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FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON D.C. 20549

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|/x/                                          | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934                                           
|-------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------
|For the quarterly period ended June 30, 2001
|/ /                                          | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required) for the period from  to

Commission File Number 000-29105

CENTENNIAL FIRST FINANCIAL SERVICES(Name of Small Business Issuer in its Charter)

Incorporated in the State of California
IRS Employer Identification Number 91-1995265
Address: 218 East State Street, Redlands, CA 92373

Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock

Check
whether the issuer: (1) filed all reports required to be filed by Telephone: (909) 798-3611 Section 13 or 15(d) of the Securities Exchange Act during the past
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 / /

State
the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common stock, 719,401 shares (June 30,2001).

Transitional
Small Business Disclosure Format: Yes / /  No /x/

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FORM 10-QSB        CROSS REFERENCE INDEX

|        |  |                                                                                       |  | Page
|------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I  |  |                                                                                       |  |     
|ITEM 1  |  | Financial Statements                                                                  |  | 2-6 
|ITEM 2  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 7-20
|PART II |  |                                                                                       |  |     
|ITEM 1  |  | Legal Proceedings                                                                     |  | 22  
|ITEM 2  |  | Changes in Securities and Use of Proceeds                                             |  | 22  
|ITEM 3  |  | Defaults Upon Senior Securities                                                       |  | 22  
|ITEM 4  |  | Submission of Matters to a Vote of Security Holders                                   |  | 22  
|ITEM 5  |  | Other Information                                                                     |  | 23  
|ITEM 6  |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 23  
|        |  | Signatures                                                                            |  | 24  

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CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARY    CONDENSED CONSOLIDATED STATEMENTS OF CONDITION  June 30, 2001 and December 31, 2000

|Dollar amounts in thousands |                                                                                                                                                                     | 2001                              |   | 2000                                       |       
|--------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | - | ------------------------------------------ | ------
|
|ASSETS                      |                                                                                                                                                                     |                                   |   |                                            |       
|                            | Cash and due from banks                                                                                                                                             |                                   | $ | 12,054                                     |       
|                            | Federal funds sold                                                                                                                                                  |                                   |   | 6,825                                      |       
|                            |                                                                                                                                                                     |                                   |   |                                            |       
|                            |                                                                                                                                                                     |                                   |   | Total cash and cash equivalents            |       
|                            | Interest-bearing deposits in financial institutions                                                                                                                 |                                   |   | 4,087                                      |       
|                            | Investment securities, available for sale                                                                                                                           |                                   |   | 13,479                                     |       
|                            | Federal Home Loan Bank stock, at cost                                                                                                                               |                                   |   | 68                                         |       
|                            | Loans, net                                                                                                                                                          |                                   |   | 66,760                                     |       
|                            | Accrued interest receivable                                                                                                                                         |                                   |   | 454                                        |       
|                            | Premises and equipment, net                                                                                                                                         |                                   |   | 2,545                                      |       
|                            | Other assets                                                                                                                                                        |                                   |   | 2,801                                      |       
|                            |                                                                                                                                                                     |                                   |   |                                            |       
|                            |                                                                                                                                                                     |                                   |   | Total assets                               |       
|                            |                                                                                                                                                                     |                                   |   |                                            |       
|LIABILITIES                 |                                                                                                                                                                     |                                   |   |                                            |       
|                            | Deposits:                                                                                                                                                           |                                   |   |                                            |       
|                            |                                                                                                                                                                     | Noninterest-bearing               |   | $                                          | 29,614
|                            |                                                                                                                                                                     | Interest-bearing and NOW accounts |   |                                            | 35,146
|                            |                                                                                                                                                                     | Savings                           |   |                                            | 9,797 
|                            |                                                                                                                                                                     | Time deposits $100,000 or greater |   |                                            | 17,710
|                            |                                                                                                                                                                     | Other time deposits               |   |                                            | 8,820 
|                            |                                                                                                                                                                     |                                   |   |                                            |       
|                            |                                                                                                                                                                     |                                   |   | Total deposits                             |       
|                            | Accrued interest payable                                                                                                                                            |                                   |   | 229                                        |       
|                            | Other liabilities                                                                                                                                                   |                                   |   | 256                                        |       
|                            |                                                                                                                                                                     |                                   |   |                                            |       
|                            |                                                                                                                                                                     |                                   |   | Total liabilities                          |       
|                            |                                                                                                                                                                     |                                   |   |                                            |       
|STOCKHOLDERS' EQUITY        |                                                                                                                                                                     |                                   |   |                                            |       
|                            | Common stock, $4 stated value; authorized 10,000,000 shares, issued and outstanding 719,401 and 692,269 shares at June 30, 2001 and December 31, 2000, respectively |                                   |   | 2,878                                      |       
|                            | Additional paid-in capital                                                                                                                                          |                                   |   | 3,021                                      |       
|                            | Retained earnings                                                                                                                                                   |                                   |   | 1,567                                      |       
|                            | Accumulated other comprehensive income (loss)                                                                                                                       |                                   |   | 35                                         |       
|                            |                                                                                                                                                                     |                                   |   |                                            |       
|                            |                                                                                                                                                                     |                                   |   | Total stockholders' equity                 |       
|                            |                                                                                                                                                                     |                                   |   |                                            |       
|                            |                                                                                                                                                                     |                                   |   | Total liabilities and stockholders' equity |       
|                            |                                                                                                                                                                     |                                   |   |                                            |       

2

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CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARY    CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS  Three and Six Months Ended June 30, 2001 and 2000

|                           |                                                  | Three Months Ended
June 30, |                                          | Six Months Ended
June 30,                          
|-------------------------- | ------------------------------------------------ | --------------------------- | ---------------------------------------- | ---------------------------------------------------
|
|
|
|Interest income:           |                                                  |                             |                                          |                                                    
|                           | Interest and fees on loans                       |                             | $                                        | 1,923                                              
|                           | Deposits in financial institutions               |                             |                                          | 61                                                 
|                           | Federal funds sold                               |                             |                                          | 89                                                 
|                           | Investments                                      |                             |                                          | 144                                                
|                           |                                                  |                             |                                          |                                                    
|                           |                                                  |                             |                                          | Total interest income                              
|                           |                                                  |                             |                                          |                                                    
|Interest expense:          |                                                  |                             |                                          |                                                    
|                           | Demand and savings deposits                      |                             |                                          | 202                                                
|                           | Time deposits $100,000 or greater                |                             |                                          | 225                                                
|                           | Other time deposits                              |                             |                                          | 127                                                
|                           | Interest expense on borrowed funds               |                             |                                          |                                                   
|                           |                                                  |                             |                                          |                                                    
|                           |                                                  |                             |                                          | Total interest expense                             
|                           |                                                  |                             |                                          |                                                    
|                           |                                                  |                             |                                          | Net interest income                                
|Provision for loan losses  |                                                  |                             | 30                                       |                                                    
|                           |                                                  |                             |                                          |                                                    
|                           |                                                  |                             |                                          | Net interest income after provision
for loan losses
|                           |                                                  |                             |                                          |                                                    
|Other income:              |                                                  |                             |                                          |                                                    
|                           | Customer service fees                            |                             |                                          | 145                                                
|                           | Gain from sale of loans                          |                             |                                          | 140                                                
|                           | Gain from sale of investment securities          |                             |                                          |                                                   
|                           | Gain on sale of investment in BancData Solutions |                             |                                          |                                                   
|                           | Other income                                     |                             |                                          | 159                                                
|                           |                                                  |                             |                                          |                                                    
|                           |                                                  |                             |                                          | Total other income                                 
|                           |                                                  |                             |                                          |                                                    
|Other expenses:            |                                                  |                             |                                          |                                                    
|                           | Salaries and wages                               |                             |                                          | 838                                                
|                           | Employee benefits                                |                             |                                          | 121                                                
|                           | Net occupancy expense and equipment              |                             |                                          | 235                                                
|                           | Other operating expense                          |                             |                                          | 522                                                
|                           |                                                  |                             |                                          |                                                    
|                           |                                                  |                             | Total other expenses                     |                                                    
|                           |                                                  |                             |                                          |                                                    
|                           |                                                  |                             | Income before provision for income taxes |                                                    
|Provision for income taxes |                                                  |                             | 124                                      |                                                    
|                           |                                                  |                             |                                          |                                                    
|                           |                                                  |                             | Net income                               |                                                    
|                           |                                                  |                             |                                          |                                                    
|Basic earnings per share   |                                                  | $                           | .33                                      |                                                    
|                           |                                                  |                             |                                          |                                                    
|Diluted earnings per share |                                                  | $                           | .32                                      |                                                    
|                           |                                                  |                             |                                          |                                                    

3

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CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARY    CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY  Six Months Ended June 30, 2001 and 2000

|Dollars in thousands       |                                           | Common Stock                                                                                        |       | Additional Paid-In Capital |   | Retained Earnings |      | Accumulated Other Comprehensive Income (Loss) |       | Total |    
|-------------------------- | ----------------------------------------- | --------------------------------------------------------------------------------------------------- | ----- | -------------------------- | - | ----------------- | ---- | --------------------------------------------- | ----- | ----- | ---
|BALANCE, DECEMBER 31, 1999 |                                           | $                                                                                                   | 2,708 |                            | $ | 2,660             |      | $                                             | 1,165 |       | $  
|                           | Comprehensive income:                     |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    
|                           |                                           | Net income                                                                                          |       |                            |  |                   |      |                                              |       |       | 394
|                           |                                           | Change in net unrealized gain on investment securities available for sale, after tax effects        |       |                            |  |                   |      |                                              |       |       |   
|                           |                                           |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    
|                           |                                           |                                                                                                     |       | Total comprehensive income |   |                   |      |                                               |       |       |    
|                           |                                           |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    
|                           | Stock and cash dividend                   |                                                                                                     |       | 135                        |   |                   | 412  |                                               |       | (584  | )  
|                           | Exercise of stock options                 |                                                                                                     |       | 26                         |   |                   | 16   |                                               |       |      |    
|                           | Repurchase and retirement of common stock |                                                                                                     |       | (178                       | ) |                   | (203 | )                                             |       | (270  | )  
|                           |                                           |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    
|BALANCE, JUNE 30, 2000     |                                           | $                                                                                                   | 2,691 |                            | $ | 2,885             |      | $                                             | 705   |       | $  
|                           |                                           |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    
|(Unaudited)                |                                           |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    
|BALANCE, DECEMBER 31, 2000 |                                           | $                                                                                                   | 2,769 |                            | $ | 2,959             |      | $                                             | 1,184 |       | $  
|                           | Comprehensive income:                     |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    
|                           |                                           | Net income                                                                                          |       |                            |  |                   |      |                                              |       |       | 418
|                           |                                           | Change in net unrealized gain (loss) on investment securities available for sale, after tax effects |       |                            |  |                   |      |                                              |       |       |   
|                           |                                           |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    
|                           |                                           |                                                                                                     |       | Total comprehensive income |   |                   |      |                                               |       |       |    
|                           |                                           |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    
|                           | Cash dividend                             |                                                                                                     |       |                            |   |                   |      |                                               |       | (35   | )  
|                           | Exercise of stock options                 |                                                                                                     |       | 109                        |   |                   | 62   |                                               |       |      |    
|                           |                                           |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    
|BALANCE, JUNE 30, 2001     |                                           | $                                                                                                   | 2,878 |                            | $ | 3,021             |      | $                                             | 1,567 |       | $  
|                           |                                           |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    
|(Unaudited)                |                                           |                                                                                                     |       |                            |   |                   |      |                                               |       |       |    

4

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CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARY    CONSOLIDATED STATEMENTS OF CASH FLOWS  Six Months Ended June 30, 2001

|Dollars in thousands                           |                                                                                   | 2001 |                                                                                  | 2000                        |                                                    
|---------------------------------------------- | --------------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------- | --------------------------- | ---------------------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES           |                                                                                   |      |                                                                                  |                             |                                                    
|                                               | Net income                                                                        |      | $                                                                                | 418                         |                                                    
|                                               | Adjustments to reconcile net income to net cash provided by operating activities: |      |                                                                                  |                             |                                                    
|                                               |                                                                                   |      | Depreciation and amortization                                                    |                             |                                                    
|                                               |                                                                                   |      | Provision for loan losses                                                        |                             |                                                    
|                                               |                                                                                   |      | Gain from sale of loans                                                          |                             |                                                    
|                                               |                                                                                   |      | Amortization of deferred loan fees                                               |                             |                                                    
|                                               |                                                                                   |      | Deferred income tax benefit                                                      |                             |                                                    
|                                               |                                                                                   |      | Amortization of premiums (discounts) on investment securities available for sale |                             |                                                    
|                                               |                                                                                   |      | Gain on sale of BancData investment                                              |                             |                                                    
|                                               |                                                                                   |      | Increase in cash surrender value of life insurance                               |                             |                                                    
|                                               |                                                                                   |      | Decrease (increase) in assets:                                                   |                             |                                                    
|                                               |                                                                                   |      |                                                                                  | Accrued interest receivable |                                                    
|                                               |                                                                                   |      |                                                                                  | Other assets                |                                                    
|                                               |                                                                                   |      | Increase (decrease) in liabilities:                                              |                             |                                                    
|                                               |                                                                                   |      |                                                                                  | Accrued interest payable    |                                                    
|                                               |                                                                                   |      |                                                                                  | Other liabilities           |                                                    
|                                               |                                                                                   |      |                                                                                  |                             |                                                    
|                                               |                                                                                   |      |                                                                                  |                             | Net cash provided by (used in) operating activities
|                                               |                                                                                   |      |                                                                                  |                             |                                                    
|CASH FLOWS FROM INVESTING ACTIVITIES           |                                                                                   |      |                                                                                  |                             |                                                    
|                                               | Net decrease in interest-bearing deposits in financial institutions               |      |                                                                                  | 693                         |                                                    
|                                               | Net sales, maturities and (purchases) of available-for-sale securities            |      |                                                                                  | (3,550                      | )                                                  
|                                               | Proceeds from sale of repossessed assets                                          |      |                                                                                  | 412                         |                                                    
|                                               | Net increase in loans                                                             |      |                                                                                  | (7,632                      | )                                                  
|                                               | Purchases of Federal home Loan Bank stock                                         |      |                                                                                  | (16                         | )                                                  
|                                               | Purchases of Pacific Coast Bankers' Bank stock                                    |      |                                                                                  | (350                        | )                                                  
|                                               | Proceeds from sale of investment in BancData Solutions                            |      |                                                                                  |                            |                                                    
|                                               | Net additions to bank premises and equipment                                      |      |                                                                                  | (456                        | )                                                  
|                                               |                                                                                   |      |                                                                                  |                             |                                                    
|                                               |                                                                                   |      |                                                                                  |                             | Net used in investing activities                   
|                                               |                                                                                   |      |                                                                                  |                             |                                                    
|CASH FLOWS FROM FINANCING ACTIVITIES           |                                                                                   |      |                                                                                  |                             |                                                    
|                                               | Net increase (decrease) in demand and savings deposits                            |      | $                                                                                | 11,879                      |                                                    
|                                               | Net increase in time deposits                                                     |      |                                                                                  | 2,828                       |                                                    
|                                               | Cash dividends paid                                                               |      |                                                                                  | (35                         | )                                                  
|                                               | Cash dividends paid in lieu of fractional shares                                  |      |                                                                                  |                            |                                                    
|                                               | Payments to acquire common stock and stock options                                |      |                                                                                  |                            |                                                    
|                                               | Proceeds from exercise of stock options                                           |      |                                                                                  | 171                         |                                                    
|                                               |                                                                                   |      |                                                                                  |                             |                                                    
|                                               |                                                                                   |      |                                                                                  |                             | Net cash provided by financing activities          
|                                               |                                                                                   |      |                                                                                  |                             |                                                    
|                                               |                                                                                   |      |                                                                                  |                             | Net increase in cash and cash equivalents          
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |                                                                                   |      | 15,709                                                                           |                             |                                                    
|                                               |                                                                                   |      |                                                                                  |                             |                                                    
|CASH AND CASH EQUIVALENTS AT END OF YEAR       |                                                                                   | $    | 18,879                                                                           |                             | $                                                  
|                                               |                                                                                   |      |                                                                                  |                             |                                                    
|SUPPLEMENTARY INFORMATION                      |                                                                                   |      |                                                                                  |                             |                                                    
|                                               | Interest paid                                                                     |      | $                                                                                | 1,254                       |                                                    
|                                               |                                                                                   |      |                                                                                  |                             |                                                    
|                                               | Income taxes paid                                                                 |      | $                                                                                | 280                         |                                                    
|                                               |                                                                                   |      |                                                                                  |                             |                                                    

5

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CENTENNIAL FIRST FINANCIAL SERVICES    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  June 30, 2001

Note 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The unaudited consolidated financial information included herein has been prepared in conformity with the accounting principles and practices in Centennial
First Financial Services Corporation's ("the Company") consolidated financial statements included in the Annual Report for the year ended December 31, 2000. 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, 2001 may not be indicative of operating results for the year ending
December 31, 2001. Certain prior year and prior quarter amounts have been reclassified to conform to current classifications. Cash and cash equivalents consist of cash, due from banks, and
federal funds sold.

Note 2.  EARNINGS PER SHARE

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

The
weighted-average number of shares used in computing basic and diluted earnings per share are as follows:

Three Months Ended
June 30,In thousands2001

2000Basic shares

705

702Dilutive effect of stock options

25

54Diluted shares

729

756


Six Months Ended
June 30,In thousands2001

2000Basic shares

705

702Dilutive effect of stock options

25

54Diluted shares

729

756


6

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                 RESULTS OF OPERATIONS

Centennial First Financial Services (the "Company") is the holding company for Redlands Centennial Bank in Redlands, California. This discussion focuses
primarily on the results of operations of the
Company on a consolidated basis for the six months ended June 30, 2001 and the financial condition of the Company as of that date.

The
following discussion presents information pertaining to the financial condition and results of operations of the Company and its subsidiary and should be read in conjunction with
the financial statements and notes thereto presented in this 10-QSB. Average balances, including balances used in calculating certain financial ratios, are generally comprised of average
daily balances.

Certain
matters discussed in this report are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those
projected in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the competitive environment and its impact on the Company's net interest margin, changes in
interest rates, asset quality risks, concentrations of credit and the economic health of the San Bernardino Area and Southern California, volatility of rate sensitive deposits, asset/liability
matching risks, the dilutive impact which might occur upon the issuance of new shares of common stock and liquidity risks. Therefore, the matters set forth below should be carefully considered when
evaluating the Company's business and prospects. For additional information concerning these risks and uncertainties, please refer to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2000.

OVERVIEWEARNINGS SUMMARY

The
Company reported net income of $236,000, or $0.33 per share basic and $0.32 per share diluted, for the second quarter of 2001. This compares to net income of $220,000, or $0.33
per share basic and $0.29 per share diluted for the second quarter of 2000.

For
the six months ended June 30, 2001, the Company reported net income of $418,000, or $0.59 per share basic and $0.57 per share diluted, for the first six months of 2001.
This compares to net income of $394,000, or $0.58 per share basic and $0.52 per share diluted, for the same period in 2000. Growth in average loans as a percentage of earning assets continued to
positively impact the net interest margin during the six months ended June 30, 2001.

Return
on average assets and return on average equity for the second quarter of 2001 were .91% and 12.79% respectively, as compared to 1.07% and 14.24%, respectively, for the same
period of 2000. Return on average assets and return on average equity for the six months ended June 30, 2001 were .83% and 11.48% respectively, compared to .98% and 12.90% for the same period
of 2000.

LOANS HELD FOR INVESTMENT

Net
loans held for investment increased by $8.0 million, or 13.3%, during the first six months of 2001 as demand for commercial, real estate construction and development loans
increased. The

7

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following table sets forth the amount of total loans outstanding by category as of the dates indicated (dollar amounts in thousands):

|                          |                              | June 30, 2001 |        | December 31, 2000 |       
|------------------------- | ---------------------------- | ------------- | ------ | ----------------- | ------
|Real estate loans         |                              |               |        |                   |       
|                          | Construction and development |               | $      | 18,821            |       
|                          | Mortgage loans               |               |        | 16,531            |       
|Commercial loans          |                              |               | 25,485 |                   | 37.43 
|Automobile loans          |                              |               | 2,927  |                   | 4.30  
|Indirect loans            |                              |               | 824    |                   | 1.21  
|Equity loans              |                              |               | 1,968  |                   | 2.89  
|Consumer and other loans  |                              |               | 1,534  |                   | 2.25  
|                          |                              |               |        |                   |       
|                          |                              |               | 68,090 |                   | 100.00
|Unearned income           |                              |               | (453   | )                 |       
|Allowance for loan losses |                              |               | (877   | )                 |       
|                          |                              |               |        |                   |       
|                          |                              | $             | 66,760 |                   |       
|                          |                              |               |        |                   |       

In
the normal practice of extending credit, the Company accepts real estate collateral on loans that have primary sources of repayment from commercial operations. The total amount of
loans secured by real estate equaled $45 million, or 66.5% of the total portfolio as of June 30, 2001. Due to the Company's limited marketing area, its real estate collateral is
primarily concentrated in Southern California. The Company believes that its prudent underwriting standards for real estate secured loans provide an adequate safeguard against declining real estate
prices that may affect a borrower's ability to liquidate the property and repay the loan. However, no assurance can be given that real estate values will not decline and impair the value of the
security for loans held by the Company.

The
Company focuses its portfolio lending on commercial, real estate, and construction loans. The performance of commercial loans is generally dependent upon future cash flows from
business operations including the sale of products, merchandise and services. The successful completion or operation of real estate projects is dependent upon future sales. Risks attributable to such
loans can be significantly increased, often to a greater extent than other loans, by regional economic factors and real estate prices.

NONPERFORMING ASSETS

The
Company carefully monitors the quality of its loan portfolio and the factors that affect it, including regional economic conditions, employment stability, and real estate values.
The accrual of interest on loans is discontinued when the payment of principal or interest is considered to be in doubt, or when a loan becomes contractually past due by 90 days or more with
respect to principal or interest, except for loans that are well secured and in the process of collection.

As
of June 30, 2001, the Company had non-performing assets in the amount of $355,000 of which $158,000 were loans guaranteed by the Small Business Administration.
The Company had no loans

8

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90 days or more past due and still accruing at June 30, 2001. The following table sets forth the balance of non-performing assets as of the dates indicated (dollar amounts in
thousands):

June 30, 2001

December 31, 2000Nonaccrual loans

$
355

$
37Loans 90 days or more past due and still accruing





75$
355

$
112Allowance for loan losses

$
877

$
868Ratio of total nonperforming assets to total assets


.80
%

.27
%Ratio of total nonperforming assets to total loans


.52
%

.42
%Ratio of total nonperforming assets to total allowance for loan losses


40.48
%

12.90
%


ALLOWANCE FOR LOAN LOSSES

The
Company maintains an allowance for loan losses ("ALL"), which is reduced by credit losses and increased by credit recoveries, and provisions to the ALL charged
against operations. Provisions to the ALL and the total of the ALL are based, among other factors, upon the Company's credit loss experience, current and projected economic conditions, the performance
of loans within the portfolio, evaluation of loan collateral value, and the prospects or worth of respective borrowers and guarantors.

In
determining the adequacy of its ALL and after carefully analyzing each loan individually, the Company segments its loan portfolio into pools of homogeneous loans that share similar
risk factors. Each pool is given a risk assessment factor that largely reflects the expected future losses from each category. These risk assessment factors change as economic conditions shift and
actual loan losses are recorded. As of June 30, 2001, the ALL of $877,000, or 1.30% of total loans was determined by management to be adequate against foreseeable future losses. No assurance
can be given that non-performing loans will not increase or that future losses will not exceed the amount of the ALL.

The
following table summarizes, for the periods indicated, loan balances at the end of each period and average balances during the period, changes in the ALL arising from credit
losses, recoveries of

9

---

credit losses previously incurred, additions to the ALL charged to operating expense, and certain ratios relating to the ALL (dollar amounts in thousands):

At and for the
Six Months Ended
June 30,
2001

At and for the
Year Ended
December 31,
2000ALLOWANCE FOR LOAN LOSSES:Allowance for loan losses balance, beginning of period

$
868

$
581Loans charged off:Real estate





7Commercial


7


345Consumer


34


Lease financing





6Credit card and related accounts


4


5Total


45


363Actual credit recoveries:Real estate





Commercial


1


8Consumer


3


10Lease financing





Credit card and related accounts





2Total


4


20Net credit losses


(41
)

(343
)Provision charged to expense


50


630Balance at end of period

$
877

$
868RATIOS:Loans outstanding at end of period, net of unearned income

$
67,637

$
59,642Average loans outstanding for the period

$
63,412

$
55,822Ratio of net loans charged off (recovered) to average loans outstanding


0.07
%

.62
%Ratio of allowance for loan losses to loans at end of period


1.30
%

1.45
%


The
Company provided $30,000 to the allowance for loan losses during the second quarter of 2001 as compared to $470,000 made during the second quarter of 2000. For the six months
ended June 30, 2001, the provision for loan losses was $50,000 as compared to $580,000 during the same period of 2000. The provision during the second quarter of 2001 was deemed acceptable by
management corresponding to the growth and risk of the loan portfolio generally, and specifically. The provision for the second quarter ended June 30, 2000 was recorded as a prudent measure,
based upon growth in the loan portfolio, as well as, an atypical credit loss experienced by the Company involving one loan.

10

---

The following table sets forth the allocation of the ALL as of the dates indicated (dollar amounts in thousands):

|                                     |  | June 30, 2001 |        | December 31, 2000 |       
|------------------------------------ |  | ------------- | ------ | ----------------- | ------
|
|Real Estate-Construction             |  | $             | 203    |                   | 28    
|Real Estate-SBA (unguar)             |  |               | 29     |                   | 5     
|Real Estate-SBA (guaran)             |  |               |       |                   | 2     
|Real Estate-Other                    |  |               | 81     |                   | 16    
|Commercial Loans                     |  |               | 318    |                   | 38    
|Commercial SBA (unguar)              |  |               | 4      |                   |      
|Commercial SBA (guaran)              |  |               |       |                   |      
|Automobile-direct & indir            |  |               | 38     |                   | 6     
|Auto Insurance Reserve               |  |               |       |                   |      
|Equity Loans                         |  |               | 10     |                   | 3     
|Consumer & Other                     |  |               | 34     |                   | 2     
|Not allocated                        |  |               | 160    |                   |      
|                                     |  |               |        |                   |       
|                                     |  | $             | 877    |                   | 100.00
|                                     |  |               |        |                   |       
|Total loans (net of unearned income) |  | $             | 67,637 |                   |       

The
ALL is available to absorb losses from all loans, although allocations have been made for certain loans and loan categories. The allocation of the ALL as shown above should not be
interpreted as an indication that charge-offs in future periods will occur in these amounts or proportions, or that the allocation indicates future charge-off trends. In
addition to the most recent analysis of individual loans and pools of loans, management's methodology also places emphasis on historical loss data, delinquency and non-accrual trends by
loan classification category and expected loan maturity. This analysis, management believes, identifies potential losses within the loan portfolio and therefore results in allocation of a large
portion of the allowance to specific loan categories.

The
"not allocated" category of the allowance for loan losses was $160,000 at June 30, 2001 versus $180,000 at December 31, 2000. This decrease, in conjunction with the
corresponding increase in the allocated portion of the allowance for loan losses, primarily in the "commercial" and "real estate" categories, resulted from the declining economic conditions.

11

---

INVESTMENTS

The
following tables set forth the amortized cost and approximate market value of investment securities as of the dates indicated (dollar amounts in thousands):

|                                            |  | June 30, 2001
|------------------------------------------- |  | -------------
|
|Available for sale:                         |  |              
|Mortgage-backed securities                  |  | $            
|Obligations of states and local governments |  |              
|U.S. Treasury Obligations                   |  |              
|U.S. Agency                                 |  |              
|Common stock                                |  |              
|Federal Home Loan Bank stock                |  |              
|                                            |  |              
|                                            |  | $            
|                                            |  |              

|                                            |  | December 31, 2000
|------------------------------------------- |  | -----------------
|
|Available for sale:                         |  |                  
|Mortgage-backed securities                  |  | $                
|Obligations of states and local governments |  |                  
|U.S. Treasury Obligations                   |  |                  
|U.S. Agency                                 |  |                  
|Common stock                                |  |                  
|Federal Home Loan Bank stock                |  |                  
|                                            |  |                  
|                                            |  | $                
|                                            |  |                  

DEPOSITS/OTHER BORROWINGS

Total
consolidated deposits increased by $14.7 million or 17.03% during the six months ended June 30, 2001 from $86.4 million to $101.1 million.

Rates
paid on deposits decreased during the six months ended June 30, 2001 contributing to the decrease in the cost of funds of interest bearing deposits to 3.55% during the
six months ended June 30, 2001 from 3.95% for the year ended December 31, 2000.

12

---

The following table summarizes the distribution of average deposits and the average rates paid for the periods indicated (dollar amount in thousands):

|                                  |  | Six Months Ended
June 30, 2001 |        | Year Ended
December 31, 2000 |     
|--------------------------------- |  | ------------------------------ | ------ | ---------------------------- | ----
|
|Interest Bearing Liabilities:     |  |                                |        |                              |     
|Demand deposits                   |  | $                              | 25,700 |                              |    
|                                  |  |                                |        |                              |     
|Interest bearing demand deposits  |  |                                | 8,737  |                              | 1.01
|Money market deposits             |  |                                | 25,512 |                              | 2.83
|Savings deposits                  |  |                                | 7,944  |                              | 2.19
|Time deposits of $100,000 or more |  |                                | 15,252 |                              | 5.87
|Time deposits under $100,000      |  |                                | 9,694  |                              | 5.18
|                                  |  |                                |        |                              |     
|Total interest-bearing deposits   |  |                                | 67,139 |                              | 3.55
|                                  |  |                                |        |                              |     
|                                  |  | $                              | 92,839 |                              | 2.57
|                                  |  |                                |        |                              |     

The
following table sets forth the time remaining to maturity of the Company's time deposits in amounts of $100,000 or more (in thousands):

June 30, 2001

December 31, 2000Three months or less

$
4,160

$
4,596After three months to six months


3,697


4,179After six months to one year


8,570


3,288After one year


1,283


1,241Total

$
17,710

$
13,304


13

---



RESULTS OF OPERATIONS

NET INTEREST INCOME/NET INTEREST MARGIN

Net
interest income for the quarter ended June 30, 2001 was $1,662,000, an increase of 18.71% over the net interest income of $1,400,000 during the same period of 2000. Net
interest income for the six months ended June 30, 2001 was $3,257,000, an increase of 20.2% over the net interest income of $2,709,000 during the same period of 2000. The increase was primarily
due to the growth in average loans, our expanded market area and continued strong economic conditions in the Company's market areas.

The
following table sets forth 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-bearing assets and interest-bearing liabilities and the net interest margin (net interest income divide by average earning assets) for the periods indicated:

|                                                    |             | Quarter Ended June 30,        |       
|--------------------------------------------------- | ----------- | ----------------------------- | ------
|
|
|Interest-Earning Assets:                            |             |                               |       
|Federal funds sold                                  |             | $                             | 9,120 
|Interest-bearing deposits in financial institutions |             |                               | 4,159 
|Investment securities                               |             |                               |       
|                                                    | Taxable     |                               |       
|                                                    | Non-taxable |                               |       
|                                                    |             |                               |       
|                                                    |             | Total investments             |       
|Loans                                               |             |                               | 63,834
|                                                    |             |                               |       
|                                                    |             | Total interest earning assets |       
|                                                    |             |                               |       

14

---

|                                  |                                        | Quarter Ended June 30, |       
|--------------------------------- | -------------------------------------- | ---------------------- | ------
|
|
|Interest Bearing Liabilities:     |                                        |                        |       
|Demand deposits                   |                                        | $                      | 27,019
|                                  |                                        |                        |       
|Interest bearing demand deposits  |                                        |                        | 8,489 
|Money market deposits             |                                        |                        | 25,399
|Savings deposits                  |                                        |                        | 8,135 
|Time deposits of $100,000 or more |                                        |                        | 16,053
|Time deposits under $100,000      |                                        |                        | 9,792 
|                                  |                                        |                        |       
|                                  | Total interest bearing deposits        |                        |       
|                                  |                                        |                        |       
|Other borrowings                  |                                        |                        |      
|                                  |                                        |                        |       
|                                  | Total deposits and other borrowings    |                        | $     
|                                  |                                        |                        |       
|                                  | Average rate excluding demand deposits |                        |       
|                                  |                                        |                        |       
|Net interest income               |                                        |                        |       
|                                  |                                        |                        |       
|Net interest margin               |                                        |                        |       
|                                  |                                        |                        |       

|                                                    |             | Six Months Ended June 30,     |       
|--------------------------------------------------- | ----------- | ----------------------------- | ------
|
|
|Interest-Earning Assets:                            |             |                               |       
|Federal funds sold                                  |             | $                             | 8,148 
|Interest-bearing deposits in financial institutions |             |                               | 4,475 
|Investment securities                               |             |                               |       
|                                                    | Taxable     |                               |       
|                                                    | Non-taxable |                               |       
|                                                    |             |                               |       
|                                                    |             | Total investments             |       
|Loans                                               |             |                               | 63,412
|                                                    |             |                               |       
|                                                    |             | Total interest earning assets |       
|                                                    |             |                               |       

15

---

|                                  |                                        | Six Months Ended June 30, |       
|--------------------------------- | -------------------------------------- | ------------------------- | ------
|
|
|Interest Bearing Liabilities:     |                                        |                           |       
|Demand deposits                   |                                        | $                         | 25,670
|                                  |                                        |                           |       
|Interest bearing demand deposits  |                                        |                           | 8,737 
|Money market deposits             |                                        |                           | 25,512
|Savings deposits                  |                                        |                           | 7,944 
|Time deposits of $100,000 or more |                                        |                           | 15,252
|Time deposits under $100,000      |                                        |                           | 9,694 
|                                  |                                        |                           |       
|                                  | Total interest bearing deposits        |                           |       
|                                  |                                        |                           |       
|Other borrowings                  |                                        |                           |      
|                                  |                                        |                           |       
|                                  | Total deposits and other borrowings    |                           | $     
|                                  |                                        |                           |       
|                                  | Average rate excluding demand deposits |                           |       
|                                  |                                        |                           |       
|Net interest income               |                                        |                           |       
|                                  |                                        |                           |       
|Net interest margin               |                                        |                           |       
|                                  |                                        |                           |       

The
following table presents the dollar amount of changes in interest earned and interest paid for each major category of interest-earning assets and liabilities, and shareholders'
equity; the amount of interest income or interest expense; and the average yield or rate for each category of interest-bearing

16

---

assets and interest-bearing liabilities and the net interest margin (net interest income divided by average earning assets) for the periods indicated (dollar amounts in thousands):

|                                        |                                                     | Six Ended June 30, 2001 Compared to Six Months Ended June 30, 2000 |      
|--------------------------------------- | --------------------------------------------------- | ------------------------------------------------------------------ | -----
|
|
|Increase (decrease) in interest income  |                                                     |                                                                    |      
|                                        | Federal funds sold                                  |                                                                    | $    
|                                        | Interest-bearing deposits in financial institutions |                                                                    |      
|                                        | Investment securities                               |                                                                    |      
|                                        |                                                     | Taxable                                                            |      
|                                        |                                                     | Non-taxable                                                        |      
|                                        | Loans                                               |                                                                    |      
|                                        |                                                     |                                                                    |      
|                                        |                                                     |                                                                    | Total
|                                        |                                                     |                                                                    |      
|Increase (decrease) in interest expense |                                                     |                                                                    |      
|                                        | Interest bearing demand deposits                    |                                                                    |      
|                                        | Money market deposits                               |                                                                    |      
|                                        | Savings deposits                                    |                                                                    |      
|                                        | Time deposits of $100,000 or more                   |                                                                    |      
|                                        | Time deposits under $100,000                        |                                                                    |      
|                                        | Other borrowings                                    |                                                                    |      
|                                        |                                                     |                                                                    |      
|                                        |                                                     |                                                                    | Total
|                                        |                                                     |                                                                    |      
|Total change in net interest income     |                                                     | $                                                                  | 997  
|                                        |                                                     |                                                                    |      

|                                        |                                                     | Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000 |      
|--------------------------------------- | --------------------------------------------------- | ------------------------------------------------------------------- | -----
|
|
|Increase (decrease) in interest income  |                                                     |                                                                     |      
|                                        | Federal funds sold                                  |                                                                     | $    
|                                        | Interest-bearing deposits in financial institutions |                                                                     |      
|                                        | Investment securities                               |                                                                     |      
|                                        |                                                     | Taxable                                                             |      
|                                        |                                                     | Non-taxable                                                         |      
|                                        | Loans                                               |                                                                     |      
|                                        |                                                     |                                                                     |      
|                                        |                                                     |                                                                     | Total
|                                        |                                                     |                                                                     |      
|Increase (decrease) in interest expense |                                                     |                                                                     |      
|                                        | Interest bearing demand deposits                    |                                                                     |      
|                                        | Money market deposits                               |                                                                     |      
|                                        | Savings deposits                                    |                                                                     |      
|                                        | Time deposits of $100,000 or more                   |                                                                     |      
|                                        | Time deposits under $100,000                        |                                                                     |      
|                                        | Other borrowings                                    |                                                                     |      
|                                        |                                                     |                                                                     |      
|                                        |                                                     |                                                                     | Total
|                                        |                                                     |                                                                     |      
|Total change in net interest income     |                                                     | $                                                                   | 985  
|                                        |                                                     |                                                                     |      

17

---

NONINTEREST INCOME

The
following table summarizes non-interest income for the periods indicated and expresses the amounts as a percentage of average assets (dollar amounts in thousands):

|                                             |                                          | Three Months Ended June 30, 2001 |      | Three Months Ended June 30, 2000 |  
|-------------------------------------------- | ---------------------------------------- | -------------------------------- | ---- | -------------------------------- | -
|Components of Noninterest Income             |                                          |                                  |      |                                  |  
|                                             | Gain on sale of loans                    |                                  | $    | 140                              |  
|                                             | Service fees on deposit accounts         |                                  |      | 145                              |  
|                                             | Loan Servicing fees                      |                                  |      | 61                               |  
|                                             | Gain on Sale of BancData Solutions, Inc. |                                  |      |                                 |  
|                                             | Other                                    |                                  |      | 98                               |  
|                                             |                                          |                                  |      |                                  |  
|                                             |                                          | $                                | 444  |                                  | $
|                                             |                                          |                                  |      |                                  |  
|As a percent of average assets (annualized): |                                          |                                  |      |                                  |  
|Components of Noninterest Income             |                                          |                                  |      |                                  |  
|                                             | Gain on sale of loans                    |                                  |      | 0.54                             | %
|                                             | Service fees on deposit accounts         |                                  |      | 0.56                             | %
|                                             | Loan Servicing fees                      |                                  |      | 0.24                             | %
|                                             | Gain on Sale of BancData Solutions, Inc. |                                  |      | 0.00                             | %
|                                             | Other                                    |                                  |      | 0.38                             | %
|                                             |                                          |                                  |      |                                  |  
|                                             |                                          |                                  | 1.72 | %                                |  
|                                             |                                          |                                  |      |                                  |  

|                                             |                                          | Six Months Ended June 30, 2001 |      | Six Months Ended June 30, 2000 |  
|-------------------------------------------- | ---------------------------------------- | ------------------------------ | ---- | ------------------------------ | -
|Components of Noninterest Income             |                                          |                                |      |                                |  
|                                             | Gain on sale of loans                    |                                | $    | 199                            |  
|                                             | Service fees on deposit accounts         |                                |      | 286                            |  
|                                             | Loan Servicing fees                      |                                |      | 103                            |  
|                                             | Gain on Sale of BancData Solutions, Inc. |                                |      |                               |  
|                                             | Other                                    |                                |      | 181                            |  
|                                             |                                          |                                |      |                                |  
|                                             |                                          | $                              | 769  |                                | $
|                                             |                                          |                                |      |                                |  
|As a percent of average assets (annualized): |                                          |                                |      |                                |  
|Components of Noninterest Income             |                                          |                                |      |                                |  
|                                             | Gain on sale of loans                    |                                |      | 0.39                           | %
|                                             | Service fees on deposit accounts         |                                |      | 0.57                           | %
|                                             | Loan Servicing fees                      |                                |      | 0.20                           | %
|                                             | Gain on Sale of BancData Solutions, Inc. |                                |      | 0.00                           | %
|                                             | Other                                    |                                |      | 0.36                           | %
|                                             |                                          |                                |      |                                |  
|                                             |                                          |                                | 1.52 | %                              |  
|                                             |                                          |                                |      |                                |  

18

---

The
following table summarizes non-interest expenses and the associated ratios to average assets for the periods indicated (dollar amounts in thousands):

|                                            |                                 | Three Months Ended June 30, 2001 |      | Three Months Ended June 30, 2000 |  
|------------------------------------------- | ------------------------------- | -------------------------------- | ---- | -------------------------------- | -
|Components of noninterest expense           |                                 |                                  |      |                                  |  
|                                            | Salaries                        |                                  | $    | 838                              |  
|                                            | Employee benefits               |                                  |      | 121                              |  
|                                            | Occupancy expense               |                                  |      | 118                              |  
|                                            | Furniture and equipment expense |                                  |      | 117                              |  
|                                            | Professional services           |                                  |      | 141                              |  
|                                            | Stationary and supplies         |                                  |      | 28                               |  
|                                            | Promotional expenses            |                                  |      | 30                               |  
|                                            | Data processing fees            |                                  |      | 92                               |  
|                                            | Regulatory assessments          |                                  |      | 7                                |  
|                                            | Other                           |                                  |      | 224                              |  
|                                            |                                 |                                  |      |                                  |  
|                                            | Total other expenses            |                                  | $    | 1,716                            |  
|                                            |                                 |                                  |      |                                  |  
|As a percent of average assets (annualized) |                                 |                                  |      |                                  |  
|                                            | Salaries                        |                                  |      | 3.24                             | %
|                                            | Employee benefits               |                                  |      | .47                              | %
|                                            | Occupancy expense               |                                  |      | .46                              | %
|                                            | Furniture and equipment expense |                                  |      | .45                              | %
|                                            | Professional services           |                                  |      | .55                              | %
|                                            | Stationary and supplies         |                                  |      | .11                              | %
|                                            | Promotional expenses            |                                  |      | .12                              | %
|                                            | Data processing fees            |                                  |      | .36                              | %
|                                            | Regulatory assessments          |                                  |      | .03                              | %
|                                            | Other                           |                                  |      | .87                              | %
|                                            |                                 |                                  |      |                                  |  
|                                            |                                 |                                  | 6.66 | %                                |  
|                                            |                                 |                                  |      |                                  |  

19

---

NONINTEREST EXPENSES (Continued)

|                                            |                                 | Six Months Ended June 30, 2001 |      | Six Months Ended June 30, 2000 |  
|------------------------------------------- | ------------------------------- | ------------------------------ | ---- | ------------------------------ | -
|Components of noninterest expense           |                                 |                                |      |                                |  
|                                            | Salaries                        |                                | $    | 1,593                          |  
|                                            | Employee benefits               |                                |      | 257                            |  
|                                            | Occupancy expense               |                                |      | 263                            |  
|                                            | Furniture and equipment expense |                                |      | 219                            |  
|                                            | Professional services           |                                |      | 253                            |  
|                                            | Stationary and supplies         |                                |      | 75                             |  
|                                            | Promotional expenses            |                                |      | 59                             |  
|                                            | Data processing fees            |                                |      | 163                            |  
|                                            | Regulatory assessments          |                                |      | 13                             |  
|                                            | Other                           |                                |      | 450                            |  
|                                            |                                 |                                |      |                                |  
|                                            | Total other expenses            |                                | $    | 3,345                          |  
|                                            |                                 |                                |      |                                |  
|As a percent of average assets (annualized) |                                 |                                |      |                                |  
|                                            | Salaries                        |                                |      | 3.16                           | %
|                                            | Employee benefits               |                                |      | 0.51                           | %
|                                            | Occupancy expense               |                                |      | 0.52                           | %
|                                            | Furniture and equipment expense |                                |      | 0.43                           | %
|                                            | Professional services           |                                |      | 0.50                           | %
|                                            | Stationary and supplies         |                                |      | 0.15                           | %
|                                            | Promotional expenses            |                                |      | 0.12                           | %
|                                            | Data processing fees            |                                |      | 0.32                           | %
|                                            | Regulatory assessments          |                                |      | 0.03                           | %
|                                            | Other                           |                                |      | 0.89                           | %
|                                            |                                 |                                |      |                                |  
|                                            |                                 |                                | 6.64 | %                              |  
|                                            |                                 |                                |      |                                |  

Significant
increases were seen in the areas of Salaries and Occupancy Expenses from June 30, 2000 to June 30, 2001, due to the start up costs associated with the
opening of our Brea Branch and a separate facility for our Real Estate/Construction Loan Department.

LIQUIDITY

Liquidity
is the Company's ability to absorb fluctuations in deposits while simultaneously providing for the credit needs of its borrowers. The objective in liquidity management is to
balance the sources and uses of funds. Primary sources of liquidity for the Company include payments of principal and interest on loans and investments, proceeds from the sale or maturity of loans and
investments, growth in deposits, and other borrowings. The Company holds overnight federal funds as a cushion for temporary liquidity needs. During the six months ended June 30, 2001 federal
funds sold averaged $8.1 million, or 8.1% of total average assets. In addition to its federal funds, the Company maintains various lines of credit with correspondent banks, and the Federal Home
Loan Bank of San Francisco.

At
June 30, 2001, the Company had cash, time deposits with banks, federal funds sold, and un-pledged investment securities of approximately $32.8 million, or
30% of total assets. This represented all available liquid assets.

Several
methods are used to measure liquidity. One method is to measure the balance between loans and deposits (gross loans divided by total deposits). In general, the closer this
ratio is to 100%, the more reliant an institution becomes on its illiquid loan portfolio to absorb temporary fluctuations in

20

---

deposit levels. At June 30, 2001, the loan-to-deposit ratio was 66.9% as compared to 69.5% at December 31, 2000.

As
of June 30, 2001, the Company had no material commitments, which were expected to adversely impact liquidity.

ASSET/LIABILITY MANAGEMENT

The
operating income and net income of Centennial First depend to a substantial extent on "rate differentials," i.e., the difference between the income Centennial First receives from
loans, securities and other earning assets, and the interest expense it pays on deposits and other liabilities. Interest income and interest expense are affected by general economic conditions and by
competition in the marketplace. Centennial First's interest and pricing strategies are driven by its asset/liability management analysis and by local market conditions.

Centennial
First seeks to manage its assets and liabilities to generate a stable level of earnings in response to changing interest rates and to manage its interest rate risk.
Centennial First further strives to serve its communities and customers through deployment of its resources on a corporate-wide basis so that qualified loan demands may be funded.
Asset/liability management involves managing the relationship between interest rate sensitive assets and interest rate sensitive liabilities.

The
interest rate sensitivity of Centennial First is measured over time and is based on Centennial First's ability to reprice its assets and liabilities. The opportunity to reprice
assets in the same dollar amounts and at the same time as liabilities would minimize interest rate risk in any interest rate environment. The difference between the amount of assets and liabilities
repriced at the same time is referred to as the "gap." This gap represents the risk, or opportunity, in repricing. In general, if more assets than liabilities are repriced at a given time in a rising
rate environment, net interest income would improve, and in a declining rate environment, net interest income would deteriorate. If more liabilities than assets were repriced under the same
conditions, the opposite results would prevail. Centennial First is asset sensitive and its near term performance could be enhanced by rising rates and negatively affected by falling rates due mainly
to the significant amount of earning assets tied to prime.

Interest Rate Risk and Economic Risk.At June 30, 2001, assuming the effect of a 2% increase or decrease in
prevailing market interest rates, the change in net interest margin was approximately $1.1 million and $1.1 million, respectively. This represents a net economic value ratio of 12.16%
and 14.03%, respectively. The net portfolio value ratio represents the effect of a 2% increase or decrease in prevailing market interest rates of total stockholders equity divided by total assets.
These forecasted results fall within the Bank's asset/liability policy guidelines of 7% to 20%.

The
Company has no sources of revenues or liquidity other than dividends, tax equalization payments or management fees from the Bank. The ability of the Bank to pay such items to the
Company is subject to limitations under State and Federal law.

CAPITAL RESOURCES

The
principal source of capital for the Company is and will continue to be the retention of operating profits. The ratios of equity to average assets for the periods indicated are set
forth below.

Six Months Ended June 30, 2001

Year Ended December 31, 20007.44%

8.12%


Regulatory
authorities have issued guidelines to implement risk-based capital requirements. The guidelines establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. Total capital is classified into two components: Tier 1 (primarily shareholder's equity) and
Tier 2 (supplementary capital including allowance for possible credit losses, certain preferred stock, eligible subordinated debt, and other qualifying instruments). The guidelines require that total
capital be 8% of risk-based assets, of which at least 4% must be Tier 1 capital. As of June 30, 2001, the Company's total capital ratio was 11.0% and its Tier 1 capital ratio was
9.85%. In addition, the Company, under the guidelines established for adequately capitalized institutions, must also maintain a minimum leverage ratio (Tier 1 capital divided by total assets) of 4%.
As of June 30, 2001, the Company's leverage ratio was 7.39%. It is the Company's intention to maintain risk-based capital ratios at levels characterized as
"well-capitalized" for banking organizations: Tier 1 risk-based capital of 6% or above and total risk-based capital at 10% or above.

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PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

The annual meeting of the shareholders of the Company was held on April 24, 2001. A quorum was established with the presence of 553,126 shares out of
717,472 shares of common stock outstanding. The following matters were voted upon at the annual meeting with the voting results as indicated:

Proposal
1.The following persons were elected as directors:

Name

Votes For

Votes WithheldBruce J. Bartells

552,795

Carole H. Beswick

552,795

Irving M. Feldkamp, III

552,795

Larry Jacinto

552,795

Ronald J. Jeffrey

552,795

William A. McCalmon

552,795

Patrick J. Meyer

552,795

Douglas C. Spencer

552,795

Douglas F. Welebir

552,795




22

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ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|Item      |  | Description                                                                                  
|--------- |  | ---------------------------------------------------------------------------------------------
|5         |  | Plan of Reorganization and Agreement of Merger Dated December 1, 1999                        
|          |  | Filed as exhibit to Form S-4 dated October 20, 1999                                          
|3(i)      |  | Articles of Incorporation                                                                    
|          |  | Filed as exhibit to Form S-4 dated October 20, 1999                                          
|3(ii)     |  | Bylaws                                                                                       
|          |  | Filed as exhibit to Form S-4 dated October 20, 1999                                          
|5         |  | 1.5.1 Opinion regarding legality from Gary Steven Findley and Associates, dated July 24, 2001
|          |  | Filed as an exhibit to Form SB-2MEF dated July 26, 2001                                      
|10(ii)(A) |  | 1. Employment Contract of Douglas C. Spencer, dated September 10, 1997                       
|          |  | Filed as exhibit to Form S-4 dated October 20, 1999                                          
|          |  | 2. Salary Continuation Agreement of Douglas C. Spencer, dated March 17, 1998                 
|          |  | Filed as exhibit to Form S-4 dated October 20, 1999                                          
|          |  | 3. Employment Agreement of Roy D. Lewis, dated March 20, 1998                                
|          |  | Filed as exhibit to Form S-4 dated October 20, 1999                                          
|          |  | 4. Employment Agreement of Anne E. Sanders, dated March 20, 1998                             
|          |  | Filed as exhibit to Form S-4 dated October 20, 1999                                          
|          |  | 5. Redlands Centennial Bank 1990 Stock Option Plan and Addendums                             
|          |  | Filed as exhibit to Form S-4 dated October 20, 1999                                          
|          |  | 6. Employment Agreement of Timothy Walbridge, dated August 31, 2000                          
|          |  | Filed as an exhibit to Form SB-2 dated March 21, 2001                                        
|          |  | 7. Salary Continuation Agreement of Timothy Walbridge, dated August 31, 2000                 
|          |  | Filed as an exhibit to Form SB-2 dated March 21, 2001                                        
|          |  | 8. Brea Branch Lease, dated September 20, 2000                                               
|          |  | Filed as an exhibit to Form SB-2 dated March 21, 2001                                        
|          |  | 9. Form of Indemnification Agreement                                                         
|          |  | Filed as an exhibit to Form SB-2 dated March 21, 2001                                        
|          |  | 10. Stock Purchase Agreement for Palomar Community Bank                                      
|          |  | Filed as an exhibit to Form SB-2 dated March 21, 2001                                        
|10(I)     |  | Redlands Centennial Bank Employee Stock Ownership Plan, dated February 1, 2000               
|          |  | Filed as exhibit to Form 10-QSB dated May 12, 2000                                           
|23        |  | 1. Consent of Hutchinson and Bloodgood LLP, dated March 20, 2001                             
|          |  | Filed as an exhibit to Form SB-2 dated March 21, 2001                                        

23

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|   |  | 2. Consent of Arthur Andersen LLP, dated March 19, 2001                                                            
|-- |  | -------------------------------------------------------------------------------------------------------------------
|   |  | Filed as an exhibit to Form SB-2 dated March 21, 2001                                                              
|   |  | 3. Consent of Hutchinson and Bloodgood LLP, dated April 30, 2001                                                   
|   |  | Filed as an exhibit to Form 10-KSB/A dated May 2, 2001                                                             
|   |  | 4. Consent of Hutchinson and Bloodgood LLP, dated June 15, 2001                                                    
|   |  | Filed as an exhibit to Form SB-2/A dated June 15, 2001                                                             
|   |  | 5. Consent of Arthur Andersen LLP, dated June 15, 2001                                                             
|   |  | Filed as an exhibit to Form SB-2/A dated June 15, 2001                                                             
|   |  | 6. Consent of Hutchinson and Bloodgood LLP, dated June 25, 2001                                                    
|   |  | Filed as an exhibit to Form SB-2/A dated June 25, 2001                                                             
|   |  | 7. Consent of Arthur Andersen LLP, dated June 25, 2001                                                             
|   |  | Filed as an exhibit to Form SB-2/A dated June 25, 2001                                                             
|   |  | 8. Consent of Landegger and Baron, dated June 25, 2001                                                             
|   |  | Filed as an exhibit to Form SB-2/A dated June 25, 2001                                                             
|   |  | 9. Consent of Hutchinson and Bloodgood LLP, dated July 24, 2001                                                    
|   |  | Filed as an exhibit to Form SB-2MEF dated July 26, 2001                                                            
|   |  | 10. Consent of Arthur Andersen LLP, dated July 24, 2001                                                            
|   |  | Filed as an exhibit to Form SB-2MEF dated July 26, 2001                                                            
|99 |  | 1. 99.29 Management's Discussion & Analysis of Financial Condition and Results of Operations                       
|   |  | Filed as an exhibit to Form 10-KSB/A dated May 2, 2001                                                             
|   |  | 2. 99.30 Financial Statements of Centennial First Financial Services for the years ended December 31, 2000 and 1999
|   |  | Filed as an exhibit to Form 10-KSB/A dated May 2, 2001                                                             
|   |  | 3. 99.29 Management's Discussion & Analysis of Financial Condition and Results of Operations                       
|   |  | Filed as an exhibit to Form 10-KSB/A dated June 20, 2001                                                           
|   |  | 4. 99.1 Stock Subscription Application                                                                             
|   |  | Filed as an exhibit to Form SB-2/A dated June 25, 2001                                                             
|   |  | 5. 99.2 Opinion of Landegger and Baron                                                                             
|   |  | Filed as an exhibit to Form SB-2/A dated June 25, 2001                                                             



The
Company filed no reports on Form 8-K during the second quarter of 2001.

SIGNATURES

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

|                      |  | CENTENNIAL FIRST FINANCIAL SERVICES
(REGISTRANT)
|--------------------- |  | ------------------------------------------------
|Date: August 13, 2001 |  | By:                                             

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