Evaluation Date, the Companys disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiary 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.

Changes in Internal Controls

There were no significant changes in the Companys internal controls over financial reporting or in other
factors that occurred in the third quarter of 2006 that have materially affected, or are reasonably likely to materially affect, the Companys internal controls over financial reporting.



35



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##### Table of Contents

PART II  OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

In the normal course of business, the Company
from time to time is involved in claims and legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Companys financial condition or results of operation.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

There has not been any material change in the risk
factors disclosure from that contained in the Companys 2005 Form 10-K for the fiscal year ended December 31, 2005, as amended.



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

None



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



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

None.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



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##### Table of Contents

|ITEM 6. | EXHIBITS
|------- | --------



|           |  |                                                                                                  
|---------- |  | -------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description of Exhibits                                                                          
|           | 
|3.1        |  | Articles of Incorporation of the Company15                                                       
|           | 
|3.2        |  | Amendment to Articles of Incorporation of the Company filed May 5, 200016                        
|           | 
|3.3        |  | Amendment to Articles of Incorporation of the Company filed February 18, 200317                  
|           | 
|3.4        |  | Restated By-Laws of the Company16                                                                
|           | 
|10.1       |  | Brea Branch Lease, dated September 20, 200018                                                    
|           | 
|10.2       |  | Form of Indemnification Agreement18                                                              
|           | 
|10.9       |  | 1st Centennial Bank Employee Stock Ownership Plan (with 401(k) provisions) dated August 1, 200419
|           | 
|10.10      |  | Amended and Restated Stock Incentive Plan19                                                      
|           | 
|10.11      |  | Palomar Community Bank (now Escondido branch) lease dated April 15, 198720                       
|           | 
|10.12      |  | Indenture for Trust Preferred Securities dated July 11, 200221                                   
|           | 
|10.13      |  | Amended and Restated Declaration of Trust for trust preferred securities dated July 11, 200222   
|           | 
|10.14      |  | Guarantee Agreement for Trust Preferred Securities dated July 11, 200223                         
|           | 
|10.15      |  | Salary Continuation Agreement of Suzanne Dondanville, dated December 17, 200224                  
|           | 
|10.16      |  | Salary Continuation Agreement of Clifford Schoonover, dated December 17, 200225                  
|           | 
|10.17      |  | Amendment to Construction Department Lease dated August 28, 200226                               
|           | 
|10.18      |  | Commercial Lending Group Lease, dated December 23, 200227                                        
|           | 
|10.19      |  | Palm Desert Branch Lease, dated November 13, 200228                                              
|           | 
|10.20      |  | Amendment to Escondido Branch Lease, dated June 6, 200129                                        

---

|15 | Incorporated by reference to the exhibit of the same number to the Companys Registration Statement on Form S-4 dated October 20, 1999.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------



|16 | Incorporated by reference to the exhibit of the same number on Form 10-QSB for the quarter ended June 30, 2002.
|-- | ---------------------------------------------------------------------------------------------------------------



|17 | Incorporated by reference to the exhibit of the same number on Form SB-2 dated March 13, 2003.
|-- | ----------------------------------------------------------------------------------------------



|18 | Incorporated by reference to the exhibit of the same number to the Companys Registration Statement on Form SB-2 dated March 21, 2001.
|-- | --------------------------------------------------------------------------------------------------------------------------------------



|19 | Incorporated by reference to the exhibit of the same number on Form 10-KSB for the year ended
December 31, 2004.
|-- | ----------------------------------------------------------------------------------------------------------------



|20 | Incorporated by reference to exhibit 10.13 on Form 10-QSB for the fiscal quarter ended
March 31, 2002.
|-- | ------------------------------------------------------------------------------------------------------



|21 | Incorporated by reference to exhibit 10.14 on Form 10-QSB for the fiscal quarter ended
September 30, 2002.
|-- | ----------------------------------------------------------------------------------------------------------



|22 | Incorporated by reference to exhibit 10.15 on Form 10-QSB for the fiscal quarter ended
September 30, 2002.
|-- | ----------------------------------------------------------------------------------------------------------



|23 | Incorporated by reference to exhibit 10.16 on Form 10-QSB for the fiscal quarter ended
September 30, 2002.
|-- | ----------------------------------------------------------------------------------------------------------



|24 | Incorporated by reference to exhibit 10.17 on Form SB-2 dated March 13, 2003.
|-- | -----------------------------------------------------------------------------



|25 | Incorporated by reference to exhibit 10.18 on Form SB-2 dated March 13, 2003.
|-- | -----------------------------------------------------------------------------



|26 | Incorporated by reference to exhibit 10.20 on Form SB-2 dated March 13, 2003.
|-- | -----------------------------------------------------------------------------



|27 | Incorporated by reference to exhibit 10.21 on Form SB-2 dated March 13, 2003.
|-- | -----------------------------------------------------------------------------



|28 | Incorporated by reference to exhibit 10.22 on Form 10-KSB for the year ended
December 31, 2002.
|-- | -----------------------------------------------------------------------------------------------



|29 | Incorporated by reference to exhibit 10.23 on Form 10-KSB for the year ended
December 31, 2002.
|-- | -----------------------------------------------------------------------------------------------



37



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##### Table of Contents

|      |  |                                                                                                    
|----- |  | ---------------------------------------------------------------------------------------------------
|      | 
|10.21 |  | Amendment to Salary Continuation Agreement of Suzanne Dondanville dated December 17, 200230        
|      | 
|10.22 |  | Amendment to Salary Continuation Agreement of Anne Elizabeth Sanders dated December 1, 200131      
|      | 
|10.23 |  | Amendment to Salary Continuation Agreement of Clifford Schoonover dated December 17, 200232        
|      | 
|10.25 |  | Indenture for Trust Preferred Securities dated January 15, 200433                                  
|      | 
|10.26 |  | Amended and Restated Declaration of Trust for Trust Preferred Securities dated January 15, 200433  
|      | 
|10.27 |  | Guarantee Agreement for Trust Preferred Securities dated January 15, 200433                        
|      | 
|10.28 |  | Amendment to Brea Branch Lease dated August 16, 200434                                             
|      | 
|10.29 |  | Irwindale Branch Lease dated August 12, 200434                                                     
|      | 
|10.30 |  | Salary Continuation Agreement of Anne Elizabeth Sanders dated December 1, 200134                   
|      | 
|10.31 |  | Employment Agreement of Beth Sanders dated December 1, 200435                                      
|      | 
|10.32 |  | Employment Agreement of Suzanne Dondanville dated December 1, 200435                               
|      | 
|10.33 |  | Temecula Branch Lease dated December 15, 200435                                                    
|      | 
|10.34 |  | Real Estate Department Lease dated November 30, 200035                                             
|      | 
|10.35 |  | Indenture for Trust Preferred Securities dated September 28, 200536                                
|      | 
|10.36 |  | Amended and Restated Declaration of Trust for Trust Preferred Securities dated September 28, 200536
|      | 
|10.37 |  | Guarantee Agreement for Trust Preferred Securities dated September 28, 200536                      
|      | 
|10.38 |  | Salary Continuation Agreement of Thomas E. Vessey dated April 7, 200637                            
|      | 
|10.39 |  | Salary Continuation Agreement of John P. Lang dated April 7, 200637                                
|      | 
|10.40 |  | Form of Agreement between 1stCentennial Bank and Officers
with respect to Death Benefit.38         
|      | 
|21.1  |  | Subsidiaries of 1stCentennial Bancorp36                                                            
|      | 
|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)                             

---

|30 | Incorporated by reference to exhibit 10.24 on Form 10-KSB for the year ended December 31, 2003.
|-- | -----------------------------------------------------------------------------------------------



|31 | Incorporated by reference to exhibit 10.25 on Form 10-KSB for the year ended
December 31, 2003.
|-- | -----------------------------------------------------------------------------------------------



|32 | Incorporated by reference to exhibit 10.26 on Form 10-KSB for the year ended December 31, 2003.
|-- | -----------------------------------------------------------------------------------------------



|33 | Incorporated by reference to the exhibit of the same number on Form 10-QSB for the quarter
ended March 31, 2004.
|-- | ----------------------------------------------------------------------------------------------------------------



|34 | Incorporated by reference to the exhibit of the same number on Form 10-QSB for the quarter
ended September 30, 2004.
|-- | --------------------------------------------------------------------------------------------------------------------



|35 | Incorporated by reference to the exhibit of the same number on Form 10-KSB for the year ended December 31, 2004.
|-- | ----------------------------------------------------------------------------------------------------------------



|36 | Incorporated by reference to Form 10-Q for the quarter ended September 30, 2005.
|-- | --------------------------------------------------------------------------------



|37 | Incorporated by reference to Exhibit 99.1 to current report on Form 8-K dated April 11,
2006.
|-- | ---------------------------------------------------------------------------------------------



|38 | Incorporated by reference to Exhibit 99.1 to current report on Form 8-K dated November 3, 2006.
|-- | -----------------------------------------------------------------------------------------------



38



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on this 7th day of November 2006.



1ST CENTENNIAL BANCORP/s/ Thomas E. VesseyThomas E. Vessey President and Chief Executive Officer


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




39