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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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Quarterly report under section 13 or
15(d) of the Securities Exchange Act of 1934



For the
quarterly period ended September 30, 2004



Commission
file number: 000-29105



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1stCENTENNIAL BANCORP

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



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|                         |  |                                        
|------------------------ |  | ---------------------------------------
|California               |  | 91-1995265                             
|(State of Incorporation) |  | (I.R.S. Employer Identification Number)



|                                           |  |           
|------------------------------------------ |  | ----------
|218 East State Street Redlands, California |  | 92373     
|(Address of Principal Executive Offices)   |  | (Zip Code)



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



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈



The number of shares of Common Stock of the registrant outstanding as of November 10, 2004
was 1,938,132.



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##### Table of Contents

TABLE OF CONTENTS



|        |  |                                                                                       |  |     
|------- |  | ------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                       |  | PAGE
|PART I  |  |                                                                                       |  |     
|ITEM 1  |  | Consolidated Financial Statements (unaudited)                                         |  | 2   
|ITEM 2  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11  
|ITEM 3  |  | Controls and Procedures                                                               |  | 37  
|        |  |                                                                                      
|PART II |  |                                                                                       |  |     
|ITEM 1  |  | Legal Proceedings                                                                     |  | 38  
|ITEM 2  |  | Changes in Securities and Issuer Purchases of Equity Securities                       |  | 38  
|ITEM 3  |  | Defaults Upon Senior Securities                                                       |  | 38  
|ITEM 4  |  | Submission of Matters to a Vote of Security Holders                                   |  | 38  
|ITEM 5  |  | Other Information                                                                     |  | 38  
|ITEM 6  |  | Exhibits and Reports on Form 8-K                                                      |  | 39  
|        |  | Signature                                                                             |  | 42  



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##### Table of Contents

PART I  FINANCIAL INFORMATION



ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



1STCENTENNIAL BANCORP AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CONDITION

September 30, 2004 and December 31, 2003



|                                                                                                                                                                          |  |             |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | ---- | - | -------
|Dollar amounts in thousands                                                                                                                                               |  | 2004        |         | 2003
|                                                                                                                                                                          |  | (unaudited) |         |     
|ASSETS                                                                                                                                                                    |  |             |         |      |   |        
|Cash and due from banks                                                                                                                                                   |  | $           | 7,577   |      | $ | 9,948  
|Federal funds sold                                                                                                                                                        |  |             | 130     |      |   |       
|                                                                                                                                                                          |  |             |         |      |   |        
|Total cash and cash equivalents                                                                                                                                           |  |             | 7,707   |      |   | 9,948  
|                                                                                                                                                                          |  |            
|Interest-bearing deposits in financial institutions                                                                                                                       |  |             | 4,342   |      |   | 4,806  
|Investment securities, available for sale                                                                                                                                 |  |             | 24,496  |      |   | 36,026 
|Federal Home Loan Bank stock                                                                                                                                              |  |             | 940     |      |   | 380    
|Loans, net                                                                                                                                                                |  |             | 302,989 |      |   | 188,222
|Accrued interest receivable                                                                                                                                               |  |             | 955     |      |   | 710    
|Premises and equipment, net                                                                                                                                               |  |             | 2,582   |      |   | 2,468  
|Goodwill                                                                                                                                                                  |  |             | 4,180   |      |   | 4,180  
|Cash surrender value of life insurance                                                                                                                                    |  |             | 6,424   |      |   | 6,206  
|Other assets                                                                                                                                                              |  |             | 1,924   |      |   | 1,437  
|                                                                                                                                                                          |  |             |         |      |   |        
|Total assets                                                                                                                                                              |  | $           | 356,539 |      | $ | 254,383
|                                                                                                                                                                          |  |             |         |      |   |        
|LIABILITIES                                                                                                                                                               |  |             |         |      |   |        
|Deposits:                                                                                                                                                                 |  |             |         |      |   |        
|Noninterest-bearing                                                                                                                                                       |  | $           | 85,539  |      | $ | 66,636 
|Interest-bearing demand and money market accounts                                                                                                                         |  |             | 101,389 |      |   | 60,129 
|Savings                                                                                                                                                                   |  |             | 28,849  |      |   | 20,745 
|Time deposits $100,000 or greater                                                                                                                                         |  |             | 40,078  |      |   | 39,190 
|Other time deposits                                                                                                                                                       |  |             | 34,220  |      |   | 26,073 
|                                                                                                                                                                          |  |             |         |      |   |        
|Total deposits                                                                                                                                                            |  |             | 290,075 |      |   | 212,773
|                                                                                                                                                                          |  |            
|Accrued interest payable                                                                                                                                                  |  |             | 135     |      |   | 224    
|Federal funds purchased                                                                                                                                                   |  |             | 4,750   |      |   | 1,850  
|Borrowings from Federal Home Loan Bank                                                                                                                                    |  |             | 20,000  |      |   | 7,600  
|Subordinated notes payable to subsidiary trusts                                                                                                                           |  |             | 13,151  |      |   |       
|Redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures                                                                         |  |             |        |      |   | 6,000  
|Other liabilities                                                                                                                                                         |  |             | 1,837   |      |   | 1,536  
|                                                                                                                                                                          |  |             |         |      |   |        
|Total liabilities                                                                                                                                                         |  |             | 329,948 |      |   | 229,983
|                                                                                                                                                                          |  |             |         |      |   |        
|STOCKHOLDERS EQUITY                                                                                                                                                      |  |             |         |      |   |        
|Common stock, no par value; authorized 10,000,000 shares, issued and outstanding 1,907,762 and 1,877,851 shares at September 30, 2004 and
December 31, 2003, respectively |  |             | 20,731  |      |   | 20,456 
|Retained earnings                                                                                                                                                         |  |             | 5,718   |      |   | 3,692  
|Accumulated other comprehensive income                                                                                                                                    |  |             | 142     |      |   | 252    
|                                                                                                                                                                          |  |             |         |      |   |        
|Total stockholders equity                                                                                                                                                |  |             | 26,591  |      |   | 24,400 
|                                                                                                                                                                          |  |             |         |      |   |        
|Total liabilities and stockholders equity                                                                                                                                |  | $           | 356,539 |      | $ | 254,383
|                                                                                                                                                                          |  |             |         |      |   |        



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1STCENTENNIAL BANCORP AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF EARNINGS

Three and Nine Months Ended September 30, 2004 and 2003 (unaudited)



|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|----------------------------------------------------- |  | -------------------------------- | ----- | ------------------------------- | - | ----- |  | ---- | ------ |  | - | ------
|                                                      |  | Three Months Ended September 30, |       | Nine Months Ended September 30,
|Dollar amounts in thousands, except per share amounts |  | 2004                             |       | 2003                            |   | 2004  |  | 2003
|Interest income:                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Interest and fees on loans                            |  | $                                | 6,201 |                                 | $ | 3,849 |  | $    | 15,869 |  | $ | 11,086
|Deposits in financial institutions                    |  |                                  | 51    |                                 |   | 64    |  |      | 154    |  |   | 178   
|Federal funds sold                                    |  |                                  | 17    |                                 |   | 37    |  |      | 44     |  |   | 73    
|Investments                                           |  |                                  | 200   |                                 |   | 230   |  |      | 805    |  |   | 806   
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Total interest income                                 |  |                                  | 6,469 |                                 |   | 4,180 |  |      | 16,872 |  |   | 12,143
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|                                                      |  |                                  |       |                                
|Interest expense:                                     |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Interest bearing demand and savings deposits          |  |                                  | 339   |                                 |   | 126   |  |      | 699    |  |   | 396   
|Time deposits $100,000 or greater                     |  |                                  | 192   |                                 |   | 211   |  |      | 554    |  |   | 665   
|Other time deposits                                   |  |                                  | 171   |                                 |   | 98    |  |      | 455    |  |   | 292   
|Interest on borrowed funds                            |  |                                  | 209   |                                 |   | 82    |  |      | 561    |  |   | 266   
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Total interest expense                                |  |                                  | 911   |                                 |   | 517   |  |      | 2,269  |  |   | 1,619 
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Net interest income                                   |  |                                  | 5,558 |                                 |   | 3,663 |  |      | 14,603 |  |   | 10,524
|                                                      |  |                                  |       |                                
|Provision for loan losses                             |  |                                  | 540   |                                 |   | 150   |  |      | 1,408  |  |   | 360   
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Net interest income after provision for loan losses   |  |                                  | 5,018 |                                 |   | 3,513 |  |      | 13,195 |  |   | 10,164
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Noninterest income:                                   |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Customer service fees                                 |  |                                  | 339   |                                 |   | 297   |  |      | 906    |  |   | 928   
|Gains and commissions from sale of loans              |  |                                  | 10    |                                 |   | 201   |  |      | 254    |  |   | 267   
|Other income                                          |  |                                  | 271   |                                 |   | 348   |  |      | 918    |  |   | 1,065 
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Total noninterest income                              |  |                                  | 620   |                                 |   | 846   |  |      | 2,078  |  |   | 2,260 
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Noninterest expense:                                  |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Salaries and employee benefits                        |  |                                  | 2,652 |                                 |   | 2,136 |  |      | 7,424  |  |   | 5,930 
|Net occupancy expense                                 |  |                                  | 366   |                                 |   | 388   |  |      | 1,081  |  |   | 1,164 
|Other operating expense                               |  |                                  | 1,197 |                                 |   | 988   |  |      | 3,567  |  |   | 3,049 
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Total noninterest expense                             |  |                                  | 4,215 |                                 |   | 3,512 |  |      | 12,072 |  |   | 10,143
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Income before provision for income taxes              |  |                                  | 1,423 |                                 |   | 847   |  |      | 3,201  |  |   | 2,281 
|                                                      |  |                                  |       |                                
|Provision for income taxes                            |  |                                  | 543   |                                 |   | 300   |  |      | 1,169  |  |   | 793   
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Net income                                            |  | $                                | 880   |                                 | $ | 547   |  | $    | 2,032  |  | $ | 1,488 
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Basic earnings per share                              |  | $                                | 0.46  |                                 | $ | 0.29  |  | $    | 1.07   |  | $ | 0.85  
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       
|Diluted earnings per share                            |  | $                                | 0.43  |                                 | $ | 0.28  |  | $    | 0.99   |  | $ | 0.81  
|                                                      |  |                                  |       |                                 |   |       |  |      |        |  |   |       



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1STCENTENNIAL BANCORP AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Nine Months Ended September 30, 2004 and 2003 (unaudited)



|                                                                                                    |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|--------------------------------------------------------------------------------------------------- |  | ----------- | ------ | ---------------- | - | ------ | ------------------------------------------ |  | - | ----- | - |  | - | ------ | -
|Dollar amounts in thousands                                                                         |  | CommonStock |        | RetainedEarnings |   |        | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total |  
|BALANCE, DECEMBER 31, 2002                                                                          |  | $           | 13,913 |                  | $ | 2,957  |                                            |  | $ | 323   |   |  | $ | 17,193 |  
|Comprehensive income:                                                                               |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Net income                                                                                          |  |             |       |                  |   | 1,488  |                                            |  |   |      |   |  |   | 1,488  |  
|Change in net unrealized gain (loss) on investment securities available for sale, after tax effects |  |             |       |                  |   |       |                                            |  |   | 52    |   |  |   | 52     |  
|                                                                                                    |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Total comprehensive income                                                                          |  |             |        |                  |   |        |                                            |  |   |       |   |  |   | 1,540  |  
|                                                                                                    |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Stock dividend                                                                                      |  |             | 1,347  |                  |   | (1,347 | )                                          |  |   |      |   |  |   |       |  
|                                                                                                    |  |             |        |                 
|Cash paid in lieu of fractional shares                                                              |  |             |       |                  |   | (6     | )                                          |  |   |      |   |  |   | (6     | )
|                                                                                                    |  |             |        |                 
|Issuance of common stock, net                                                                       |  |             | 4,871  |                  |   |       |                                            |  |   |      |   |  |   | 4,871  |  
|                                                                                                    |  |             |        |                 
|Issuance of restricted stock for legal settlement                                                   |  |             | 295    |                  |   |       |                                            |  |   |      |   |  |   | 295    |  
|                                                                                                    |  |             |        |                 
|Exercise of stock options, including tax benefit                                                    |  |             | 30     |                  |   |       |                                            |  |   |      |   |  |   | 30     |  
|                                                                                                    |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|BALANCE, SEPTEMBER 30, 2003                                                                         |  | $           | 20,456 |                  | $ | 3,092  |                                            |  | $ | 375   |   |  | $ | 23,923 |  
|                                                                                                    |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|BALANCE, DECEMBER 31, 2003                                                                          |  | $           | 20,456 |                  | $ | 3,692  |                                            |  | $ | 252   |   |  | $ | 24,400 |  
|Comprehensive income:                                                                               |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Net income                                                                                          |  |             |       |                  |   | 2,032  |                                            |  |   |      |   |  |   | 2,032  |  
|Change in net unrealized gain (loss) on investment securities available for sale, after tax effects |  |             |       |                  |   |       |                                            |  |   | (110  | ) |  |   | (110   | )
|                                                                                                    |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Total comprehensive income                                                                          |  |             |        |                  |   |        |                                            |  |   |       |   |  |   | 1,922  |  
|                                                                                                    |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Cash paid in lieu of fractional shares                                                              |  |             |       |                  |   | (6     | )                                          |  |   |      |   |  |   | (6     | )
|                                                                                                    |  |             |        |                 
|Exercise of stock options, including tax benefit                                                    |  |             | 275    |                  |   |       |                                            |  |   |      |   |  |   | 275    |  
|                                                                                                    |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|BALANCE, SEPTEMBER 30, 2004                                                                         |  | $           | 20,731 |                  | $ | 5,718  |                                            |  | $ | 142   |   |  | $ | 26,591 |  
|                                                                                                    |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  



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1STCENTENNIAL BANCORP AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2004 and 2003 (unaudited)



|                                                                                  |  |      |          |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|Dollar amounts in thousands                                                       |  | 2004 |          |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |      |          |   |      |   |         |  
|Net income                                                                        |  | $    | 2,032    |   |      | $ | 1,488   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |          |   |      |   |         |  
|Depreciation and amortization                                                     |  |      | 405      |   |      |   | 500     |  
|Provision for loan losses                                                         |  |      | 1,408    |   |      |   | 360     |  
|Loss on sale of investments                                                       |  |      |         |   |      |   | 5       |  
|Gain from sale of loans                                                           |  |      | (254     | ) |      |   | (267    | )
|Amortization of deferred loan fees                                                |  |      | (1,157   | ) |      |   | (603    | )
|Amortization of excess purchase value of deposits                                 |  |      | 10       |   |      |   | (109    | )
|Amortization of excess purchase value of loans                                    |  |      | 17       |   |      |   |        |  
|Deferred income tax provision (benefit)                                           |  |      | 74       |   |      |   | (34     | )
|Amortization of premiums on investment securities available for sale (net)        |  |      | 410      |   |      |   | 425     |  
|Increase in cash surrender value of life insurance                                |  |      | (218     | ) |      |   | (235    | )
|Decrease (increase) in assets:                                                    |  |      |          |   |      |   |         |  
|Accrued interest receivable                                                       |  |      | (245     | ) |      |   | (182    | )
|Other assets                                                                      |  |      | (565     | ) |      |   | (372    | )
|Increase (decrease) in liabilities:                                               |  |      |          |   |      |   |         |  
|Accrued interest payable                                                          |  |      | (18      | ) |      |   | 17      |  
|Other liabilities                                                                 |  |      | 230      |   |      |   | (198    | )
|                                                                                  |  |      |          |   |      |   |         |  
|Net cash provided by operating activities                                         |  |      | 2,129    |   |      |   | 795     |  
|                                                                                  |  |      |          |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |      |          |   |      |   |         |  
|Net decrease in interest-bearing deposits in financial institutions               |  |      | 464      |   |      |   | 160     |  
|Activity in available for sale securities:                                        |  |      |          |   |      |   |         |  
|Net maturities and principal paydowns                                             |  |      | 11,010   |   |      |   | 651     |  
|Purchases of Federal Home Loan Bank stock                                         |  |      | (560     | ) |      |   | (34     | )
|Net increase in loans                                                             |  |      | (114,781 | ) |      |   | (21,142 | )
|Additions to bank premises and equipment                                          |  |      | (519     | ) |      |   | (475    | )
|                                                                                  |  |      |          |   |      |   |         |  
|Net cash used in investing activities                                             |  |      | (104,386 | ) |      |   | (20,840 | )
|                                                                                  |  |      |          |   |      |   |         |  



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1STCENTENNIAL BANCORP AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Nine Months Ended September 30, 2004 and 2003 (unaudited)



|                                                           |  |      |         |   |      |   |        |  
|---------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | -
|Dollar amounts in thousands                                |  | 2004 |         |   | 2003 |  
|CASH FLOWS FROM FINANCING ACTIVITIES                       |  |      |         |   |      |   |        |  
|Net increase in noninterest bearing deposits               |  | $    | 18,903  |   |      | $ | 6,962  |  
|Net increase in interest bearing and money market deposits |  |      | 41,260  |   |      |   | 7,540  |  
|Net increase in savings deposits                           |  |      | 8,104   |   |      |   | 1,607  |  
|Net increase in time deposits $100,000 or greater          |  |      | 888     |   |      |   | 4,430  |  
|Net increase (decrease) in other time deposits             |  |      | 8,147   |   |      |   | (318   | )
|Payments of federal funds purchased                        |  |      | 2,900   |   |      |   |       |  
|Proceeds from Federal Home Loan Bank borrowing             |  |      | 12,400  |   |      |   |       |  
|Issuance of Trust Preferred Securities                     |  |      | 7,145   |   |      |   |       |  
|Issuance of common stock, net                              |  |      |        |   |      |   | 4,871  |  
|Issuance of restricted stock for legal settlement          |  |      |        |   |      |   | 130    |  
|Cash paid in lieu of fractional shares                     |  |      | (6      | ) |      |   | (6     | )
|Proceeds from exercise of stock options                    |  |      | 275     |   |      |   | 30     |  
|                                                           |  |      |         |   |      |   |        |  
|Net cash provided by financing activities                  |  |      | 100,016 |   |      |   | 25,246 |  
|                                                           |  |      |         |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents       |  |      | (2,241  | ) |      |   | 5,201  |  
|                                                           |  |     
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD             |  |      | 9,948   |   |      |   | 14,020 |  
|                                                           |  |      |         |   |      |   |        |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                   |  | $    | 7,707   |   |      | $ | 19,221 |  
|                                                           |  |      |         |   |      |   |        |  
|SUPPLEMENTARY INFORMATION                                  |  |      |         |   |      |   |        |  
|                                                           |  |     
|Interest paid                                              |  | $    | 2,277   |   |      | $ | 1,602  |  
|                                                           |  |      |         |   |      |   |        |  
|Income taxes paid                                          |  | $    | 1,641   |   |      | $ | 1,020  |  
|                                                           |  |      |         |   |      |   |        |  



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1STCENTENNIAL BANCORP AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004



Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



The unaudited financial information included herein has been prepared in conformity with the
accounting principles and practices disclosed in 1stCentennial Bancorps (the Company)
consolidated financial statements, Note 1, included in the Annual Report on Form 10-KSB for the year ended December 31, 2003. 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 nine months ended September 30, 2004 may not be
indicative of operating results for the year ending December 31, 2004. Certain prior year and prior quarter amounts have been reclassified to conform to current classifications. Cash and cash equivalents consist of cash, due from banks, and federal
funds sold.



Note 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS



In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation 46 Consolidation of Variable Interest Entities (VIEs), an interpretation of ARB No. 51 (FIN 46). FIN 46 provides a new framework for identifying VIEs and determining when a company should include the assets,
liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements. FIN 46 was effective immediately for VIEs created after January 31, 2003. As of December 31, 2003, the FASB deferred compliance under
FIN 46 for small business issuers from July 1, 2003 to the first period ending after December 15, 2004 for VIEs created prior to February 1, 2003. The Company adopted FIN 46 on January 1, 2004 and deconsolidated its trust preferred securities from
its balance sheets. Prior to FIN 46, trust preferred securities were classified as a separate liability with distributions on these securities included in interest on borrowed funds. Upon adoption of FIN 46, $6.0 million of trust preferred
securities vehicles, that were deemed to be VIEs, were de-consolidated with the resulting liabilities to the trust companies shown as subordinated notes payable with no change in the reporting of the distributions. Prior periods were not restated.



Note 3. EARNINGS PER SHARE



Basic earnings per share represents income available to common stockholders divided by the
weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding, if potential dilutive common shares had been issued, as well as any adjustment to
income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method. The 2003 earnings per share calculations
have been adjusted for the 25% stock dividend declared to shareholders of record on April 1, 2004, and distributed May 1, 2004.



7



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##### Table of Contents

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) |    
|                                                                                                         |  | 2004                                                                                                             |     |                       | 20031 |                
|                                                                                                         |  | NetIncome                                                                                                        |     | WeightedAverageShares |       | Per shareAmount |   |       | NetIncome |  | WeightedAverageShares |     | Per shareAmount |      
|Basic earnings per share                                                                                 |  | $                                                                                                                | 880 |                       | 1,898 |                 | $ | 0.46  |           |  | $                     | 547 |                 | 1,877 |  | $ | 0.29  |  
|Effect of dilutive shares:assumed exercise of outstanding options and effects of restricted stock awards |  |                                                                                                                  |    |                       | 160   |                 |   | (0.03 | )         |  |                       |    |                 | 83    |  |   | (0.01 | )
|Diluted earnings per share                                                                               |  | $                                                                                                                | 880 |                       | 2,058 |                 | $ | 0.43  |           |  | $                     | 547 |                 | 1,960 |  | $ | 0.28  |  



|                                                                                                         |  |                                                                                                                 |       |                       |       |                 |   |       |           |  |                       |       |                 |       |  |   |       |  
|-------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- | ----- | --------------------- | ----- | --------------- | - | ----- | --------- |  | --------------------- | ----- | --------------- | ----- |  | - | ----- | -
|                                                                                                         |  | Earnings per share calculation For the Nine Months Ended September 30, (In thousands, except per share
amounts) |      
|                                                                                                         |  | 2004                                                                                                            |       |                       | 20031 |                
|                                                                                                         |  | NetIncome                                                                                                       |       | WeightedAverageShares |       | Per shareAmount |   |       | NetIncome |  | WeightedAverageShares |       | Per shareAmount |      
|Basic earnings per share                                                                                 |  | $                                                                                                               | 2,032 |                       | 1,893 |                 | $ | 1.07  |           |  | $                     | 1,488 |                 | 1,756 |  | $ | 0.85  |  
|Effect of dilutive shares:assumed exercise of outstanding options and effects of restricted stock awards |  |                                                                                                                 |      |                       | 160   |                 |   | (0.08 | )         |  |                       |      |                 | 83    |  |   | (0.04 | )
|Diluted earnings per share                                                                               |  | $                                                                                                               | 2,032 |                       | 2,053 |                 | $ | 0.99  |           |  | $                     | 1,488 |                 | 1,839 |  | $ | 0.81  |  



Note 4. STOCK COMPENSATION PLANS



Stock options issued under the Companys stock incentive plan and
accounted for under Opinion No. 25 have no intrinsic value at the grant date. Thus, no compensation cost is recognized for them. Under the Companys stock incentive plan, compensation cost is recognized to the extent that the quoted market
price of the stock on the date of grant exceeds the amount that the employee is required to pay.

---

|1 | The 2003 earnings per share calculations have been adjusted for the 25% stock dividend declared to shareholders of record on April 1, 2004, and distributed May 1,
2004.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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



|                                |  |                                 |      |                                |   |      |  |       |       |  |   |      
|------------------------------- |  | ------------------------------- | ---- | ------------------------------ | - | ---- |  | ----- | ----- |  | - | -----
|                                |  | Three Months EndedSeptember 30, |      | Nine Months EndedSeptember 30,
|                                |  | 2004                            |      | 20031                          |   | 2004 |  | 20031
|Net income:                     |  |                                 |      |                                |   |      |  |       |       |  |   |      
|As reported                     |  | $                               | 880  |                                | $ | 547  |  | $     | 2,032 |  | $ | 1,488
|Pro forma                       |  |                                 | 866  |                                |   | 533  |  |       | 1,695 |  |   | 1,253
|                                |  |                                 |      |                               
|Compensation cost, net of taxes |  | $                               | 14   |                                | $ | 14   |  | $     | 337   |  | $ | 235  
|                                |  |                                 |      |                               
|Basic earnings per share:       |  |                                 |      |                                |   |      |  |       |       |  |   |      
|As reported                     |  | $                               | 0.46 |                                | $ | 0.29 |  | $     | 1.07  |  | $ | 0.85 
|Pro forma                       |  |                                 | 0.46 |                                |   | 0.28 |  |       | 0.90  |  |   | 0.71 
|                                |  |                                 |      |                               
|Diluted earnings per share:     |  |                                 |      |                                |   |      |  |       |       |  |   |      
|As reported                     |  | $                               | 0.43 |                                | $ | 0.28 |  | $     | 0.99  |  | $ | 0.81 
|Pro forma                       |  |                                 | 0.42 |                                |   | 0.27 |  |       | 0.83  |  |   | 0.68 



The fair value of each option granted
is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for options granted during the first nine months of 2004 and 2003; no dividend yield; expected volatility of 21.78% and 20.11%
respectively; risk-free interest rate of 4.13% and 4.27% respectively, and expected life of ten years for both.



Note 5. OFF-BALANCE SHEET COMMITMENTS



In the normal course of business, there are various commitments outstanding, such as commitments to extend credit, which are not reflected in the financial statements. At
September 30, 2004 and December 31, 2003, such commitments included approximately $2,763,000 and $2,916,000, respectively, of standby letters of credit, approximately $173,328,000 and $106,849,000, respectively, of undisbursed lines of credit, and
$1,868,000 and $1,674,000 respectively of available credit card lines. The Companys exposure to credit loss is represented by the contractual amount of these commitments. The Company uses the same credit policies in making commitments as it
does for on-balance-sheet instruments.

---

|1 | The 2003 earnings per share calculations have been adjusted for the 25% stock dividend declared to shareholders of record on April 1, 2004, and distributed May 1,
2004.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Note 6. CENTENNIAL CAPITAL TRUST II



On January 15, 2004, Centennial Capital Trust II, a newly formed Delaware statutory business trust and a wholly owned subsidiary of the
Company (the Trust), issued an aggregate of $7.0 million of principal amount of Floating Rate TRUPS® (Capital Trust Pass-through Securities of the Trust) (the Trust Preferred Securities). Bear Stearns & Co., Inc. acted as placement agent in connection with the offering of the Trust
Preferred Securities. The securities issued by the Trust are fully guaranteed by the Company with respect to distributions and amounts payable upon liquidation, redemption or repayment. The entire proceeds to the Trust from the sale of the Trust
Preferred Securities were used by the Trust to purchase $7.0 million in principal amount of the Floating Rate Junior Subordinated Deferrable Interest Debentures due 2034 issued by the Company (the Subordinated Debt Securities).



Note 7. RECLASSIFICATION



Certain amounts have been reclassified in the 2003 financial statements to conform to the
2004 financial statement presentation due to the deconsolidation of trust preferred securities as of January 1, 2004, as per FIN 46 and miscellaneous reclassifications on the income statement.



Note 8. SUBSEQUENT EVENT



Timothy P. Walbridge, President and Chief Executive Officer of 1st Centennial Bank resigned
from this position effective November 30, 2004. The financial impact to the company was not material.



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##### Table of Contents

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



1stCentennial Bancorp (the
Company) is the holding company for 1st Centennial Bank (the Bank) headquartered in Redlands, California. 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, 2004 and 2003, and the financial condition of the Company as of September 30, 2004 and December 31, 2003.



Managements discussion and analysis is written to provide greater insight into the results of operations and the financial condition of the Company and its
subsidiaries. For a more complete understanding of the Company and its operations, reference should be made to the financial statements included in this report and in the Companys 2003 Annual Report on Form 10-KSB.



Certain statements in this Report on Form 10-QSB 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. For additional information
concerning these factors, refer to the Companys 10-KSB for the year ended December 31, 2003.



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 sensitivities to interest rate movements and borrowers sensitivities 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.



11



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##### Table of Contents

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 backgrounds and experience levels, loan structure, extent and nature of waivers of existing loan
policies, and the pace of portfolio growth are other qualitative factors that are considered in our methodologies.



As 1stCentennial adds new products,
increases the complexity of its loan portfolio, and expands its geographic coverage, it will enhance its methodologies to keep pace with the size and complexity of the loan portfolio. Management might report a materially different amount for the
provision for loan losses in the statement of operations to change the allowance for loan losses if its assessment of the above factors were different. This discussion and analysis should be read in conjunction with 1stCentennial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, 2004 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.



In addition, management has identified goodwill and goodwill impairment testing as a critical accounting policy. Goodwill resulted from the Companys purchase of
Palomar Community Bank during 2001. Goodwill is deemed to have an indefinite life and is tested no less than annually for potential impairment. We performed the annual impairment test of goodwill as of June 30, 2004 and noted no impairment of its
recorded value.



RESULTS OF OPERATIONS



The Company reported net income of $880,000 or $0.46 per basic share and $0.43 per diluted
share for the third quarter of 2004 and $2,032,000 or $1.07 per basic share and $0.99 per diluted share for the first nine months of 2004. This compares to net income of $547,000, or $0.29 per basic share and $0.28 per diluted share and $1,488,000
or $0.85 per basic share and $0.81 per diluted share for the same periods in 2003.



Return on average assets and return on average equity for the third quarter of 2004 was 1.03% and 13.55% respectively, as compared to 0.91% and 9.27% respectively, for the same period in 2003. Return on average assets and return on average
equity for the nine months ended September 30, 2004 was 0.88% and 10.75% respectively, as compared to 0.88% and 9.81% respectively, for the same period in 2003. The increase in return on average equity for the nine months ended September 30, 2004
when compared to the same period in 2003 is due in part, to the increase in interest income as a result of growth in average interest earning assets. Average interest-earning assets grew $80.4 million or 40%, from September 2003 to September 2004
primarily in construction and development loans as a result of the continued strong demand for affordable housing that is available to 1sttime owners and 1sttime move-up owners in the San Bernardino and Riverside counties,
which we serve. Net income was $544,000 or 36.6% higher in 2004 as compared to the same period in 2003.



12



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##### Table of Contents

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, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions
include short-term and long-term interest rates, inflation, monetary supply, and the strength of the economy, and the local economies in which the Company conducts business.



The net interest margin measures net interest income as a percentage of average earning assets. The net interest margin can be affected by
changes in the yield on earning assets and the cost of interest-bearing liabilities, as well as changes in the level of interest-bearing liabilities in proportion to earning assets. The net interest margin can also be affected by changes in the mix
of earning assets as well as the mix of interest-bearing liabilities.



Third
quarter analysis. The Companys net interest margin for the third quarter of 2004 was 7.00%, as compared to 6.82% for the same period in 2003. The increase was primarily due to the increase in the volume of average loans from 2003 to 2004.
Average loans for the third quarter of 2004 grew $115.8 million or 70.5% primarily in construction and development loans, as compared to the third quarter of 2003.



For the third quarter ended September 30, 2004 total interest earning assets averaged $315.9 million, which represented an increase of
$102.8 million or 48%, as compared to $213.1 million for the same period in 2003. Total interest bearing deposits and other interest-bearing liabilities averaged $224.3 million, which represented an increase of $73.6 million or 49%, as compared to
$150.7 million for the same period in 2003, primarily attributable to the average increase of $39.0 million in money market accounts due to the promotional money market account offered to businesses and consumers during the second quarter of 2004,
coupled with the average increase of $16.4 million in total borrowings in order to meet our loan demand.



The Company reported total interest income of $6.5 million for the third quarter ended September 30, 2004, which represented an increase of $2.3 million or 55%, over total interest income of $4.2 million for the third
quarter ended September 30, 2003. The increase in total interest income for the third quarter ended September 30, 2004 compared to 2003 was primarily due to an increase of approximately $2.4 million in interest and fees on loans on an increase of
approximately $116.0 million average loans from September 2003 to September 2004.



The Company reported total interest expense of $911,000 for the third quarter of 2004, which represented an increase of $394,000 or 76.2% over total interest expense of $517,000 for the third quarter of 2003. The increase was primarily due
to greater interest expense on money market deposit accounts, coupled with more interest expense on subordinated notes payable to subsidiary trusts.



For the quarter ended September 30, 2004, net interest income before provision for loan losses was $5.6 million, which represented an increase of $1.9 million, or 51%,
over net interest income



13



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##### Table of Contents

before provision for loan losses of $3.7 million for the quarter ended September 30, 2003. The increase in net interest
income for the third quarter of 2004 as compared to 2003 was primarily the result of the increase in average total loans.



Nine-month analysis. The Companys year-to-date net interest margin was 6.92% for the first nine months of 2004, compared to 6.99% for the same period in
2003. Although average interest earning assets increased $80.4 million, reduced market rates on new assets as compared to higher yielding assets maturing during the period reduced our net interest margin from 2003 to 2004.



For the first nine months of 2004, total interest earning assets averaged $281.9 million,
which represented an increase of $80.4 million or 40%, as compared to $201.5 million for the same period in 2003. Loans averaged $241.1 million, which represented an increase of $83.7 million or 53%, as compared to average loans of $157.4 million
for the same period in 2003.



Total interest bearing deposits and other
interest-bearing liabilities averaged $203.0 million, which represented an increase of $57.4 million or 39%, as compared to average interest bearing deposits and other interest-bearing liabilities of $145.6 million for the same period in 2003. Money
market deposits averaged $61.6 million, which represented and increase of $26.3 million or 75%, as compared to $35.3 million for the same period in 2003, primarily due to the promotional money market account offered to businesses and consumers
during the second quarter of 2004.



FHLB borrowings averaged $11.5 million,
which represented an increase of $8.4 million or 271%, as compared to $3.1 million for the same period in 2003, and subordinated notes payable to subsidiary trusts averaged $12.8 million, which represented an increase of $6.8 million or 113%, as
compared to $6.0 million for the same period in 2003. The increase in FHLB borrowings was to support loan growth and the increase in subordinated notes payable to subsidiary trusts is attributed to the issuance of additional trust preferred
securities (See NOTE 6 of the Consolidated Financial Statements).



The Company
reported total interest income of $16.9 million for the nine months ended September 30, 2004, which represented an increase of $4.7 million or 39%, over total interest income of $12.2 million for the nine months ended September 30, 2003. The
increase in total interest income for the first nine months of 2004 compared to 2003 was primarily due to an increase of approximately $4.8 million in interest and fees on loans. The increase in interest and fees on loans was due to the $83.7
million increase in the average balance of total loans outstanding for the first nine months of 2004 as compared to 2003. The continuing low interest rates during the first nine months of 2004 kept many of our variable rate loans at their interest
rate floors, which are, on average, above prevailing market rates and helped maintain average loan yields near 9%.



The Company reported total interest expense of $2,269,000 for the nine months ended September 30, 2004, which represented an increase of $650,000 or 40.2% over total
interest expense of $1,619,000 for the nine months ended September 30, 2003. The increase from 2003 to 2004 was primarily the result of more interest expense on subordinated notes payable to subsidiary trusts due to the issuance of additional trust
preferred securities (See NOTE 6 of the Consolidated Financial Statements), and an increase in interest expense on money market accounts. The increase in average money market deposit accounts is attributed to a promotional money market account
offered to businesses and consumers in the second quarter of 2004.



14



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##### Table of Contents

For the nine months ended September 30, 2004, net interest income before the provision for loan losses was $14.6 million.
Which represented an increase of $4.1 million, or 39%, over net interest income of $10.5 million for the nine months ended September 30, 2003. The increase in net interest income for the first nine months of 2004 as compared to 2003 was primarily
the result of the Banks loan growth.



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 average cost 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 Ended September 30, |        
|                                                                                                   |  | 2004                                     |         |                          | 2003 |                    
|                                                                                                   |  | Average Balance                          |         | Interest Income/ Expense |      | Average2 Rate/Yield |  |      | AverageBalance |  | Interest Income/ Expense |         | Average2 Rate/Yield |  
|                                                                                                   |  | (Dollars in Thousands)                   |        
|Interest-earning Assets:                                                                           |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Federal funds sold                                                                                 |  | $                                        | 5,202   |                          | $    | 17                  |  | 1.30 | %              |  | $                        | 15,422  |                     | $ | 37    |  | 0.95 | %
|Interest-bearing deposits in financial institutions                                                |  |                                          | 4,635   |                          |      | 51                  |  | 4.38 | %              |  |                          | 4,981   |                     |   | 64    |  | 5.10 | %
|Investment securities:3                                                                            |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Taxable                                                                                            |  |                                          | 22,155  |                          |      | 158                 |  | 2.84 | %              |  |                          | 24,618  |                     |   | 187   |  | 3.01 | %
|Non-taxable                                                                                        |  |                                          | 3,982   |                          |      | 42                  |  | 4.20 | %              |  |                          | 3,910   |                     |   | 43    |  | 4.36 | %
|                                                                                                   |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total investments                                                                                  |  |                                          | 35,974  |                          |      | 268                 |  | 2.96 | %              |  |                          | 48,931  |                     |   | 331   |  | 2.68 | %
|Loans4                                                                                             |  |                                          | 279,959 |                          |      | 6,201               |  | 8.81 | %              |  |                          | 164,205 |                     |   | 3,849 |  | 9.30 | %
|                                                                                                   |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total interest-earning assets                                                                      |  | $                                        | 315,933 |                          | $    | 6,469               |  | 8.15 | %              |  | $                        | 213,136 |                     | $ | 4,180 |  | 7.78 | %
|                                                                                                   |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Interest-bearing Liabilities:                                                                      |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Interest-bearing deposits                                                                          |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Interest-bearing demand deposits                                                                   |  | $                                        | 20,564  |                          | $    | 10                  |  | 0.19 | %              |  | $                        | 18,094  |                     | $ | 9     |  | 0.20 | %
|Money market deposits                                                                              |  |                                          | 76,613  |                          |      | 279                 |  | 1.45 | %              |  |                          | 37,580  |                     |   | 87    |  | 0.92 | %
|Savings deposits                                                                                   |  |                                          | 29,772  |                          |      | 50                  |  | 0.67 | %              |  |                          | 19,187  |                     |   | 30    |  | 0.62 | %
|Time deposits $100,000 or greater                                                                  |  |                                          | 39,032  |                          |      | 192                 |  | 1.96 | %              |  |                          | 39,295  |                     |   | 211   |  | 2.13 | %
|Other time deposits                                                                                |  |                                          | 33,814  |                          |      | 171                 |  | 2.01 | %              |  |                          | 28,408  |                     |   | 98    |  | 1.37 | %
|                                                                                                   |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total interest-bearing deposits                                                                    |  |                                          | 199,795 |                          |      | 702                 |  | 1.40 | %              |  |                          | 142,564 |                     |   | 435   |  | 1.21 | %
|                                                                                                   |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|FHLB borrowings                                                                                    |  |                                          | 11,000  |                          |      | 43                  |  | 1.56 | %              |  |                          | 2,092   |                     |   | 6     |  | 1.14 | %
|Federal funds purchased                                                                            |  |                                          | 355     |                          |      | 2                   |  | 2.24 | %              |  |                          |        |                     |   |      |  |      |  
|Subordinated notes payable to subsidiary Trusts5                                                   |  |                                          | 13,151  |                          |      | 164                 |  | 4.96 | %              |  |                          |        |                     |   |      |  |      |  
|Redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures5 |  |                                          |        |                          |      |                    |  |      |                |  |                          | 6,000   |                     |   | 76    |  | 5.03 | %
|                                                                                                   |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total borrowings                                                                                   |  |                                          | 24,506  |                          |      | 209                 |  | 3.39 | %              |  |                          | 8,092   |                     |   | 82    |  | 4.02 | %
|                                                                                                   |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total interest-bearing liabilities                                                                 |  | $                                        | 224,301 |                          | $    | 911                 |  | 1.62 | %              |  | $                        | 150,656 |                     | $ | 517   |  | 1.36 | %
|                                                                                                   |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Net interest income                                                                                |  |                                          |         |                          | $    | 5,558               |  |      |                |  |                          |         |                     | $ | 3,663 |  |      |  
|                                                                                                   |  |                                          |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Net interest margin6                                                                               |  |                                          |         |                          |      |                     |  | 7.00 | %              |  |                          |         |                     |   |       |  | 6.82 | %



15



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##### Table of Contents

Distribution, Yield and Rate Analysis of Net Interest Income



|                                                                                                   |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|-------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | ------------------------ | ---- | ------------------ |  | ---- | --------------- |  | ------------------------ | ------- | ------------------- | - | ------ |  | ---- | -
|                                                                                                   |  | For the Nine Months Ended September 30, |        
|                                                                                                   |  | 2004                                    |         |                          | 2003 |                   
|                                                                                                   |  | Average Balance                         |         | Interest Income/ Expense |      | Average2Rate/Yield |  |      | Average Balance |  | Interest Income/ Expense |         | Average2 Rate/Yield |  
|                                                                                                   |  | (Dollars in Thousands)                  |        
|Interest-earning Assets:                                                                           |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Federal funds sold                                                                                 |  | $                                       | 5,416   |                          | $    | 44                 |  | 1.09 | %               |  | $                        | 9,189   |                     | $ | 73     |  | 1.06 | %
|Interest-bearing deposits in financial institutions                                                |  |                                         | 4,715   |                          |      | 154                |  | 4.36 | %               |  |                          | 5,045   |                     |   | 178    |  | 4.72 | %
|Investment securities:3                                                                            |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Taxable                                                                                            |  |                                         | 26,613  |                          |      | 678                |  | 3.40 | %               |  |                          | 25,858  |                     |   | 674    |  | 3.48 | %
|Non-taxable                                                                                        |  |                                         | 4,012   |                          |      | 127                |  | 4.23 | %               |  |                          | 3,960   |                     |   | 132    |  | 4.46 | %
|                                                                                                   |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Total investments                                                                                  |  |                                         | 40,756  |                          |      | 1,003              |  | 3.29 | %               |  |                          | 44,052  |                     |   | 1,057  |  | 3.21 | %
|Loans4                                                                                             |  |                                         | 241,103 |                          |      | 15,869             |  | 8.79 | %               |  |                          | 157,372 |                     |   | 11,086 |  | 9.42 | %
|                                                                                                   |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Total interest-earning assets                                                                      |  | $                                       | 281,859 |                          | $    | 16,872             |  | 8.00 | %               |  | $                        | 201,424 |                     | $ | 12,143 |  | 8.06 | %
|                                                                                                   |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Interest-bearing Liabilities:                                                                      |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Interest-bearing deposits                                                                          |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Interest-bearing demand deposits                                                                   |  | $                                       | 19,975  |                          | $    | 28                 |  | 0.19 | %               |  | $                        | 17,471  |                     | $ | 36     |  | 0.28 | %
|Money market deposits                                                                              |  |                                         | 61,617  |                          |      | 551                |  | 1.19 | %               |  |                          | 35,267  |                     |   | 275    |  | 1.04 | %
|Savings deposits                                                                                   |  |                                         | 25,167  |                          |      | 120                |  | 0.64 | %               |  |                          | 17,613  |                     |   | 85     |  | 0.65 | %
|Time deposits $100,000 or greater                                                                  |  |                                         | 38,777  |                          |      | 554                |  | 1.91 | %               |  |                          | 37,642  |                     |   | 665    |  | 2.36 | %
|Other time deposits                                                                                |  |                                         | 32,566  |                          |      | 455                |  | 1.87 | %               |  |                          | 28,041  |                     |   | 292    |  | 1.39 | %
|                                                                                                   |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Total interest-bearing deposits                                                                    |  |                                         | 178,102 |                          |      | 1,708              |  | 1.28 | %               |  |                          | 136,034 |                     |   | 1,353  |  | 1.33 | %
|                                                                                                   |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|FHLB borrowings                                                                                    |  |                                         | 11,532  |                          |      | 107                |  | 1.24 | %               |  |                          | 3,103   |                     |   | 29     |  | 1.25 | %
|Federal funds purchased                                                                            |  |                                         | 540     |                          |      | 6                  |  | 1.48 | %               |  |                          | 439     |                     |   | 6      |  | 1.83 | %
|Subordinated notes payable to subsidiary Trusts5                                                   |  |                                         | 12,785  |                          |      | 448                |  | 4.68 | %               |  |                          |        |                     |   |       |  |      |  
|Redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures5 |  |                                         |        |                          |      |                   |  |      |                 |  |                          | 6,000   |                     |   | 231    |  | 5.15 | %
|                                                                                                   |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Total borrowings                                                                                   |  |                                         | 24,857  |                          |      | 561                |  | 3.01 | %               |  |                          | 9,542   |                     |   | 266    |  | 3.73 | %
|                                                                                                   |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Total interest-bearing liabilities                                                                 |  | $                                       | 202,959 |                          | $    | 2,269              |  | 1.49 | %               |  | $                        | 145,576 |                     | $ | 1,619  |  | 1.49 | %
|                                                                                                   |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Net interest income                                                                                |  |                                         |         |                          | $    | 14,603             |  |      |                 |  |                          |         |                     | $ | 10,524 |  |      |  
|                                                                                                   |  |                                         |         |                          |      |                    |  |      |                 |  |                          |         |                     |   |        |  |      |  
|Net interest margin6                                                                               |  |                                         |         |                          |      |                    |  | 6.92 | %               |  |                          |         |                     |   |        |  | 6.99 | %

---

|2 | Average rates/yields for these periods have been annualized using actual days for 2004 and 2003.
|- | ------------------------------------------------------------------------------------------------

|3 | Yields on income have not been computed on a tax equivalent basis, because tax exempt investments are minimal.
|- | --------------------------------------------------------------------------------------------------------------

|4 | Loans are gross, which excludes the allowance for loan losses, and net of deferred fees.
Nonaccrual loans are included in the table for computation purposes, but the foregone interest of such loans is excluded. Loan fees during the first nine months of 2004 were $2,951,000 compared to $1,898,000 in the first nine months of 2003.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5 | In 2003 trust preferred securities were consolidated on the Companys balance sheet. On
January 1, 2004 the Company adopted FIN 46 and deconsolidated its trust preferred securities from its balance sheet.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



16



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##### Table of Contents

The following tables set forth, for the periods indicated, the dollar amount of changes in interest earned and paid for
interest-earning assets and interest-bearing liabilities, the amount of change attributable to changes in average daily balances (volume), changes in interest rates (rate), and changes attributable to both the volume and rate (rate/volume):



Rate/Volume Analysis of Net Interest Income



|                                                    |  |                                                    |        |   |       |   |        |              |  |   |        |   |  |   |       |  
|--------------------------------------------------- |  | -------------------------------------------------- | ------ | - | ----- | - | ------ | ------------ |  | - | ------ | - |  | - | ----- | -
|                                                    |  | The Three Months Ended September 30, 2004 vs. 2003 |       
|                                                    |  | Increases (Decreases) Due to Change In             |       
|                                                    |  | Volume                                             |        |   | Rate7 |   |        | Rate7/Volume |  |   | Total  |  
|                                                    |  | (Dollars in Thousands)                             |       
|Increase (Decrease) in Interest Income:             |  |                                                    |        |   |       |   |        |              |  |   |        |   |  |   |       |  
|Federal funds sold                                  |  | $                                                  | (98    | ) |       | $ | 54     |              |  | $ | 24     |   |  | $ | (20   | )
|Interest-bearing deposits in financial institutions |  |                                                    | (18    | ) |       |   | (36    | )            |  |   | 41     |   |  |   | (13   | )
|Investment securities8                              |  |                                                    | (71    | ) |       |   | (50    | )            |  |   | 91     |   |  |   | (30   | )
|Loans9                                              |  |                                                    | 10,765 |   |       |   | (801   | )            |  |   | (7,612 | ) |  |   | 2,352 |  
|                                                    |  |                                                    |        |   |       |   |        |              |  |   |        |   |  |   |       |  
|Total                                               |  | $                                                  | 10,578 |   |       | $ | (833   | )            |  | $ | (7,456 | ) |  | $ | 2,289 |  
|                                                    |  |                                                    |        |   |       |   |        |              |  |   |        |   |  |   |       |  
|Increase (Decrease) in Interest Expense:            |  |                                                    |        |   |       |   |        |              |  |   |        |   |  |   |       |  
|Interest-bearing demand deposits                    |  | $                                                  | 5      |   |       | $ | (1     | )            |  | $ | (3     | ) |  | $ | 1     |  
|Money market deposits                               |  |                                                    | 359    |   |       |   | 199    |              |  |   | (366   | ) |  |   | 192   |  
|Savings deposits                                    |  |                                                    | 66     |   |       |   | 9      |              |  |   | (55    | ) |  |   | 20    |  
|Time deposits $100,000 or greater                   |  |                                                    | (6     | ) |       |   | (68    | )            |  |   | 55     |   |  |   | (19   | )
|Other time deposits                                 |  |                                                    | 74     |   |       |   | 183    |              |  |   | (184   | ) |  |   | 73    |  
|FHLB borrowings                                     |  |                                                    | 102    |   |       |   | 9      |              |  |   | (73    | ) |  |   | 38    |  
|Federal funds purchased                             |  |                                                    |       |   |       |   |       |              |  |   | 2      |   |  |   | 2     |  
|Subordinated notes payable to subsidiary trusts     |  |                                                    | 359    |   |       |   | (4     | )            |  |   | (268   | ) |  |   | 87    |  
|                                                    |  |                                                    |        |   |       |   |        |              |  |   |        |   |  |   |       |  
|Total                                               |  | $                                                  | 959    |   |       | $ | 327    |              |  | $ | (892   | ) |  | $ | 394   |  
|                                                    |  |                                                    |        |   |       |   |        |              |  |   |        |   |  |   |       |  
|Total change in net interest income                 |  | $                                                  | 9,619  |   |       | $ | (1,160 | )            |  | $ | (6,564 | ) |  | $ | 1,895 |  
|                                                    |  |                                                    |        |   |       |   |        |              |  |   |        |   |  |   |       |  



17



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##### Table of Contents

|                                           
|-------------------------------------------
|Rate/Volume Analysis of Net Interest Income

|                                                    |  |                                                   |       |   |       |   |        |              |  |   |        |   |  |   |       |  
|--------------------------------------------------- |  | ------------------------------------------------- | ----- | - | ----- | - | ------ | ------------ |  | - | ------ | - |  | - | ----- | -
|                                                    |  | The Nine Months Ended September 30, 2004 vs. 2003 |      
|                                                    |  | Increases (Decreases) Due to Change In            |      
|                                                    |  | Volume                                            |       |   | Rate7 |   |        | Rate7/Volume |  |   | Total  |  
|                                                    |  | (Dollars in Thousands)                            |      
|Increase (Decrease) in Interest Income:             |  |                                                   |       |   |       |   |        |              |  |   |        |   |  |   |       |  
|Federal funds sold                                  |  | $                                                 | (40   | ) |       | $ | 2      |              |  | $ | 9      |   |  | $ | (29   | )
|Interest-bearing deposits in financial institutions |  |                                                   | (16   | ) |       |   | (17    | )            |  |   | 9      |   |  |   | (24   | )
|Investment securities8                              |  |                                                   | 28    |   |       |   | (30    | )            |  |   | 1      |   |  |   | (1    | )
|Loans9                                              |  |                                                   | 7,886 |   |       |   | (986   | )            |  |   | (2,117 | ) |  |   | 4,783 |  
|                                                    |  |                                                   |       |   |       |   |        |              |  |   |        |   |  |   |       |  
|Total                                               |  | $                                                 | 7,858 |   |       | $ | (1,031 | )            |  | $ | (2,098 | ) |  | $ | 4,729 |  
|                                                    |  |                                                   |       |   |       |   |        |              |  |   |        |   |  |   |       |  
|Increase (Decrease) in Interest Expense:            |  |                                                   |       |   |       |   |        |              |  |   |        |   |  |   |       |  
|Interest-bearing demand deposits                    |  | $                                                 | 7     |   |       | $ | (16    | )            |  | $ | 1      |   |  | $ | (8    | )
|Money market deposits                               |  |                                                   | 274   |   |       |   | 54     |              |  |   | (52    | ) |  |   | 276   |  
|Savings deposits                                    |  |                                                   | 48    |   |       |   | (1     | )            |  |   | (12    | ) |  |   | 35    |  
|Time deposits $100,000 or greater                   |  |                                                   | 27    |   |       |   | (171   | )            |  |   | 33     |   |  |   | (111  | )
|Other time deposits                                 |  |                                                   | 63    |   |       |   | 133    |              |  |   | (33    | ) |  |   | 163   |  
|FHLB borrowings                                     |  |                                                   | 105   |   |       |   |       |              |  |   | (27    | ) |  |   | 78    |  
|Federal funds purchased                             |  |                                                   | 2     |   |       |   | (2     | )            |  |   |       |   |  |   | -    |  
|Subordinated notes payable to subsidiary trusts     |  |                                                   | 349   |   |       |   | (28    | )            |  |   | (104   | ) |  |   | 217   |  
|                                                    |  |                                                   |       |   |       |   |        |              |  |   |        |   |  |   |       |  
|Total                                               |  | $                                                 | 875   |   |       | $ | (31    | )            |  | $ | (194   | ) |  | $ | 650   |  
|                                                    |  |                                                   |       |   |       |   |        |              |  |   |        |   |  |   |       |  
|Total change in net interest income                 |  | $                                                 | 6,983 |   |       | $ | (1,000 | )            |  | $ | (1,904 | ) |  | $ | 4,079 |  
|                                                    |  |                                                   |       |   |       |   |        |              |  |   |        |   |  |   |       |  

---

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

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

|9 | Loans are gross, which excludes the allowance for loan losses, and net of deferred fees.
Nonaccrual loans are included in the table for computation purposes, but the foregone interest of such loans is excluded. Loan fees during the first nine months of 2004 were $2,951,000 compared to $1,898,000 in the first nine months of 2003.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18



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##### Table of Contents

PROVISION FOR LOAN LOSSES



Due to inherent risks associated with the business of making loans, the Company regularly sets aside a provision for loan and lease losses
through charges to earnings that are added to the Allowance for Loan and Lease Losses (ALLL). These charges are reflected in the income statements as the provision for loan losses. Losses are charged-off against the ALLL when they are identified and
quantified. The amount allocated to the allowance is determined by Management and is based upon a number of factors in order to maintain adequate protection for unanticipated or future losses, and preserve the integrity of the Allowance for Loan and
Lease Losses (ALLL).



The provision for loan losses totaled $1,408,000 for the
nine months ended September 30, 2004. This represented an increase of $1,048,000 or 291.1% when compared to $360,000 for the same period in 2003. The increase in the provision was necessary in order to support the Companys very strong loan
growth.



NONINTEREST INCOME



Noninterest income for 1stCentennial includes customer service fees, gains and commissions from sale of loans, increase in the cash surrender value of life insurance policies, broker
fee income and other miscellaneous income.



Third quarter analysis.
Noninterest income totaled $620,000 for the three months ended September 30, 2004. This represented a decrease of $226,000 or 26.7% when compared to $846,000 for the same period in 2003. The decrease was attributed to $191,000 less income in gains
and commissions from sale of loans, which decreased its percent of total noninterest income from 23.76% to 1.61%, and a decrease in broker fee income of $43,000 which decreased its percent of total noninterest income from 10.99% to 8.06%. The
decrease in gains and commissions from sale of loans is attributed to less sales in the third quarter of 2004 compared to 2003. The decrease in broker fee income is attributed to less volume in brokered loan sales. The Bank was a more active partner
in this market in 2003 than in 2004. For the third quarter ended September 30, 2004 compared to the same period in 2003, noninterest income as an annualized percentage of average earning assets decreased to 0.78% from 1.57% which was attributable to
the increase in average earnings assets of $102.8 million.



Nine-month
analysis. Noninterest income totaled $2,078,000 for the nine months ended September 30, 2004. This represented a decrease of $182,000 or 8.1% as compared to $2,260,000 for the same period in 2003. The decrease was due to a decrease in broker fee
income of $133,000 as a result of fewer loan sales in 2004 than in 2003. For the nine months ended September 30, 2004 as compared to 2003, noninterest income as an annualized percentage of average earning assets decreased to 0.98% from 1.50%. This
change was due to the increase in average earning assets of $80.4 million from 2003 to 2004. The Company expects noninterest income to increase, however, not at the same pace as the Companys asset growth.



19



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##### Table of Contents

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



Noninterest Income



|                                                       |  |                                          |     |                 |        |   |        |   |                  |  |        |  
|------------------------------------------------------ |  | ---------------------------------------- | --- | --------------- | ------ | - | ------ | - | ---------------- |  | ------ | -
|                                                       |  | For the Three Months Ended September 30, |    
|                                                       |  | 2004                                     |     |                 | 2003   |  
|                                                       |  | Amount                                   |     | Percentof Total |        |   | Amount |   | Percent of Total | 
|                                                       |  | (Dollars in Thousands)                   |    
|Customer service fees                                  |  | $                                        | 339 |                 | 54.68  | % |        | $ | 297              |  | 35.11  | %
|Gains and commissions from sale of loans               |  |                                          | 10  |                 | 1.61   | % |        |   | 201              |  | 23.76  | %
|Increase in cash surrender value of life insurance     |  |                                          | 74  |                 | 11.94  | % |        |   | 81               |  | 9.57   | %
|Broker fee income                                      |  |                                          | 50  |                 | 8.06   | % |        |   | 93               |  | 10.99  | %
|Other miscellaneous income                             |  |                                          | 147 |                 | 23.71  | % |        |   | 174              |  | 20.57  | %
|                                                       |  |                                          |     |                 |        |   |        |   |                  |  |        |  
|Total noninterest income                               |  | $                                        | 620 |                 | 100.00 | % |        | $ | 846              |  | 100.00 | %
|                                                       |  |                                          |     |                 |        |   |        |   |                  |  |        |  
|As a percentage of average earning assets (annualized) |  |                                          |     |                 | 0.78   | % |        |   |                  |  | 1.57   | %
|                                                       |  |                                          |     |                 |        |   |        |   |                  |  |        |  



Noninterest Income



|                                                       |  |                                         |       |                 |        |   |        |   |                  |  |        |  
|------------------------------------------------------ |  | --------------------------------------- | ----- | --------------- | ------ | - | ------ | - | ---------------- |  | ------ | -
|                                                       |  | For the Nine Months Ended September 30, |      
|                                                       |  | 2004                                    |       |                 | 2003   |  
|                                                       |  | Amount                                  |       | Percentof Total |        |   | Amount |   | Percent of Total | 
|                                                       |  | (Dollars in Thousands)                  |      
|Customer service fees                                  |  | $                                       | 906   |                 | 43.61  | % |        | $ | 928              |  | 41.07  | %
|Gains and commissions from sale of loans               |  |                                         | 254   |                 | 12.22  | % |        |   | 267              |  | 11.81  | %
|Increase in cash surrender value of life insurance     |  |                                         | 234   |                 | 11.26  | % |        |   | 235              |  | 10.40  | %
|Broker fee income                                      |  |                                         | 153   |                 | 7.36   | % |        |   | 286              |  | 12.65  | %
|Other miscellaneous income                             |  |                                         | 531   |                 | 25.55  | % |        |   | 544              |  | 24.07  | %
|                                                       |  |                                         |       |                 |        |   |        |   |                  |  |        |  
|Total noninterest income                               |  | $                                       | 2,078 |                 | 100.00 | % |        | $ | 2,260            |  | 100.00 | %
|                                                       |  |                                         |       |                 |        |   |        |   |                  |  |        |  
|As a percentage of average earning assets (annualized) |  |                                         |       |                 | 0.98   | % |        |   |                  |  | 1.50   | %
|                                                       |  |                                         |       |                 |        |   |        |   |                  |  |        |  



20



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##### Table of Contents

NONINTEREST EXPENSE



Noninterest expense for the Company includes salaries and employee benefits, net occupancy and equipment, professional services, and other operating expenses.



Third quarter analysis. Noninterest expense totaled $4,215,000 for the three months
ended September 30, 2004. This represented an increase of $703,000 or 20.0% as compared to $3,512,000 for the same period in 2003. The increase in noninterest expense was primarily due to the increase of $516,000 in salaries, wages and employee
benefits, as a result of additional staffing for our Palm Desert and Irwindale branches and salary increases. For the third quarter ended September 30, 2004 as compared to 2003, noninterest expense as an annualized percentage of average earning
assets decreased to 5.31% from 6.54% as a result of the increase in average earnings assets of $102.8 million from 2003 to 2004 and efforts to control overhead expenses.



Nine-month analysis. Noninterest expense totaled $12,072,000 for the nine months ended September 30, 2004. This represented an
increase of $1,929,000 or 19.0% as compared to $10,143,000 for the same period in 2003. The increase in noninterest expense was due primarily to increases of $1,494,000, $163,000 and $226,000 in salaries, wages and employee benefits, and marketing
expense and professional expense, respectively. Additional staffing and salary increases contributed to the increase in salaries, wages and employee benefits of $1,494,000 while the increase in marketing expense of $163,000 was attributable to
expenses related to ongoing business development efforts. The increase in professional expense of $226,000 was attributable to costs incurred to comply with the Sarbanes Oxley act of 2002 and expenses related to Audits, Exams, CPA fees and other
professional expenses. For the nine months ended September 30, 2004 as compared to 2003, noninterest expense as an annualized percentage of average earning assets decreased to 5.72% from 6.73%, which can be attributed to the increase in average
earnings assets of $80.4 million from 2003 to 2004 and efforts to control overhead expenses.



21



---

##### Table of Contents

The following tables set forth components of 1stCentennials noninterest expense for the periods indicated and expresses the amounts as a percentage of total noninterest expense:



Noninterest Expense



|                                                       |  |                                          |       |                 |        |   |        |   |                 |  |        |  
|------------------------------------------------------ |  | ---------------------------------------- | ----- | --------------- | ------ | - | ------ | - | --------------- |  | ------ | -
|                                                       |  | For the Three Months Ended September 30, |      
|                                                       |  | 2004                                     |       |                 | 2003   |  
|                                                       |  | Amount                                   |       | Percentof Total |        |   | Amount |   | Percentof Total | 
|                                                       |  | (Dollars in Thousands)                   |      
|Salaries, wages and employee benefits                  |  | $                                        | 2,652 |                 | 62.92  | % |        | $ | 2,136           |  | 60.83  | %
|Net occupancy expense                                  |  |                                          | 366   |                 | 8.68   | % |        |   | 388             |  | 11.05  | %
|Marketing                                              |  |                                          | 174   |                 | 4.13   | % |        |   | 168             |  | 4.78   | %
|Data processing fees                                   |  |                                          | 209   |                 | 4.96   | % |        |   | 191             |  | 5.44   | %
|Professional fees                                      |  |                                          | 215   |                 | 5.10   | % |        |   | 155             |  | 4.41   | %
|Postage, telephone, supplies                           |  |                                          | 122   |                 | 2.89   | % |        |   | 149             |  | 4.24   | %
|Directors fees                                        |  |                                          | 47    |                 | 1.12   | % |        |   | 44              |  | 1.25   | %
|Other operating expense                                |  |                                          | 430   |                 | 10.20  | % |        |   | 281             |  | 8.00   | %
|                                                       |  |                                          |       |                 |        |   |        |   |                 |  |        |  
|Total noninterest expense                              |  | $                                        | 4,215 |                 | 100.00 | % |        | $ | 3,512           |  | 100.00 | %
|                                                       |  |                                          |       |                 |        |   |        |   |                 |  |        |  
|As a percentage of average earning assets (annualized) |  |                                          |       |                 | 5.31   | % |        |   |                 |  | 6.54   | %
|                                                       |  |                                          |       |                 |        |   |        |   |                 |  |        |  



Noninterest Expense



|                                                       |  |                                         |        |                 |        |   |        |   |                 |  |        |  
|------------------------------------------------------ |  | --------------------------------------- | ------ | --------------- | ------ | - | ------ | - | --------------- |  | ------ | -
|                                                       |  | For the Nine Months Ended September 30, |       
|                                                       |  | 2004                                    |        |                 | 2003   |  
|                                                       |  | Amount                                  |        | Percentof Total |        |   | Amount |   | Percentof Total | 
|                                                       |  | (Dollars in Thousands)                  |       
|Salaries, wages and employee benefits                  |  | $                                       | 7,424  |                 | 61.51  | % |        | $ | 5,930           |  | 58.46  | %
|Net occupancy expense                                  |  |                                         | 1,081  |                 | 8.95   | % |        |   | 1,164           |  | 11.48  | %
|Marketing                                              |  |                                         | 551    |                 | 4.56   | % |        |   | 388             |  | 3.83   | %
|Data processing fees                                   |  |                                         | 629    |                 | 5.21   | % |        |   | 581             |  | 5.73   | %
|Professional fees                                      |  |                                         | 663    |                 | 5.49   | % |        |   | 437             |  | 4.31   | %
|Postage, telephone, supplies                           |  |                                         | 415    |                 | 3.44   | % |        |   | 473             |  | 4.66   | %
|Directors fees                                        |  |                                         | 140    |                 | 1.16   | % |        |   | 131             |  | 1.29   | %
|Other operating expense                                |  |                                         | 1,169  |                 | 9.68   | % |        |   | 1,039           |  | 10.24  | %
|                                                       |  |                                         |        |                 |        |   |        |   |                 |  |        |  
|Total noninterest expense                              |  | $                                       | 12,072 |                 | 100.00 | % |        | $ | 10,143          |  | 100.00 | %
|                                                       |  |                                         |        |                 |        |   |        |   |                 |  |        |  
|As a percentage of average earning assets (annualized) |  |                                         |        |                 | 5.72   | % |        |   |                 |  | 6.73   | %
|                                                       |  |                                         |        |                 |        |   |        |   |                 |  |        |  



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##### Table of Contents

FINANCIAL CONDITION



GENERAL



The Companys total assets were $356.5 million at September 30, 2004, an increase of $102.1 million or 40%, compared to total assets of $254.4 million at December 31, 2003. Total deposits at September 30, 2004
were $290.1 million, which represents an increase of $77.3 million, or 36% from total deposits of $212.8 million at December 31, 2003. Total loans, net of the allowance for loan losses and unearned income increased $114.8 million or 61% to $303.0
million at September 30, 2004 compared to $188.2 million at December 31, 2003. Strong loan demand in the Companys market areas contributed to the increase in total assets and total loans.



Noninterest-bearing accounts were $18.9 million or 28% higher at September 30, 2004 as
compared to December 31, 2003. Interest-bearing and money market accounts were $41.3 million or 69% higher at September 30, 2004 as compared to December 31, 2003. These deposit increases combined with the issuance of Centennial Capital Trust II of
$7.0 million, (See NOTE 6 of the notes to condensed Consolidated Financial Statements), and the addition of $12.4 million in FHLB borrowings were used to support our loan growth from December 31, 2003 to September 30, 2004.



LOANS



Total gross loans were $308.0 million at September 30, 2004 as compared to $191.3 million at December 31, 2003. Total gross loans
represented 86% of total assets at September 30, 2004 as compared to 75% of total assets at December 31, 2003. Total gross loans increased by $116.7 million or 61% for the first nine months of 2004. Construction and development loans increased $63.3
million or 90% during the first nine months of 2004 due to continuing strong demand for affordable housing in our market areas. Commercial loans increased $41.1 million, or 98% during the first nine months of 2004 due to our strong business climate
and loan demand. From December 31, 2003 to September 30, 2004, real estate loans as a percentage of total gross loans decreased to 71% from 74% while commercial loans increased to 27% from 22%.



23



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##### Table of Contents

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



Loan Portfolio Composition



|                                    |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|----------------------------------- |  | ---------------------- | ------- | - | ----------------- | ------ | - | ------ | - | ------- | --------------- |  | ------ | -
|                                    |  | September 30, 2004     |         |   | December 31, 2003 |       
|                                    |  | Amount                 |         |   | Percentof Total   |        |   | Amount |   |         | Percentof Total | 
|                                    |  | (Dollars in Thousands) |        
|Real estate loans:                  |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Construction and development        |  | $                      | 133,969 |   |                   | 43.50  | % |        | $ | 70,654  |                 |  | 36.94  | %
|Residential loans                   |  |                        | 3,809   |   |                   | 1.24   | % |        |   | 6,169   |                 |  | 3.23   | %
|Commercial and multi-family         |  |                        | 80,344  |   |                   | 26.09  | % |        |   | 64,260  |                 |  | 33.60  | %
|Commercial loans                    |  |                        | 83,147  |   |                   | 27.00  | % |        |   | 42,009  |                 |  | 21.94  | %
|Consumer loans                      |  |                        | 2,066   |   |                   | 0.67   | % |        |   | 2,035   |                 |  | 1.06   | %
|Equity lines of credit              |  |                        | 3,425   |   |                   | 1.11   | % |        |   | 4,088   |                 |  | 2.14   | %
|Credit card and other loans         |  |                        | 1,213   |   |                   | 0.39   | % |        |   | 2,063   |                 |  | 1.09   | %
|                                    |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Total gross loans                   |  |                        | 307,973 |   |                   | 100.00 | % |        |   | 191,278 |                 |  | 100.00 | %
|                                    |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Less:                               |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Unearned income                     |  |                        | (1,536  | ) |                   |        |   |        |   | (948    | )               |  |        |  
|Allowance for loan and lease losses |  |                        | (3,448  | ) |                   |        |   |        |   | (2,108  | )               |  |        |  
|                                    |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Total net loans                     |  | $                      | 302,989 |   |                   |        |   |        | $ | 188,222 |                 |  |        |  
|                                    |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  



NON-PERFORMING ASSETS



1stCentennial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 (cash basis), and previously accrued but uncollected interest is reversed against income. Thereafter, income is recognized only as
it is collected. Ultimate collectability is determined by considering the borrowers financial condition, cash flow, quality of management, the existence of collateral or guarantees and the state of the local economy.



Nonperforming assets include loans for which interest is no longer accruing, loans 90 or more
days past due, restructured loans, and other real estate owned. Nonperforming assets at September 30, 2004 decreased $428,000 to $193,000, from $621,000 at December 31, 2003, representing 0.06% and 0.33% of gross loans, respectively. This decrease
was primarily attributed to the charge-off of three commercial loans, and the pay-off of one construction loan, and the pay-off of one commercial and multi-family loan.



Nonperforming assets at September 30, 2004 were $193,000, which represents a decrease of $571,000, from $764,000 at September 30, 2003.
Nonperforming assets represented 0.06% and 0.46% of gross loans at September 30, 2004 and 2003, respectively. This decrease was primarily attributable to the pay-off of $510,000 in nonaccrual construction and development loans coupled with
charge-offs of $83,000 in the commercial loan category.



24



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##### Table of Contents

The following table provides information with respect to all nonperforming assets as of September 30, 2004 and 2003, and
December 31, 2003:



Nonperforming Assets



|                                                                                      |  |                        |          |   |                   |   |        |                    |  |   |        |  
|------------------------------------------------------------------------------------- |  | ---------------------- | -------- | - | ----------------- | - | ------ | ------------------ |  | - | ------ | -
|                                                                                      |  | September 30, 2004     |          |   | December 31, 2003 |   |        | September 30, 2003 | 
|                                                                                      |  | (Dollars in Thousands) |         
|Nonaccrual loans:10                                                                   |  |                        |          |   |                   |   |        |                    |  |   |        |  
|Real estate loans:                                                                    |  |                        |          |   |                   |   |        |                    |  |   |        |  
|Construction and development                                                          |  | $                      |         |   |                   | $ | 69     |                    |  | $ | 510    |  
|Residential loans                                                                     |  |                        |         |   |                   |   |       |                    |  |   |       |  
|Commercial and multi-family                                                           |  |                        | 55       |   |                   |   | 353    |                    |  |   | 57     |  
|Commercial loans                                                                      |  |                        | 97       |   |                   |   | 175    |                    |  |   | 180    |  
|Consumer loans                                                                        |  |                        |         |   |                   |   | 8      |                    |  |   | 17     |  
|Equity lines of credit                                                                |  |                        |         |   |                   |   |       |                    |  |   |       |  
|Credit card and other loans                                                           |  |                        | 36       |   |                   |   | 16     |                    |  |   |       |  
|                                                                                      |  |                        |          |   |                   |   |        |                    |  |   |        |  
|Total nonaccrual loans                                                                |  | $                      | 188      |   |                   | $ | 621    |                    |  | $ | 764    |  
|                                                                                      |  |                        |          |   |                   |   |        |                    |  |   |        |  
|Loans 90 days or more past due (as to principal or interest) and still accruing:      |  |                        |          |   |                   |   |        |                    |  |   |        |  
|Real estate loans:                                                                    |  |                        |          |   |                   |   |        |                    |  |   |        |  
|Construction and development                                                          |  |                        |         |   |                   |   |       |                    |  |   |       |  
|Residential loans                                                                     |  |                        |         |   |                   |   |       |                    |  |   |       |  
|Commercial and multi-family                                                           |  |                        |         |   |                   |   |       |                    |  |   |       |  
|Commercial loans                                                                      |  |                        |         |   |                   |   |       |                    |  |   |       |  
|Consumer loans                                                                        |  |                        |         |   |                   |   |       |                    |  |   |       |  
|Equity lines of credit                                                                |  |                        |         |   |                   |   |       |                    |  |   |       |  
|Credit card and other loans                                                           |  |                        | 5        |   |                   |   |       |                    |  |   |       |  
|                                                                                      |  |                        |          |   |                   |   |        |                    |  |   |        |  
|Total loans 90 days or more past due and still accruing                               |  | $                      | 5        |   |                   | $ |       |                    |  | $ |       |  
|                                                                                      |  |                        |          |   |                   |   |        |                    |  |   |        |  
|Restructured loans11                                                                  |  | $                      |         |   |                   | $ |       |                    |  | $ |       |  
|                                                                                      |  |                        |          |   |                   |   |        |                    |  |   |        |  
|Total nonperforming loans                                                             |  | $                      | 193      |   |                   | $ | 621    |                    |  | $ | 764    |  
|Other real estate owned                                                               |  |                        |         |   |                   |   |       |                    |  |   |       |  
|                                                                                      |  |                        |          |   |                   |   |        |                    |  |   |        |  
|Total nonperforming assets                                                            |  | $                      | 193      |   |                   | $ | 621    |                    |  | $ | 764    |  
|                                                                                      |  |                        |          |   |                   |   |        |                    |  |   |        |  
|Nonperforming loans as a percentage of total gross loans12                            |  |                        | 0.06     | % |                   |   | 0.33   | %                  |  |   | 0.46   | %
|Nonperforming assets as a percentage of total gross loans and other real estate owned |  |                        | 0.06     | % |                   |   | 0.33   | %                  |  |   | 0.46   | %
|Allowance for loan losses to nonperforming loans                                      |  |                        | 1,786.53 | % |                   |   | 339.45 | %                  |  |   | 276.57 | %
|Allowance for loan losses                                                             |  | $                      | 3,448    |   |                   | $ | 2,108  |                    |  | $ | 2,113  |  
|                                                                                      |  |                        |          |   |                   |   |        |                    |  |   |        |  

---

|10 | During the nine months ended September 30, 2004, no income related to these loans was included in net income. Additional interest income of approximately $6,000,
would have been recorded for the nine months ended September 30, 2004 if these loans had been paid in accordance with their original terms and had been outstanding throughout the applicable period then ended or, if not outstanding throughout the
applicable period then ended, since origination.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|12 | Total loans are gross loans less unearned income.
|-- | -------------------------------------------------



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##### Table of Contents

ALLOWANCE FOR LOAN LOSSES



The allowance for loan losses totaled $3.4 million at September 30, 2004 versus $2.1 million at December 31, 2003. 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 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 and Lease Losses 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 Allowance for Loan and Lease Losses (ALLL) is determined by a
number of factors that are included in the Companys ALLL methodology.



Two primary forms of analysis are used as tools to determine the adequacy of the ALLL. 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. Classified loans are assigned traditional weight factors, based on the severity of the
classification. 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 ALLL 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 ALLL based on historical loss history by loan category.
This methodology is structured such that the amount allocated to the reserve defaults to the higher of 1) that, which is based on historical losses, or 2) 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 ALLL methodology include the following: depth and experience of Management and staff, quality of the Board of Directors, 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 to maintain the integrity of the risk rating process. The
risk ratings are stratified by loan type and according to risk rating.



26



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##### Table of Contents

As of September 30, 2004, the aggregate loan portfolio risk ratings were stratified as follows:



|                  |  |       |  
|----------------- |  | ----- | -
|Pass/Homogeneous: |  | 94.49 | %
|                  | 
|Special Mention:  |  | 4.91  | %
|                  | 
|Substandard:      |  | 0.58  | %
|                  | 
|Doubtful:         |  | 0.02  | %



The allowance for loan losses as a
percentage of total loans outstanding as of September 30, 2004 was 1.13%, as compared to 1.28% at September 30, 2003 and 1.11% at December 31, 2003. Net charge-offs during the first nine months of 2004 approximated $68,000, or 0.03% of average total
loans as compared to $19,000, or 0.01% of average total loans during the same period in 2003.



27



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##### Table of Contents

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



Allowance for Loan Losses



|                                                                                |  |                        |          |    |                  |   |         |                   |  |   |         |   
|------------------------------------------------------------------------------- |  | ---------------------- | -------- | -- | ---------------- | - | ------- | ----------------- |  | - | ------- | --
|                                                                                |  | September 30,2004      |          |    | December 31,2003 |   |         | September 30,2003 | 
|                                                                                |  | (Dollars in Thousands) |         
|Balances:                                                                       |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Average total loans outstanding during period                                   |  | $                      | 241,103  |    |                  | $ | 161,207 |                   |  | $ | 157,372 |   
|                                                                                |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Total loans outstanding at end of period, net of unearned income                |  | $                      | 306,437  |    |                  | $ | 190,330 |                   |  | $ | 165,300 |   
|                                                                                |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Allowance for Loan Losses:                                                      |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Balance at beginning of period                                                  |  | $                      | 2,108    |    |                  | $ | 1,772   |                   |  | $ | 1,772   |   
|                                                                                |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Charge-offs:                                                                    |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Real estate loans:                                                              |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Construction and development                                                    |  |                        |         |    |                  |   |        |                   |  |   |        |   
|Residential loans                                                               |  |                        |         |    |                  |   |        |                   |  |   |        |   
|Commercial and multi-family                                                     |  |                        |         |    |                  |   |        |                   |  |   |        |   
|Commercial loans                                                                |  |                        | 121      |    |                  |   | 217     |                   |  |   | 206     |   
|Consumer loans                                                                  |  |                        | 14       |    |                  |   | 2       |                   |  |   | 2       |   
|Equity lines of credit                                                          |  |                        |         |    |                  |   |        |                   |  |   |        |   
|Credit card and other loans                                                     |  |                        | 16       |    |                  |   | 2       |                   |  |   | 2       |   
|                                                                                |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Total charge-offs                                                               |  |                        | 151      |    |                  |   | 221     |                   |  |   | 210     |   
|                                                                                |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Recoveries:                                                                     |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Real estate loans:                                                              |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Construction and development                                                    |  |                        |         |    |                  |   |        |                   |  |   |        |   
|Residential loans                                                               |  |                        | 2        |    |                  |   | 23      |                   |  |   | 22      |   
|Commercial and multi-family                                                     |  |                        |         |    |                  |   |        |                   |  |   |        |   
|Commercial loans                                                                |  |                        | 77       |    |                  |   | 140     |                   |  |   | 135     |   
|Consumer loans                                                                  |  |                        | 3        |    |                  |   | 34      |                   |  |   | 34      |   
|Equity lines of credit                                                          |  |                        |         |    |                  |   |        |                   |  |   |        |   
|Credit card and other loans                                                     |  |                        | 1        |    |                  |   |        |                   |  |   |        |   
|                                                                                |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Total recoveries                                                                |  |                        | 83       |    |                  |   | 197     |                   |  |   | 191     |   
|                                                                                |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Net charge-offs                                                                 |  |                        | (68      | )  |                  |   | (24     | )                 |  |   | (19     | ) 
|                                                                                |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Provision charged to operations                                                 |  |                        | 1,408    |    |                  |   | 360     |                   |  |   | 360     |   
|                                                                                |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Allowance for loan losses balance, end of period                                |  | $                      | 3,448    |    |                  | $ | 2,108   |                   |  | $ | 2,113   |   
|                                                                                |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Ratios:13                                                                       |  |                        |          |    |                  |   |         |                   |  |   |         |   
|Net loan charge-offs to average total loans                                     |  |                        | 0.03     | %  |                  |   | 0.01    | %                 |  |   | 0.01    | % 
|Allowance for loan losses to average total loans                                |  |                        | 1.43     | %  |                  |   | 1.31    | %                 |  |   | 1.34    | % 
|Allowance for loan losses to total loans at end of period                       |  |                        | 1.13     | %  |                  |   | 1.11    | %                 |  |   | 1.28    | % 
|Allowance for loan losses to total nonperforming loans                          |  |                        | 1,786.53 | %  |                  |   | 339.45  | %                 |  |   | 276.57  | % 
|Net loan (charge-offs) recoveries to allowance for loan losses at end of period |  |                        | (1.97    | )% |                  |   | (1.14   | )%                |  |   | (0.90   | )%
|Net loan (charge-offs) recoveries to provision for loan losses                  |  |                        | (4.83    | )% |                  |   | (6.67   | )%                |  |   | (5.28   | )%

---

|13 | Total loans are gross loans less unearned income.
|-- | -------------------------------------------------



28



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##### Table of Contents

The following table summarizes the allocation of the allowance for loan losses for the periods indicated:



Allocation of Allowance for Loan Losses



|                                       |  |                        |         |                                   |                   |   |        |   |                                   |  |        |  
|-------------------------------------- |  | ---------------------- | ------- | --------------------------------- | ----------------- | - | ------ | - | --------------------------------- |  | ------ | -
|                                       |  | September 30, 2004     |         |                                   | December 31, 2003 |  
|Balance at End of Period Applicable to |  | Amount                 |         | % ofLoans inCategoryto TotalLoans |                   |   | Amount |   | % ofLoans inCategoryto TotalLoans | 
|                                       |  | (Dollars in Thousands) |        
|Real estate loans:                     |  |                        |         |                                   |                   |   |        |   |                                   |  |        |  
|Construction and development           |  | $                      | 1,745   |                                   | 43.50             | % |        | $ | 534                               |  | 36.94  | %
|Residential loans                      |  |                        | 45      |                                   | 1.24              | % |        |   | 114                               |  | 3.23   | %
|Commercial and multi-family            |  |                        | 448     |                                   | 26.09             | % |        |   | 392                               |  | 33.60  | %
|Commercial loans                       |  |                        | 1,131   |                                   | 27.00             | % |        |   | 975                               |  | 21.94  | %
|Consumer loans                         |  |                        | 27      |                                   | 0.67              | % |        |   | 23                                |  | 1.06   | %
|Equity lines of credit                 |  |                        | 36      |                                   | 1.11              | % |        |   | 46                                |  | 2.14   | %
|Credit card and other loans            |  |                        | 16      |                                   | 0.39              | % |        |   | 24                                |  | 1.09   | %
|                                       |  |                        |         |                                   |                   |   |        |   |                                   |  |        |  
|Total allowance for loan losses        |  | $                      | 3,448   |                                   | 100.00            | % |        | $ | 2,108                             |  | 100.00 | %
|                                       |  |                        |         |                                   |                   |   |        |   |                                   |  |        |  
|Total loans net of unearned income     |  | $                      | 306,437 |                                   |                   |   |        | $ | 190,330                           |  |        |  



29



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##### Table of Contents

INVESTMENTS



1stCentennial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,
2004 and December 31, 2003, 100% of the investment securities owned by the Company were classified as Available for Sale.



At September 30, 2004, the Companys investment portfolio at fair value consisted of $19.3 million in federal agency mortgage-backed securities, $4.3 million in
obligations of states and local government securities, $451,000 in U.S. treasury and government securities, and $487,000 of marketable equity securities, for a total of $24.5 million. At December 31, 2003 the totals were $30.5 million, $4.3 million,
$718,000 and $487,000 respectively for total investments of $36.0 million. The $11.5 million or 32% decrease in the Companys investment portfolio was primarily due to principal paydowns on federal agency mortgage-backed securities. These funds
were used to support the Companys loan growth.



The Company also has
investments in interest-bearing time certificates of deposit at other financial institutions totaling $4.3 million at September 30, 2004 versus $4.8 million at December 31, 2003.



The following table is a comparison of amortized cost and fair value of investment securities at September 30, 2004 and December 31, 2003:



Investment Portfolio



|                                                      |  |                        |        |                   |   |                   |  |   |           |   |               |   |                  |  |                   |        |  |            |     |  |   |     |   |  |   |       
|----------------------------------------------------- |  | ---------------------- | ------ | ----------------- | - | ----------------- |  | - | --------- | - | ------------- | - | ---------------- |  | ----------------- | ------ |  | ---------- | --- |  | - | --- | - |  | - | ------
|                                                      |  | September 30, 2004     |        | December 31, 2003
|                                                      |  | AmortizedCost          |        | Unrealized Gains  |   | Unrealized Losses |  |   | FairValue |   | AmortizedCost |   | Unrealized Gains |  | Unrealized Losses |        |  | Fair Value
|                                                      |  | (Dollars in Thousands)
|Available for Sale:                                   |  |                        |        |                   |   |                   |  |   |           |   |               |   |                  |  |                   |        |  |            |     |  |   |     |   |  |   |       
|U.S. treasury and government agency securities        |  | $                      | 450    |                   | $ | 1                 |  | $ |          |   |               | $ | 451              |  | $                 | 705    |  | $          | 13  |  | $ |    |   |  | $ | 718   
|Federal agency mortgage-backed securities             |  |                        | 19,222 |                   |   | 133               |  |   | (82       | ) |               |   | 19,273           |  |                   | 30,302 |  |            | 285 |  |   | (63 | ) |  |   | 30,524
|Obligations of states and local government securities |  |                        | 4,073  |                   |   | 212               |  |   |          |   |               |   | 4,285            |  |                   | 4,084  |  |            | 213 |  |   |    |   |  |   | 4,297 
|Marketable equity securities                          |  |                        | 487    |                   |   |                  |  |   |          |   |               |   | 487              |  |                   | 487    |  |            |    |  |   |    |   |  |   | 487   
|                                                      |  |                        |        |                   |   |                   |  |   |           |   |               |   |                  |  |                   |        |  |            |     |  |   |     |   |  |   |       
|Total                                                 |  | $                      | 24,232 |                   | $ | 346               |  | $ | (82       | ) |               | $ | 24,496           |  | $                 | 35,578 |  | $          | 511 |  | $ | (63 | ) |  | $ | 36,026
|                                                      |  |                        |        |                   |   |                   |  |   |           |   |               |   |                  |  |                   |        |  |            |     |  |   |     |   |  |   |       



30



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##### Table of Contents

DEPOSITS



Total deposits increased $77.3 million, or 36%, to $290.1 million at September 30, 2004 from $212.8 million at December 31, 2003. Noninterest-bearing accounts increased
$18.9 million or 28% at September 30, 2004 as compared to December 31, 2003. Interest-bearing and money market accounts increased $41.3 million or 69% at September 30, 2004 as compared to December 31, 2003 and increased its percent of total deposits
from 28.26% to 34.95%. Savings deposit accounts increased $8.1 million or 39% at September 30, 2004 as compared to December 31, 2003 while other time deposits increased $8.1 million or 31% at September 30, 2004 as compared to December 31, 2003. The
increase in interest-bearing and money market accounts was primarily the result of a promotional money market account offered to businesses and consumers during the second quarter of 2004.



The Companys cost of funds is calculated as total interest expense on interest-bearing
deposits and other interest-bearing liabilities as a percentage of average interest-bearing deposits and other interest-bearing liabilities. From September 30, 2003 to September 30, 2004, total average deposits increased $60.6 million or 31%.
Average money market deposits as a percentage of average total deposits increased to 24% on September 30, 2004, from 18% on September 30, 2003 while during this one-year period, time deposits $100,000 or more declined from 19% on September 30, 2003
to 15% on September 30, 2004. Although there was a decline in time deposits $100,000 or more as a percentage to total average deposits, time deposits $100,000 or more increased $1.1 million or 3% from a year ago.



The rate paid on the Banks interest-bearing deposits dropped from 1.33% on September
30, 2003 to 1.28%, or 5 basis points on September 30, 2004, primarily attributable to time deposits of $100,000 or more maturing and renewing at a lower rate. For all interest bearing liabilities the average rate for the nine months ended September
30, 2004 was 1.49% as compared to 1.49% for the same period in 2003, and 1.43% for the year ended December 31, 2003.



31



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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, 2004 |         |               | Year EndedDecember 31, 2003 |  
|                                                                                                  |  | AverageBalance                      |         | AverageRate14 |                             |   | AverageBalance |   | AverageRate | 
|                                                                                                  |  | (Dollars in Thousands)              |        
|Demand deposits, noninterest bearing                                                              |  | $                                   | 77,286  |               | 0.00                        | % |                | $ | 60,543      |  | 0.00 | %
|                                                                                                  |  |                                     |         |               |                             |   |                |   |             |  |      |  
|Interest-bearing deposits:                                                                        |  |                                     |         |               |                             |   |                |   |             |  |      |  
|Interest-bearing demand deposits                                                                  |  |                                     | 19,975  |               | 0.19                        | % |                |   | 17,851      |  | 0.24 | %
|Money market deposits                                                                             |  |                                     | 61,617  |               | 1.19                        | % |                |   | 36,666      |  | 0.97 | %
|Savings deposits                                                                                  |  |                                     | 25,167  |               | 0.64                        | % |                |   | 18,266      |  | 0.63 | %
|Time deposits $100,000 or greater                                                                 |  |                                     | 38,777  |               | 1.91                        | % |                |   | 37,834      |  | 2.25 | %
|Other time deposits                                                                               |  |                                     | 32,566  |               | 1.87                        | % |                |   | 27,804      |  | 1.43 | %
|                                                                                                  |  |                                     |         |               |                             |   |                |   |             |  |      |  
|Total interest-bearing deposits                                                                   |  |                                     | 178,102 |               | 1.28                        | % |                |   | 138,421     |  | 1.27 | %
|                                                                                                  |  |                                     |         |               |                             |   |                |   |             |  |      |  
|FHLB borrowings                                                                                   |  |                                     | 11,532  |               | 1.24                        | % |                |   | 2,679       |  | 1.23 | %
|Federal funds purchased                                                                           |  |                                     | 540     |               | 1.48                        | % |                |   | 404         |  | 1.73 | %
|Subordinated notes payable to subsidiary trusts                                                   |  |                                     | 12,785  |               | 4.68                        | % |                |   |            |  |      |  
|Redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures |  |                                     |        |               |                             |   |                |   | 6,000       |  | 5.12 | %
|                                                                                                  |  |                                     |         |               |                             |   |                |   |             |  |      |  
|Total deposits and other borrowings                                                               |  | $                                   | 280,245 |               | 1.08                        | % |                | $ | 208,047     |  | 1.01 | %
|                                                                                                  |  |                                     |         |               |                             |   |                |   |             |  |      |  
|Average rate excluding noninterest bearing demand deposits                                        |  |                                     |         |               | 1.49                        | % |                |   |             |  | 1.43 | %



The following table sets forth the
scheduled maturities of time certificates of deposit accounts outstanding in amounts of $100,000 or more at September 30, 2004 and December 31, 2003:



Maturities of Time Deposits of

$100,000 or More

(Dollars in Thousands)



|                                      |  |                                     |        |                              |   |       
|------------------------------------- |  | ----------------------------------- | ------ | ---------------------------- | - | ------
|                                      |  | Nine Months EndedSeptember 30, 2004 |        | Year Ended December 31, 2003
|Three months or less                  |  | $                                   | 12,396 |                              | $ | 12,421
|Over three months through six months  |  |                                     | 8,332  |                              |   | 13,293
|Over six months through twelve months |  |                                     | 12,623 |                              |   | 9,599 
|Over twelve months                    |  |                                     | 6,727  |                              |   | 3,877 
|                                      |  |                                     |        |                              |   |       
|Total                                 |  | $                                   | 40,078 |                              | $ | 39,190
|                                      |  |                                     |        |                              |   |       

---

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



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##### Table of Contents

LIQUIDITY



The Companys liquidity is primarily a reflection of 1stCentennial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. 1stCentennial 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, 1stCentennial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 asset balances include cash, amounts due from other banks, federal funds sold, and unpledged securities available-for-sale.



In light of the Companys growth, the Board of Directors changed the liquidity policy to maintain a ratio of 10 - 20% from 20%. In
addition, the Company increased its off balance sheet liquidity sources. In order to augment liquidity, 1stCentennial Bank has Federal Funds borrowing arrangements with three correspondent banks totaling $15.0 million, and a secured line of credit with the FHLB totaling approximately $22.6 million.



The Companys liquidity ratio, which is a measure of liquid assets to deposits, plus
short-term liabilities, plus FHLB borrowings pledged, due within one year, less pledged securities for treasury tax and loan, declined at the end of the third quarter of 2004 as compared to December 31, 2003. The ratio of total liquid assets to
ending assets as of December 31, 2003 was 15.59% as compared to 4.57% as of September 30, 2004. The ratio of total liquid assets to ending deposits, plus short-term liabilities, plus borrowings due within one year, less pledged securities for
treasury tax and loan as of December 31, 2003 was 17.86% as compared to 5.18% as of September 30, 2004.



In order to help support the Companys $114.8 million increase in net loans, the Company pledged approximately $16.3 million in securities and $4.0 million in loans as of September 30, 2004 to the FHLB as
collateral against our secured line of credit. As a result, unpledged securities at fair market value decreased to $4.3 million as of September 30, 2004 from $24.9 million at December 31, 2003. In July 2004, with Federal Reserve Bank (FRB) approval,
we began to internally reclassify various deposits in order to decrease our reserve requirement at the FRB. This action, coupled with increasing our pledged securities with the FHLB, reduced liquidity by decreasing Cash and due from
banks and Unpledged securities available for sale.



While we
are out of compliance with our internal liquidity policies, we see a benefit in the ability to increase earnings through loan growth. As the Company continues to grow, it is apparent that traditional funding sources, such as core deposits, may be
more difficult to attract, or may not grow at the same pace as loans.



The
Company has a plan in place to increase deposits by:



| | 1) | Advertising its deposit rates;
| | -- | ------------------------------



| | 2) | Revising the incentive program for business development officers to reward deposit growth;
| | -- | ------------------------------------------------------------------------------------------



33



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##### Table of Contents

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



| | 4) | Special deposit promotions;
| | -- | ---------------------------



| | 5) | Buying brokered deposits and public funds to a limit of 5% of total deposits;
| | -- | -----------------------------------------------------------------------------



| | 6) | Use of the FHLB for borrowings;
| | -- | -------------------------------



| | 7) | Short-term borrowings from our correspondent banks; and
| | -- | -------------------------------------------------------



| | 8) | Sale of loan participations to other banks.
| | -- | -------------------------------------------



Management is of the opinion that the standby funding sources it has arranged for are adequate to meet 1stCentennials current and anticipated short-term liquidity needs.



The following table sets forth certain information with respect to 1stCentennials liquidity as of September 30, 2004 and December 31, 2003.



Liquidity



|                                             |  |                        |        |   |                   |   |        |  
|-------------------------------------------- |  | ---------------------- | ------ | - | ----------------- | - | ------ | -
|                                             |  | September 30, 2004     |        |   | December 31, 2003 |  
|                                             |  | (Dollars in Thousands) |       
|Cash and due from banks                      |  | $                      | 7,577  |   |                   | $ | 9,948  |  
|Federal funds sold                           |  |                        | 130    |   |                   |   |       |  
|Interest earning deposits                    |  |                        | 4,342  |   |                   |   | 4,806  |  
|Unpledged securities, at fair market value15 |  |                        | 4,246  |   |                   |   | 24,898 |  
|                                             |  |                        |        |   |                   |   |        |  
|Total liquid assets                          |  | $                      | 16,295 |   |                   | $ | 39,652 |  
|                                             |  |                        |        |   |                   |   |        |  
|Liquidity ratios:                            |  |                        |        |   |                   |   |        |  
|Ending assets                                |  |                        | 4.57   | % |                   |   | 15.59  | %
|Ending deposits                              |  |                        | 5.18   | % |                   |   | 17.86  | %

---

|15 | The decrease in unpledged securities of $20.7 million was the result of increased borrowing and principal paydowns at the Federal Home Loan Bank on the secured
borrowing line of credit.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

ASSET/LIABILITY MANAGEMENT



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



The fundamental objective of 1stCentennials management of its assets and liabilities is to maximize the economic value of 1stCentennial while
maintaining adequate liquidity and an exposure to interest rate risk deemed by management to be acceptable. Management believes an acceptable degree of exposure to interest rate risk results from the management of assets and liabilities through
maturities, pricing and mix to attempt to neutralize the potential impact of changes in market interest rates. 1stCentennials profitability is dependent to a large extent upon its net interest income, which is the difference between its interest income on interest-earning assets such as loans and securities, and its interest expense on interest-bearing
liabilities, such as deposits and borrowings. 1stCentennial, 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, and not at the same time, or to the same magnitude. 1stCentennial 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. 1stCentennials interest and pricing strategies are driven by its asset-liability management analyses and by local market conditions.



In connection with the foregoing strategy, 1stCentennial studies the net change in interest income and net interest margin given immediate and parallel interest rate shocks over a 12-month horizon.
1stCentennials goal is to manage the effect of these changes within Board-established parameters for up/down
100 and 200 basis points. Shown below are possible changes to net interest income16and the net interest
margin16based upon the models program under 100 and 200 basis point increases or decreases as of September
30, 2004:



|                         |  |                                         |        |                              |   |        |                                |  |        |                    |  |      |  
|------------------------ |  | --------------------------------------- | ------ | ---------------------------- | - | ------ | ------------------------------ |  | ------ | ------------------ |  | ---- | -
|Change (in Basis Points) |  | Net Interest Income(next twelve months) |        | Change in NetInterest Income |   |        | % Change in NetInterest Income |  |        | Net InterestMargin | 
|                         |  | (Dollars in Thousands)                  |        |                              |   |        |                                |  |       
|+ 200                    |  | $                                       | 20,304 |                              | $ | 2,746  |                                |  | 15.64  | %                  |  | 6.03 | %
|+ 100                    |  |                                         | 18,921 |                              |   | 1,364  |                                |  | 7.77   | %                  |  | 5.62 | %
|0                        |  |                                         | 17,558 |                              |   |       |                                |  |       |                    |  | 5.22 | %
| 100                    |  |                                         | 16,177 |                              |   | (1,381 | )                              |  | (7.86  | )%                 |  | 4.82 | %
| 200                    |  |                                         | 14,397 |                              |   | (3,162 | )                              |  | (18.00 | )%                 |  | 4.29 | %



These results indicate the effect of
immediate rate changes, and do not consider the yield from reinvesting in short-term versus long-term instruments. The above table shows values in a sudden, significant upward or downward movement, the latter of which is highly unlikely due to the
low interest rates at September 30, 2004. The net interest margin will improve if rates rise and decline if rates fall. The results indicated by the report are considered acceptable by management and the Board of Directors.

---

|16 | Excluding loan fees.
|-- | --------------------



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##### Table of Contents

CAPITAL RESOURCES



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



The Company and 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 subsidiaries and trust preferred securities to certain limits, less goodwill and other intangibles) and Tier 2 (supplementary capital including allowance for possible credit
losses, certain preferred stock, eligible subordinated debt, and other qualifying instruments). Under the established guidelines, the Company has attained the highest level of capitalization, characterized as Well Capitalized. It is the
intent of the Company to continue to maintain Well Capitalized risk-based capital ratios.



Total stockholders equity was $26.6 million at September 30, 2004, compared to $24.4 million at December 31, 2003. The increase of $2.2 million or 9% during the first nine months of 2004 was primarily due to
$2,032,000 in year-to-date net income and proceeds of $275,000 from the exercise of stock options, less the $110,000 decline in the unrealized gain of marketable securities.



The following table illustrates the capital and prompt corrective action guidelines applicable to the Company and 1st Centennial Bank, as
well as their total risk-based capital ratios, Tier 1 capital ratios and leverage ratios as of September 30, 2004 and December 31, 2003:



Risk-based capital ratios



|                                |  |            |   |  |             |   |  |                                                                      |   |  |                            |  
|------------------------------- |  | ---------- | - |  | ----------- | - |  | -------------------------------------------------------------------- | - |  | -------------------------- | -
|                                |  | At 9/30/04 |   |  | At 12/31/03 |   |  | Minimum To BeWell CapitalizedUnder PromptCorrective ActionProvisions |   |  | Minimum CapitalRequirement |  
|1st Centennial Bancorp:         |  |            |   |  |             |   |  |                                                                      |   |  |                            |  
|                                |  |            |   | 
|Total Risk-Based capital ratio  |  | 11.97      | % |  | 13.63       | % |  | 10.00                                                                | % |  | 8.00                       | %
|Tier 1 Risk-Based capital ratio |  | 9.50       | % |  | 12.48       | % |  | 6.00                                                                 | % |  | 4.00                       | %
|Tier 1 Leverage Ratio           |  | 9.19       | % |  | 10.79       | % |  | 5.00                                                                 | % |  | 4.00                       | %
|                                |  |            |   | 
|1st Centennial Bank:            |  |            |   |  |             |   |  |                                                                      |   |  |                            |  
|                                |  |            |   | 
|Total Risk-Based capital ratio  |  | 11.45      | % |  | 12.67       | % |  | 10.00                                                                | % |  | 8.00                       | %
|Tier 1 Risk-Based capital ratio |  | 10.26      | % |  | 11.53       | % |  | 6.00                                                                 | % |  | 4.00                       | %
|Tier 1 Leverage Ratio           |  | 9.92       | % |  | 9.97        | % |  | 5.00                                                                 | % |  | 4.00                       | %



36



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##### Table of Contents

Of the Companys $31.0 million of Tier 1 capital at September 30, 2004, $8.8 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
remainder of the $13 million of Trust Preferred Securities is included in Tier 2 capital.



ITEM 3. CONTROLS AND PROCEDURES



|(a) | Evaluation of Disclosure Controls and Procedures
|--- | ------------------------------------------------



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



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



|(b) | Changes in Internal Controls
|--- | ----------------------------



There were no significant changes in the Companys internal controls over financial reporting that occurred in the third quarter of 2004 that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



37



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##### Table of Contents

PART II  OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



We are a party from
time to time to claims and legal proceedings arising in the ordinary course of business. After taking into consideration the factors underlying these claims and information provided by our litigation counsel as to the current status of these claims
or proceedings to which we are a party, we are of the opinion that the ultimate aggregate liability represented thereby, if any, will not have a material adverse effect on our financial condition or results of operations.



ITEM 2. CHANGES IN SECURITIES AND ISSUER PURCHASES OF EQUITY SECURITIES



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 AND REPORTS ON FORM 8-K



(A) EXHIBITS



|              |  |                                                                                                                                                                                                                   
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibits                                                                                                                                                                                           
|3.1           |  | Articles of Incorporation of Centennial First Financial Services (Incorporated by reference from Exhibit to the Companys Registration Statement on Form S-4 filed on October 20,
1999.)                          
|              | 
|3.2           |  | Amendment to Articles of Incorporation of Centennial First Financial Services filed May 5, 2000 (Incorporated by reference to Exhibit to Companys Form 10-QSB for the quarter ended June
30, 2002.)              
|              | 
|3.3           |  | Amendment to Articles of Incorporation of Centennial First Financial Services filed February 18, 2003 (Incorporated by reference to Exhibit to Companys Form SB-2 filed on March 13,
2003.)                      
|              | 
|3.4           |  | Restated By-Laws of Centennial First Financial Services (Incorporated by reference from Exhibit to the Companys Form 10-QSB for the quarter ended June 30, 2002.)                                                
|              | 
|10.1          |  | Brea Branch Lease, dated September 20, 2000 (Incorporated by reference from Exhibit to the Companys Registration Statement on Form SB-2 filed on March 21, 2001.)                                                
|              | 
|10.2          |  | Form of Indemnification Agreement (Incorporated by reference from Exhibit to the Companys Registration Statement on Form SB-2 filed on March 21, 2001.)                                                          
|              | 
|10.4          |  | Salary Continuation Agreement of Timothy P. Walbridge, dated August 1, 2001 (Incorporated by reference from Exhibit to the Companys Form 10-KSB for the fiscal year ended December 31,
2001.)                    
|              | 
|10.6          |  | Employment Agreement of Timothy P. Walbridge, dated December 1, 2001 (Incorporated by reference from Exhibit 10.7 to the Companys Form 10-KSB for the fiscal year ended December 31,
2001.)                      
|              | 
|10.7          |  | Employment Agreement of Beth Sanders, dated December 1, 2001 (Incorporated by reference from Exhibit 10.8 to the Companys Form 10-KSB for the fiscal year ended December 31,
2001.)                              
|              | 
|10.8          |  | Amendment to Salary Continuation Agreement of Timothy P. Walbridge, dated December 1, 2001 (Incorporated by reference from Exhibit 10.9 to the Companys Form 10-KSB for the fiscal year
ended December 31, 2001.)



39



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##### Table of Contents

|      |  |                                                                                                                                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9  |  | Redlands Centennial Bank Employee Stock Ownership Plan, dated February 1, 2000 (Incorporated by reference from Exhibit 10.11 to Form 10-QSB for the fiscal quarter ended March 31,
2000.)                  
|      | 
|10.10 |  | Amended and Restated Stock Incentive Plan. (Incorporated by reference to Form 10-QSB for the quarter ended March 31, 2004.)                                                                                
|      | 
|10.11 |  | Palomar Community Bank (now Escondido branch) lease dated April 15, 1987 (Incorporated by reference from Exhibit 10.13 to Form 10-QSB for the fiscal quarter ended March 31,
2002.)                        
|      | 
|10.12 |  | Indenture for Trust Preferred Securities dated July 11, 2002 (Incorporated by reference from Exhibit 10.14 to Form 10-QSB for the fiscal quarter ended September 30, 2002.)                                
|      | 
|10.13 |  | Amended and Restated Declaration of Trust for trust preferred securities dated July 11, 2002 (Incorporated by reference from Exhibit 10.15 to Form 10-QSB for the fiscal quarter ended
September 30, 2002.)
|      | 
|10.14 |  | Guarantee Agreement for Trust Preferred Securities dated July 11, 2002 (Incorporated by reference from Exhibit 10.16 to Form 10-QSB for the fiscal quarter ended September 30,
2002.)                      
|      | 
|10.15 |  | Salary Continuation Agreement of Suzanne Dondanville, dated December 17, 2002 (Incorporated by reference from Exhibit 10.17 to Form SB-2 dated March 13, 2003.)                                            
|      | 
|10.16 |  | Salary Continuation Agreement of Clifford Schoonover, dated December 17, 2002 (Incorporated by reference from Exhibit 10.18 to Form SB-2 dated March 13, 2003.)                                            
|      | 
|10.17 |  | Amendment to Construction Department Lease dated August 28, 2002 (Incorporated by reference from Exhibit 10.20 to Form SB-2 dated March 13, 2003.)                                                         
|      | 
|10.18 |  | Commercial Lending Group Lease, dated December 23, 2002 (Incorporated by reference from Exhibit 10.21 to Form SB-2 dated March 13, 2003.)                                                                  
|      | 
|10.19 |  | Palm Desert Branch Lease, dated November 13, 2002 (Incorporated by reference from Exhibit 10.22 to Form 10-KSB for the year ended December 31, 2002.)                                                      
|      | 
|10.20 |  | Amendment to Escondido Branch Lease, dated June 6, 2001 (Incorporated by reference from Exhibit 10.23 to Form 10-KSB for the year ended December 31, 2002.)                                                
|      | 
|10.21 |  | Amendment to Salary Continuation Agreement of Suzanne Dondanville, dated December 17, 2002. (Incorporated by reference from Exhibit 10.24 to Form 10-KSB for the year ended December 31,
2003.)            



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##### Table of Contents

|      |  |                                                                                                                                                                                                  
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.22 |  | Amendment to Salary Continuation Agreement of Anne Elizabeth Sanders, dated December 1, 2001. (Incorporated by reference from Exhibit 10.25 to Form 10-KSB for the year ended December 31,
2003.)
|      | 
|10.23 |  | Amendment to Salary Continuation Agreement of Clifford Schoonover, dated December 17, 2002. (Incorporated by reference from Exhibit 10.26 to Form 10-KSB for the year ended December 31,
2003.)  
|      | 
|10.24 |  | Amendment to Salary Continuation Agreement of Timothy P. Walbridge, dated August 1, 2001. (Incorporated by reference to Form 10-QSB for the quarter ended March 31, 2004.)                       
|      | 
|10.25 |  | Indenture for Trust Preferred Securities dated January 15, 2004. (Incorporated by reference to Form 10-QSB for the quarter ended March 31, 2004.)                                                
|      | 
|10.26 |  | Amended and Restated Declaration of Trust for Trust Preferred Securities dated January 15, 2004. (Incorporated by reference to Form 10-QSB for the quarter ended March 31,
2004.)                
|      | 
|10.27 |  | Guarantee Agreement for Trust Preferred Securities dated January 15, 2004. (Incorporated by reference to Form 10-QSB for the quarter ended March 31, 2004.)                                      
|      | 
|10.28 |  | Amendment to Brea Branch Lease dated August 16, 2004.                                                                                                                                            
|      | 
|10.29 |  | Irwindale Branch Lease, dated August 12, 2004.                                                                                                                                                   
|      | 
|10.30 |  | Salary Continuation Agreement of Anne Elizabeth Sanders, dated December 1, 2001. (Supersedes exhibit 10.5 Salary Continuation Agreement of Beth Sanders, dated October 1,
2001).                 
|      | 
|21.1  |  | Subsidiaries of 1stCentennial Bancorp. (Incorporated by
reference to Form 10-QSB for the quarter ended March 31, 2004.)                                                                          
|      | 
|31.1  |  | Certification of Chief Executive Officer (Section 302 Certification)                                                                                                                             
|      | 
|31.2  |  | Certification of Chief Financial Officer (Section 302 Certification)                                                                                                                             
|      | 
|32    |  | Certification of Periodic Financial Report (Section 906 Certification)                                                                                                                           



|(B) | REPORTS ON FORM 8-K
|--- | -------------------



On July 21, 2004, the Company filed a Current Report on Form 8-K including a press release announcing earnings for the quarter ended June 30, 2004.



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##### Table of Contents

SIGNATURE



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



|                       |  |                                                                                           
|---------------------- |  | ------------------------------------------------------------------------------------------
|                       |  | 1ST CENTENNIAL BANCORP                                                                    
|                       |  | (Registrant)                                                                              
|                       | 
|Date November 10, 2004 |  | /s/ Beth Sanders                                                                          
|                       |  | Beth Sanders                                                                              
|                       |  | Chief Financial Officer                                                                   
|                       |  | (Principal Accounting Officer, and officer authorized to sign on behalf of the registrant)



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