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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



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

Exchange
Act of 1934



For the quarterly period ended June 30, 2005



Commission file number: 000-29105



1stCENTENNIAL BANCORP

(Exact
Name of Registrant as specified in its charter)



|                                                               |  |                                       
|-------------------------------------------------------------- |  | --------------------------------------
|California                                                     |  | 91-1995265                            
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. EmployerIdentification Number)
|                                                               | 
|218 East State Street Redlands, California                     |  | 92373                                 
|(Address of Principal Executive Offices)                       |  | (Zip Code)                            



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



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes ̈No x



APPLICABLE TO CORPORATE ISSUER



Indicate the number of shares outstanding of the issuers common stock on the latest practicable date 2,094,425 shares of common stock as of August 10, 2005.



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##### Table of Contents



TABLE OF CONTENTS



|        |  |                                                                                       |  |     
|------- |  | ------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                       |  | PAGE
|PART I  |  |                                                                                       |  |     
|ITEM 1  |  | Financial Statements (unaudited)                                                      |  | 2   
|ITEM 2  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11  
|ITEM 3  |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 39  
|ITEM 4  |  | Controls and Procedures                                                               |  | 40  
|        |  |                                                                                      
|PART II |  |                                                                                       |  |     
|ITEM 1  |  | Legal Proceedings                                                                     |  | 41  
|ITEM 2  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 41  
|ITEM 3  |  | Defaults Upon Senior Securities                                                       |  | 41  
|ITEM 4  |  | Submission of Matters to a Vote of Security Holders                                   |  | 41  
|ITEM 5  |  | Other Information                                                                     |  | 41  
|ITEM 6  |  | Exhibits                                                                              |  | 42  
|        |  | Signatures                                                                            |  | 45  



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##### Table of Contents



PART I  FINANCIAL
INFORMATION



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



1STCENTENNIAL BANCORP AND
SUBSIDIARY



CONSOLIDATED STATEMENTS OF CONDITION

June 30, 2005 and December 31, 2004



|                                                                                                                                                                      |  |             |         |      |   |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | ---- | - | -------
|Dollar amounts in thousands                                                                                                                                           |  | 2005        |         | 2004
|                                                                                                                                                                      |  | (unaudited) |         |     
|ASSETS                                                                                                                                                                |  |             |         |      |   |        
|Cash and due from banks                                                                                                                                               |  | $           | 8,043   |      | $ | 5,695  
|Federal funds sold                                                                                                                                                    |  |             | 14,560  |      |   |       
|                                                                                                                                                                      |  |             |         |      |   |        
|Total cash and cash equivalents                                                                                                                                       |  |             | 22,603  |      |   | 5,695  
|Interest-bearing deposits in financial institutions                                                                                                                   |  |             | 2,708   |      |   | 3,964  
|Investment securities, available for sale                                                                                                                             |  |             | 14,759  |      |   | 20,096 
|Stock investments restricted, at cost                                                                                                                                 |  |             | 2,394   |      |   | 1,615  
|Loans, net of allowance for loan losses of $5,142 and $4,137                                                                                                          |  |             | 364,342 |      |   | 308,030
|Accrued interest receivable                                                                                                                                           |  |             | 1,379   |      |   | 766    
|Premises and equipment, net                                                                                                                                           |  |             | 3,525   |      |   | 3,113  
|Goodwill                                                                                                                                                              |  |             | 4,180   |      |   | 4,180  
|Cash surrender value of life insurance                                                                                                                                |  |             | 6,607   |      |   | 6,488  
|Other assets                                                                                                                                                          |  |             | 2,572   |      |   | 2,731  
|                                                                                                                                                                      |  |             |         |      |   |        
|Total assets                                                                                                                                                          |  | $           | 425,069 |      | $ | 356,678
|                                                                                                                                                                      |  |             |         |      |   |        
|LIABILITIES                                                                                                                                                           |  |             |         |      |   |        
|Deposits:                                                                                                                                                             |  |             |         |      |   |        
|Noninterest-bearing demand deposits                                                                                                                                   |  | $           | 103,017 |      | $ | 92,620 
|Interest-bearing deposits                                                                                                                                             |  |             | 240,606 |      |   | 199,182
|                                                                                                                                                                      |  |             |         |      |   |        
|Total deposits                                                                                                                                                        |  |             | 343,623 |      |   | 291,802
|Accrued interest payable                                                                                                                                              |  |             | 244     |      |   | 146    
|Federal funds purchased                                                                                                                                               |  |             |        |      |   | 475    
|Borrowings from Federal Home Loan Bank                                                                                                                                |  |             | 35,500  |      |   | 21,000 
|Other liabilities                                                                                                                                                     |  |             | 2,052   |      |   | 2,103  
|Subordinated notes payable to subsidiary trusts                                                                                                                       |  |             | 13,151  |      |   | 13,151 
|                                                                                                                                                                      |  |             |         |      |   |        
|Total liabilities                                                                                                                                                     |  |             | 394,570 |      |   | 328,677
|                                                                                                                                                                      |  |             |         |      |   |        
|STOCKHOLDERS EQUITY                                                                                                                                                  |  |             |         |      |   |        
|Common stock, no par value; authorized 10,000,000 shares, issued and outstanding 2,093,783 and 2,075,384 shares at June 30, 2005 and December
31, 2004, respectively1 |  |             | 26,663  |      |   | 21,208 
|Retained earnings                                                                                                                                                     |  |             | 3,773   |      |   | 6,706  
|Accumulated other comprehensive income                                                                                                                                |  |             | 63      |      |   | 87     
|                                                                                                                                                                      |  |             |         |      |   |        
|Total stockholders equity                                                                                                                                            |  |             | 30,499  |      |   | 28,001 
|                                                                                                                                                                      |  |             |         |      |   |        
|Total liabilities and stockholders equity                                                                                                                            |  | $           | 425,069 |      | $ | 356,678
|                                                                                                                                                                      |  |             |         |      |   |        

---

|1 | Adjusted for the 7% stock dividend declared to shareholders of record on March 15, 2005, and
distributed April 15, 2005.
|- | ------------------------------------------------------------------------------------------------------------------------



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1STCENTENNIAL BANCORP AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF EARNINGS

Three and Six Months Ended June 30, 2005 and 2004 (unaudited)



|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|----------------------------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ------ |  | - | ------
|                                                      |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|Dollar amounts in thousands, except per share amounts |  | 2005                       |       | 2004                     |   | 2005  |  | 2004
|Interest income:                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Interest and fees on loans                            |  | $                          | 7,941 |                          | $ | 5,093 |  | $    | 14,941 |  | $ | 9,668 
|Deposits in financial institutions                    |  |                            | 34    |                          |   | 51    |  |      | 73     |  |   | 103   
|Federal funds sold                                    |  |                            | 31    |                          |   | 23    |  |      | 42     |  |   | 27    
|Investments                                           |  |                            |       |                          |   |       |  |      |        |  |   |       
|Taxable                                               |  |                            | 112   |                          |   | 230   |  |      | 251    |  |   | 537   
|Tax-exempt                                            |  |                            | 42    |                          |   | 38    |  |      | 83     |  |   | 85    
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Total interest income                                 |  |                            | 8,160 |                          |   | 5,435 |  |      | 15,390 |  |   | 10,420
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Interest expense:                                     |  |                            |       |                          |   |       |  |      |        |  |   |       
|Interest bearing demand and savings deposits          |  |                            | 423   |                          |   | 236   |  |      | 775    |  |   | 360   
|Time deposits $100,000 or greater                     |  |                            | 513   |                          |   | 181   |  |      | 788    |  |   | 362   
|Other time deposits                                   |  |                            | 263   |                          |   | 163   |  |      | 468    |  |   | 284   
|Interest on borrowed funds                            |  |                            | 473   |                          |   | 182   |  |      | 871    |  |   | 352   
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Total interest expense                                |  |                            | 1,672 |                          |   | 762   |  |      | 2,902  |  |   | 1,358 
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Net interest income                                   |  |                            | 6,488 |                          |   | 4,673 |  |      | 12,488 |  |   | 9,062 
|Provision for loan losses                             |  |                            | 660   |                          |   | 440   |  |      | 1,010  |  |   | 868   
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Net interest income after provision for loan losses   |  |                            | 5,828 |                          |   | 4,233 |  |      | 11,478 |  |   | 8,194 
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Noninterest income:                                   |  |                            |       |                          |   |       |  |      |        |  |   |       
|Customer service fees                                 |  |                            | 354   |                          |   | 287   |  |      | 675    |  |   | 567   
|Gains and commissions from sale of loans              |  |                            | 250   |                          |   | 32    |  |      | 305    |  |   | 244   
|Other income                                          |  |                            | 517   |                          |   | 291   |  |      | 1,055  |  |   | 630   
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Total noninterest income                              |  |                            | 1,121 |                          |   | 610   |  |      | 2,035  |  |   | 1,441 
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Noninterest expense:                                  |  |                            |       |                          |   |       |  |      |        |  |   |       
|Salaries and employee benefits                        |  |                            | 2,956 |                          |   | 2,363 |  |      | 5,914  |  |   | 4,772 
|Net occupancy expense                                 |  |                            | 483   |                          |   | 358   |  |      | 930    |  |   | 715   
|Other operating expense                               |  |                            | 1,489 |                          |   | 1,235 |  |      | 3,017  |  |   | 2,370 
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Total noninterest expense                             |  |                            | 4,928 |                          |   | 3,956 |  |      | 9,861  |  |   | 7,857 
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Income before provision for income taxes              |  |                            | 2,021 |                          |   | 887   |  |      | 3,652  |  |   | 1,778 
|Provision for income taxes                            |  |                            | 792   |                          |   | 317   |  |      | 1,413  |  |   | 626   
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Net income                                            |  | $                          | 1,229 |                          | $ | 570   |  | $    | 2,239  |  | $ | 1,152 
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Basic earnings per share1                             |  | $                          | 0.59  |                          | $ | 0.28  |  | $    | 1.08   |  | $ | 0.57  
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       
|Diluted earnings per share1                           |  | $                          | 0.54  |                          | $ | 0.26  |  | $    | 0.99   |  | $ | 0.53  
|                                                      |  |                            |       |                          |   |       |  |      |        |  |   |       

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|1 | Adjusted for the 7% stock dividend declared to shareholders of record on March 15, 2005, and distributed April 15, 2005.
|- | ------------------------------------------------------------------------------------------------------------------------



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1STCENTENNIAL BANCORP AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Six Months Ended June 30, 2005 and 2004 (unaudited)

Dollar amounts in thousands, except per share amounts



|                                                                                             |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|-------------------------------------------------------------------------------------------- |  | --------- |  | ----------- | ------ | ---------------- | - | ------ | ------------------------------------------ |  | - | ----- | - |  | - | ------ | -
|                                                                                             |  | Shares    |  | CommonStock |        | RetainedEarnings |   |        | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total |  
|BALANCE, DECEMBER 31, 2003                                                                   |  | 1,502,281 |  | $           | 20,456 |                  | $ | 3,692  |                                            |  | $ | 252   |   |  | $ | 24,400 |  
|                                                                                             |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Comprehensive income:                                                                        |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Net income                                                                                   |  |          |  |             |       |                  |   | 1,152  |                                            |  |   |      |   |  |   | 1,152  |  
|Change in net unrealized gain on investment securities available for sale, after tax effects |  |          |  |             |       |                  |   |       |                                            |  |   | (237  | ) |  |   | (237   | )
|                                                                                             |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Total comprehensive income                                                                   |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   | 915    |  
|                                                                                             |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Stock dividend/split                                                                         |  | 378,664   |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Cash paid in lieu of fractional shares                                                       |  |          |  |             |       |                  |   | (6     | )                                          |  |   |      |   |  |   | (6     | )
|Exercise of stock options, including tax benefit                                             |  | 16,242    |  |             | 255    |                  |   |       |                                            |  |   |      |   |  |   | 255    |  
|                                                                                             |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|BALANCE, JUNE 30, 2004                                                                       |  | 1,897,187 |  | $           | 20,711 |                  | $ | 4,838  |                                            |  | $ | 15    |   |  | $ | 25,564 |  
|                                                                                             |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|BALANCE, DECEMBER 31, 2004                                                                   |  | 1,939,611 |  | $           | 21,208 |                  | $ | 6,706  |                                            |  | $ | 87    |   |  | $ | 28,001 |  
|                                                                                             |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Comprehensive income:                                                                        |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Net income                                                                                   |  |          |  |             |       |                  |   | 2,239  |                                            |  |   |      |   |  |   | 2,239  |  
|Change in net unrealized gain on investment securities available for sale, after tax effects |  |          |  |             |       |                  |   |       |                                            |  |   | (24   | ) |  |   | (24    | )
|                                                                                             |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Total comprehensive income                                                                   |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   | 2,215  |  
|                                                                                             |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Stock dividend                                                                               |  | 135,815   |  |             | 5,161  |                  |   | (5,161 | )                                          |  |   |       |   |  |   |       |  
|Cash paid in lieu of fractional shares                                                       |  |          |  |             |       |                  |   | (11    | )                                          |  |   |      |   |  |   | (11    | )
|Compensation expense on incentive stock options                                              |  |          |  |             | 4      |                  |   |       |                                            |  |   |      |   |  |   | 4      |  
|Exercise of stock options, including tax benefit                                             |  | 18,357    |  |             | 290    |                  |   |       |                                            |  |   |      |   |  |   | 290    |  
|                                                                                             |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  
|BALANCE, JUNE 30, 2005                                                                       |  | 2,093,783 |  | $           | 26,663 |                  | $ | 3,773  |                                            |  | $ | 63    |   |  | $ | 30,499 |  
|                                                                                             |  |           |  |             |        |                  |   |        |                                            |  |   |       |   |  |   |        |  



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1STCENTENNIAL BANCORP AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30, 2005 and 2004 (unaudited)



|                                                                                  |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|Dollar amounts in thousands                                                       |  | 2005 |         |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |      |         |   |      |   |         |  
|Net income                                                                        |  | $    | 2,239   |   |      | $ | 1,152   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |      | 306     |   |      |   | 268     |  
|Loss on sale of fixed assets                                                      |  |      | 16      |   |      |   |        |  
|Provision for loan losses                                                         |  |      | 1,010   |   |      |   | 868     |  
|Loss from sale of investments                                                     |  |      | 5       |   |      |   |        |  
|Gain from sale of loans                                                           |  |      | (305    | ) |      |   | (245    | )
|Amortization of deferred loan fees                                                |  |      | (1,051  | ) |      |   | (676    | )
|Amortization of excess purchase value of deposits                                 |  |      | 7       |   |      |   | 7       |  
|Amortization of excess purchase value of loans                                    |  |      | 31      |   |      |   | 8       |  
|Fair value of stock options in noninterest expense                                |  |      | 4       |   |      |   |        |  
|Deferred income tax provision                                                     |  |      | 16      |   |      |   | 158     |  
|Amortization of premiums on investment securities available for sale (net)        |  |      | 127     |   |      |   | 271     |  
|Increase in cash surrender value of life insurance                                |  |      | (119    | ) |      |   | (150    | )
|Decrease (increase) in assets:                                                    |  |      |         |   |      |   |         |  
|Accrued interest receivable                                                       |  |      | (613    | ) |      |   | (79     | )
|Other assets                                                                      |  |      | 125     |   |      |   | (493    | )
|Increase (decrease) in liabilities:                                               |  |      |         |   |      |   |         |  
|Accrued interest payable                                                          |  |      | 98      |   |      |   | (35     | )
|Other liabilities                                                                 |  |      | (51     | ) |      |   | (3      | )
|                                                                                  |  |      |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |      | 1,845   |   |      |   | 1,051   |  
|                                                                                  |  |      |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |      |         |   |      |   |         |  
|Net decrease in interest-bearing deposits in financial institutions               |  |      | 1,287   |   |      |   | 58      |  
|Activity in available for sale securities:                                        |  |      |         |   |      |   |         |  
|Proceeds from sales, maturities and principal repayments of securities            |  |      | 5,161   |   |      |   | 7,536   |  
|Purchases of Federal Home Loan Bank stock                                         |  |      | (779    | ) |      |   | (496    | )
|Net increase in loans                                                             |  |      | (55,997 | ) |      |   | (70,610 | )
|Additions to bank premises and equipment                                          |  |      | (734    | ) |      |   | (299    | )
|                                                                                  |  |      |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |      | (51,062 | ) |      |   | (63,811 | )
|                                                                                  |  |      |         |   |      |   |         |  



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1STCENTENNIAL BANCORP AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Six Months Ended June 30, 2005 and 2004 (unaudited)



|                                                    |  |      |        |   |      |   |        |  
|--------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|Dollar amounts in thousands                         |  | 2005 |        |   | 2004 |  
|CASH FLOWS FROM FINANCING ACTIVITIES                |  |      |        |   |      |   |        |  
|Net increase in noninterest-bearing demand deposits |  | $    | 10,397 |   |      | $ | 17,062 |  
|Net increase in interest-bearing deposits           |  |      | 41,424 |   |      |   | 53,521 |  
|Redemptions from federal funds purchased            |  |      | (475   | ) |      |   | (1,850 | )
|Proceeds from Federal Home Loan Bank borrowing      |  |      | 14,500 |   |      |   | 1,900  |  
|Issuance of Trust Preferred Securities              |  |      |       |   |      |   | 7,145  |  
|Cash paid in lieu of fractional shares              |  |      | (11    | ) |      |   | (6     | )
|Proceeds from exercise of stock options             |  |      | 290    |   |      |   | 255    |  
|                                                    |  |      |        |   |      |   |        |  
|Net cash provided by financing activities           |  |      | 66,125 |   |      |   | 78,027 |  
|                                                    |  |      |        |   |      |   |        |  
|Net increase in cash and cash equivalents           |  |      | 16,908 |   |      |   | 15,267 |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD      |  |      | 5,695  |   |      |   | 9,948  |  
|                                                    |  |      |        |   |      |   |        |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD            |  | $    | 22,603 |   |      | $ | 25,215 |  
|                                                    |  |      |        |   |      |   |        |  
|SUPPLEMENTARY INFORMATION                           |  |      |        |   |      |   |        |  
|Interest paid                                       |  | $    | 2,797  |   |      | $ | 1,386  |  
|                                                    |  |      |        |   |      |   |        |  
|Income taxes paid                                   |  | $    | 1,910  |   |      | $ | 886    |  
|                                                    |  |      |        |   |      |   |        |  



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1STCENTENNIAL BANCORP AND SUBSIDIARY



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2005



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 the consolidated financial statements, Note 1, included in the Annual Report on Form 10-KSB of 1stCentennial Bancorp (the Company) for the year ended December 31, 2004. The accompanying interim consolidated financial statements contained herein are unaudited. However, in the opinion of
the Company, all adjustments, consisting of normal recurring items necessary for a fair presentation of the operating results for the periods shown, have been made. The results of operations for the six months ended June 30, 2005 may not be
indicative of operating results for the year ending December 31, 2005. 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 March 2004, the FASB modified Emerging Issues Task Force (EITF) Issue
03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF 03-1 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and
measurement of an impairment loss. The recognition and measurement provisions were initially effective for other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. However, in September 2004, the effective date
of these provisions was delayed until the finalization of a FASB Staff Position to provide additional implementation guidance. This EITF had no effect on the Companys consolidated financial statements.



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



SFAS No. 123R will not be effective for the Company until the interim financial statements for the first quarter of 2006 are filed with the Securities and Exchange Commission.



7



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##### Table of Contents

Had compensation cost for the Companys stock incentive plan been determined based on the fair value at the issue
date for awards under the Plan consistent with the method prescribed by SFAS No. 123R, 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 EndedJune 30, |       | Six Months EndedJune 30,
|                                |  | 2005                       |       | 2004                     |   | 2005 |  | 2004
|Net income:                     |  |                            |       |                          |   |      |  |      |       |  |   |      
|As reported                     |  | $                          | 1,229 |                          | $ | 570  |  | $    | 2,239 |  | $ | 1,152
|Pro forma                       |  |                            | 1,159 |                          |   | 518  |  |      | 2,101 |  |   | 829  
|Compensation cost, net of taxes |  | $                          | 70    |                          | $ | 52   |  | $    | 138   |  | $ | 323  
|Basic earnings per share:2      |  |                            |       |                          |   |      |  |      |       |  |   |      
|As reported                     |  | $                          | 0.59  |                          | $ | 0.28 |  | $    | 1.08  |  | $ | 0.57 
|Pro forma                       |  |                            | 0.56  |                          |   | 0.26 |  |      | 1.01  |  |   | 0.41 
|Diluted earnings per share:2    |  |                            |       |                          |   |      |  |      |       |  |   |      
|As reported                     |  | $                          | 0.54  |                          | $ | 0.26 |  | $    | 0.99  |  | $ | 0.53 
|Pro forma                       |  |                            | 0.51  |                          |   | 0.24 |  |      | 0.93  |  |   | 0.38 



The fair value of each option granted
is estimated on the date of grant using the Black-Scholes option-pricing model for those options granted through December 31, 2004 and the Binomial method for those options granted after December 31, 2004. Under both methods, the Company uses the
following input variables as of the grant date, to arrive at the fair value for each grant:



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



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



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



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



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



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



| | 7) | Risk free interest rate;
| | -- | ------------------------



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



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



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.



---

|2 | The 2005 and 2004 earnings per share calculations have been adjusted for the 7% stock dividend declared to shareholders of record on March 15, 2005, and distributed
April 15, 2005.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8



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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 June 30, (In thousands, except per share
amounts) |      
|                                                                  |  | 20053                                                                                                       |       |                       | 20043 |                
|                                                                  |  | NetIncome                                                                                                   |       | WeightedAverageShares |       | Per shareAmount |   |       | NetIncome |  | WeightedAverageShares |     | Per shareAmount |      
|Basic earnings per share                                          |  | $                                                                                                           | 1,229 |                       | 2,078 |                 | $ | 0.59  |           |  | $                     | 570 |                 | 2,028 |  | $ | 0.28  |  
|Effect of dilutive shares:assumed exercise of outstanding options |  |                                                                                                             |      |                       | 180   |                 |   | (0.05 | )         |  |                       |    |                 | 155   |  |   | (0.02 | )
|Diluted earnings per share                                        |  | $                                                                                                           | 1,229 |                       | 2,258 |                 | $ | 0.54  |           |  | $                     | 570 |                 | 2,183 |  | $ | 0.26  |  



|                                                                  |  |                                                                                                           |       |                       |       |                 |   |       |           |  |                       |       |                 |       |  |   |       |  
|----------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- | ----- | --------------------- | ----- | --------------- | - | ----- | --------- |  | --------------------- | ----- | --------------- | ----- |  | - | ----- | -
|                                                                  |  | Earnings per share calculation For the six months ended June 30, (In thousands, except per share
amounts) |      
|                                                                  |  | 20053                                                                                                     |       |                       | 20043 |                
|                                                                  |  | NetIncome                                                                                                 |       | WeightedAverageShares |       | Per shareAmount |   |       | NetIncome |  | WeightedAverageShares |       | Per shareAmount |      
|Basic earnings per share                                          |  | $                                                                                                         | 2,239 |                       | 2,075 |                 | $ | 1.08  |           |  | $                     | 1,152 |                 | 2,023 |  | $ | 0.57  |  
|Effect of dilutive shares:assumed exercise of outstanding options |  |                                                                                                           |      |                       | 180   |                 |   | (0.09 | )         |  |                       |      |                 | 155   |  |   | (0.04 | )
|Diluted earnings per share                                        |  | $                                                                                                         | 2,239 |                       | 2,255 |                 | $ | 0.99  |           |  | $                     | 1,152 |                 | 2,178 |  | $ | 0.53  |  



---

|3 | The 2005 and 2004 earnings per share calculations have been adjusted for the 7% stock dividend declared to shareholders of record on March 15, 2005, and distributed
April 15, 2005.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9



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##### Table of Contents

Note 4. OFF-BALANCE SHEET COMMITMENTS



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



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



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



Off-Balance sheet commitments



|                                    |  |                        |         |                  |   |        
|----------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                    |  | June 30,2005           |         | December 31,2004
|                                    |  | (Dollars in Thousands)
|Standby letters of credit           |  | $                      | 1,672   |                  | $ | 1,157  
|Undisbursed lines of credit         |  |                        | 195,497 |                  |   | 158,179
|Available credit card lines         |  |                        | 2,375   |                  |   | 2,162  
|                                    |  |                        |         |                  |   |        
|Total off-balance sheet commitments |  | $                      | 199,544 |                  | $ | 161,498
|                                    |  |                        |         |                  |   |        



10



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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) in Redlands, California. This discussion focuses primarily on the results of operations of the Company on a consolidated basis for the
three and six months ended June 30, 2005 and 2004, and the financial condition of the Company as of June 30, 2005 and December 31, 2004.



Managements discussion and analysis is written to provide greater insight into the results of operations and the financial condition of the Company and its
subsidiary. For a more complete understanding of the Company and its operations, reference should be made to the financial statements included in this report and in the Companys 2004 Annual Report on Form 10-KSB.



Certain statements in this Report on Form 10-Q constitute forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the Exchange Act), which involve risks and uncertainties. The Companys actual results may differ significantly from the results discussed in
such forward-looking statements. Factors that might cause such a difference include, but are not limited to, possible future deteriorating economic conditions in the Companys areas of operation; interest rate risk associated with volatile
interest rates and related asset-liability matching risk; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; risks of
available-for-sale securities declining significantly in value as interest rates rise or issuers of such securities suffering financial losses; and regulatory risks associated with the variety of current and future regulations to which the
Company is subject. All of these risks could have a material adverse impact on the Companys financial condition, results of operations or prospects, and these risks should be considered in evaluating the Company. Segment reporting is not
presented since the Companys revenue is attributed to a single reportable segment. For additional information concerning these factors, refer to the Companys 10-KSB for the year ended December 31, 2004.



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.
1stCentennial Bancorps allowance for loan loss methodologies incorporate a variety of risk considerations,
both quantitative and qualitative, in establishing an allowance for loan losses that Management believes is appropriate at each reporting date.



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



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



As the Company adds new products, 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 the Companys financial statements and the accompanying notes presented elsewhere herein, as well as the portion of this Managements Discussion and Analysis section entitled Financial Condition -
Allowance for Loan Losses. Although Management believes the level of the allowance as of June 30, 2005 is adequate to absorb losses inherent in the loan portfolio, a decline in the local economy may result in increasing losses that cannot
reasonably be predicted at this time.



RESULTS OF OPERATIONS AND FINANCIAL
CONDITION SUMMARY



RESULTS OF OPERATIONS SUMMARY



Second quarter analysis.Net income for the quarter ended June 30, 2005 was
$1,229,000 compared with $570,000 for the same period in 2004, an increase of $659,000 or 116%. Basic and diluted earnings per share for the second quarter of 2005 were $0.59 and $0.54 respectively. This compares to $0.28 and $0.26 respectively, for
the same period in 2004.Return on average assets and return on average equity for the second quarter of 2005 was 1.21% and 16.67% respectively, as compared to 0.74% and 9.08% respectively, for the same period in 2004.



The primary drivers of the variance in net income include the following:



| |  |  | Net interest income before the provision for loan losses increased by $1.8 million, or 39%, primarily due to the Companys loan growth.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Gains and commissions from the sale of loans increased by $218,000 or 681%, due to more loans sold to maintain liquidity during the second quarter of 2005 as compared to the same
period in 2004.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Conduit loan sale income increased $191,000 or 125%, as a result of more activity in loan sales in the second quarter of 2005 as compared to the same period in 2004.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Additional staffing and salary increases contributed to the increase in salaries and employee benefits of $593,000 or 25%.
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | Occupancy expense increased $125,000 or 35%, due to the opening of our Irwindale office, and the move into our new location for our Palm Desert office.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



12



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##### Table of Contents

| |  |  | Marketing expense increased $106,000 or 55%, due to expenses related to ongoing business development efforts.
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Professional expense increased $110,000 or 58%, due to costs incurred to comply with the Sarbanes Oxley Act of 2002 and expenses related to audits, exams, and CPA fees.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The tax provision was $475,000 or 150% higher in the second of 2005, as compared to the same period in 2004. This increase is a direct result of the Companys increase in
earnings.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Six-month analysis.Net income for the first
six months of 2005 was $2,239,000, which is $1,087,000 or 94% higher than net income of $1,152,000 for the first six months of 2004. Basic and diluted earnings per share were $1.08 and $0.99 respectively, for the first six months of 2005. This
compares to $0.57 and $0.53 respectively, for the first six months of the prior year. Return on average assets and return on average equity for the six months ended June 30, 2005 was 1.16% and 15.56% respectively, as compared to 0.80% and 9.29%
respectively, for the same period in 2004. The increase in return on average assets and return on average equity for the six months ended June 30, 2005 when compared to the same period in 2004 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 $99.0 million or 37%, from June 2004 to June 2005 primarily in commercial loans as a result of our strong business climate and loan demand.



The principal reasons for the net income variance for the first six months include the
following:



| |  |  | Net interest income before the provision for loan losses increased by $3.4 million, or 38%, primarily due to the increase in average total loans.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Conduit loan sale income increased $354,000 or 121%, as a result of more activity in loan sales during the first six months of 2005 as compared to the same period in 2004.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Customer service fee income increased $108,000 or 19%, due to the increase in volume in deposit accounts during the first six months of 2005 as compared to the same period in 2004.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Salaries and employee benefits increased $1.1 million or 24%, due to additional staffing and salary increases.
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | Occupancy expense increased $215,000 or 30%, due to the opening of our Irwindale office that opened in February 2005 and the move into our new location for our Palm Desert office in
June 2004.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Marketing expense increased $230,000 or 61%, due to expenses related to ongoing business development efforts.
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Professional expense increased $205,000 or 46%, due to costs incurred to comply with the Sarbanes Oxley Act of 2002 and expenses related to audits, exams, CPA fees and other
professional expenses.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



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##### Table of Contents

| |  |  | The tax provision was $787,000 or 126% higher during the first six months of 2005, as compared to the same period in 2004. This increase is a direct result of the Companys
increase in earnings, coupled with the Companys increase in taxable income verses tax-exempt income on certain tax-exempt investments.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



FINANCIAL CONDITION SUMMARY



The Companys total assets were $425.1 million at June 30, 2005, an increase of $68.4 million, or 19%, compared to total assets of $356.7 million at December 31,
2004. The most significant changes in the Companys balance sheet during the first six months of 2005 are outlined below:



| |  |  | Net loans increased $56.3 million or 18% from December 31, 2004. Strong loan demand in the Companys market areas contributed to the increase in net loans.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Federal funds sold increased to $14.6 million at June 30, 2005, as compared to no federal funds sold at December 31, 2004. The Companys improved liquidity position contributed
to the increase in federal funds sold.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Noninterest-bearing demand deposits increased $10.4 million or 11% from December 31, 2004, due to new deposit relationships, coupled with an increase in deposits with our existing
customers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest-bearing deposits increased $41.4 million or 21% from December 31, 2004. This increase is attributable to additional money market deposits acquired as a result of a
promotional money market account offered to businesses and consumers during the second quarter of 2005, coupled with additional brokered certificates of deposit acquired to help support our loan growth.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Borrowings from the Federal Home Loan Bank increased $14.5 million or 69% to help support the loan growth from December 31, 2004 to June 30, 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



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.



14



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##### Table of Contents

Second quarter analysis.The Companys net interest margin for the second quarter of 2005 was 6.83%, as
compared to 6.66% for the same period in 2004. Despite the increase in total average deposits and other borrowings, the increase in the mix and volume of average loans resulted in a higher net interest margin. Average loans for the second quarter of
2005 grew $120.4 million or 51% from $237.0 to $357.4, due to the growth in commercial loans, as compared to the second quarter of 2004.



For the second quarter ended June 30, 2005 total interest earning assets averaged $380.8 million, which represented an increase of $98.8 million or 35%, as compared to
$282.0 million for the same period in 2004. Total interest bearing deposits and other interest-bearing liabilities averaged $272.4 million, which represented an increase of $65.6 million or 32%, as compared to $206.8 million for the same period in
2004. This increase is primarily attributable to the increases of $28.3 million in average time deposit accounts of $100,000 or more, coupled with an increase of $22.3 million in total average borrowings in order to meet our loan demand.



The Company reported total interest income of $8.2 million for the second quarter ended
June 30, 2005, which represented an increase of $2.8 million or 50%, over total interest income of $5.4 million for the same period in 2004. The increase in total interest income for the second quarter ended June 30, 2005 as compared to the same
quarter in 2004 was primarily due to an increase of approximately $2.8 million in interest and fees on loans resulting from an increase in average loans.



The Company reported total interest expense of $1.7 million for the second quarter of 2005, which represented an increase of $910,000 or 119% over total interest expense
of $762,000 for the same period in 2004. The increase was primarily due to greater interest paid on time deposit accounts of $100,000 or more, coupled with higher interest expense on FHLB borrowings.



For the quarter ended June 30, 2005, net interest income before provision for loan losses was
$6.5 million, which represented an increase of $1.8 million, or 39%, over net interest income before provision for loan losses of $4.7 million for the quarter ended June 30, 2004. The increase in net interest income for the second quarter of 2005 as
compared to 2004 was primarily due to the Companys loan growth.



Six-month analysis.The Companys year-to-date net interest margin was 6.92% for the first six months of 2005, as compared to 6.89% for the same period in 2004. For the first six months of 2005, total interest earning assets
averaged $363.7 million, which represented an increase of $99.1 million or 37%, as compared to $264.6 million for the same period in 2004. This increase is primarily attributable to the increase in loans as a result of our strong business climate
and loan demand. The increase in loan volume and the decrease in securities volume created a shift in the mix as a percentage of total interest earning assets. Loans increased to 93% from 84% and investments decreased to 5% from 13%. Total interest
bearing deposits and other interest-bearing liabilities averaged $259.4 million, which represented an increase of $67.2 million or 35%, as compared to $192.2 million for the same period in 2004. This increase is primarily attributable to the
increase in money market accounts due to a promotional money market account offered to businesses and consumers during the second quarter of 2004 and again during the second quarter of 2005. There was also an increase of $15.9 million in time
deposit accounts of $100,000 or more due to the addition of brokered deposits, coupled with an increase in borrowings in order to fund our loan demand.



15



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##### Table of Contents

The Company reported total interest income of $15.4 million for the six months ended June 30, 2005, which represented an
increase of $5.0 million or 48%, over total interest income of $10.4 million for the same period in 2004. The increase in total interest income was primarily due to an increase of approximately $5.3 million in interest and fees on loans resulting
from an increase of approximately $118.4 million in average loans during the first six months of 2005, as compared to the same period in 2004.



The Company reported total interest expense of $2.9 million for the six months ended June 30, 2005, which represented an increase of $1.5 million or 114% over total
interest expense of $1.4 million for the same period in 2004. More interest paid on money market accounts, time deposit accounts of $100,000 or more and FHLB borrowings resulted in this increase.



For the six months ended June 30, 2005, net interest income before provision for loan losses
was $12.5 million, which represented an increase of $3.4 million, or 38%, over net interest income before provision for loan losses of $9.1 million for the same period in 2004. The increase in net interest income for the first six months of 2005 as
compared to 2004 was primarily due to the increase in average total loans.



16



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##### Table of Contents

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



Distribution, Yield and Rate Analysis of Net Interest Income



|                                                    |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|--------------------------------------------------- |  | ------------------------------------ | ------- | ------------------------ | ---- | ------------------- |  | ---- | -------------- |  | ------------------------ | ------- | ------------------- | - | ----- |  | ---- | -
|                                                    |  | For the three Months Ending June 30, |        
|                                                    |  | 2005                                 |         |                          | 2004 |                    
|                                                    |  | Average Balance                      |         | Interest Income/ Expense |      | Average4 Rate/Yield |  |      | AverageBalance |  | Interest Income/ Expense |         | Average4 Rate/Yield |  
|                                                    |  | (Dollars in Thousands)               |        
|Interest-earning Assets:                            |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Federal funds sold                                  |  | $                                    | 4,176   |                          | $    | 31                  |  | 2.98 | %              |  | $                        | 9,311   |                     | $ | 23    |  | 0.99 | %
|Interest-bearing deposits in financial institutions |  |                                      | 2,939   |                          |      | 34                  |  | 4.64 | %              |  |                          | 4,735   |                     |   | 51    |  | 4.33 | %
|Investment securities:5                             |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Taxable                                             |  |                                      | 12,473  |                          |      | 112                 |  | 3.60 | %              |  |                          | 27,005  |                     |   | 230   |  | 3.43 | %
|Non-taxable                                         |  |                                      | 3,861   |                          |      | 42                  |  | 4.36 | %              |  |                          | 3,981   |                     |   | 38    |  | 3.84 | %
|                                                    |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total investments                                   |  |                                      | 23,449  |                          |      | 219                 |  | 3.75 | %              |  |                          | 45,032  |                     |   | 342   |  | 3.05 | %
|Loans6                                              |  |                                      | 357,365 |                          |      | 7,941               |  | 8.91 | %              |  |                          | 236,978 |                     |   | 5,093 |  | 8.64 | %
|                                                    |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total interest-earning assets                       |  | $                                    | 380,814 |                          | $    | 8,160               |  | 8.59 | %              |  | $                        | 282,010 |                     | $ | 5,435 |  | 7.75 | %
|                                                    |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Interest-bearing Liabilities:                       |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Interest-bearing deposits                           |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Interest-bearing demand deposits                    |  | $                                    | 20,282  |                          | $    | 13                  |  | 0.26 | %              |  | $                        | 19,984  |                     | $ | 9     |  | 0.18 | %
|Money market deposits                               |  |                                      | 76,488  |                          |      | 365                 |  | 1.91 | %              |  |                          | 64,429  |                     |   | 189   |  | 1.18 | %
|Savings deposits                                    |  |                                      | 23,096  |                          |      | 45                  |  | 0.78 | %              |  |                          | 23,863  |                     |   | 38    |  | 0.64 | %
|Time deposits $100,000 or greater                   |  |                                      | 66,892  |                          |      | 513                 |  | 3.08 | %              |  |                          | 38,598  |                     |   | 181   |  | 1.89 | %
|Other time deposits                                 |  |                                      | 37,531  |                          |      | 263                 |  | 2.81 | %              |  |                          | 34,358  |                     |   | 163   |  | 1.91 | %
|                                                    |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total interest-bearing deposits                     |  |                                      | 224,289 |                          |      | 1,199               |  | 2.14 | %              |  |                          | 181,232 |                     |   | 580   |  | 1.29 | %
|                                                    |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|FHLB borrowings                                     |  |                                      | 34,319  |                          |      | 254                 |  | 2.97 | %              |  |                          | 11,978  |                     |   | 33    |  | 1.11 | %
|Federal funds purchased                             |  |                                      | 590     |                          |      | 5                   |  | 3.40 | %              |  |                          | 397     |                     |   | 1     |  | 1.01 | %
|Subordinated notes payable to subsidiary Trusts7    |  |                                      | 13,151  |                          |      | 214                 |  | 6.53 | %              |  |                          | 13,151  |                     |   | 148   |  | 4.53 | %
|                                                    |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total borrowings                                    |  |                                      | 48,060  |                          |      | 473                 |  | 3.95 | %              |  |                          | 25,526  |                     |   | 182   |  | 2.87 | %
|                                                    |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Total interest-bearing liabilities                  |  | $                                    | 272,349 |                          | $    | 1,672               |  | 2.46 | %              |  | $                        | 206,758 |                     | $ | 762   |  | 1.48 | %
|                                                    |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Net interest income                                 |  |                                      |         |                          | $    | 6,488               |  |      |                |  |                          |         |                     | $ | 4,673 |  |      |  
|                                                    |  |                                      |         |                          |      |                     |  |      |                |  |                          |         |                     |   |       |  |      |  
|Net interest margin8                                |  |                                      |         |                          |      |                     |  | 6.83 | %              |  |                          |         |                     |   |       |  | 6.66 | %



17



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##### Table of Contents

Distribution, Yield and Rate Analysis of Net Interest Income



|                                                    |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|--------------------------------------------------- |  | ---------------------------------- | ------- | ------------------------ | ---- | ------------------- |  | ---- | -------------- |  | ------------------------ | ------- | ------------------- | - | ------ |  | ---- | -
|                                                    |  | For the six Months Ending June 30, |        
|                                                    |  | 2005                               |         |                          | 2004 |                    
|                                                    |  | Average Balance                    |         | Interest Income/ Expense |      | Average4 Rate/Yield |  |      | AverageBalance |  | Interest Income/ Expense |         | Average4 Rate/Yield |  
|                                                    |  | (Dollars in Thousands)             |        
|Interest-earning Assets:                            |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Federal funds sold                                  |  | $                                  | 2,961   |                          | $    | 42                  |  | 2.86 | %              |  | $                        | 5,524   |                     | $ | 27     |  | 0.98 | %
|Interest-bearing deposits in financial institutions |  |                                    | 3,274   |                          |      | 73                  |  | 4.50 | %              |  |                          | 4,755   |                     |   | 103    |  | 4.36 | %
|Investment securities:5                             |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Taxable                                             |  |                                    | 13,716  |                          |      | 251                 |  | 3.69 | %              |  |                          | 28,866  |                     |   | 537    |  | 3.74 | %
|Non-taxable                                         |  |                                    | 3,877   |                          |      | 83                  |  | 4.32 | %              |  |                          | 4,027   |                     |   | 85     |  | 4.24 | %
|                                                    |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Total investments                                   |  |                                    | 23,828  |                          |      | 449                 |  | 3.80 | %              |  |                          | 43,172  |                     |   | 752    |  | 3.50 | %
|Loans6                                              |  |                                    | 339,853 |                          |      | 14,941              |  | 8.87 | %              |  |                          | 221,461 |                     |   | 9,668  |  | 8.78 | %
|                                                    |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Total interest-earning assets                       |  | $                                  | 363,681 |                          | $    | 15,390              |  | 8.53 | %              |  | $                        | 264,633 |                     | $ | 10,420 |  | 7.92 | %
|                                                    |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Interest-bearing Liabilities:                       |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Interest-bearing deposits                           |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Interest-bearing demand deposits                    |  | $                                  | 19,573  |                          | $    | 23                  |  | 0.24 | %              |  | $                        | 19,677  |                     | $ | 18     |  | 0.18 | %
|Money market deposits                               |  |                                    | 78,397  |                          |      | 669                 |  | 1.72 | %              |  |                          | 54,037  |                     |   | 272    |  | 1.01 | %
|Savings deposits                                    |  |                                    | 23,875  |                          |      | 83                  |  | 0.70 | %              |  |                          | 22,840  |                     |   | 70     |  | 0.62 | %
|Time deposits $100,000 or greater                   |  |                                    | 54,558  |                          |      | 788                 |  | 2.91 | %              |  |                          | 38,648  |                     |   | 362    |  | 1.88 | %
|Other time deposits                                 |  |                                    | 36,070  |                          |      | 468                 |  | 2.62 | %              |  |                          | 31,935  |                     |   | 284    |  | 1.79 | %
|                                                    |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Total interest-bearing deposits                     |  |                                    | 212,473 |                          |      | 2,031               |  | 1.93 | %              |  |                          | 167,137 |                     |   | 1,006  |  | 1.21 | %
|                                                    |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|FHLB borrowings                                     |  |                                    | 32,351  |                          |      | 442                 |  | 2.76 | %              |  |                          | 11,802  |                     |   | 64     |  | 1.09 | %
|Federal funds purchased                             |  |                                    | 1,415   |                          |      | 19                  |  | 2.71 | %              |  |                          | 634     |                     |   | 4      |  | 1.27 | %
|Subordinated notes payable to subsidiary Trusts7    |  |                                    | 13,151  |                          |      | 410                 |  | 6.29 | %              |  |                          | 12,601  |                     |   | 284    |  | 4.53 | %
|                                                    |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Total borrowings                                    |  |                                    | 46,917  |                          |      | 871                 |  | 3.74 | %              |  |                          | 25,037  |                     |   | 352    |  | 2.83 | %
|                                                    |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Total interest-bearing liabilities                  |  | $                                  | 259,390 |                          | $    | 2,902               |  | 2.26 | %              |  | $                        | 192,174 |                     | $ | 1,358  |  | 1.42 | %
|                                                    |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Net interest income                                 |  |                                    |         |                          | $    | 12,488              |  |      |                |  |                          |         |                     | $ | 9,062  |  |      |  
|                                                    |  |                                    |         |                          |      |                     |  |      |                |  |                          |         |                     |   |        |  |      |  
|Net interest margin8                                |  |                                    |         |                          |      |                     |  | 6.92 | %              |  |                          |         |                     |   |        |  | 6.89 | %

---

|4 | Average rates/yields for these periods have been annualized using actual days for 2005 and 2004.
|- | ------------------------------------------------------------------------------------------------



|5 | Yields on income have not been computed on a tax equivalent basis, because tax-exempt investments are minimal.
|- | --------------------------------------------------------------------------------------------------------------



|6 | Loans are gross, which excludes the allowance for loan losses, and net of deferred fees. Nonaccrual loans are included in the table for computation purposes, but the
foregone interest on such loans is excluded. Loan fee income during the first six months of 2005 was $2.3 million as compared to $1.7 million for the first six months of 2004.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7 | On January 1, 2004, the Company adopted FIN 46 and deconsolidated its trust preferred securities from its balance sheet.
|- | ------------------------------------------------------------------------------------------------------------------------



|8 | Net interest income as a percentage of average interest-earning assets.
|- | -----------------------------------------------------------------------



18



---

##### Table of Contents

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



Rate/Volume
Analysis of Net Interest Income



|                                                    |  |                                           |        |   |       |   |       |               |  |   |        |   |  |   |       |  
|--------------------------------------------------- |  | ----------------------------------------- | ------ | - | ----- | - | ----- | ------------- |  | - | ------ | - |  | - | ----- | -
|                                                    |  | Three Months Ended June 30, 2005 vs. 2004 |       
|                                                    |  | Increases (Decreases) Due to Change In    |       
|                                                    |  | Volume                                    |        |   | Rate9 |   |       | Rate9 /Volume |  |   | Total  |  
|                                                    |  | (Dollars in Thousands)                    |       
|Increase (Decrease) in Interest Income:             |  |                                           |        |  
|Federal funds sold                                  |  | $                                         | (51    | ) |       | $ | 185   |               |  | $ | (126   | ) |  | $ | 8     |  
|Interest-bearing deposits in financial institutions |  |                                           | (78    | ) |       |   | 15    |               |  |   | 46     |   |  |   | (17   | )
|Investment securities:10                            |  |                                           |        |   |       |   |       |               |  |   |        |   |  |   |       |  
|Taxable                                             |  |                                           | (498   | ) |       |   | 48    |               |  |   | 332    |   |  |   | (118  | )
|Non-taxable                                         |  |                                           | (5     | ) |       |   | 21    |               |  |   | (12    | ) |  |   | 4     |  
|Loans11                                             |  |                                           | 10,406 |   |       |   | 637   |               |  |   | (8,195 | ) |  |   | 2,848 |  
|                                                    |  |                                           |        |   |       |   |       |               |  |   |        |   |  |   |       |  
|Total                                               |  | $                                         | 9,774  |   |       | $ | 906   |               |  | $ | (7,955 | ) |  | $ | 2,725 |  
|                                                    |  |                                           |        |   |       |   |       |               |  |   |        |   |  |   |       |  
|Increase (Decrease) in Interest Expense:            |  |                                           |        |   |       |   |       |               |  |   |        |   |  |   |       |  
|Interest-bearing demand deposits                    |  | $                                         | 1      |   |       | $ | 15    |               |  | $ | (12    | ) |  | $ | 4     |  
|Money market deposits                               |  |                                           | 142    |   |       |   | 473   |               |  |   | (439   | ) |  |   | 176   |  
|Savings deposits                                    |  |                                           | (5     | ) |       |   | 34    |               |  |   | (22    | ) |  |   | 7     |  
|Time deposits $100,000 or greater                   |  |                                           | 534    |   |       |   | 459   |               |  |   | (661   | ) |  |   | 332   |  
|Other time deposits                                 |  |                                           | 61     |   |       |   | 310   |               |  |   | (271   | ) |  |   | 100   |  
|FHLB borrowings                                     |  |                                           | 248    |   |       |   | 223   |               |  |   | (250   | ) |  |   | 221   |  
|Federal funds purchased                             |  |                                           | 2      |   |       |   | 9     |               |  |   | (7     | ) |  |   | 4     |  
|Subordinated notes payable to subsidiary Trusts     |  |                                           |       |   |       |   | 263   |               |  |   | (197   | ) |  |   | 66    |  
|                                                    |  |                                           |        |   |       |   |       |               |  |   |        |   |  |   |       |  
|Total                                               |  | $                                         | 983    |   |       | $ | 1,786 |               |  | $ | (1,859 | ) |  | $ | 910   |  
|                                                    |  |                                           |        |   |       |   |       |               |  |   |        |   |  |   |       |  
|Total change in net interest income                 |  | $                                         | 8,791  |   |       | $ | (880  | )             |  | $ | (6,096 | ) |  | $ | 1,815 |  
|                                                    |  |                                           |        |   |       |   |       |               |  |   |        |   |  |   |       |  



19



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##### Table of Contents

Rate/Volume Analysis of Net Interest Income



|                                                    |  |                                         |        |   |       |   |        |               |  |   |        |   |  |   |       |  
|--------------------------------------------------- |  | --------------------------------------- | ------ | - | ----- | - | ------ | ------------- |  | - | ------ | - |  | - | ----- | -
|                                                    |  | Six Months Ended June 30, 2005 vs. 2004 |       
|                                                    |  | Increases (Decreases) Due to Change In  |       
|                                                    |  | Volume                                  |        |   | Rate9 |   |        | Rate9 /Volume |  |   | Total  |  
|                                                    |  | (Dollars in Thousands)                  |       
|Increase (Decrease) in Interest Income:             |  |                                         |        |  
|Federal funds sold                                  |  | $                                       | (25    | ) |       | $ | 104    |               |  | $ | (64    | ) |  | $ | 15    |  
|Interest-bearing deposits in financial institutions |  |                                         | (65    | ) |       |   | 7      |               |  |   | 28     |   |  |   | (30   | )
|Investment securities:10                            |  |                                         |        |   |       |   |        |               |  |   |        |   |  |   |       |  
|Taxable                                             |  |                                         | (566   | ) |       |   | (15    | )             |  |   | 295    |   |  |   | (286  | )
|Non-taxable                                         |  |                                         | (6     | ) |       |   | 3      |               |  |   | 1      |   |  |   | (2    | )
|Loans11                                             |  |                                         | 10,394 |   |       |   | 191    |               |  |   | (5,312 | ) |  |   | 5,273 |  
|                                                    |  |                                         |        |   |       |   |        |               |  |   |        |   |  |   |       |  
|Total                                               |  | $                                       | 9,732  |   |       | $ | 290    |               |  | $ | (5,052 | ) |  | $ | 4,970 |  
|                                                    |  |                                         |        |   |       |   |        |               |  |   |        |   |  |   |       |  
|Increase (Decrease) in Interest Expense:            |  |                                         |        |   |       |   |        |               |  |   |        |   |  |   |       |  
|Interest-bearing demand deposits                    |  | $                                       |       |   |       | $ | 10     |               |  | $ | (5     | ) |  | $ | 5     |  
|Money market deposits                               |  |                                         | 247    |   |       |   | 384    |               |  |   | (233   | ) |  |   | 398   |  
|Savings deposits                                    |  |                                         | 6      |   |       |   | 19     |               |  |   | (13    | ) |  |   | 12    |  
|Time deposits $100,000 or greater                   |  |                                         | 300    |   |       |   | 397    |               |  |   | (271   | ) |  |   | 426   |  
|Other time deposits                                 |  |                                         | 74     |   |       |   | 264    |               |  |   | (154   | ) |  |   | 184   |  
|FHLB borrowings                                     |  |                                         | 225    |   |       |   | 196    |               |  |   | (43    | ) |  |   | 378   |  
|Federal funds purchased                             |  |                                         | 10     |   |       |   | 9      |               |  |   | (4     | ) |  |   | 15    |  
|Subordinated notes payable to subsidiary trusts     |  |                                         | 25     |   |       |   | 221    |               |  |   | (120   | ) |  |   | 126   |  
|                                                    |  |                                         |        |   |       |   |        |               |  |   |        |   |  |   |       |  
|Total                                               |  | $                                       | 887    |   |       | $ | 1,500  |               |  | $ | (843   | ) |  | $ | 1,544 |  
|                                                    |  |                                         |        |   |       |   |        |               |  |   |        |   |  |   |       |  
|Total change in net interest income                 |  | $                                       | 8,845  |   |       | $ | (1,210 | )             |  | $ | (4,209 | ) |  | $ | 3,426 |  
|                                                    |  |                                         |        |   |       |   |        |               |  |   |        |   |  |   |       |  



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 $1,010,000 for the six months ended June 30, 2005. This represented an increase of $142,000 or 16% when compared to $868,000 for the same period in 2004. Despite the decrease in
net loan charge-offs of $100,000 for the six months ended June 30, 2005, as compared to the same period in 2004, the increase in the provision was necessary in order to support the Companys loan portfolio growth.

---

|9 | Rates for these periods on which calculations are based have been annualized using actual days.
|- | -----------------------------------------------------------------------------------------------



|10 | Yields on income have not been computed on a tax equivalent basis, because tax-exempt investments are minimal.
|-- | --------------------------------------------------------------------------------------------------------------



|11 | 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 fee income during the first six months of 2005 was $2.3 million as compared to $1.7 million for the first six months of 2004.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



---

##### Table of Contents

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, conduit loan sale income, fee spread participation loan income and other miscellaneous
income.



Second quarter analysis.Noninterest income totaled $1,121,000
for the second quarter ended June 30, 2005. This represented an increase of $511,000, or 84% when compared to $610,000 for the same period in 2004.



The increase in noninterest income was primarily the result of $218,000 of additional income from gains and commissions from the sale of loans. More loans were sold to
maintain liquidity during the second quarter of 2005 as compared to the same period in 2004. Conduit loan sale income increased $191,000 as a result of more activity in loan sales in the second quarter of 2005 as compared to the same period in 2004.
For the second quarter ended June 30, 2005 as compared to 2004, noninterest income as an annualized percentage of average earning assets increased to 1.18% from 0.87%.



Six-month analysis. Noninterest income totaled $2,035,000 for six months ended June 30, 2005. This represented an increase of
$594,000, or 41% when compared to $1,441,000 for the same period in 2004.



The
increase in noninterest income was primarily the result of the increase in conduit loan sale income of $354,000 as a result of more activity in loan sales during the first six months of 2005 as compared to the same period in 2004. Customer service
fee income increased $108,000 due to the increase in volume in deposit accounts during the first six months of 2005 as compared to the same period in 2004. There was also additional income of $125,000 from participated loans due to more activity in
loan participations in the first six months of 2005 as compared to the same period in 2004.



For the six months ended June 30, 2005 as compared to 2004, noninterest income as an annualized percentage of average earning assets increased to 1.13% from 1.10%. This favorable increase is attributable to the
continuing efforts of the Company to increase noninterest income. To augment noninterest income, in March 2005 the Company formed a revenue sharing affiliation with KWB Wealth Managers Group, a successful Linsco Private Ledger firm that offers
non-deposit and investment products. This affiliation is intended to help the Company grow this important line of business and increase our level of service to our clients.



21



---

##### Table of Contents

The following tables set 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 June 30, |      
|                                                       |  | 2005                                |       |                  | 2004   |  
|                                                       |  | Amount                              |       | Percent of Total |        |   | Amount |   |     | Percent of Total | 
|                                                       |  | (Dollars in Thousands)              |      
|Customer service fees                                  |  | $                                   | 354   |                  | 31.57  | % |        | $ | 287 |                  |  | 47.05  | % 
|Gains and commissions from sale of loans               |  |                                     | 250   |                  | 22.30  | % |        |   | 32  |                  |  | 5.25   | % 
|Increase in cash surrender value of life insurance     |  |                                     | 69    |                  | 6.16   | % |        |   | 68  |                  |  | 11.15  | % 
|Broker fee income                                      |  |                                     | 47    |                  | 4.19   | % |        |   | 42  |                  |  | 6.89   | % 
|Conduit loan sale income                               |  |                                     | 344   |                  | 30.69  | % |        |   | 153 |                  |  | 25.08  | % 
|Fee spread participation loan income                   |  |                                     | 40    |                  | 3.57   | % |        |   | 37  |                  |  | 6.06   | % 
|Other miscellaneous income                             |  |                                     | 17    |                  | 1.52   | % |        |   | (9  | )                |  | (1.48  | )%
|                                                       |  |                                     |       |                  |        |   |        |   |     |                  |  |        |   
|Total noninterest income                               |  | $                                   | 1,121 |                  | 100.00 | % |        | $ | 610 |                  |  | 100.00 | % 
|                                                       |  |                                     |       |                  |        |   |        |   |     |                  |  |        |   
|As a percentage of average earning assets (annualized) |  |                                     |       |                  | 1.18   | % |        |   |     |                  |  | 0.87   | % 
|                                                       |  |                                     |       |                  |        |   |        |   |     |                  |  |        |   



Noninterest Income



|                                                       |  |                                   |       |   |                  |        |    |        |   |                  |  |        |  
|------------------------------------------------------ |  | --------------------------------- | ----- | - | ---------------- | ------ | -- | ------ | - | ---------------- |  | ------ | -
|                                                       |  | For the Six Months Ended June 30, |      
|                                                       |  | 2005                              |       |   | 2004             |       
|                                                       |  | Amount                            |       |   | Percent of Total |        |    | Amount |   | Percent of Total | 
|                                                       |  | (Dollars in Thousands)            |      
|Customer service fees                                  |  | $                                 | 675   |   |                  | 33.17  | %  |        | $ | 567              |  | 39.35  | %
|Gains and commissions from sale of loans               |  |                                   | 305   |   |                  | 14.99  | %  |        |   | 244              |  | 16.93  | %
|Increase in cash surrender value of life insurance     |  |                                   | 130   |   |                  | 6.39   | %  |        |   | 160              |  | 11.10  | %
|Broker fee income                                      |  |                                   | 125   |   |                  | 6.14   | %  |        |   | 103              |  | 7.15   | %
|Conduit loan sale income                               |  |                                   | 646   |   |                  | 31.74  | %  |        |   | 292              |  | 20.26  | %
|Fee spread participation loan income                   |  |                                   | 162   |   |                  | 7.96   | %  |        |   | 37               |  | 2.57   | %
|Other miscellaneous income                             |  |                                   | (8    | ) |                  | (0.39  | )% |        |   | 38               |  | 2.64   | %
|                                                       |  |                                   |       |   |                  |        |    |        |   |                  |  |        |  
|Total noninterest income                               |  | $                                 | 2,035 |   |                  | 100.00 | %  |        | $ | 1,441            |  | 100.00 | %
|                                                       |  |                                   |       |   |                  |        |    |        |   |                  |  |        |  
|As a percentage of average earning assets (annualized) |  |                                   |       |   |                  | 1.13   | %  |        |   |                  |  | 1.10   | %
|                                                       |  |                                   |       |   |                  |        |    |        |   |                  |  |        |  



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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.



Second quarter analysis.Noninterest expense totaled $4,928,000 for the second
quarter ended June 30, 2005. This represented an increase of $972,000, or 25% as compared to $3,956,000 for the same period in 2004. The increase in noninterest expense was primarily due to the increases of $593,000, $125,000, $106,000 and $110,000
in salaries and employee benefits, occupancy expense, marketing expense and professional fee expense, respectively.



Due to the Companys growth, coupled with salary increases and the addition of our Irwindale branch, salaries and employee benefits increased $593,000. The increase
in occupancy expense of $125,000 was attributable to the opening of our Irwindale office, which occurred in February 2005 and the move into our new location for our Palm Desert office in June 2004. The increase in marketing expense of $106,000 was
attributed to expenses related to ongoing business development efforts. The increase in professional expense of $110,000 was attributed 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 second quarter ended June 30, 2005 as compared to 2004, noninterest expense as an annualized percentage of average earning assets decreased to 5.19% from 5.64%.



Six-month analysis.Noninterest expense totaled $9,861,000 for the six months ended
June 30, 2005. This represented an increase of $2,004,000, or 26% when compared to $7,857,000 for the same period in 2004. The increase in noninterest expense was primarily due to the increases of $1,142,000, $215,000, $230,000 and $205,000 in
salaries and employee benefits, occupancy expense, marketing expense and professional fee expense, respectively.



Additional staffing and salary increases contributed to the increase in salaries and employee benefits of $1,142,000 while the increase in occupancy expense of $215,000
was attributed to the opening of our Irwindale office that opened in February 2005 and the move into our new location for our Palm Desert office in June 2004. The increase in marketing expense of $230,000 was attributed to expenses related to
ongoing business development efforts. The increase in professional expense of $205,000 was attributed 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 six months ended June 30, 2005 as compared to 2004, noninterest
expense as an annualized percentage of average earning assets decreased to 5.47% from 5.97%. This decrease is reflective of managements continuing efforts to control overhead expenses.



23



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##### Table of Contents

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



Noninterest Expense



|                                                       |  |                                     |       |                 |        |   |        |   |                 |  |        |  
|------------------------------------------------------ |  | ----------------------------------- | ----- | --------------- | ------ | - | ------ | - | --------------- |  | ------ | -
|                                                       |  | For the Three Months Ended June 30, |      
|                                                       |  | 2005                                |       |                 | 2004   |  
|                                                       |  | Amount                              |       | Percentof Total |        |   | Amount |   | Percentof Total | 
|                                                       |  | (Dollars in Thousands)              |      
|Salaries and employee benefits                         |  | $                                   | 2,956 |                 | 59.98  | % |        | $ | 2,363           |  | 59.73  | %
|Net occupancy expense                                  |  |                                     | 483   |                 | 9.80   | % |        |   | 358             |  | 9.05   | %
|Marketing                                              |  |                                     | 299   |                 | 6.07   | % |        |   | 193             |  | 4.88   | %
|Data processing fees                                   |  |                                     | 251   |                 | 5.09   | % |        |   | 226             |  | 5.71   | %
|Professional fees                                      |  |                                     | 299   |                 | 6.07   | % |        |   | 189             |  | 4.78   | %
|Postage, telephone, supplies                           |  |                                     | 140   |                 | 2.84   | % |        |   | 134             |  | 3.39   | %
|Directors fees                                        |  |                                     | 59    |                 | 1.20   | % |        |   | 48              |  | 1.21   | %
|Other operating expense                                |  |                                     | 441   |                 | 8.95   | % |        |   | 445             |  | 11.25  | %
|                                                       |  |                                     |       |                 |        |   |        |   |                 |  |        |  
|Total noninterest expense                              |  | $                                   | 4,928 |                 | 100.00 | % |        | $ | 3,956           |  | 100.00 | %
|                                                       |  |                                     |       |                 |        |   |        |   |                 |  |        |  
|As a percentage of average earning assets (annualized) |  |                                     |       |                 | 5.19   | % |        |   |                 |  | 5.64   | %
|                                                       |  |                                     |       |                 |        |   |        |   |                 |  |        |  



Noninterest Expense



|                                                       |  |                                   |       |                 |        |   |        |   |                 |  |        |  
|------------------------------------------------------ |  | --------------------------------- | ----- | --------------- | ------ | - | ------ | - | --------------- |  | ------ | -
|                                                       |  | For the Six Months Ended June 30, |      
|                                                       |  | 2005                              |       |                 | 2004   |  
|                                                       |  | Amount                            |       | Percentof Total |        |   | Amount |   | Percentof Total | 
|                                                       |  | (Dollars in Thousands)            |      
|Salaries and employee benefits                         |  | $                                 | 5,914 |                 | 59.97  | % |        | $ | 4,772           |  | 60.73  | %
|Net occupancy expense                                  |  |                                   | 930   |                 | 9.43   | % |        |   | 715             |  | 9.10   | %
|Marketing                                              |  |                                   | 607   |                 | 6.16   | % |        |   | 377             |  | 4.80   | %
|Data processing fees                                   |  |                                   | 482   |                 | 4.89   | % |        |   | 420             |  | 5.35   | %
|Professional fees                                      |  |                                   | 653   |                 | 6.62   | % |        |   | 448             |  | 5.70   | %
|Postage, telephone, supplies                           |  |                                   | 280   |                 | 2.84   | % |        |   | 293             |  | 3.73   | %
|Directors fees                                        |  |                                   | 119   |                 | 1.21   | % |        |   | 93              |  | 1.18   | %
|Other operating expense                                |  |                                   | 876   |                 | 8.88   | % |        |   | 739             |  | 9.41   | %
|                                                       |  |                                   |       |                 |        |   |        |   |                 |  |        |  
|Total noninterest expense                              |  | $                                 | 9,861 |                 | 100.00 | % |        | $ | 7,857           |  | 100.00 | %
|                                                       |  |                                   |       |                 |        |   |        |   |                 |  |        |  
|As a percentage of average earning assets (annualized) |  |                                   |       |                 | 5.47   | % |        |   |                 |  | 5.97   | %
|                                                       |  |                                   |       |                 |        |   |        |   |                 |  |        |  



INCOME TAXES



As of June 30, 2005 the Companys effective income tax rate is approximately 38.7%, as
compared to 35.2% for the same period in 2004. The increase in the effective rate is a direct result of the Companys increase in taxable income verses tax-exempt income on certain tax-exempt investments. These rates represent a blend of the
statutory federal income tax rate of 34.0% and the California income tax rate of 7.2%, net of tax benefit.



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##### Table of Contents

FINANCIAL CONDITION



GENERAL



The Companys total assets were $425.1 million at June 30, 2005, an increase of $68.4 million, or 19%, compared to total assets of $356.7 million at December 31, 2004. The majority of the asset growth was in
total net loans, which increased $56.3 million or 18% to $364.3 million at June 30, 2005 as compared to $308.0 million at December 31, 2004. Strong loan demand in the Companys market areas contributed to the increase in total loans. Federal
funds sold increased to $14.6 million at June 30, 2005 as compared to no federal funds sold at December 31, 2004. The Companys improved liquidity position contributed to the increase in federal funds sold.



Total deposits at June 30, 2005 were $343.6 million, which represented an increase of $51.8
million, or 18% from total deposits of $291.8 million at December 31, 2004. The increase was primarily in interest-bearing deposits. Interest-bearing deposits increased $41.4 million or 21% to $240.6 million at June 30, 2005 compared to $199.2
million at December 31, 2004. These deposit increases and the addition of $14.5 million in FHLB borrowings were used to support the loan growth from December 31, 2004 to June 30, 2005.



LOANS



Total gross loans were $371.3 million at June 30, 2005 as compared to $313.7 million at December 31, 2004. Total gross loans represented 87% and 88% of total assets at
June 30, 2005 and December 31, 2004, respectively. Total gross loans increased by $57.6 million, or 18% for the first six months of 2005. Real estate loans increased $32.2 million or 16% during the first six months of 2005 and represented
approximately 56% of the total loan growth of $57.6 million. This was due to the continuing strong demand for affordable housing in our market areas. Commercial loans increased $22.0 million or 21% during the first six months of 2005 due to our
strong business climate and loan demand.



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



Loan Portfolio Composition



|                             |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|---------------------------- |  | ---------------------- | ------- | - | ----------------- | ------ | - | ------ | - | ------- | --------------- |  | ------ | -
|                             |  | June 30, 2005          |         |   | December 31, 2004 |       
|                             |  | Amount                 |         |   | Percentof Total   |        |   | Amount |   |         | Percentof Total | 
|                             |  | (Dollars in Thousands) |        
|Real estate loans:           |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Construction and development |  | $                      | 141,150 |   |                   | 38.02  | % |        | $ | 124,309 |                 |  | 39.62  | %
|Residential loans            |  |                        | 4,835   |   |                   | 1.30   | % |        |   | 3,650   |                 |  | 1.16   | %
|Commercial and multi-family  |  |                        | 91,499  |   |                   | 24.64  | % |        |   | 77,316  |                 |  | 24.64  | %
|Commercial loans             |  |                        | 124,627 |   |                   | 33.56  | % |        |   | 102,582 |                 |  | 32.71  | %
|Consumer loans               |  |                        | 1,383   |   |                   | 0.37   | % |        |   | 1,107   |                 |  | 0.35   | %
|Equity lines of credit       |  |                        | 6,602   |   |                   | 1.78   | % |        |   | 3,475   |                 |  | 1.11   | %
|Credit card and other loans  |  |                        | 1,210   |   |                   | 0.33   | % |        |   | 1,284   |                 |  | 0.41   | %
|                             |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Total gross loans            |  |                        | 371,306 |   |                   | 100.00 | % |        |   | 313,723 |                 |  | 100.00 | %
|                             |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Less:                        |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Unearned income              |  |                        | (1,822  | ) |                   |        |   |        |   | (1,556  | )               |  |        |  
|Allowance for loan losses    |  |                        | (5,142  | ) |                   |        |   |        |   | (4,137  | )               |  |        |  
|                             |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  
|Total net loans              |  | $                      | 364,342 |   |                   |        |   |        | $ | 308,030 |                 |  |        |  
|                             |  |                        |         |   |                   |        |   |        |   |         |                 |  |        |  



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##### Table of Contents

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



Nonperforming assets include loans for which interest is no longer accruing, loans 90 or more days past due, restructured loans and other real estate owned.



Nonperforming assets at June 30, 2005 increased $41,000 to $166,000, from $125,000 at
December 31, 2004, representing 0.04% of total gross loans for both periods. This increase was primarily attributed to the addition of one commercial loan totaling $30,000 placed on nonaccrual and the addition of one commercial loan for $24,000 past
due more than 90 days.



Nonperforming assets at June 30, 2005 decreased $27,000
to $166,000, from $193,000 at June 30, 2004, representing 0.04% and 0.07% of total gross loans, respectively. This decrease was primarily attributed to the payoffs of one commercial loan totaling $7,000 and one commercial and multi-family real
estate loan totaling $56,000 coupled with the reclassification of one commercial loan totaling $4,000 from nonaccrual to accrual status. There were also principal reductions totaling approximately $14,000 on loans that remain on nonaccrual status.
This activity was offset against the addition of one commercial loan totaling $30,000 placed on nonaccrual and the addition of one commercial loan for $24,000 past due, more than 90 days.



26



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##### Table of Contents

The following table provides information with respect to all nonperforming assets as of June 31, 2005 and 2004, and
December 31, 2004:



Nonperforming Assets



|                                                                                      |  |                        |          |   |                  |   |          |              |  |   |          |  
|------------------------------------------------------------------------------------- |  | ---------------------- | -------- | - | ---------------- | - | -------- | ------------ |  | - | -------- | -
|                                                                                      |  | June 30,2005           |          |   | December31, 2004 |   |          | June 30,2004 | 
|                                                                                      |  | (Dollars in Thousands) |         
|Nonaccrual loans:12                                                                   |  |                        |          |   |                  |   |          |              |  |   |          |  
|Real estate loans:                                                                    |  |                        |          |   |                  |   |          |              |  |   |          |  
|Construction and development                                                          |  | $                      |         |   |                  | $ |         |              |  | $ |         |  
|Residential loans                                                                     |  |                        |         |   |                  |   |         |              |  |   |         |  
|Commercial and multi-family                                                           |  |                        |         |   |                  |   |         |              |  |   | 56       |  
|Commercial loans                                                                      |  |                        | 115      |   |                  |   | 92       |              |  |   | 100      |  
|Consumer loans                                                                        |  |                        |         |   |                  |   |         |              |  |   |         |  
|Equity lines of credit                                                                |  |                        |         |   |                  |   |         |              |  |   |         |  
|Credit card and other loans                                                           |  |                        | 27       |   |                  |   | 33       |              |  |   | 37       |  
|                                                                                      |  |                        |          |   |                  |   |          |              |  |   |          |  
|Total nonaccrual loans                                                                |  | $                      | 142      |   |                  | $ | 125      |              |  | $ | 193      |  
|                                                                                      |  |                        |          |   |                  |   |          |              |  |   |          |  
|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                                                                      |  |                        | 24       |   |                  |   |         |              |  |   |         |  
|Consumer loans                                                                        |  |                        |         |   |                  |   |         |              |  |   |         |  
|Equity lines of credit                                                                |  |                        |         |   |                  |   |         |              |  |   |         |  
|Credit card and other loans                                                           |  |                        |         |   |                  |   |         |              |  |   |         |  
|                                                                                      |  |                        |          |   |                  |   |          |              |  |   |          |  
|Total loans 90 days or more past due and still accruing                               |  | $                      | 24       |   |                  | $ |         |              |  | $ |         |  
|                                                                                      |  |                        |          |   |                  |   |          |              |  |   |          |  
|Restructured loans13                                                                  |  | $                      |         |   |                  | $ |         |              |  | $ |         |  
|                                                                                      |  |                        |          |   |                  |   |          |              |  |   |          |  
|Total nonperforming loans                                                             |  | $                      | 166      |   |                  | $ | 125      |              |  | $ | 193      |  
|Other real estate owned                                                               |  |                        |         |   |                  |   |         |              |  |   |         |  
|                                                                                      |  |                        |          |   |                  |   |          |              |  |   |          |  
|Total nonperforming assets                                                            |  | $                      | 166      |   |                  | $ | 125      |              |  | $ | 193      |  
|                                                                                      |  |                        |          |   |                  |   |          |              |  |   |          |  
|Nonperforming loans as a percentage of total gross loans14                            |  |                        | 0.04     | % |                  |   | 0.04     | %            |  |   | 0.07     | %
|Nonperforming assets as a percentage of total gross loans and other real estate owned |  |                        | 0.04     | % |                  |   | 0.04     | %            |  |   | 0.07     | %
|Allowance for loan losses to nonperforming loans                                      |  |                        | 3,097.59 | % |                  |   | 3,309.60 | %            |  |   | 1,487.56 | %
|Allowance for loan losses                                                             |  | $                      | 5,142    |   |                  | $ | 4,137    |              |  | $ | 2,871    |  
|                                                                                      |  |                        |          |   |                  |   |          |              |  |   |          |  

---

|12 | During the six months ended June 30, 2005, no income related to these loans was included in
net income. Additional interest income of approximately $14,000, would have been recorded for the six months ended June 30, 2005 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.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|13 | Restructured loans are loans where the terms are renegotiated to provide a reduction or
deferral of interest or principal due to a deterioration in the financial position of the borrower.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|14 | Total loans are gross loans less unearned income.
|-- | -------------------------------------------------



27



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##### Table of Contents

ALLOWANCE FOR LOAN LOSSES



The allowance for loan losses totaled $5.1 million at June 30, 2005 compared to $4.1 million at December 31, 2004. The process for
monitoring the adequacy of the allowance, as well as supporting documentation regarding the allowance follows.



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



The Company
establishes an Allowance for Loan 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 in order to maintain the integrity of the risk rating
process. The risk ratings are stratified by loan type and according to risk rating.



28



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##### Table of Contents

As of June 30, 2005, the aggregate loan portfolio risk ratings were stratified as follows:



|                  |  |       |  
|----------------- |  | ----- | -
|Pass/Homogeneous: |  | 91.96 | %
|Special Mention:  |  | 6.90  | %
|Substandard:      |  | 1.01  | %
|Doubtful:         |  | 0.14  | %



The allowance for loan losses as a
percentage of total loans outstanding as of June 30, 2005 was 1.39%, as compared to 1.33% at December 31, 2004 and 1.10% at June 30, 2004. Charge-offs totaled $9,000 during the first six months of 2005 as compared to $145,000 during the same period
in 2004. Recoveries totaled $4,000 during the first six months of 2005 as compared to $40,000 during the same period in 2004. The ratio of the allowance for loan losses to average total loans was determined by management to be adequate at June 30,
2005 and December 31, 2004.



29



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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



|                                                                                |  |                        |          |    |                  |   |          |              |  |   |          |   
|------------------------------------------------------------------------------- |  | ---------------------- | -------- | -- | ---------------- | - | -------- | ------------ |  | - | -------- | --
|                                                                                |  | June 30,2005           |          |    | December 31,2004 |   |          | June 30,2004 | 
|                                                                                |  | (Dollars in Thousands) |         
|Balances:                                                                       |  |                        |          |    |                  |   |          |              |  |   |          |   
|Average total loans outstanding during period                                   |  | $                      | 339,853  |    |                  | $ | 257,005  |              |  | $ | 221,461  |   
|                                                                                |  |                        |          |    |                  |   |          |              |  |   |          |   
|Total loans outstanding at end of period, net of unearned income                |  | $                      | 369,484  |    |                  | $ | 312,167  |              |  | $ | 261,748  |   
|                                                                                |  |                        |          |    |                  |   |          |              |  |   |          |   
|Allowance for Loan Losses:                                                      |  |                        |          |    |                  |   |          |              |  |   |          |   
|Balance at beginning of period                                                  |  | $                      | 4,137    |    |                  | $ | 2,108    |              |  | $ | 2,108    |   
|Charge-offs:                                                                    |  |                        |          |    |                  |   |          |              |  |   |          |   
|Real estate loans:                                                              |  |                        |          |    |                  |   |          |              |  |   |          |   
|Construction and development                                                    |  |                        |         |    |                  |   |         |              |  |   |         |   
|Residential loans                                                               |  |                        |         |    |                  |   |         |              |  |   |         |   
|Commercial and multi-family                                                     |  |                        |         |    |                  |   |         |              |  |   |         |   
|Commercial loans                                                                |  |                        |         |    |                  |   | 121      |              |  |   | 121      |   
|Consumer loans                                                                  |  |                        |         |    |                  |   | 14       |              |  |   | 11       |   
|Equity lines of credit                                                          |  |                        |         |    |                  |   |         |              |  |   |         |   
|Credit card and other loans                                                     |  |                        | 9        |    |                  |   | 20       |              |  |   | 13       |   
|                                                                                |  |                        |          |    |                  |   |          |              |  |   |          |   
|Total charge-offs                                                               |  |                        | 9        |    |                  |   | 155      |              |  |   | 145      |   
|                                                                                |  |                        |          |    |                  |   |          |              |  |   |          |   
|Recoveries:                                                                     |  |                        |          |    |                  |   |          |              |  |   |          |   
|Real estate loans:                                                              |  |                        |          |    |                  |   |          |              |  |   |          |   
|Construction and development                                                    |  |                        |         |    |                  |   |         |              |  |   |         |   
|Residential loans                                                               |  |                        | 1        |    |                  |   | 2        |              |  |   | 1        |   
|Commercial and multi-family                                                     |  |                        |         |    |                  |   |         |              |  |   |         |   
|Commercial loans                                                                |  |                        | 3        |    |                  |   | 79       |              |  |   | 37       |   
|Consumer loans                                                                  |  |                        |         |    |                  |   | 4        |              |  |   | 1        |   
|Equity lines of credit                                                          |  |                        |         |    |                  |   |         |              |  |   |         |   
|Credit card and other loans                                                     |  |                        |         |    |                  |   | 1        |              |  |   | 1        |   
|                                                                                |  |                        |          |    |                  |   |          |              |  |   |          |   
|Total recoveries                                                                |  |                        | 4        |    |                  |   | 86       |              |  |   | 40       |   
|                                                                                |  |                        |          |    |                  |   |          |              |  |   |          |   
|Net (charge-offs) recoveries                                                    |  |                        | (5       | )  |                  |   | (69      | )            |  |   | (105     | ) 
|                                                                                |  |                        |          |    |                  |   |          |              |  |   |          |   
|Provision charged to operations                                                 |  |                        | 1,010    |    |                  |   | 2,098    |              |  |   | 868      |   
|                                                                                |  |                        |          |    |                  |   |          |              |  |   |          |   
|Allowance for loan losses balance, end of period                                |  | $                      | 5,142    |    |                  | $ | 4,137    |              |  | $ | 2,871    |   
|                                                                                |  |                        |          |    |                  |   |          |              |  |   |          |   
|Ratios:15                                                                       |  |                        |          |    |                  |   |          |              |  |   |          |   
|Net loan charge-offs to average total loans                                     |  |                        | 0.00     | %  |                  |   | 0.03     | %            |  |   | 0.05     | % 
|Allowance for loan losses to average total loans                                |  |                        | 1.51     | %  |                  |   | 1.61     | %            |  |   | 1.30     | % 
|Allowance for loan losses to total loans at end of period                       |  |                        | 1.39     | %  |                  |   | 1.33     | %            |  |   | 1.10     | % 
|Allowance for loan losses to total nonperforming loans                          |  |                        | 3,097.59 | %  |                  |   | 3,309.60 | %            |  |   | 1,487.56 | % 
|Net loan (charge-offs) recoveries to allowance for loan losses at end of period |  |                        | (0.10    | )% |                  |   | (1.67    | )%           |  |   | (3.66    | )%
|Net loan (charge-offs) recoveries to provision for loan losses                  |  |                        | (0.50    | )% |                  |   | (3.29    | )%           |  |   | (12.10   | )%

---

|15 | Total loans are gross loans less unearned income.
|-- | -------------------------------------------------



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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 June 30, 2005
and December 31, 2004, 100% of the investment securities owned by the Company were classified as Available for Sale.



At June 30, 2005, the Companys investment portfolio at fair value consisted of $10.7 million in federal agency mortgage-backed securities and $4.1 million in
obligations of states and local government securities for a total of $14.8 million. At December 31, 2004, the portfolio consisted of $198,000 in U.S. treasury and government agency securities, $15.8 million in federal agency mortgage-backed
securities and $4.1 million in obligations of states and local government securities for a total of $20.1 million. The $5.3 million or 27% decrease in the Companys investment portfolio was primarily due to principal paydowns on the federal
agency mortgage-backed securities. The proceeds received from the payoffs were used to fund the Companys loan growth.



The following table is a comparison of amortized cost and fair value of investment securities at June 30, 2005 and December 31, 2004:



Investment Portfolio



|                                                      |  |                        |        |                   |   |                   |  |   |            |   |               |   |                  |  |                   |        |  |           |     |  |   |      |   |  |   |       
|----------------------------------------------------- |  | ---------------------- | ------ | ----------------- | - | ----------------- |  | - | ---------- | - | ------------- | - | ---------------- |  | ----------------- | ------ |  | --------- | --- |  | - | ---- | - |  | - | ------
|                                                      |  | June 30, 2005          |        | December 31, 2004
|                                                      |  | AmortizedCost          |        | Unrealized Gains  |   | Unrealized Losses |  |   | Fair Value |   | AmortizedCost |   | Unrealized Gains |  | Unrealized Losses |        |  | FairValue
|                                                      |  | (Dollars in Thousands)
|Available for Sale:                                   |  |                        |        |                   |   |                   |  |   |            |   |               |   |                  |  |                   |        |  |           |     |  |   |      |   |  |   |       
|U.S. treasury and government agency securities        |  | $                      |       |                   | $ |                  |  | $ |           |   |               | $ |                 |  | $                 | 200    |  | $         |    |  | $ | (2   | ) |  | $ | 198   
|Federal agency mortgage-backed securities             |  |                        | 10,687 |                   |   | 76                |  |   | (111       | ) |               |   | 10,652           |  |                   | 15,754 |  |           | 110 |  |   | (113 | ) |  |   | 15,751
|Obligations of states and local government securities |  |                        | 3,941  |                   |   | 166               |  |   |           |   |               |   | 4,107            |  |                   | 3,971  |  |           | 176 |  |   |     |   |  |   | 4,147 
|                                                      |  |                        |        |                   |   |                   |  |   |            |   |               |   |                  |  |                   |        |  |           |     |  |   |      |   |  |   |       
|Total                                                 |  | $                      | 14,628 |                   | $ | 242               |  | $ | (111       | ) |               | $ | 14,759           |  | $                 | 19,925 |  | $         | 286 |  | $ | (115 | ) |  | $ | 20,096
|                                                      |  |                        |        |                   |   |                   |  |   |            |   |               |   |                  |  |                   |        |  |           |     |  |   |      |   |  |   |       



The Company also has investments in
interest-bearing time certificates of deposit at other financial institutions totaling $2.7 million at June 30, 2005 as compared to $4.0 million at December 31, 2004.



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DEPOSITS



Total deposits increased $51.8 million, or 18%, to $343.6 million at June 30, 2005 from $291.8 million at December 31, 2004. Noninterest-bearing demand deposits increased
$10.4 million or 11% at June 30, 2005 as compared to December 31, 2004. Interest-bearing and money market accounts increased $9.1 million, or 9% at June 30, 2005 as compared to December 31, 2004. Savings deposit accounts decreased $2.2 million, or
8% at June 30, 2005 as compared to December 31, 2004. Time deposits $100,000 or greater increased $29.2 million, or 73% at June 30, 2005 as compared to December 31, 2004, while other time deposits increased $5.3 million, or 16%. The Company had a
favorable increase in noninterest-bearing demand deposits from December 31, 2004 to June 30, 2005. This favorable increase is primarily attributable to new deposit relationships, coupled with an increase in deposits with our existing customers. The
increase in interest-bearing and money market accounts was primarily the result of additional money market deposits acquired as a result of a promotional money market account offered to businesses and consumers during the second quarter of 2005. The
increase in time deposits $100,000 or greater was primarily the result of additional brokered certificates of deposit acquired to help support our loan growth. The overall increase in deposits has helped improve the Companys liquidity position
during 2005.



From December 31, 2004 to June 30, 2005 the percentage of total
average deposits represented by time deposits $100,000 or greater increased to 18%, from 15% while savings deposits as a percentage of total average deposits decreased to 8% from 10%.



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



Average Deposit Composition



|                                     |  |                             |   |  |                                  |  
|------------------------------------ |  | --------------------------- | - |  | -------------------------------- | -
|                                     |  | June 30,2005Percent ofTotal |   |  | December 31,2004 Percent ofTotal |  
|Demand deposits, noninterest bearing |  | 31.65                       | % |  | 30.47                            | %
|Interest-bearing deposits:           |  |                             |   |  |                                  |  
|Interest-bearing demand deposits     |  | 6.30                        | % |  | 7.61                             | %
|Money market deposits                |  | 25.22                       | % |  | 25.23                            | %
|Savings deposits                     |  | 7.68                        | % |  | 9.67                             | %
|Time deposits $100,000 or greater    |  | 17.55                       | % |  | 14.70                            | %
|Other time deposits                  |  | 11.60                       | % |  | 12.32                            | %
|                                     |  |                             |   |  |                                  |  
|Total average deposits               |  | 100.00                      | % |  | 100.00                           | %
|                                     |  |                             |   |  |                                  |  



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



December 31, 2004 to June 30, 2005 analysis.The rate paid on the Banks
interest-bearing deposits increased to 1.93% at June 30, 2005 from 1.35% at December 31, 2004. The increase from December 31, 2004 to June 30, 2005 is primarily attributed to the increase in rates paid on



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##### Table of Contents

time deposits as a result of additional brokered certificates of deposit acquired to help support our loan growth. For all interest bearing liabilities, the
average rate for the six months ended June 30, 2005 was 2.26% as compared to 1.58% as of December 31, 2004.



June 30, 2004 to June 30, 2005 analysis.The rate paid on the Banks interest-bearing deposits increased to 1.93% at June 30, 2005 from 1.21% at June 30, 2004. The increase from 2004 to 2005 is primarily
attributable to the increase in rates paid on money market deposits as a result of a promotional money market account offered to businesses and consumers during the second quarters of 2004 and 2005. The rate paid on time deposits also increased as a
result of additional brokered certificates of deposit acquired to help support our loan growth, coupled with non-broker certificates of deposits, which matured and renewed at a higher rate. For all interest bearing liabilities, the average rate for
the six months ended June 30, 2005 was 2.26% as compared to 1.42% for the same period in 2004.



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



Average Deposits and Other Borrowings



|                                                           |  |                               |         |               |                             |   |                |   |             |  |      |  
|---------------------------------------------------------- |  | ----------------------------- | ------- | ------------- | --------------------------- | - | -------------- | - | ----------- |  | ---- | -
|                                                           |  | Six Months EndedJune 30, 2005 |         |               | Year EndedDecember 31, 2004 |  
|                                                           |  | Average Balance               |         | Average16Rate |                             |   | AverageBalance |   | AverageRate | 
|                                                           |  | (Dollars in Thousands)        |        
|Demand deposits, noninterest bearing                       |  | $                             | 98,372  |               | 0.00                        | % |                | $ | 81,185      |  | 0.00 | %
|                                                           |  |                               |         |               |                             |   |                |   |             |  |      |  
|Interest-bearing deposits:                                 |  |                               |         |               |                             |   |                |   |             |  |      |  
|Interest-bearing demand deposits                           |  |                               | 19,573  |               | 0.24                        | % |                |   | 20,255      |  | 0.20 | %
|Money market deposits                                      |  |                               | 78,397  |               | 1.72                        | % |                |   | 67,188      |  | 1.31 | %
|Savings deposits                                           |  |                               | 23,875  |               | 0.70                        | % |                |   | 25,752      |  | 0.65 | %
|Time deposits $100,000 or greater                          |  |                               | 54,558  |               | 2.91                        | % |                |   | 39,144      |  | 2.01 | %
|Other time deposits                                        |  |                               | 36,070  |               | 2.62                        | % |                |   | 32,811      |  | 1.93 | %
|                                                           |  |                               |         |               |                             |   |                |   |             |  |      |  
|Total interest-bearing deposits                            |  |                               | 212,473 |               | 1.93                        | % |                |   | 185,150     |  | 1.35 | %
|                                                           |  |                               |         |               |                             |   |                |   |             |  |      |  
|FHLB borrowings                                            |  |                               | 32,351  |               | 2.76                        | % |                |   | 12,571      |  | 1.49 | %
|Federal funds purchased                                    |  |                               | 1,415   |               | 2.71                        | % |                |   | 723         |  | 1.80 | %
|Subordinated notes payable to subsidiary trusts            |  |                               | 13,151  |               | 6.29                        | % |                |   | 12,877      |  | 4.88 | %
|                                                           |  |                               |         |               |                             |   |                |   |             |  |      |  
|Total deposits and other borrowings                        |  | $                             | 357,762 |               | 1.64                        | % |                | $ | 292,506     |  | 1.14 | %
|                                                           |  |                               |         |               |                             |   |                |   |             |  |      |  
|Average rate excluding noninterest bearing demand deposits |  |                               |         |               | 2.26                        | % |                |   |             |  | 1.58 | %

---

|16 | Rates for these periods on which calculations are based have been annualized using actual days.
|-- | -----------------------------------------------------------------------------------------------



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##### Table of Contents

The following tables sets forth the scheduled maturities of time certificates of deposit accounts outstanding in amounts
of $100,000 or more at June 30, 2005 and December 31, 2004:



Maturities of Time Deposits of

$100,000 or More

(Dollars in Thousands)



|                                      |  |              |        |                  |   |       
|------------------------------------- |  | ------------ | ------ | ---------------- | - | ------
|                                      |  | June 30,2005 |        | December 31,2004
|Three months or less                  |  | $            | 24,302 |                  | $ | 10,459
|Over three months through six months  |  |              | 6,880  |                  |   | 10,083
|Over six months through twelve months |  |              | 18,598 |                  |   | 8,978 
|Over twelve months                    |  |              | 19,536 |                  |   | 10,548
|                                      |  |              |        |                  |   |       
|Total                                 |  | $            | 69,316 |                  | $ | 40,068
|                                      |  |              |        |                  |   |       



LIQUIDITY AND MARKET RATE
RISK/INTEREST RATE RISK MANAGEMENT



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 assets include cash and due from banks, less the federal reserve
requirement, federal funds sold, interest-bearing deposits in financial institutions, unpledged investment securities available-for-sale, Federal Home Loan Bank and Pacific Coast Bankers Bank stock investments, restricted at cost and cash
surrender value of life insurance.



In light of the Companys growth, in
October 2004, the Board of Directors changed the liquidity policy to maintain a ratio of liquid assets to ending deposits and short-term liabilities of 10% - 20% instead of 20% or more. In addition, the Company increased its off balance sheet
liquidity sources. In order to augment liquidity, 1stCentennial Bank has Federal Funds borrowing arrangements with
four correspondent banks totaling $20.0 million, and a secured line of credit with the FHLB totaling approximately $39.8 million.



On a consolidated basis, the Companys liquidity ratio, which is a measure of liquid assets to deposits, plus short-term liabilities, plus federal home loan bank
borrowings, due within one year, less pledged securities for treasury tax and loan, increased to 12.70% at June 30, 2005 from 7.08% as of December 31, 2004. Although the Company was not in compliance with its internal liquidity policy at December
31, 2004, it did achieve compliance with its internal policy as of February 2005 and maintained compliance through June 30, 2005.



34



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##### Table of Contents

On a consolidated basis, the ratio of liquid assets to ending assets as of June 30, 2005 was 11.33% as compared to 6.21%
as of December 31, 2004.



In order to help support the Companys $56.3
million growth in net loans, the Company pledged approximately $74.8 million in loans as of June 30, 2005 to the FHLB as collateral against our secured line of credit.



We believe it is beneficial to take advantage of the earnings opportunity presented by current loan demand, and to make certain temporary
arrangements to ensure adequate liquidity, until our deposit growth has an opportunity to catch up to the loan growth. In order to enhance our deposit growth, we have a plan in place to increase deposits by:



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



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



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



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



| | 5) | Buying brokered deposits and public funds to a limit of 15% of total deposits.
| | -- | ------------------------------------------------------------------------------



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



Management is of the opinion that the standby funding sources it has arranged for are adequate and reliable 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 June 30, 2005 and December 31, 2004.



Liquidity



|                                                       |  |                        |        |   |                  |   |        |  
|------------------------------------------------------ |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                       |  | June 30,2005           |        |   | December 31,2004 |  
|                                                       |  | (Dollars in Thousands) |       
|Cash and due from banks (less FRB reserve requirement) |  | $                      | 7,615  |   |                  | $ | 5,195  |  
|Federal funds sold                                     |  |                        | 14,560 |   |                  |   |       |  
|Interest-bearing deposits in financial institutions    |  |                        | 2,708  |   |                  |   | 3,964  |  
|Unpledged investment securities, available for sale    |  |                        | 14,274 |   |                  |   | 4,891  |  
|Stock investments, restricted at cost                  |  |                        | 2,394  |   |                  |   | 1,615  |  
|Cash surrender value of life insurance                 |  |                        | 6,607  |   |                  |   | 6,488  |  
|                                                       |  |                        |        |   |                  |   |        |  
|Total liquid assets                                    |  | $                      | 48,158 |   |                  | $ | 22,153 |  
|                                                       |  |                        |        |   |                  |   |        |  
|Liquidity ratios:                                      |  |                        |        |   |                  |   |        |  
|Ending assets                                          |  |                        | 11.33  | % |                  |   | 6.21   | %
|Ending deposits and short-term liabilities             |  |                        | 12.70  | % |                  |   | 7.08   | %



35



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##### Table of Contents

Market Rate Risk/Interest Rate Risk Management



Interest Rates and Differentials



The Companys earnings depend primarily upon the difference between the income it receives from its interest earning assets and its cost of funds, principally
interest expense incurred on interest-bearing liabilities. Interest rates charged on the Companys loans are affected principally by the demand for loans, the supply of money available for lending purposes, and competitive factors. In turn,
these factors are influenced by general economic conditions and other constraints beyond the Companys control, such as governmental economic and tax policies, general supply of money in the economy, governmental budgetary actions and the
actions of the FRB.



Asset/Liability Management



The Company 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 income17and the net interest margin17based upon the models program under 100 and 200 basis point increases or decreases as of June 30, 2005:

---

|17 | Excluding loan fees.
|-- | --------------------



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##### Table of Contents

|                        |  |                                         |        |                              |   |        |                                |  |        |                    |  |      |  
|----------------------- |  | --------------------------------------- | ------ | ---------------------------- | - | ------ | ------------------------------ |  | ------ | ------------------ |  | ---- | -
|Change(in Basis Points) |  | Net Interest Income(next twelve months) |        | Change in NetInterest Income |   |        | % Change in NetInterest Income |  |        | Net InterestMargin | 
|(Dollars in Thousands)  | 
|+ 200                   |  | $                                       | 24,547 |                              | $ | 2,538  |                                |  | 11.53  | %                  |  | 6.05 | %
|+ 100                   |  |                                         | 23,291 |                              |   | 1,281  |                                |  | 5.82   | %                  |  | 5.75 | %
|0                       |  |                                         | 22,009 |                              |   |       |                                |  |       |                    |  | 5.44 | %
| 100                   |  |                                         | 20,727 |                              |   | (1,282 | )                              |  | (5.83  | %)                 |  | 5.12 | %
| 200                   |  |                                         | 19,381 |                              |   | (2,628 | )                              |  | (11.94 | %)                 |  | 4.80 | %



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 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.



CAPITAL RESOURCES



The Federal Reserve Board and the FDIC have both established guidelines to implement risk-based capital requirements. Falling below minimum established levels might limit a bank 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 subsidiary and trust preferred securities to certain limits, less goodwill and other intangibles) and Tier 2 (supplementary capital including allowance for possible credit losses to certain limits, certain preferred stock,
eligible subordinated debt, and 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 $30.5 million at June 30, 2005, compared to $28.0 million at December 31, 2004. The increase of $2.5 million, or 9% during the first six months of 2005 was primarily due to $2,239,000 in year-to-date net income combined
with proceeds of $290,000 from the exercise of stock options.



37



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##### Table of Contents

The following table illustrates the capital and prompt corrective action guidelines applicable to the Company and 1st
Centennial Bank, as well as their total risk-based capital ratios, Tier 1 capital ratios and leverage ratios as of June 30, 2005 and December 31, 2004:



|                                        |  |                     |        |  |                                       |   |  |                                                                                  |        |  |      |   |  |   |        |  |       |  
|--------------------------------------- |  | ------------------- | ------ |  | ------------------------------------- | - |  | -------------------------------------------------------------------------------- | ------ |  | ---- | - |  | - | ------ |  | ----- | -
|                                        |  | Actual Amount/Ratio |        |  | MinimumCapitalRequirementAmount/Ratio |   |  | Minimum To BeWell CapitalizedUnder PromptCorrective ActionProvisionsAmount/Ratio |       
|As of June 30, 2005:                    |  |                     |        |  |                                       |   |  |                                                                                  |        |  |      |   |  |   |        |  |       |  
|                                        |  |                     |        |  |                                       |  
|Total capital to risk-weighted assets:  |  |                     |        |  |                                       |   |  |                                                                                  |        |  |      |   |  |   |        |  |       |  
|Consolidated                            |  | $                   | 43,604 |  | 11.24                                 | % |  | $                                                                                | 31,035 |  | 8.00 | % |  | $ | 38,794 |  | 10.00 | %
|1st Centennial Bank                     |  |                     | 41,779 |  | 10.77                                 | % |  |                                                                                  | 31,034 |  | 8.00 | % |  |   | 38,792 |  | 10.00 | %
|                                        |  |                     |        |  |                                       |  
|Tier 1 capital to risk-weighted assets: |  |                     |        |  |                                       |   |  |                                                                                  |        |  |      |   |  |   |        |  |       |  
|Consolidated                            |  |                     | 35,890 |  | 9.26                                  | % |  |                                                                                  | 15,503 |  | 4.00 | % |  |   | 23,255 |  | 6.00  | %
|1st Centennial Bank                     |  |                     | 36,920 |  | 9.52                                  | % |  |                                                                                  | 15,513 |  | 4.00 | % |  |   | 23,269 |  | 6.00  | %
|                                        |  |                     |        |  |                                       |  
|Tier 1 capital to average assets:       |  |                     |        |  |                                       |   |  |                                                                                  |        |  |      |   |  |   |        |  |       |  
|Consolidated                            |  |                     | 35,890 |  | 8.93                                  | % |  |                                                                                  | 16,076 |  | 4.00 | % |  |   | 20,095 |  | 5.00  | %
|1st Centennial Bank                     |  |                     | 36,920 |  | 9.19                                  | % |  |                                                                                  | 16,070 |  | 4.00 | % |  |   | 20,087 |  | 5.00  | %
|                                        |  |                     |        |  |                                       |  
|As of December 31, 2004:                |  |                     |        |  |                                       |   |  |                                                                                  |        |  |      |   |  |   |        |  |       |  
|                                        |  |                     |        |  |                                       |  
|Total capital to risk-weighted assets:  |  |                     |        |  |                                       |   |  |                                                                                  |        |  |      |   |  |   |        |  |       |  
|Consolidated                            |  | $                   | 40,587 |  | 12.26                                 | % |  | $                                                                                | 26,484 |  | 8.00 | % |  | $ | 33,105 |  | 10.00 | %
|1st Centennial Bank                     |  |                     | 38,559 |  | 11.68                                 | % |  |                                                                                  | 26,410 |  | 8.00 | % |  |   | 33,013 |  | 10.00 | %
|                                        |  |                     |        |  |                                       |  
|Tier 1 capital to risk-weighted assets: |  |                     |        |  |                                       |   |  |                                                                                  |        |  |      |   |  |   |        |  |       |  
|Consolidated                            |  |                     | 32,749 |  | 9.89                                  | % |  |                                                                                  | 13,245 |  | 4.00 | % |  |   | 19,868 |  | 6.00  | %
|1st Centennial Bank                     |  |                     | 34,429 |  | 10.43                                 | % |  |                                                                                  | 13,204 |  | 4.00 | % |  |   | 19,806 |  | 6.00  | %
|                                        |  |                     |        |  |                                       |  
|Tier 1 capital to average assets:       |  |                     |        |  |                                       |   |  |                                                                                  |        |  |      |   |  |   |        |  |       |  
|Consolidated                            |  |                     | 32,749 |  | 9.25                                  | % |  |                                                                                  | 14,162 |  | 4.00 | % |  |   | 17,702 |  | 5.00  | %
|1st Centennial Bank                     |  |                     | 34,429 |  | 9.73                                  | % |  |                                                                                  | 14,154 |  | 4.00 | % |  |   | 17,692 |  | 5.00  | %



Of the Companys $35.9 million of
Tier 1 capital at June 30, 2005, $10.1 million consisted of Trust Preferred Securities. Trust Preferred Securities, up to the amount of 25% of Tier 1 capital, are considered to be Tier 1 capital for regulatory purposes, but classified as long-term
debt in accordance with generally accepted accounting principles. The remaining $2.9 million of Trust Preferred Securities is included in Tier 2 capital.



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



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



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|ITEM 4. | 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 subsidiary would be made known to them by others within those entities, particularly during the period
in which this quarterly report was being prepared.



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



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



There were no significant changes in the Companys internal controls over financial reporting that occurred in the second quarter of 2005 that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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



None.



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



None.



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



The annual meeting of shareholders was held on May 17, 2005. At the meeting, the following individuals were elected to serve as members of the Companys Board of
Directors until the 2006 Annual Meeting of Shareholders and until their successors are elected and have qualified:



|                        |  |                 |  |                    |  |          
|----------------------- |  | --------------- |  | ------------------ |  | ---------
|NAME:                   |  | AUTHORITYGIVEN: |  | AUTHORITYWITHHELD: |  | TOTAL:   
|James R. Appleton       |  | 1,584,933       |  | 6,203              |  | 1,591,136
|Bruce J. Bartells       |  | 1,587,546       |  | 3,903              |  | 1,591,449
|Carole H. Beswick       |  | 1,587,546       |  | 3,903              |  | 1,591,449
|Irving M. Feldkamp, III |  | 1,587,546       |  | 3,903              |  | 1,591,449
|Larry Jacinto           |  | 1,587,546       |  | 3,903              |  | 1,591,449
|Ronald J. Jeffrey       |  | 1,587,153       |  | 4,128              |  | 1,591,281
|William A. McCalmon     |  | 1,587,546       |  | 3,903              |  | 1,591,449
|Patrick J. Meyer        |  | 1,584,703       |  | 6,428              |  | 1,591,131
|Thomas E. Vessey        |  | 1,587,546       |  | 3,903              |  | 1,591,449
|Stanley C. Weisser      |  | 1,587,546       |  | 3,903              |  | 1,591,449
|Douglas F. Welebir      |  | 1,587,546       |  | 3,903              |  | 1,591,449



The number of broker non-votes
received with respect to this item was zero.



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



None.



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



|               |  |                                                                                                                                                                                    
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibits                                                                                                                                                            
|3.1            |  | Articles of Incorporation of the Company (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 the Company 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 the Company 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 the Company (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.)                           
|               | 
|10.9           |  | 1st Centennial Bank Employee Stock Ownership Plan (with 401(k) provisions), dated August 1, 2004. (Incorporated by reference to Form 10-KSB for the year ended December 31,
2004.) 
|               | 
|10.10          |  | Amended and Restated Stock Incentive Plan. (Incorporated by reference to Form 10-KSB for the year ended December 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.)        



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|      |  |                                                                                                                                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.)            
|      | 
|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.)            
|      | 
|10.25 |  | Indenture for Trust Preferred Securities dated January 15, 2004. (Incorporated by reference to Form 10-QSB for the quarter ended March 31, 2004.)                                                          



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|      |  |                                                                                                                                                                                                                                                                    
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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. (Incorporated by reference to Form 10-QSB for the quarter ended September 30, 2004.)                                                                                                                         
|      | 
|10.29 |  | Irwindale Branch Lease dated August 12, 2004. (Incorporated by reference to Form 10-QSB for the quarter ended September 30, 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, Incorporated by
reference to Form 10-QSB for the quarter ended September 30, 2004.)
|      | 
|10.31 |  | Employment Agreement of Beth Sanders, dated December 1, 2004. (Incorporated by reference to Form 10-KSB for the year ended December 31, 2004.)                                                                                                                     
|      | 
|10.32 |  | Employment Agreement of Suzanne Dondanville, dated December 1, 2004. (Incorporated by reference to Form 10-KSB for the year ended December 31, 2004.)                                                                                                              
|      | 
|10.33 |  | Temecula Branch Lease, dated December 15, 2004. (Incorporated by reference to Form 10-KSB for the year ended December 31, 2004.)                                                                                                                                   
|      | 
|10.34 |  | Real Estate Department Lease, dated November 30, 2000. (Incorporated by reference to Form 10-KSB for the year ended December 31, 2004.)                                                                                                                            
|      | 
|21.1  |  | Subsidiaries of 1st Centennial 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)                                                                                                                                                                                             



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SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 11thday of August 2005.



1ST CENTENNIAL BANCORP/s/ Thomas E. VesseyThomas E. VesseyPresident and Chief Executive Officer/s/ Beth SandersBeth SandersExecutive Vice President and Chief Financial Officer(Principal Financial Officer)




45