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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K



(Mark One)



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934
|- |  | -------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2002



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
|- |  | --------------------------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 0-11337



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FOOTHILL INDEPENDENT BANCORP

(Exact name of Registrant as specified in its charter)



|Delaware                                                      |  | 95-3815805                          
|------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdictionof incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                              |  |                                     
|510 South Grand Avenue, Glendora, California                  |  | 91741                               
|(Address of principal executive offices)                      |  | (Zip Code)                          



(626)
963-8551

(Registrants telephone number, including area code)



Securities registered pursuant to Section 12(b) of the
Act:  None



Securities
registered pursuant to Section 12(g) of the Act:  Common Stock



Rights to Purchase Common Stock

(Title of Class)



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



Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K   x.



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



The aggregate market value of voting shares held by
non-affiliates of Registrant as of June 28, 2002, which was determined on the basis of the closing price of Registrants shares on that date, was approximately $67,706,000.



As of March 24, 2003, there were 5,978,799 shares of Common Stock outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



Except as otherwise indicated therein, Part III of the Form
10-K is incorporated by reference from the Registrants Definitive Proxy Statement for its 2003 Annual Meeting to be filed with the Commission on or before April 30, 2003.



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FOOTHILL
INDEPENDENT BANCORP, INC.



ANNUAL REPORT ON
FORM 10-K



FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2002



TABLE OF CONTENTS



|                           |  |                                                                                                  |  | Page No.
|-------------------------- |  | ------------------------------------------------------------------------------------------------ |  | --------
|Forward Looking Statements |  | 1                                                                                               
|                          
|Part I                     |  |                                                                                                  |  |         
|                          
|Item 1                     |  | Business                                                                                         |  | 1       
|                          
|Item 2                     |  | Properties                                                                                       |  | 16      
|                          
|Item 3                     |  | Legal Proceedings                                                                                |  | 16      
|                          
|Item 4                     |  | Submission of Matters to a Vote of Securities Holders                                            |  | 16      
|                          
|Item 4A                    |  | Executive Officers of the Registrant                                                             |  | 16      
|                          
|Part II                    |  |                                                                                                  |  |         
|                          
|Item 5                     |  | Market for Registrants Common Equity and Related Stockholder Matters                            |  | 17      
|                          
|Item 6                     |  | Selected Financial Data                                                                          |  | 19      
|                          
|Item 7                     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations            |  | 20      
|                          
|Item 7A                    |  | Quantitative and Qualitative Disclosure About Market Risk                                        |  | 31      
|                          
|Item 8                     |  | Financial Statements and Supplementary Data                                                      |  | 33      
|                          
|                           |  | Independent Auditors Report                                                                     |  | 34      
|                          
|                           |  | Consolidated Balance Sheets at December 31, 2002 and 2001                                        |  | 35      
|                          
|                           |  | Consolidated Statements of Income for the Years ended December 31, 2002, 2001 and 2000           |  | 36      
|                          
|                           |  | Consolidated Statements of Stockholders Equity the Years ended December 31, 2002, 2001 and 2000 |  | 37      
|                          
|                           |  | Consolidated Statements of Cash Flows for the Years ended December 31, 2002, 2001 and 2000       |  | 38      
|                          
|                           |  | Notes to Consolidated Financial Statements                                                       |  | 40      
|                          
|Item 9                     |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures            |  | 58      
|                          
|Part III                   |  |                                                                                                  |  |         
|                          
|Item 10                    |  | Directors and Executive Officers of the Registrant                                               |  | 58      
|                          
|Item 11                    |  | Executive Compensation                                                                           |  | 58      
|                          
|Item 12                    |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   |  | 58      
|                          
|Item 13                    |  | Certain Relationships and Related Transactions                                                   |  | 58      
|                          
|Item 14                    |  | Controls and Procedures                                                                          |  | 58      
|                          
|Part IV                    |  |                                                                                                  |  |         
|                          
|Item 15                    |  | Exhibits, Financial Statement Schedules, Reports on Form 8-K                                     |  | 59      
|                          
|Signature Page             |  | S-1                                                                                             
|Index to Exhibits          |  | E-1                                                                                             





i



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FORWARD LOOKING STATEMENTS



Statements contained in this Report that are not historical facts or that discuss our expectations or beliefs regarding our future operations or future financial performance, or financial or other trend in our business, constitute
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the 1933 Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the 1934 Act).
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include the words believe, expect, anticipate, intend,
plan, estimate, project, or words of similar meaning, or future or conditional verbs such as will, would, should, could, or may. Forward-looking
statements are based on current information and are subject to a number of risks and uncertainties that could cause our financial condition or operating results in the future to differ significantly from those expected at the current time. Those
risks and uncertainties are described in Part II of this Report in the Section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations  Forward Looking Information and Uncertainties Regarding
Future Financial Performance and readers of this Report are urged to read the cautionary statements contained in that Section of this Report.



Due to these uncertainties and risks, readers are cautioned not to place undue reliance on forward-looking statements contained in this
Report, which speak only as of the date of this Annual Report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



PART I



ITEM 1.    
BUSINESS



Foothill
Independent Bancorp (the Company) is a one-bank holding company, organized in 1982 and registered under the Bank Holding Company Act of 1956, as amended (the BHCA), which owns all of the capital stock of Foothill Independent
Bank, a California state-chartered bank (the Bank). The Company, like other bank holding companies in the United States, is subject to regulation, supervision and periodic examination by the Board of Governors of the Federal Reserve
System (commonly known as the Federal Reserve Board).



The Bank, which was organized and commenced business operations in 1973, conducts a commercial banking business in the contiguous counties of Los Angeles, San Bernardino and Riverside, California, and as of December 31, 2002
had total assets of $604,570,000. The Bank is an FDIC insured state bank and member of the Federal Reserve System. As such it is also is subject to regulation, supervision and periodic examination by the Federal Reserve Board and also by the
California Department of Financial Institutions. See Supervision and Regulation below in this Section of this Report.



Until July 18, 2000, the Company was a California corporation. With the approval of the Companys shareholders, on that date, the
Company was re-incorporated as a Delaware corporation and our articles of incorporation were amended in several respects. Reference is hereby made to the Companys Current Report on Form 8-K dated July 18, 2000 for additional information
regarding the Delaware reincorporation and those amendments to the Companys articles of incorporation. No changes were made to the state of incorporation or to the articles of incorporation of the Bank.



THE BANK



The Bank offers a full range of commercial banking services including the acceptance of checking and savings
deposits, and the making of various types of commercial and business loans, including credit lines and accounts receivable and inventory financing, real estate mortgage and construction loans and consumer installment loans. In addition, the Bank
provides safe deposit, collection, travelers checks, notary public and other customary non-deposit banking services. The Bank currently operates 12 banking offices, one in each of the communities of Glendora, Upland, Claremont, Irwindale, Ontario,
Rancho Cucamonga, Covina, Glendale, Corona, Chino, Monrovia, and Temecula California, which are located in the area of Southern California that includes (i) the San Gabriel Valley of Los Angeles County, and (ii) the western portions of San
Bernardino and the western and southern portions of Riverside Counties, which together are commonly known as the Inland Empire. The Banks organization and operations have been designed primarily to meet the banking needs of
individuals and small-to-medium sized businesses.





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The Bank
emphasizes personalized service and convenience of banking and attracts banking customers by offering services that are designed to meet the banking requirements of the customers in its communities. Drive-up or walk-up facilities and 24-hour
Automated Teller Machines (ATMs) are available at all of its banking offices. The Bank also offers a computerized telephone service, which enables customers to obtain information concerning their bank deposit accounts
telephonically at any time day or night, and the Bank offers Internet banking services to consumers and business customers. The Banks deposit accounts are insured by the Federal Deposit Insurance Corporation (FDIC) to the maximum
extent allowed by law. As a California state-chartered bank that is a member of the Federal Reserve System (a state member bank), the Bank is subject to regulation, supervision and periodic examination, at the state level, by the
California Department of Financial Institutions (the DFI), and, at the Federal level, by the Federal Reserve Board. See Supervision and RegulationFoothill Independent Bank.



DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIALS



The following
table sets forth the condensed average balances for each principal category of our consolidated assets and liabilities and also of our stockholders equity for each of the years in the three year period ended December 31, 2002. Average balances
are based on daily averages for the Bank and monthly averages for the Company, since the Company does not maintain daily average information. We believe that the differences between monthly and daily average data (where monthly data has been used)
are not significant. (Dollars are set forth in thousands.)



|                                           |  | Year Ended December 31, |        
|------------------------------------------ |  | ----------------------- | -------
|                                           |  | 2002                    |        
|                                           |  | Average Balances        |        
|Assets                                     |  |                         |        
|Investment SecuritiesTaxable              |  | $                       | 48,749 
|Investment SecuritiesNon-Taxable          |  |                         | 8,119  
|Federal Funds Sold & Repos                 |  |                         | 40,504 
|Due from BanksTime Deposits               |  |                         | 7,544  
|Loans                                      |  |                         | 422,598
|Direct Lease Financing                     |  |                         | 1,160  
|Reserve for Loan and Lease Losses          |  |                         | (4,378 
|                                           |  |                         |        
|Net Loans and Leases                       |  |                         | 419,380
|                                           |  |                         |        
|Total Interest Earning Assets              |  |                         | 524,296
|Cash and Non-interest Earning Deposits     |  |                         | 29,610 
|Net Premises, Furniture and Equipment      |  |                         | 5,206  
|Other Assets                               |  |                         | 14,722 
|                                           |  |                         |        
|Total Assets                               |  | $                       | 573,834
|                                           |  |                         |        
|Liabilities and Stockholders Equity        |  |                         |        
|Savings Deposits(1)                        |  | $                       | 242,304
|Time Deposits                              |  |                         | 88,824 
|Short-term Borrowings                      |  |                         | 0      
|Long-term Borrowings                       |  |                         | 667    
|                                           |  |                         |        
|Total Interest-Bearing Liabilities         |  |                         | 331,795
|Demand Deposits                            |  |                         | 181,680
|Other Liabilities                          |  |                         | 5,655  
|                                           |  |                         |        
|Total Liabilities                          |  |                         | 519,130
|Stockholders Equity                       |  |                         | 54,704 
|                                           |  |                         |        
|Total Liabilities and Stockholders Equity |  | $                       | 573,834
|                                           |  |                         |        

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|(1) |  | Includes NOW, Super NOW and Money Market Account.
|--- |  | -------------------------------------------------



DEPOSITS



Deposits represent the Banks primary source of funds that it uses to fund its interest earning assets, principally loans and
investment securities. The following table sets forth, as of December 31, 2002, the different categories of deposits maintained at the Bank and the number of deposit accounts, the average balance of each account and the aggregate dollar amount of
the deposits in each such category:



2



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|Type of Deposit Account |  | Number of Accounts |  | Average Account Balance |         | Total Deposits |  
|----------------------- |  | ------------------ |  | ----------------------- | ------- | -------------- | -
|Demand                  |  | 20,173             |  | $                       | 9,829   |                | $
|Money market            |  | 9,124              |  |                         | 21,745  |                |  
|Savings                 |  | 10,309             |  |                         | 5,152   |                |  
|TCDs(3)                 |  | 244                |  |                         | 141,172 |                |  
|Other time deposits(3)  |  | 2,455              |  |                         | 20,479  |                |  

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|(1) |  | Includes $2,383,000 of municipal and other government agency deposits.
|--- |  | ----------------------------------------------------------------------

|(2) |  | Includes $7,318,000 of municipal and other government agency deposits.
|--- |  | ----------------------------------------------------------------------

|(3) |  | In this Report, we will use the term TCDs to mean time certificates of deposit in denominations of more than $100,000, the term other time
deposits too mean certificates of deposit in denominations of $100,000 or less; and the term time deposits to mean TCDs and other time deposits, collectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the twelve months ended December 31, 2002, average
demand deposits increased by approximately $25,852,000 or 16.6%; average money market checking account deposits increased by approximately $34,548,000 or 21.6%; average savings deposits increased by approximately $6,575,000 or 15.8%; and average
time deposits decreased by approximately $20,165,000 or 18.5%, which was the result of a decrease of $9,592,000 in TCDs and a decrease of approximately $10,573,000 in other time deposits.



Although there are some business and public agency customers that carry large deposits with the Bank, the
Bank does not believe it is dependent on a single customer or a few customers for its deposits. Most of the Banks deposits are obtained from individuals and small and moderate size businesses. This results in relatively small average deposit
balances, but makes the Bank less subject to the adverse effect on liquidity which can result from the loss of a substantial depositor. No individual, corporate or public agency depositor accounted for more than approximately 2% of the Banks
total deposits and the five largest deposit accounts represented, collectively, 6% of total deposits.



THE LOAN PORTFOLIO



Loan Products.    We offer a diverse line of loan products, including commercial loans and credit lines, SBA guaranteed business loans, accounts receivable and inventory
financing, real estate mortgage and construction loans and consumer loans.



The following table sets forth the types of loans made by the Bank and the amounts (in thousands of dollars) of the loans, by type, that were outstanding at December 31, 2002, 2001 and 2000,
respectively.



|                                       |  | December 31, |        
|-------------------------------------- |  | ------------ | -------
|Types Of Loans(1)                      |  | 2002         |        
|Commercial, Financial and Agricultural |  | $            | 44,136 
|Real Estate Construction               |  |              | 34,492 
|Real Estate Mortgage(2)                |  |              | 357,707
|Consumer Loans                         |  |              | 4,073  
|Lease Financing(3)                     |  |              | 1,211  
|All other Loans (including overdrafts) |  |              | 508    
|                                       |  |              |        
|Subtotal:                              |  |              | 442,127
|Less:                                  |  |              |        
|Unearned Discount                      |  |              | (67    
|                                       |  |              |        
|Reserve for Loan and Lease Losses      |  |              | (4,619 
|                                       |  |              |        
|Total                                  |  | $            | 437,441
|                                       |  |              |        

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|(1) |  | All of the Banks loans have been made to borrowers in the United States.
|--- |  | -------------------------------------------------------------------------

|(2) |  | A portion of these loans were made, not for the purpose of financing real properties, but for commercial or agricultural purposes. However, in accordance with the
Banks credit policies, such loans were secured by deeds of trust on real properties and, therefore, are classified as real mortgage loans.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Lease financing includes residual values of $0 for 2002; $0 for 2001; and $0 for 2000, and is net of unearned income of $118,000 for 2002; $158,000 for 2001; $72,000
for 2000; and $248,000 for 1999.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



3



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Commercial
Loans.    The commercial loans we offer include secured and unsecured loans with maturities ranging from 12 to 120 months; SBA guaranteed business loans with terms not to exceed 10 years; and accounts receivable financing for
terms not exceeding 12 months. In order to mitigate the risk of borrower defaults, we generally require collateral to support the credit, personal guarantees from the owners of the businesses that are borrowing, or both. In addition, all loans must
have well-defined primary and secondary sources of repayment. Generally, lines of credit are granted for no more than a 12-month period and are subject to more frequent periodic reviews.



We also offer asset-based lending products that involve a higher degree of risk in that the loan is designed
for those borrowers who do not quality, under our loan underwriting criteria, for unsecured lending. Typically, these borrowers consist of companies that are growing rapidly, but which cannot internally fund their growth without borrowings. Usually,
the collateral for such loans consists of accounts receivable and inventory. We mitigate our risk by requiring loan-to-(collateral) value ratios of not more than 80% and by closely and regularly monitoring the amount and value of the collateral in
order to maintain that ratio. These loans often are further supported by real estate as additional collateral.



Commercial loans, including accounts receivable financing, are generally made to businesses that have been in operation for at least three
years. In addition, to qualify for these loans, a borrower usually is required to have a debt-to-net worth ratio of not more than four-to-one; operating cash flow sufficient to demonstrate the ability to pay obligations as they become due; and a
good payment history as evidenced by a credit report.



Real Estate Loans.    Nonresidential real estate loans make up approximately 82.7% of our real estate loan portfolio, and substantially all of those loans are secured by first trust deeds. The
remainder of our real estate loans are secured by first and second deeds of trust on residential real property.



Loans secured by nonresidential real estate often involve loan balances to single borrowers or groups of related borrowers, and generally
involve a greater risk of nonpayment, than do mortgage loans secured by single and multi-family dwellings. Payments on loans secured by nonresidential real estate depend to a large degree on results of operations and dependable cash flows generated
from the respective businesses of the borrowers or tenants in the property. As a result, repayment of these loans is affected by changes in the economy in general or by the real estate market more specifically. Accordingly, the nature of this type
of loan makes it more difficult to monitor and evaluate. Consequently, personal guarantees from the owners of the borrowers are typically required.



A customer seeking to obtain a commercial real estate loan must have a good payment record and the property must generate a cash flow that
will cover the debt service of the loan by at least 1.25-to-1. If the property is owner-occupied, the owners business generally must have a debt coverage ratio of at least 1.50-to-1 on its obligations. In addition, we require adequate
insurance on the property to protect the collateral value. Generally, these types of loans are written for maximum terms of 10 years with loan-to-value ratios of not more than 70%.



Consumer Loans.    We offer a wide variety of products
to consumers including personal installment loans, lines of credit and credit cards. We design these products to meet the needs of our customers and some are made at fixed rates of interest and others at adjustable rates. Consumer loans often entail
greater risk than real estate mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles, which may not provide an adequate source of loan repayment in the event
of a default by the borrower. As a result, consumer loan collections are dependent on borrowers ongoing financial stability. Furthermore, bankruptcy and insolvency laws may limit the amount that can be recovered on such loans. We require the
borrower to have a good payment record and, typically, a debt to asset ratio of not more than 45%.



Past Due, Restructured and Non-Accrual Loans.    The risk that borrowers will fail or be unable to repay their
loans is an inherent part of the banking business. We follow the practice of specifically identifying loans that have become past due, either as to interest or principal, for more than 90 days. Such loans are given special attention by our credit
officers and additional efforts are made to get the borrowers to bring their loans current or to provide additional collateral to reduce the risk of potential losses on those loans. Additionally, the Bank sometimes renegotiates the payment terms of
loans to permit the borrower to defer interest or principal payments in those instances where it appears that the borrower is encountering temporary or short-term financial difficulties and the Bank believes the deferral will reduce the likelihood
of an eventual loss on the loan. When we have reason to believe that continued payment of interest and principal on any loan is unlikely, the loan is placed on non-accrual status (that is, accrual of interest on the



4



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loan is discontinued and, therefore, it ceases to be an earning asset for the Bank) and we increase our
efforts to recover the amounts due us, which may include the initiation of foreclosure proceedings against the collateral securing the loan.



The table which follows sets forth, as of the end of each of the years in the five year period ended December 31, 2002, the amounts of the
Banks loans (i) that were more than 90 days past due, (ii) as to which the terms of payment had been renegotiated (referred to as troubled debt restructurings), and (iii) that had been placed on non-accrual status.



|                                     |  | December 31,  
|------------------------------------ |  | --------------
|                                     |  | 2002          
|                                     |  | (In thousands)
|Loans More Than 90 Days Past Due(1): |  |               
|Aggregate Loan Amounts:              |  |               
|Commercial                           |  | $             
|Real Estate                          |  |               
|Consumer                             |  |               
|Aggregate Leases                     |  |               
|Troubled Debt Restructurings(2)      |  |               
|Non-Accrual Loans(3)                 |  |               
|                                     |  |               
|                                     |  | $             
|                                     |  |               

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|(1) |  | Reflects loans for which there has been no payment of interest and/or principal for 90 days or more.
|--- |  | ----------------------------------------------------------------------------------------------------

|(2) |  | The terms of the restructured loans did not involve any interest deferrals, and the amounts of interest collected in 2002, 2001, 2000, 1999 and 1998 were those
required to have been paid in accordance with the original terms of those loans.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | There were 4 loans on non-accrual status at December 31, 2002, 6 loans at each of December 31, 2001 and December 31, 2000, 14 loans at December 31, 1999, and 16
loans at December 31, 1998. The interest amounts that would have been collected on these loans had they remained current in accordance with their original terms were $117,000 in 2002, $197,000 in 2001, $644,000 in 2000, $819,000 in 1999, and
$967,000 in 1998.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In accordance
with Statement of Financial Accounting Standards N. 114, Accounting by Creditors for Impairment of a Loan (SFAS 114), as amended by Statement of Financial Accounting Standards No. 118, Accounting by Creditors for Impairment
of a LoanIncome Recognition and Disclosures (SFAS 118), we consider a loan to be impaired when, based upon current information and events, we believe it is probable that we will be unable to collect the entire amount due
according to the contractual terms of the loan agreement. In determining impairment, we primarily evaluate those loans, both performing and non-performing, that are large non-homogenous loans in our commercial and real estate mortgage and
construction loan portfolios which exhibit, among other characteristics, high loan-to-value ratios, low debt-coverage ratios, or other indications that the borrowers are experiencing increased financial difficulties. In general, payment delays of
less than 90 days or payment shortfalls of less than 1% are deemed insignificant and, for that reason, would not necessarily result in classification of a loan as impaired. However, we consider all non-accrual and troubled debt restructured loans to
be impaired. Smaller balance, homogenous loans, which consist primarily of consumer installment, credit card and direct lease financing, are not considered in determining loan impairment.



A loan identified as impaired is placed on non-accrual status and is evaluated at that time and regularly
thereafter to determine whether the carrying value of the loan should be written off in their entirety, as a loss, or partially written -down to what is believed to be its recoverable value, or whether the terms of the loan, including the collateral
required to secure the loan, should renegotiated with the borrower. Impaired loans are written-off when the possibility of collecting the full balance of the loan becomes remote. The average balance of impaired loans in our loan portfolio amounted
to approximately $2,428,000 at December 31, 2002 and during that year we set aside reserves for possible losses on those loans specifically, which totaled approximately $77,000 and were included in the Banks Reserve for Loan Losses at December
31, 2002. Cash receipts applied to reduce principal balances of those loans totaled approximately $104,700 during 2002 . Additional information regarding the Banks loan loss reserve is set forth below in this Section of this Report under the
caption, THE RESERVE FOR LOAN LOSSES. Additional information regarding SFAS 114, is contained in Note 5 to the Companys Consolidated Financial Statements that are set forth in Part II, Item 8 of this Report.



5



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Potential
Problem Loans.    At December 31, 2002, there were no loans on accrual status as to which there were serious doubts as to the ability of the borrower to comply with then present loan repayment terms.



Loan Concentrations.    The Bank
does not have loans made to borrowers who are engaged in similar activities where the aggregate amount of the loans exceeds 10% of their loan portfolio that are not broken out as a separate category in the loan portfolio.



Other Interest-Bearing
Assets.    The Bank does not have any interest-earning assets, other than loans, as to which management believes the recovery of the principal or interest is at significant risk.



THE RESERVE FOR LOAN LOSSES



The risk that borrowers will fail or be unable to repay their
loans is an inherent part of the banking business. In order to recognize on a timely basis, to the extent practicable, losses that can result from such failures, banks establish a reserve for loan losses by means of periodic charges to income known
as provisions for loan losses. When management believes that collection of a loan has become unlikely, either in whole or in part, the carrying amount of the loan is written off in its entirety (in any case where the loan become
uncollectible in full) or written-down to its what is believed to be its recoverable value (in any case where the loan is believed to be collectible in part). The write off or write down in value is charged against the loan loss reserve. Periodic
additions are made to the loan loss reserve by making provisions for loan losses in order (i) to replenish and thereby maintain the adequacy of the reserve following the occurrence of loan losses that have been charged against the reserve, and (ii)
to increase the reserve in response to increases in the volume of outstanding loans or deteriorations in economic conditions or in the financial condition of any borrowers, that increases the potential for future loan losses. At December 31, 2002
the loan loss reserve was approximately $4,619,000 or 1.04% of total loans and leases outstanding.



As is set forth in the following table, the loan loss reserve is allocated among the different loan categories because there are differing
levels of risk associated with each such loan category. The allocation is made based on historical loss experience within each category and managements periodic review of loans in the loan portfolio. However, the reserves allocated to specific
loan categories are not the total amounts available for future losses that might occur within such categories because the total reserve is the general reserve applicable to the entire portfolio. Dollar amounts in the table are set forth in
thousands.



|                                        |  | Year Ended December 31, |      
|--------------------------------------- |  | ----------------------- | -----
|                                        |  | 2002                    |      
|                                        |  | Reserve Loan Losses     |      
|Commercial, Financial, and Agricultural |  | $                       | 1,158
|Real Estate-construction                |  |                         | 276  
|Real Estate-mortgage                    |  |                         | 3,134
|Installment loans                       |  |                         | 39   
|Lease financing                         |  |                         | 12   
|Other                                   |  |                         |     
|                                        |  |                         |      
|                                        |  | $                       | 4,619
|                                        |  |                         |      



THE INVESTMENT PORTFOLIO



As a customary part of its business, the Bank
purchases investment grade securities, consisting primarily of securities issued by the United States government and its agencies and by state and local government agencies, in order to diversify its investment risks and provide a source of
liquidity for its operations. The objectives of the Banks investment policy is to manage interest rate risk, provide adequate liquidity and reinvest in the Banks market areas, while maximizing earnings with a portfolio of
investment-grade securities. Each security purchased is subject to the credit, maturity and liquidity guidelines that are defined in the Banks investment policy and the securities are reviewed regularly to verify their continued credit
worthiness.



6



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The following
table summarizes the components of the Companys investment securities at the dates indicated (in thousands):



|                                         |  | December 31,  
|---------------------------------------- |  | --------------
|                                         |  | 2002          
|                                         |  | Amortized Cost
|Investment SecuritiesHeld-To-Maturity   |  |               
|U.S. Treasury and Agency                 |  | $             
|State and Political Subdivisions         |  |               
|Other Securities                         |  |               
|                                         |  |               
|Total Investment Securities              |  | $             
|                                         |  |               
|Investment SecuritiesAvailable-For-Sale |  |               
|U.S. Treasury and Agency                 |  | $             
|State and Political Subdivisions(1)      |  |               
|Other Securities                         |  |               
|                                         |  |               
|Total Investment Securities              |  | $             
|                                         |  |               

---

|(1) |  | Includes, in 2002, 2001 and 2000, non-rated certificates of participation evidencing ownership interests in the California Statewide Communities Development
AuthoritySan Joaquin County Limited Obligation Bond Trust, with amortized cost values of $1,835,000, $2,765,000 and $3,640,000, and market values of $1,890,000, $2,899,000 and $3,777,000, at December 31, 2002, 2001 and 2000, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table presents the
maturities of the Banks investment securities at December 31, 2002, and the weighted average yields of those securities (which, in the case of tax-exempt obligations are presented on a fully taxable basis assuming a 36.3% tax rate).



|                                         |  | Within One Year |        |       | After One and Within Five Years |   |        | After Five and Within Ten Years |        |  | After Ten Years |       
|---------------------------------------- |  | --------------- | ------ | ----- | ------------------------------- | - | ------ | ------------------------------- | ------ |  | --------------- | ------
|                                         |  | Amount          |        | Yield |                                 |   | Amount |                                 | Yield  |  |                 | Amount
|Investment Securities Held to Maturity   |  |                 |        |       |                                 |   |        |                                 |        |  |                 |       
|U.S. Treasury and Agency                 |  | $               | 349    |       | 4.38                            | % |        | $                               | 1,941  |  | 5.26            | %     
|State and Political Subdivisions         |  |                 | 230    |       | 4.30                            |   |        |                                 | 1,348  |  | 4.71            |       
|Other Securities                         |  |                 | 2,311  |       |                                |   |        |                                 |       |  |                |       
|                                         |  |                 |        |       |                                 |   |        |                                 |        |  |                 |       
|Total Securities Held to Maturity        |  | $               | 2,890  |       | 4.35                            | % |        | $                               | 3,289  |  | 5.05            | %     
|                                         |  |                 |        |       |                                 |   |        |                                 |        |  |                 |       
|Investment Securities Available for Sale |  |                 |        |       |                                 |   |        |                                 |        |  |                 |       
|U.S. Treasury and Agency                 |  | $               | 101    |       | 6.47                            | % |        | $                               | 53,910 |  | 3.31            | %     
|State and Political Subdivisions         |  |                 | 997    |       | 6.42                            |   |        |                                 | 1,395  |  | 5.69            |       
|Other Securities                         |  |                 | 18,002 |       | 1.39                            |   |        |                                 |       |  |                |       
|                                         |  |                 |        |       |                                 |   |        |                                 |        |  |                 |       
|Total Securities Available for Sale      |  |                 | 19,100 |       | 2.54                            |   |        |                                 | 53,305 |  | 3.69            |       
|                                         |  |                 |        |       |                                 |   |        |                                 |        |  |                 |       
|Total Investment Securities              |  | $               | 21,990 |       | 2.78                            | % |        | $                               | 58,594 |  | 3.77            | %     
|                                         |  |                 |        |       |                                 |   |        |                                 |        |  |                 |       



COMPETITION



The banking business in California generally,
and in our market areas in particular, is highly competitive with respect to both loans and deposits and is dominated by a relatively small number of large multi-regional and large out-of-state based banks which have offices operating over wide
geographic areas. We compete for deposits and loans with such banks, as well as other independent and community banks that are based or have branch offices in our market areas, and with savings and loan associations, credit unions, mortgage
companies, money market and other mutual funds, stock brokerage firms, insurance companies and other traditional and nontraditional financial institutions. We also compete for customers funds with governmental and private entities issuing debt
or equity securities or other forms of investments which may offer different and potentially higher yields than those available through bank deposits.



Major financial institutions that operate throughout California and that have offices in our service areas include Wells Fargo Bank, Bank
of America, Union Bank of California, Washington Mutual Bank, Comerica Bank, Bank of the West and Citibank. Bank of America, Comerica and Citibank are headquartered outside of California. Independent



7



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banks or financial
institutions with offices in our service area include, among others, City National Bank, Citizens Business Bank, PFF Bank & Trust and Vineyard Bank.



The larger banks and some of the independent institutions have the financial capability to conduct extensive advertising campaigns and to
shift their resources to regions or activities of greater potential profitability. Many of them also offer diversified financial services that we do not presently offer directly, such as trust services and international banking services. The larger
banks also have substantially more capital and higher lending limits, which enables them to meet the lending needs of larger borrowers whose lending requirements exceed our lending limits.



In order to compete with the financial institutions and financial service organizations operating in our
market areas, we rely on our independent status to provide flexible and greater personalized service to customers. We emphasize personal contacts with customers by our executive officers, directors and employees; develop and participate in local
promotional activities; and seek to develop specialized or streamlined services for customers. To the extent customers desire loans in excess of our lending limit or services not offered by us, we attempt to assist customers in obtaining such loans
or other services through participations with other banks or assistance from correspondent banks or third party vendors.



Additionally, a growing number of banks and financial services companies are offering customers the ability to effectuate banking
transactions with them over the internet. We began offering such internet banking services to our consumer customers during 2001 and to our business customers in 2002.



Existing and future state and federal legislation could significantly affect the costs of doing business, the
range of permissible activities and competitive balance among major and smaller banks and other financial institutions, all of which could affect the competitive environment in which we operate. We cannot predict the impact such developments may
have on commercial banking in general or on our business in particular. For additional information regarding these matters, see the discussion in below under the caption Supervision and Regulation.



SUPERVISION AND REGULATION



Bank holding companies and banks are regulated under both
extensive federal and state laws. This regulation is intended primarily for the protection of depositors and the FDICs deposit insurance fund and not for the benefit of shareholder. Set forth below is a summary description of the material laws
and regulations which affect or bear on our operations. The description does not purport to be complete and is qualified in its entirety by reference to the laws and regulations that are summarized below.



Foothill Independent Bancorp.



General.    We are a registered
bank holding company subject to regulation under the Bank Holding Company Act and, pursuant to that Act we are required to file periodic reports with, and we are subject to periodic examinations by the Federal Reserve Board. In addition, in 2002 we
became a financial holding company under the Bank Holding Company Act pursuant to amendments to that Act promulgated by the Gramm-Leach-Bliley Act of 1999 (the Financial Services Modernization Act), the principal features of which are
summarized below.



As a financial holding
company, we are now permitted to engage not only in banking and other activities deemed closely related to banking, but also in other financial activities which the Federal Reserve Board has determined, or may determine in the future, to be
financial in nature, or incidental to such financial activities or complementary to such a financial activity.



As a financial holding company, we must still obtain the prior approval of the Federal Reserve Board for the acquisition of more than 5%
of the outstanding shares of any class of voting securities, or of substantially all of the assets, of any bank or other bank holding company and for any merger of the Company with any other bank holding company.



However, as financial holding company, we no longer need to
obtain such prior approval for the acquisition of companies or businesses (other than banks) engaged in financial activities which the Federal Reserve Board has determined to be financial in nature. At the present time we have no plans to engage in
such financial activities.



8



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Under Federal
Reserve Board regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve
Boards policy that, in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress
or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding companys failure to meet its obligations to serve as a source of strength
to its subsidiary banks will generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice or a violation of the Federal Reserve Boards regulations, or both.



Among the powers conferred on the Federal Reserve Board is the
power to require any bank holding company to terminate an activity or terminate control of or liquidate or divest subsidiaries or affiliates that the Federal Reserve Board determines constitutes a significant risk to the financial safety, soundness
or stability of the bank holding company or any of its banking subsidiaries. The Federal Reserve Board also has the authority to regulate provisions of a bank holding companys debt, including authority to impose interest ceilings and reserve
requirements on such debt. Subject to certain exceptions, bank holding companies also are required to file a written notice and obtain approval from the Federal Reserve Board prior to purchasing or redeeming the holding companys common stock
or other equity securities. A bank holding company and its non-banking subsidiaries also are prohibited from requiring tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of any services by its
bank or other subsidiaries.



Additionally, the
Federal Reserve Board requires all bank holding companies to maintain capital at or above certain prescribed levels. See Capital Standards and Prompt Corrective Action below.



Foothill Independent Bancorp also is a bank holding company within the meaning of Section 3700 of the
California Financial Code. As such, we are subject to examination by, and may be required to file reports with, the California Department of Financial Institutions (the DFI).



Our shares of Common Stock are registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (the Exchange Act) and, therefore, we are subject to the information, proxy solicitation, insider trading, and other requirements and restrictions of that Act.



Financial Services Modernization
Legislation.    The principal objectives of the Financial Services Modernization Act were to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other
financial service providers by revising and expanding the Bank Holding Company Act to permit a holding company system, meeting certain specified qualifications, to engage in a broader range of financial activities and, thereby, to foster greater
competition among financial services companies. To accomplish those objectives, among other things, the Act repealed the two affiliation provisions of the Glass-Steagall Act that had been adopted in the early 1930s during the Depression: Section 20,
which restricted the affiliation of Federal Reserve Member Banks with firms engaged principally in specified securities activities; and Section 32, which restricted officer, director, or employee interlocks between a member bank and any
company or person primarily engaged in specified securities activities. The Financial Services Modernization Act also contains provisions that expressly preempt any state law restricting the establishment of financial affiliations,
primarily related to insurance. This Act also:



| |  |  | broadens the activities that may be conducted by national banks, banking subsidiaries of bank holding companies, and their financial subsidiaries;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provides an enhanced framework for protecting the privacy of consumer information;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | adopts a number of provisions related to the capitalization, membership, corporate governance, and other measures designed to modernize the Federal Home Loan Bank
system;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | modifies the laws governing the implementation of the Community Reinvestment Act (which is described in greater detail below); and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------





9



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We do not
believe that the Financial Services Modernization Act will have a material effect on our operations, at least in the near-term. However, to the extent that it enables banks, securities firms and insurance companies to affiliate, the financial
services industry may experience further consolidation. Additionally, the Act may have the result of increasing the level of competition that we face from larger institutions and other types of companies offering financial products, many of which
may have substantially greater financial resources than we have.



A bank holding company that elects to become a financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or are incidental or complementary to
activities that are financial in nature. We made the election to become a financial holding company in 2002. According to current Federal Reserve Board regulations, activities that are financial in nature include:



| |  |  | securities underwriting, dealing and market making;
| | - |  | ---------------------------------------------------



| |  |  | sponsoring mutual funds and investment companies;
| | - |  | -------------------------------------------------



| |  |  | engaging in insurance underwriting and brokerage;
| | - |  | -------------------------------------------------



| |  |  | merchant banking; and
| | - |  | ---------------------



| |  |  | other activities that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines from time to time to be so closely related to
banking, or managing or controlling banks, as to be a proper incident to the provision of banking and related financial services.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A bank holding company that is not a financial holding company may not engage in such activities. Instead, it is limited to engaging in
banking and such other activities as determined by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.



In order to become and to continue to be a financial holding company, all of the bank subsidiaries of a bank
holding company must have been found, at their most recent regulatory examinations, to be well capitalized, well managed and, subject to certain limited exceptions, to be in compliance with the Community Reinvestment Act.



If, after a bank holding company has become a financial
holding company, any of its bank subsidiaries ceases to maintain compliance with any of those requirements, the financial holding company may not acquire any more financial services businesses permitted to financial holding companies until that
subsidiary again achieves compliance with those requirements. Moreover, if that bank subsidiary fails to come back into compliance with any of those requirements within a period of 180 days, the Federal Reserve Board has the power to require the
financial holding company to divest itself of those of its businesses that are engaged in financial activities solely permitted to a financial holding company, or may require the holding company to divest itself of all of its bank subsidiaries.



Privacy Provisions of the Financial Services
Modernization Act.    Pursuant to the Financial Services Modernization Act, federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about
consumers to non-affiliated third parties. Pursuant to the rules, financial institutions must provide:



| |  |  | initial notices to customers about their privacy policies, describing the conditions under which they may disclose non-public personal information to non-affiliated
third parties and affiliates;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | annual notices of their privacy policies to current customers; and
| | - |  | ------------------------------------------------------------------



| |  |  | a reasonable method for customers to opt out of disclosures to non-affiliated third parties.
| | - |  | ----------------------------------------------------------------------------------------------



These privacy provisions will affect how consumer information
is transmitted through diversified financial companies and conveyed to outside vendors. We do not expect these privacy provisions to have a material impact on our financial condition or our results of operations.



10



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The Sarbanes-Oxley Act of
2002.



On July 30, 2002, President Bush
signed into law The Sarbanes-Oxley Act of 2002. This Act addresses accounting oversight and corporate governance matters of companies whose securities are registered under the Exchange Act (public companies) and, therefore, applies to
the Company. Among other things, the Sarbanes-Oxley Act:



| |  |  | provides for the creation of a five-member oversight board appointed by the Securities and Exchange Commission that will set standards for accountants and have
investigative and disciplinary powers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | prohibits accounting firms from providing various types of consulting services to their public company clients and requires accounting firms to rotate partners among
public company clients every five years;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases the criminal penalties for financial crimes;
| | - |  | ------------------------------------------------------



| |  |  | expands disclosure of corporate operations and requires public companies to implement disclosure controls and procedures designed to assure that material information
regarding their business and financial performance is included in the public reports they file under the Exchange Act (Exchange Act Reports);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requires the chief executive and chief financial officers of public companies to certify as to the accuracy and completeness of the Exchange Act Reports that their
companies file, the financial statements included in those Reports and the adequacy of their disclosure procedures and controls and the adequacy and integrity of their internal controls;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requires the directors of public companies that serve on audit committees to meet stringent independence standards;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | will require larger public companies to file their Exchange Act Reports on a more accelerated basis than is currently required;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | requires more expeditious reporting by directors and officers and other public company insiders regarding their trading in company securities; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | establishes statutory separations between investment banking firms and analysts.
| | - |  | --------------------------------------------------------------------------------



We have implemented disclosure controls and procedures and taken other actions to meet the expanded
disclosure requirements and certification requirements of the Sarbanes-Oxley Act. Additionally, we have determined that the members of our audit committee meet the independence standards imposed by that Act. A number of the requirements under that
Act will become effective during fiscal 2003 and, to the extent we do not already meet any of those new requirements, we will be taking the actions required to do so.



Foothill Independent Bank.



As a member of the Federal Reserve Bank of San Francisco, the Bank is subject to regulation by the Federal Reserve Board, which is its
primary federal banking regulator, and as a California state chartered bank, the Bank is subject to supervision, periodic examination and regulation by the DFI. Also, because its deposits are insured by the FDIC, the Bank is subject to regulations
promulgated by the FDIC.



If, as a result of an
examination of the Bank, the Federal Reserve Board were to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Banks operations had become unsatisfactory
or that the Bank or its management was in violation of any law or regulation, the Federal Reserve Board is empowered to take a number of remedial actions. These actions include the power to enjoin unsafe or unsound practices, to require
affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in the Banks capital, to restrict the Banks growth, to assess
civil monetary penalties against the Banks officers or directors, to remove officers and directors and ultimately to terminate the Banks deposit insurance, which would result in a revocation of the Banks charter and require it to
cease its banking operations. Additionally, under California law the DFI has many of the same remedial powers.



11



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Various
requirements and restrictions under the Federal and California state laws affect the operations of the Bank. Those laws, and the implementing regulations that are promulgated by Federal and State regulatory agencies cover most aspects of a
banks operations, including the reserves a bank must maintain against deposits and for possible loan losses and other contingencies; the ownership and acquisition of deposit accounts; the interest rates that a bank may pay on deposits, loans
and investments; the types of investments that a bank may make; the borrowings that a bank may incur; the banks growth levels and the number and location of bank branches a bank may establish; the merger and acquisition activities of a bank;
the amount of dividends that a bank may pay; and the capital requirements that a bank must satisfy. See the more detailed discussion regarding capital requirements that are applicable to us and the Bank that is set forth below under the caption
Capital Standards and Prompt Corrective Action.



Dividends and Other Transfers of Funds.    Dividends from the Bank constitute our principal source of cash. Foothill Independent Bancorp (the Bancorp) is a legal entity separate and distinct
from the Bank and the Bank is subject to various statutory and regulatory restrictions on its ability to pay cash dividends to us. In addition, the DFI and the Federal Reserve Board have the authority to prohibit the Bank from paying dividends, if
either of those agencies deem payment of dividends by the Bank to be an unsafe or unsound practice.



The Federal Reserve Board and the DFI also have authority to prohibit the Bank from engaging in activities that, in either of their
opinions, constitute unsafe or unsound practices. It is possible, depending upon the future financial condition of the Bank and other factors, that either of those agencies could assert that the payment of dividends or other payments by the Bank to
the Bancorp might, under some circumstances, constitute an unsafe or unsound practice. Additionally, the Federal Reserve Board has established guidelines with respect to the maintenance of appropriate levels of capital by banks and bank holding
companies under its jurisdiction. A failure to maintain compliance with the standards set forth in those guidelines could result in the imposition by federal bank regulators, under the prompt corrective action provisions of federal law, of
restrictions on the amount of dividends which a bank may pay and on the business operations and growth of a bank that could increase the costs of operations and the competitiveness of a bank. See Capital Standards and Prompt Corrective
Action below.



The Bank is subject to
restrictions imposed by federal law on any extensions of credit to, and the issuance of any guarantees or letters of credit on behalf of, the Bancorp or its other affiliates; the purchase of, or investments in, Bancorp stock or other Bancorp
securities; the taking of such securities as collateral for loans; and the purchase of assets from the Bancorp or its other subsidiaries. Such restrictions prevent the Bancorp or its other affiliates from borrowing from the Bank unless the loans are
secured by marketable obligations in designated amounts. In addition, no such loan or investment by the Bank to or in Bancorp or any other Bancorp affiliates may exceed 10% of the Banks capital and surplus (as defined by federal regulations)
and the total of such loans and investments may not exceed, in the aggregate, 20% of the Banks capital and surplus. California law also imposes restrictions with respect to transactions between the Bank and the Bancorp and other controlling
persons of the Bank. Additional restrictions on transactions with affiliates may be imposed on the Bank under the prompt corrective action provisions of federal law.



Capital Standards and Prompt Corrective Action.



Capital Standards.    The Federal Reserve Board and the other federal bank
regulatory agencies have adopted uniform risk-based minimum capital guidelines intended to require banking organizations to maintain capital at levels that reflect the degree of risk associated with the banking organizations operations both
for assets reported on the balance sheet and assets, such as letters of credit and recourse arrangements, which are recorded as off-balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of
off-balance sheet items are multiplied by one of several risk adjusted percentages, which range from zero percent for assets with low credit risk, such as U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as
commercial loans.



These guidelines require
banking organizations to maintain a ratio of qualifying total capital to risk-adjusted assets of at least 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. (Tier 1 capital consists principally of common stock and non-redeemable
preferred stock and retained earnings.) In addition to the risked-based guidelines, federal banking regulators require banking organizations to maintain a ratio of Tier 1 capital-to-total average assets of 4%, which is referred to as a banking
organizations leverage ratio. For a banking organization to be rated by a bank regulatory agency as well-capitalized (which is the highest of five categories used by regulators to rate the strength of banking
organizations in terms of their capital), the minimum leverage ratio of Tier 1 capital to total assets must be 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the



12



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industry, federal and state
banking regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios, based on their assessment of the quality of a banks assets, its
liquidity and other risks faced by a bank.



Prompt Corrective Action and Other Enforcement Mechanisms.    Federal banking agencies, including the Federal Reserve Board, possess broad powers to take corrective and other supervisory action to resolve
the problems of insured depository institutions, including those institutions that fall below one or more prescribed minimum capital ratios.



Each federal banking agency, including the Federal Reserve Board, has promulgated regulations defining the following five categories in
which an insured depository institution will be placed, based on its capital ratios:



| |  |  | well capitalized;
| | - |  | -----------------



| |  |  | adequately capitalized;
| | - |  | -----------------------



| |  |  | undercapitalized;
| | - |  | -----------------



| |  |  | significantly undercapitalized; and
| | - |  | -----------------------------------



| |  |  | critically undercapitalized.
| | - |  | ----------------------------



However, a bank that, based upon its capital levels, is classified as well capitalized, adequately capitalized or undercapitalized may be
treated as though it were in the next lower capital category, if its federal bank regulatory agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice at that institution
warrants such treatment. At each successive lower capital category, an insured depository institution is subject to greater operating restrictions and regulatory increased supervision. The federal banking agencies, however, may not treat a
significantly undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment.



The following table sets forth, as of December 31, 2002, the capital ratios of the Bancorp and the Bank and compares those capital ratios
to the federally established capital requirements that must be met for a bank holding company or a bank to be deemed adequately capitalized and to be deemed a well capitalized institution under the prompt corrective action regulations
described below:



|At December 31, 2002                   |  | Actual |   |  | Capital Adequacy Requirements |  | To be Classified as Well Capitalized
|-------------------------------------- |  | ------ | - |  | ----------------------------- |  | ------------------------------------
|Total Capital to Risk Weighted Assets  |  |        |   |  |                               |  |                                     
|Bancorp                                |  | 14.2   | % |  | (>or=) 8.0%                   |  | (>or=) 10.0%                        
|Bank                                   |  | 12.6   | % |  | (>or=) 8.0%                   |  | (>or=) 10.0%                        
|Tier I Capital to Risk Weighted Assets |  |        |   |  |                               |  |                                     
|Bancorp                                |  | 13.3   | % |  | (>or=) 4.0%                   |  | (>or=) 6.0%                         
|Bank                                   |  | 11.6   | % |  | (>or=) 4.0%                   |  | (>or=) 6.0%                         
|Tier I Capital to Average Assets       |  |        |   |  |                               |  |                                     
|Bancorp                                |  | 10.8   | % |  | (>or=) 4.0%                   |  | (>or=) 5.0%                         
|Bank                                   |  | 9.4    | % |  | (>or=) 4.0%                   |  | (>or=) 5.0%                         



As the
table indicates, at December 31, 2002 the Bancorp and the Bank exceeded the capital ratios required for classification as adequately capitalized institutions, under federally mandated capital standards and as well capitalized
institutions under the federally established prompt corrective action regulations.



Safety and Soundness Standards.    In addition to measures taken under the prompt corrective action provisions, banking organizations may be subject to potential enforcement
actions by federal regulators for unsafe or unsound practices or for violating any law, rule, regulation, or any condition imposed in writing by the agency or in any written agreement entered into by the banking organization with the agency. The
federal banking agencies have adopted guidelines designed to identify and address potential safety and soundness concerns that could, if not corrected, lead to a deterioration in the quality of a banks assets or liquidity or capital problems.



13



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Those
guidelines set forth operational and managerial standards relating to such matters as:



| |  |  | internal controls, information systems and internal audit systems;
| | - |  | ------------------------------------------------------------------



| |  |  | loan documentation;
| | - |  | -------------------



| |  |  | credit underwriting;
| | - |  | --------------------



| |  |  | asset growth;
| | - |  | -------------



| |  |  | earnings; and
| | - |  | -------------



| |  |  | compensation, fees and benefits.
| | - |  | --------------------------------



These guidelines also provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets
from deteriorating. Under these standards, an insured depository institution is expected to:



| |  |  | conduct periodic asset quality reviews to identify problem assets;
| | - |  | ------------------------------------------------------------------



| |  |  | estimate the inherent losses in problem assets and establish reserves sufficient to absorb estimated losses;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | compare problem asset totals to capital;
| | - |  | ----------------------------------------



| |  |  | take appropriate corrective action to resolve problem assets;
| | - |  | -------------------------------------------------------------



| |  |  | consider the size and potential risks of material asset concentrations; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



These guidelines also establish
standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient to enable the bank to maintain adequate capital and reserves.



FDIC Deposit Insurance.



The FDIC operates a Bank Insurance Fund (BIF) which insures the deposits, up to federally prescribed limits, of those banks
that are subject to regulation by a federal banking regulatory agency and have elected to participate in that Fund (BIF Members). The Bank is a BIF Member and, as a result, its deposit accounts are insured up to the maximum amount
permitted by law. The FDIC charges all BIF Members an annual assessment for the insurance of their deposits. The amount of a banks annual assessment is based on its relative risk of default as measured by (i) the institutions federal
regulatory capital risk category, which can range from well capitalized to less than adequately capitalized, and (ii) its supervisory subgroup category, which is based on the federal regulatory assessment of the financial condition of the
institution and the probability that FDIC or other corrective action will be required. The assessment rate currently ranges from 0 to 27 cents per $100 of domestic insured deposits. The FDIC has the authority to increase or decrease the rate of the
assessment on a semi-annual basis. An increase in the assessment rate would increase the Banks costs of doing business.



The FDIC may terminate insurance of deposits upon finding that an insured institution has engaged in unsafe or unsound practices, is in
too unsafe or unsound a condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC or the institutions primary federal regulatory agency. California does not permit
commercial banks to operate without FDIC insurance and, as a result, termination of a California banks FDIC insurance would result in its closure.



All FDIC-insured depository institutions also are required to pay an annual assessment for the payment of interest on bonds (known as
FICO Bonds) that were issued by the Financing Corporation, a federally chartered corporation, to assist in the recovery of the savings and loan industry following the failure of numerous savings and loan institutions in the 1980s.
Effective for the fourth quarter of 2002, the FDIC established the FICO assessment rate at approximately $0.0170 per $100 of assessable deposits of the insured banks. The FICO assessment rates are adjusted quarterly by the FDIC to reflect changes in
the assessment bases of the FDICs insurance funds and, unlike the BIF assessments, do vary on the basis of a banks capital or supervisory risk categories.



14



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Community
Reinvestment Act and Fair Lending Developments.    The Bank is subject to fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act activities. The Community
Reinvestment Act (the CRA) generally requires federal banking agencies to evaluate the performance of the financial institutions which they regulate in meeting the credit needs of their local communities, including low-and
moderate-income neighborhoods. A bank also may incur substantial penalties and be required to take corrective measures in the event it is found to be in violation of fair lending laws. The federal banking agencies may take compliance with those laws
and CRA obligations into account when regulating and supervising other activities of the banks they regulate.



A banks compliance with its CRA obligations is measured in accordance with a performance-based evaluation system which bases CRA
ratings on an institutions lending service and investment performance in serving the credit needs of its local communities. When a bank holding company applies for approval to acquire a bank or other bank holding company, the Federal Reserve
Board will assess the CRA performance of each of its existing bank subsidiaries, and a finding that such performance has been deficient could be a basis for denying the application.



USA Patriot Act of 2001.     The USA Patriot Act of 2001, enacted into law in
response to the terrorist attacks in New York, Pennsylvania and Washington, D.C. on September 11, 2001, is intended to strengthen the ability of U.S. law enforcement agencies and the intelligence community to work cohesively to combat terrorism on a
variety of fronts. Among other things that Act contains sweeping anti-money laundering and financial transparency laws and imposes various requirements on banking organizations, including:



| |  |  | due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requirements for verifying customer identification at account opening;
| | - |  | ----------------------------------------------------------------------



| |  |  | rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money
laundering;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | obligations to file reports to the Treasury Departments Financial Crimes Enforcement Network for transactions exceeding $10,000; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | obligations to file suspicious activities reports if a financial institution believes a customer may be violating U.S. laws and regulations.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



On July 23, 2002, the U.S.
Treasury Department proposed regulations requiring institutions to incorporate a customer identification program into their written money laundering plans that would implement reasonable procedures for:



| |  |  | verifying the identity of any person seeking to open an account, to the extent reasonable and practicable;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | maintaining records of the information used to verify the persons identity; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | determining whether the person appears on any list of known or suspected terrorists or terrorist organizations.
| | - |  | ---------------------------------------------------------------------------------------------------------------



Future Legislation and Regulatory Initiatives.



In recent years, significant legislative proposals and
reforms affecting the financial services industry have been introduced in and considered by Congress, including reforms that would result in a consolidation of the three current federal bank regulatory agencies, the Federal Reserve Board, the FDIC
and the Comptroller of the Currency, into a single federal bank regulatory agency . We cannot predict what new proposals might be introduced in the current Congress or whether any will be enacted into law. It is possible, however, that new laws may
be adopted that could have a significant impact on the operations and financial performance of banking institutions or the competitive environment in which we operate.



EMPLOYEES



At December 31, 2002, the Bank had 161 full-time and 73 part-time employees, which included the employees of the Bancorp, all of whom are
also employees of the Bank. We believe that our relations with our employees is good.



15



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COMPANY WEBSITE



Our internet website address is www.foothillbank.com.
Our Annual Report to Stockholders and Quarterly Statements of Condition of the Bank are available on our website.



ITEM 2.    PROPERTIES



Our executive offices and those of the Banks are located at the Banks main banking office at 510 South Grand Avenue, Glendora, California. The Bank owns the building and the land at that location; owns the building and
leases, under a 20-year ground lease, the land on which its Claremont banking office is located; and occupies its ten other banking offices, and the facilities where its service center are located, under leases expiring at various dates through
2014. We believe that the Banks present facilities are adequate for its present purposes and anticipated growth in the foreseeable future.



ITEM 3.    LEGAL PROCEEDINGS



There are no pending legal proceedings in which the Company or the Bank is a party or to which any of their respective properties are subject other than ordinary routine litigation incidental to the Banks business, the
outcome of which is not expected to be material to the Company or its operating results or financial condition.



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



None.



ITEM 4A.    EXECUTIVE OFFICERS OF THE COMPANY



Set forth below is certain information regarding the current executive officers of the Company and the Bank:



|Name               |  | Age |  | Position with the Company                                    |  | Position with the Bank                                      
|------------------ |  | --- |  | ------------------------------------------------------------ |  | ------------------------------------------------------------
|George E. Langley  |  | 62  |  | President and Chief Executive Officer                        |  | President and Chief Executive Officer                       
|Donna Miltenberger |  | 47  |  | Executive Vice President and Chief Operating Officer         |  | Executive Vice President and Chief Operating Officer        
|Carol Ann Graf     |  | 57  |  | Senior Vice President, Chief Financial Officer and Secretary |  | Senior Vice President, Chief Financial Officer and Secretary



All
officers hold office at the pleasure of the Board of Directors, except Mr. Langley who is employed under an Employment Agreement with the Bank.



GEORGE E. LANGLEY.    Mr. Langley has been the President and Chief Executive Officer of the Company and the Bank since
April 1992. From 1982 to April 1992, Mr. Langley served as the Executive Vice President, Chief Financial Officer and Secretary of the Company and the Bank. From 1976 to 1982, which preceded the formation of the Company, Mr. Langley held various
executive positions with the Bank.



DONNA
MILTENBERGER.    Ms. Miltenberger has been an Executive Vice President and Chief Operating Officer of the Company since 1996 and Executive Vice President of the Bank since November 1993. She also served as the Chief
Administrative Officer of the Bank from 1994 until 1997 when, due to an increase in the scope of her responsibilities, she was appointed to the position of Chief Operating Officer of the Bank. From June 1992 to November 1993, Ms. Miltenberger held
the position of Senior Vice President of the Bank. Prior to June 1992, Ms. Miltenberger held various management positions with Chino Valley Bank, in Chino, California, including Executive Vice PresidentCashier.



CAROL ANN GRAF.    Ms. Graf has served as
Chief Financial Officer of the Company and the Bank since January 1993 and as a Senior Vice President of both the Company and the Bank since January 1997. From 1993 to 1997, she was a First Vice President of the Bank as well as its Chief Financial
Officer. From April 1988 to January 1993, Ms. Graf served as Vice President and Comptroller, and from 1984 to April 1988 as Assistant Comptroller, of the Bank.



16



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PART II



ITEM 5.    MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS



Trading Market for Shares.    The Companys Common Stock is listed and its shares trade on the NASDAQ
National Market System under the symbol FOOT. The following table sets forth the high and low closing sales per share prices of our Common Stock as reported on the NASDAQ National Market System for each of the fiscal quarters in 2002 and
2001. On March 24, 2003 the closing per share price was $17.70 and, as of that same date, there were 1,068 record shareholders of the Company.



|               |  | Trading Prices of Common Stock(1) |       |     |   |                 | 
|-------------- |  | --------------------------------- | ----- | --- | - | --------------- | 
|               |  | High                              |       | Low |   | Stock Dividends | 
|2002:          |  |                                   |       |     |   |                 | 
|First Quarter  |  | $                                 | 13.11 |     | $ | 10.66           | 
|Second Quarter |  |                                   | 15.62 |     |   | 11.70           | 
|Third Quarter  |  |                                   | 19.35 |     |   | 12.01           | 
|Fourth Quarter |  |                                   | 19.93 |     |   | 15.60           | 
|2001:          |  |                                   |       |     |   |                 | 
|First Quarter  |  | $                                 | 10.79 |     | $ | 8.90            | 
|Second Quarter |  |                                   | 11.65 |     |   | 9.78            | 
|Third Quarter  |  |                                   | 12.13 |     |   | 10.38           | 
|Fourth Quarter |  |                                   | 13.06 |     |   | 10.95           | 

---

|(1) |  | We issued a 9% stock dividend in the fourth quarter of 2002 and a 7% stock dividend in the second quarter of 2001. All trading prices for periods prior to the
issuances of those stock dividends have been retroactively adjusted to give effect to those dividends.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Transfer Agent.    The transfer agent and registrar for the Companys shares is Registrar and Transfer
Company, the address of which is 10 Commerce Drive, Cranford, New Jersey 07016.



Dividends and Repurchases of Shares.



Dividend Policy.    It has been and continues to be the objective of our Board of Directors to retain earnings that are needed to meet not only the capital requirements under applicable government
regulations, but also to support our growth. At the same time, it is the policy of the Board of Directors to pay cash dividends if earnings exceed the amounts required to meet that objective. Pursuant to that policy, the Company has paid regular
quarterly cash dividends since September of 1999 and, in January of 2003, the Board of Directors declared an $0.11 per share cash dividend, which is the 14thconsecutive quarterly cash dividend declared since the current dividend policy was adopted by the Board of Directors. It is currently anticipated that similar cash dividends will be paid during the
balance of 2003. However, the Board of Directors may change the amount or frequency of cash dividends to the extent that it deems necessary or appropriate to achieve our objective of maintaining capital in amounts sufficient to support our growth as
well as to meet regulatory capital requirements. In the fourth quarter of 2002, we also declared a 9% stock dividend to all of the record holders of our shares as of January 8, 2003.



Stock Repurchases.    In January of 2003, the Board of Directors authorized a
Common Stock repurchase program under which the Company may repurchase up to $5,000,000 of its shares of Common Stock. Repurchases may be made from time-to-time in open market or in privately negotiated transactions when opportunities to do so at
favorable prices present themselves, in compliance with Securities and Exchange Commission (SEC) guidelines. In May of 2001, we completed a previously authorized open market and private stock repurchase program which began in late 1998 and resulted
in the purchase of a total of 976,588 shares of our Common Stock for an aggregate price of approximately $11,970,000. All of those shares were retired and cancelled.



17



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Restrictions Applicable to the Payment of Dividends and Stock Repurchases.    The principal source of funds available to the Company for cash dividends and stock repurchases, at least until such time, if
any, as it may acquire or develop other businesses, is cash dividends from the Bank. Therefore, government regulations, including the laws of the State of California, as they pertain to the payment of cash dividends by state chartered banks, limit
the amount of funds that will be available to the Company to fund any operations that may be conducted by the Company or any subsidiaries other than the Bank or acquisition activity that might be engaged in by the Company, as well as to pay cash
dividends to the Companys stockholders and to repurchase its shares.



California law places a statutory restriction on the amount of cash dividends a state chartered bank may pay to its shareholders. Under that law, which applies to the Bank, without the prior approval
of the DFI dividends declared by the Bank may not exceed, in any calendar year, the lesser of (i) the Banks net income for the year plus its retained earnings generated in the two preceding years (after deducting all dividends paid during the
period), or (ii) the Banks aggregate retained earnings. However, because payment of cash dividends has the effect of reducing a banks capital, as a practical matter the capital requirements imposed on the Bank, as a federally insured
bank, operate to preclude the payment of cash dividends in amounts that might otherwise be permitted by California law. Additionally, Federal bank regulatory agencies, as part of their supervisory powers, generally require insured banks to adopt
dividend policies which limit the payment of cash dividends much more strictly than do applicable laws.



Section 23(a) of the Federal Reserve Act also restricts the Bank from extending credit to the Company or any other subsidiary of the
Company.



A more detailed discussion of the
capital requirements and other restrictions applicable to the Bank is contained in Part I of this Report in the Section entitled BUSINESSSupervision and Regulation.



RIGHTS DIVIDEND



On February 25, 1997, the Board of Directors adopted a Rights Agreement (the Rights Agreement) pursuant to which it declared a
dividend distribution of rights (the Rights) to purchase shares of the Companys Common Stock and, under certain circumstances, other securities, to the holders of record of its outstanding shares of Common Stock.



The Rights dividend was made to holders of record of shares of
the Companys Common Stock at the close of business on March 18, 1997 and are attached to the outstanding shares of Common Stock. Upon the occurrence of an attempted acquisition of control of the Company, that is not approved by the Board of
Directors, each Right will entitle the registered holder to purchase from the Company, at an initial exercise price of $48.00 per Right (subject to adjustment), such number of newly issued shares of the Companys Common Stock or the common
stock of the acquiring or surviving company in a change of control transaction, depending on the type of triggering event, equal to an aggregate market value as of the date of the triggering event of two (2) times the exercise price of the Right.



The issuance of the Rights dividend is intended
to encourage any one seeking to acquire the Company to negotiate the terms of such an acquisition with the Board of Directors, rather than launching a hostile take over attempt. The Board of Directors believes that, through negotiations, the Board
and management would be able to better ascertain the intentions and capabilities of anyone seeking to gain control of the Company and take steps needed to achieve fair and non-discriminatory treatment of all stockholders of the Company. If the
Board, as a result of such efforts, comes to support the proposed acquisition, it has the authority to suspend the exercisability of the Rights. However, the existence of the Rights may also have the effect of discouraging acquisition proposals that
may be viewed as favorable to the Companys stockholders.



The Rights Agent for the Rights is Registrar and Transfer Company, the transfer agent for the Companys Common Stock.



18



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ITEM 6.    SELECTED FINANCIAL DATA



The selected income statement data set forth below for the fiscal years ended December 31, 2002, 2001 and 2000, and the selected balance sheet data as of December 31, 2002 and 2001, are derived from
the audited consolidated financial statements of the Company examined by Vavrinek, Trine, Day and Company, LLP, certified public accountants, that are included elsewhere in this Report and should be read in conjunction with those consolidated
financial statements. The selected income statement data for the fiscal years ended December 31, 1999 and 1998, and the selected balance sheet data as of December 31, 2000, 1999 and 1998, are derived from audited consolidated financial statements
examined by Vavrinek, Trine, Day and Company, LLP which are not included in this Report.



|                                                             |  | 2002                                          |           |   | 2001 |   |           | 2000 |  |   | 1999      |   |  | 1998 |          
|------------------------------------------------------------ |  | --------------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | ---------
|                                                             |  | (Dollars in thousands, except per share data) |          
|Income Statement Data                                        |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Interest income                                              |  | $                                             | 34,811    |   |      | $ | 36,736    |      |  | $ | 38,983    |   |  | $    | 35,551   
|Interest expense                                             |  |                                               | (5,039    | ) |      |   | (9,030    | )    |  |   | (11,103   | ) |  |      | (8,333   
|                                                             |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Net interest income                                          |  |                                               | 29,772    |   |      |   | 27,706    |      |  |   | 27,880    |   |  |      | 27,218   
|Provision for possible loan losses                           |  |                                               | (460      | ) |      |   | (498      | )    |  |   | (1,070    | ) |  |      | (485     
|                                                             |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Net interest income after provision for possible loan losses |  |                                               | 29,312    |   |      |   | 27,208    |      |  |   | 26,810    |   |  |      | 26,733   
|Other income                                                 |  |                                               | 5,694     |   |      |   | 5,414     |      |  |   | 4,604     |   |  |      | 4,521    
|Other expense                                                |  |                                               | (22,934   | ) |      |   | (21,846   | )    |  |   | (20,794   | ) |  |      | (21,342  
|                                                             |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Income before income taxes                                   |  |                                               | 12,072    |   |      |   | 10,776    |      |  |   | 10,620    |   |  |      | 9,912    
|Applicable income taxes                                      |  |                                               | (4,378    | ) |      |   | (3,926    | )    |  |   | (3,920    | ) |  |      | (3,662   
|                                                             |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Net income                                                   |  | $                                             | 7,694     |   |      | $ | 6,850     |      |  | $ | 6,700     |   |  | $    | 6,250    
|                                                             |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Per Share Data                                               |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Net incomeBasic(1)(2)                                       |  | $                                             | 1.28      |   |      | $ | 1.14      |      |  | $ | 1.06      |   |  | $    | 0.91     
|Net incomeDiluted(1)(2)                                     |  |                                               | 1.19      |   |      |   | 1.08      |      |  |   | 1.02      |   |  |      | 0.86     
|Cash dividends(3)                                            |  |                                               | 0.43      |   |      |   | 0.40      |      |  |   | 0.36      |   |  |      | 0.41     
|Book value (at year-end)(1)                                  |  | $                                             | 9.54      |   |      | $ | 8.63      |      |  | $ | 7.89      |   |  | $    | 7.20     
|Weighted average shares outstandingBasic(1)(2)              |  |                                               | 6,021,430 |   |      |   | 6,028,904 |      |  |   | 6,336,432 |   |  |      | 6,864,343
|Balance Sheet Data                                           |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |          
|Investment securities                                        |  | $                                             | 90,778    |   |      | $ | 79,743    |      |  | $ | 70,816    |   |  | $    | 61,548   
|Loans and leases (net)                                       |  |                                               | 437,441   |   |      |   | 404,200   |      |  |   | 364,782   |   |  |      | 339,533  
|Assets                                                       |  |                                               | 604,570   |   |      |   | 550,141   |      |  |   | 505,825   |   |  |      | 458,676  
|Deposits                                                     |  |                                               | 534,562   |   |      |   | 475,390   |      |  |   | 454,041   |   |  |      | 397,264  
|Other debt(4)                                                |  |                                               | 8,000     |   |      |   | 19,000    |      |  |   |          |   |  |      | 8,819    
|Shareholders equity                                         |  | $                                             | 57,576    |   |      | $ | 51,852    |      |  | $ | 48,263    |   |  | $    | 48,439   

---

|(1) |  | Retroactively adjusted for stock dividends.
|--- |  | -------------------------------------------

|(2) |  | For information regarding the determination of basic and diluted earnings per share, see Note 18 to the Companys Consolidated Financial Statements.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | For information regarding restrictions affecting the ability of the Company to pay cash dividends, see Note 14 to the Companys Consolidated Financial
Statements.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | For information regarding other debt, see Notes 9 and 10 to the Companys Consolidated Financial Statements.
|--- |  | ------------------------------------------------------------------------------------------------------------



19



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|ITEM |  | 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
|---- |  | -----------------------------------------------------------------

AND RESULTS OF OPERATIONS



GENERAL



The following discussion should be read in conjunction with our audited consolidated financial statements,
and the footnotes thereto, contained elsewhere in this report and the statements regarding forward-looking information and the uncertainties that could affect our future performance described below in this Report.



Our principal operating subsidiary is Foothill Independent
Bank (the Bank), which is a California state chartered bank and a member of the Federal Reserve system, which accounts for substantially all of our consolidated revenues and income. Accordingly, the following discussion focuses primarily
on the Banks operations and financial condition.



RESULTS
OF OPERATIONS



Overview.    The principal determinant of a banks income is net interest income, which is the difference between the interest that a bank earns on loans, investments and other interest earning assets,
and its interest expense, which consists primarily of the interest it must pay to attract and retain deposits and the interest that it pays on its other interest bearing liabilities. A banks interest income and interest expense are, in turn,
affected by a number of factors, some of which are outside of its control, including the monetary policies of the Federal Reserve Board and national and local economic conditions which affect interest rates and also the demand for loans and the
ability of borrowers to meet their loan payment obligations.



During 2001 the Federal Reserve Board adopted and implemented a monetary policy that was designed to reduce market rates of interest in an effort to stimulate the U.S. economy, which was heading into recession. That policy continued
through 2002 as the hoped for economic recovery has been slow to develop. As a result, the prime rate of interest charged by most banks declined from 9.50% to 4.75% during 2001 and it remained at 4.75% until November of 2002 when it declined further
to 4.25%. Those monetary policies, combined with the continued softness in the United States economy, caused the average rate of interest earned on our interest earning assets to decline to 6.7% in fiscal 2002 from 7.8% in fiscal 2001 and 8.9% in
fiscal 2000.



Despite that decline, we still
achieved an increase of $844,000, or 12%, in net earnings in 2002 to $7,694,000, from $6,850,000 in 2001. The increase in net earnings was primarily due to a $2,066,000 increase in net interest income, which was partially offset by a $1,088,000
increase in non-interest expense. The increase in net interest income was attributable, in turn, to a decline in interest expense.



As indicated in the following table, net earnings for 2002 represented a return on average assets of 1.34% and a return on average equity
of 14.07%, compared to 1.32% and 13.81%, respectively, for 2001.



|                      |  | 2002  |   |  | 2001  |   |  | 2000  |  
|--------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|Return on Assets      |  | 1.34  | % |  | 1.32  | % |  | 1.38  | %
|Return on Equity      |  | 14.07 | % |  | 13.81 | % |  | 14.23 | %
|Dividend Payout Ratio |  | 33.86 | % |  | 32.26 | % |  | 27.42 | %
|Equity to Asset Ratio |  | 9.53  | % |  | 9.55  | % |  | 9.69  | %



Net
Interest Income     Net interest income increased by $2,066,000, or 7.5%, in 2002 as compared to 2001, due to a decline in interest expense of $3,991,000, which offset a $1,925,000 decline in interest income in 2002. The
reduction in interest expense was primarily attributable to lower market rates of interest on deposits that was the result, principally, of the lowering of market rates of interest by the Federal Reserve Board, and, to a lesser extent, reductions in
the average volume of outstanding time deposits, including those in denominations of $100,000 or more (TCDs), as a result of our decision to allow those deposits to be withdrawn on their maturity rather than seeking their renewal. The
decline in interest income in 2002 also was primarily attributable to declining market rates of interest that resulted



20



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in reductions
in the interest rates we were able to charge on new loans that we originated during the year and in the interest rates on variable rate loans that repriced downward as market rates of interest declined.



Information concerning average interest earning assets and
interest bearing liabilities, along with the average interest rates charged and paid thereon is set forth in the following table. Averages were computed based upon daily balances and dollars are in thousands.



|                                      |  | 2002            |         |          | 2001 |              |  | 2000 |                
|------------------------------------- |  | --------------- | ------- | -------- | ---- | ------------ |  | ---- | ---------------
|                                      |  | Average Balance |         | Interest |      | Average Rate |  |      | Average Balance
|Earning Assets:                       |  |                 |         |          |      |              |  |      |                
|Investment Securities                 |  |                 |         |          |      |              |  |      |                
|U.S. Treasury                         |  | $               | 349     |          | $    | 15           |  | 4.3  | %              
|U.S. Government Agencies              |  |                 | 43,629  |          |      | 2,007        |  | 4.6  |                
|Municipal Leases(1)                   |  |                 | 8,119   |          |      | 657          |  | 8.1  |                
|Other Securities                      |  |                 | 16,426  |          |      | 390          |  | 2.4  |                
|                                      |  |                 |         |          |      |              |  |      |                
|Total Investment Securities           |  |                 | 68,523  |          |      | 3,069        |  | 4.5  |                
|Federal Funds Sold                    |  |                 | 27,504  |          |      | 430          |  | 1.6  |                
|Due from Banks  Time                 |  |                 | 7,544   |          |      | 194          |  | 2.6  |                
|Loans(2)                              |  |                 | 423,943 |          |      | 31,379       |  | 7.4  |                
|Lease Financing(1)                    |  |                 | 1,160   |          |      | 93           |  | 8.0  |                
|                                      |  |                 |         |          |      |              |  |      |                
|Total Interest-Earning Assets(1)      |  | $               | 528,674 |          | $    | 35,165       |  | 6.7  | %              
|                                      |  |                 |         |          |      |              |  |      |                
|Interest Bearing Liabilities:         |  |                 |         |          |      |              |  |      |                
|Domestic Deposits and Borrowed Funds: |  |                 |         |          |      |              |  |      |                
|Savings Deposits(3)                   |  | $               | 242,305 |          | $    | 2,784        |  | 1.1  | %              
|Time Deposits                         |  |                 | 88,824  |          |      | 2,216        |  | 2.5  |                
|Short-Term borrowings                 |  |                 |        |          |      |             |  | 0.0  |                
|Long-Term borrowings                  |  |                 | 667     |          |      | 39           |  | 5.8  |                
|                                      |  |                 |         |          |      |              |  |      |                
|Total Interest-Bearing Liabilities    |  | $               | 331,796 |          | $    | 5,039        |  | 1.5  | %              
|                                      |  |                 |         |          |      |              |  |      |                



The
following table sets forth the net interest earnings (in thousands of dollars) and the net yield on average earning assets:



|                                                                |  | 2002 |         |   | 2001 |   |         | 2000 | 
|--------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|Total Interest Income(1)(2)                                     |  | $    | 35,165  |   |      | $ | 37,048  |      | 
|Total Interest Expense(3)                                       |  | $    | 5,039   |   |      | $ | 9,030   |      | 
|Net Interest Earnings(1)(2)                                     |  | $    | 30,126  |   |      | $ | 28,018  |      | 
|Net Average Earning Assets(2)                                   |  | $    | 528,674 |   |      | $ | 473,815 |      | 
|Net Yield on Average Earning Assets(1)(2)                       |  |      | 5.7     | % |      |   | 5.9     | %    | 
|Net Yield on Average Earning Assets (excluding Loan Fees)(1)(2) |  |      | 5.4     | % |      |   | 5.6     | %    | 
|                                                                |  |      |         |   |      |   |         |      | 

| | (1) |  | Interest income includes the effects of tax equivalent adjustments on tax exempt securities and leases using tax rates that approximate 36.3 percent for 2002, 36.4
percent for 2001 and 36.9 percent for 2000.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) |  | Loans, net of unearned discount, do not reflect average reserves for possible loan losses of $4,378,000 in 2002, $3,890,000 in 2001, and $4,798,000 in 2000. Loan
fees of $1,463,000 in 2002, $1,364,000 in 2001, and $1,064,000 in 2000 are included in interest income. Average loan balances include loans placed on non-accrual status during the periods presented, but interest on such loans has been excluded.
There were four non-accruing loans totaling $1,455,000 (0.4% of total loans outstanding) at December 31, 2002, and six non-accruing loans totaling $2,717,000 (0.7%, of total loans outstanding) at December 31, 2001 and six non-accruing loans totaling
$2,319,000 (0.6% of total loans outstanding) at December 31, 2000.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) |  | Includes NOW, Super NOW, and Money Market Deposit Accounts.
| | --- |  | -----------------------------------------------------------



21



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Rate Sensitivity, Net
Interest Margins and Market Risk.



Rate
Sensitivity. Like other banks and bank holding companies, our margins (that is, the difference between yields we are able to realize, and therefore the interest income that we are able to generate, on loans and other interest earning assets, on
the one hand, and the interest we pay on deposits, on the other hand) are affected by a number of factors, including the relative percentages or the mix of:



| |  |  | our assets, between loans, on the one hand, on which we are able to obtain higher rates of interest, and investment securities, federal funds sold and funds held in
interest-bearing deposits with other financial institutions, on the other hand, on which yields generally are lower;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | variable and fixed rate loans in the loan portfolio; and
| | - |  | --------------------------------------------------------



| |  |  | demand and savings deposits, on the one hand, and time deposits (on which we pay higher rates of interest) on the other hand.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



Impact on Net Interest Margins of the Mix of Fixed and
Variable Rate Loans.    As a general rule, in an interest rate environment like the one we have experienced during the past two years, a bank with a relatively high percentage of variable rate loans will experience a decline
in net interest margins during a period of declining market rates of interest, because those loans will reprice automatically when market rates of interest decline. On the other hand, a bank with a large proportion of fixed rate loans,
generally, will experience an increase in net interest margins, because the interest rates on those fixed rate loans will not decline in response to declines in market rates of interest. In a period of increasing interest rates, however, the
interest margin of banks with a high proportion of fixed rate loans generally will suffer because they will be unable to reprice those loans to fully offset the increase in the rates of interest they must offer to retain maturing time
deposits and attract new deposits. By contrast, a bank with a higher proportion of variable loans in an environment of increasing market rates of interest will be able to more fully offset the impact of rising rates of interest on the amounts they
must pay to retain existing and attract new deposits.



The following table sets forth the maturities of our loans, and the mix of fixed and variable rate loans, as of December 31, 2002 (in thousands):



|                          |  | MATURING       
|------------------------- |  | ---------------
|                          |  | Within One Year
|Total fixed rate loans    |  | $              
|Total variable rate loans |  |                
|                          |  |                
|Total                     |  | $              
|                          |  |                



Impact on Net Interest Margins of the Mix of Demand, Savings and Time Deposits.    In a period of declining market rates of interest, all other things being equal, a bank with a greater proportion of demand
and savings accounts, as compared to time deposits, is likely to have a higher interest margin than a bank with a greater proportion of time deposits, because a bank must wait for its time deposits to mature before it can implement reductions in the
rates of interest it must pay on those deposits in response to declining market rates of interest, whereas such reductions can be implemented more quickly on savings and money market deposits. By contrast, in a period of increasing market rates of
interest, all other things being equal, a bank with a higher proportion of time deposits will generally have a higher interest margin than a bank with a higher proportion of savings deposits and a lower proportion of time deposits, because a bank
need not increase the interest it pays on its time deposits until they mature, while it must increase its interest rates on savings and money market deposits to be able to retain them in response to increasing market rates of interest.



The average amounts (in thousands) of and the average rates
paid on deposits, by type, in the year ended December 31, 2002 are summarized below:



|                                    |  | Year ended December 31, 2002 |        
|----------------------------------- |  | ---------------------------- | -------
|                                    |  | Average Balance              |        
|Noninterest bearing demand deposits |  | $                            | 181,680
|Savings Deposits(1)                 |  |                              | 242,305
|Time Deposits(2)                    |  |                              | 88,824 
|                                    |  |                              |        
|Total Deposits                      |  | $                            | 512,809
|                                    |  |                              |        



22



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The following
table sets forth changes in interest earned, including loan fees, and interest paid in each of the years ended December 31, 2002 and 2001 and the extent to which those changes were attributable to changes in the volume or changes in the mix of
interest earning assets and changes in the volume or changes in the mix of interest bearing liabilities. Changes in interest earned and interest paid due to both rate and volume have been allocated to the change due to volume and the change due to
rate in proportion to the relationship of the absolute dollar amounts of the changes in each. All amounts are stated in thousands.



|                            |  | Investment Securities |      |   |                 |   |      |                    |  |   |               |   |  |                           |        |   |               |  
|--------------------------- |  | --------------------- | ---- | - | --------------- | - | ---- | ------------------ |  | - | ------------- | - |  | ------------------------- | ------ | - | ------------- | -
|Interest Earned On          |  | Taxable               |      |   | Non-Taxable (1) |   |      | Federal Funds Sold |  |   | Loans (1) (2) |   |  | Direct Lease Financing(1) |        |   | Time Deposits |  
|2002 compared to 2001:      |  |                       |      |   |                 |   |      |                    |  |   |               |   |  |                           |        |   |               |  
|Increase (decrease) due to: |  |                       |      |   |                 |   |      |                    |  |   |               |   |  |                           |        |   |               |  
|Volume Changes              |  | $                     | (12  | ) |                 | $ | 444  |                    |  | $ | 198           |   |  | $                         | 4,236  |   |               | $
|Rate Changes                |  |                       | (889 | ) |                 |   | (219 | )                  |  |   | (576          | ) |  |                           | (4,706 | ) |               |  
|                            |  |                       |      |   |                 |   |      |                    |  |   |               |   |  |                           |        |   |               |  
|Net Increase (Decrease)     |  | $                     | (901 | ) |                 | $ | 225  |                    |  | $ | (378          | ) |  | $                         | (470   | ) |               | $
|                            |  |                       |      |   |                 |   |      |                    |  |   |               |   |  |                           |        |   |               |  
|2001 compared to 2000:      |  |                       |      |   |                 |   |      |                    |  |   |               |   |  |                           |        |   |               |  
|Increase (decrease) due to: |  |                       |      |   |                 |   |      |                    |  |   |               |   |  |                           |        |   |               |  
|Volume Changes              |  | $                     | (65  | ) |                 | $ | (79  | )                  |  | $ | 477           |   |  | $                         | 1,019  |   |               | $
|Rate Changes                |  |                       | (355 | ) |                 |   | 9    |                    |  |   | (321          | ) |  |                           | (3,249 | ) |               |  
|                            |  |                       |      |   |                 |   |      |                    |  |   |               |   |  |                           |        |   |               |  
|Net Increase (Decrease)     |  | $                     | (420 | ) |                 | $ | (70  | )                  |  | $ | 156           |   |  | $                         | (2,230 | ) |               | $
|                            |  |                       |      |   |                 |   |      |                    |  |   |               |   |  |                           |        |   |               |  



|Interest Paid On:           |  | Savings Deposits |        |   | Other Time Deposits |   |        | Long Term Borrowings (3) |  | Short Term Borrowings (4) |    |  | Total |    
|--------------------------- |  | ---------------- | ------ | - | ------------------- | - | ------ | ------------------------ |  | ------------------------- | -- |  | ----- | ---
|2002 compared to 2001       |  |                  |        |   |                     |   |        |                          |  |                           |    |  |       |    
|Increase (decrease) due to: |  |                  |        |   |                     |   |        |                          |  |                           |    |  |       |    
|Volume Changes              |  | $                | 663    |   |                     | $ | (846   | )                        |  | $                         | 39 |  | $     | (5 
|Rate Changes                |  |                  | (1,622 | ) |                     |   | (2,220 | )                        |  |                           |   |  |       |   
|                            |  |                  |        |   |                     |   |        |                          |  |                           |    |  |       |    
|Net Increase (Decrease)     |  | $                | (959   | ) |                     | $ | (3,066 | )                        |  | $                         | 39 |  | $     | (5 
|                            |  |                  |        |   |                     |   |        |                          |  |                           |    |  |       |    
|2001 compared to 2000       |  |                  |        |   |                     |   |        |                          |  |                           |    |  |       |    
|Increase (decrease) due to: |  |                  |        |   |                     |   |        |                          |  |                           |    |  |       |    
|Volume Changes              |  | $                | 514    |   |                     | $ | (135   | )                        |  | $                         |   |  | $     | (50
|Rate Changes                |  |                  | (1,417 | ) |                     |   | (943   | )                        |  |                           |   |  |       | (42
|                            |  |                  |        |   |                     |   |        |                          |  |                           |    |  |       |    
|Net Increase (Decrease)     |  | $                | (903   | ) |                     | $ | (1,078 | )                        |  | $                         |   |  | $     | (92
|                            |  |                  |        |   |                     |   |        |                          |  |                           |    |  |       |    

---

|(1) |  | Interest income includes the effects of tax equivalent adjustments on tax exempt securities, loans and leases using tax rates which approximate 36.3% for 2002 and
36.4% in 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes an increase in loan fees of $100,000 for 2002 and a decrease of $300,000 for 2001.
|--- |  | -------------------------------------------------------------------------------------------

|(3) |  | Long term borrowings in 2002 consists of Trust Preferred Securities that mature in 30 years and that bears interest initially at a rate of 4.66%, which will reset
semi-annually at the three-month LIBOR (London Inter Bank Offered Rate) rate plus 3.05%
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Short term borrowings in 2001 consist of an obligation secured by a lien on certain real estate loans that bears interest at 1.92%.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------



Net Interest Margin in 2002
and 2001. We attempt to reduce our exposure to market risks associated with interest rate fluctuations in an effort to increase, or at least maintain, our net interest margin, by seeking (i) to attract and maintain a significant volume of demand
and savings deposits that are not as sensitive to interest rate fluctuations as are TCDs and other time deposits, and (ii) to match opportunities to reprice earning assets, particularly loans, in response to changes in market rates of
interest which require or cause repricing of deposits. We have continued sales and marketing programs designed to increase our loan volume and, also the volume of our demand and savings deposits. We also decided to allow some of our higher priced
time deposits to run off as they matured, rather than to seek their renewal. During 2002, the average volume of loans outstanding increased by $53,068,000, or 14.0%, and the average volume of demand, savings and money market deposits
increased to 83% of average total deposits, while time deposits, including TCDs, declined to 17% of average total deposits, compared to 77% and 23%, respectively, for 2001. Those percentages were 74% and 26%, respectively for 2000. Additionally, in
order to mitigate the impact of declining rates of interest on our interest income, during the fourth quarter of 2002 we adopted a new loan repricing policy which places an interest rate floor, currently at 5%, that is applicable to all
new variable rate loans that we make.



23



---



Our net
interest margin (i.e., tax-adjusted net interest income stated as a percentage of average interest-earning assets) was 5.70% for the year ended December 31, 2002, compared to 5.91% for the year ended December 31, 2001. That decline was primarily due
to the decrease in interest rates as mentioned above. However, notwithstanding that decline, we believe that our net interest margin continues to exceed the average net interest margin for California-based, publicly traded banks and bank holding
companies with assets ranging from $250-to-$750 million (the Peer Group Banks), because we have been able to maintain the ratio of demand and savings deposits to total deposits at a higher level than that of our Peer Group Banks and we
were able to increase the volume of our loans which generate higher yields than do our other interest earning assets.



We have again instituted new sales and marketing programs for 2003 that are designed to increase our loan volume and also the volume of
our demand and savings deposits. However, we may find it necessary or prudent to increase time deposits to fund any resulting increases in loan volume. We currently believe that our net interest margin in 2003 will continue to decline at
approximately the same level as in 2002, because we currently expect that any resulting increases in interest income we are able to generate in 2003 from increased loan volume will be largely offset by a combination of (i) the increase in interest
expense that will result from the increase in the volume of our deposits, and (ii) rates of interest that we are able to charge on loans, which are largely determined by the Federal Reserve Boards monetary policies and affected by the economic
conditions in the United States. However, there are a number of uncertainties and risks that could adversely affect our net interest margin in 2003, including (i) increased competition in our market areas, both from banks and other types of
financial institutions as well as from securities brokerage firms and mutual funds that offer competing investment products, and (ii) the possibility that the economic slowdown will continue longer than is currently anticipated, which could result
in reduced loan activity and in a greater decline in market rates of interest.



The ability to maintain our net interest margin is not entirely within our control because the interest rates we are able to charge on loans and the interest rates we must offer to maintain and attract
deposits are affected by the monetary policies established and implemented by the Federal Reserve Board and by competitive conditions in our service areas. In addition, the effect on a banks net interest margin of changes in market rates of
interest will depend on the types and maturities of its deposits and earning assets. For example, a change in interest rates paid on deposits in response to changes in market rates of interest can be implemented more quickly in the case of savings
deposits and money market accounts than with respect to time deposits as to which a change in interest rates generally cannot be implemented until such deposits mature. In addition, a change in rates of interest paid on deposits can and often does
lead consumers to move their deposits from one type of deposit to another or to shift funds from deposits to non-bank investments or from such investments to bank deposit accounts or instruments, which also will affect a banks net interest
margin.



Provision for Loan and Lease
Losses.    Like virtually all banks and other financial institutions, we follow the practice of maintaining a reserve (the Loan Loss Reserve) for possible losses on loans and leases that occur from time to time as
an incidental part of the banking business. When it is determined that the payment in full of a loan has become unlikely, the carrying value of the loan is reduced to its realizable value. This reduction, which is referred to as a loan
charge-off, is charged against the Loan Loss Reserve. The amount of the Loan Loss Reserve is increased periodically to replenish the Reserve after it has been reduced due to loan charge-offs and to reflect changes in (i) the volume of
outstanding loans, and (ii) the risk of potential losses due to a deterioration in the condition of borrowers or in the value of property securing non-performing loans, or due to adverse changes in national or local economic conditions. Those
increases and additions are made through a charge against income referred to as the provision for loan and lease losses. Recoveries of loans previously charged-off are added back to and, therefore, also have the effect of increasing the
Loan Loss Reserve. Although we employ economic models that are based on bank regulatory guidelines and industry standards to evaluate and determine the sufficiency of the Loan Loss Reserve and, thereby, also the amount of provisions required to be
made for potential loan losses, those determinations involve judgments or forecasts about future economic conditions and other events that are subject to a number of uncertainties, some of which are outside of our ability to control. See the
discussion below under the caption Forward Looking Information and Uncertainties Regarding Future Performance. In the event those judgments or forecasts are proven, by subsequent events or circumstances, to have been incorrect, it
could become necessary in the future to increase the Loan Loss Reserve, which would require us to take additional charges to income that would adversely affect our operating results.



During 2002 we made provisions for potential loan losses of $460,000, as compared to $498,000 during 2001
and, at December 31, 2002 the Loan Loss Reserve was approximately $4,619,000 or 1.04% of total loans and leases



24



---



outstanding, compared to
approximately $4,206,000 or 1.03% of total loans and leases outstanding at December 31, 2001. The overall quality of our loan portfolio improved in 2002, as it had in 2001, which enabled us to reduce the provision made for potential loan losses in
2002 as compared to 2001 and 2000.



The
following table sets forth an analysis of our loan and lease loss experience, by category, for the past three years (with dollar amounts stated in thousands). The amount of the loan charge-offs, and the ratios of net loan charge offs to the loan
loss reserve and net loan charge offs to the provision for loan losses, in 2000 were substantially greater than in 2002 or in 2001. That was attributable to loan charge-offs in 2000 due to the bankruptcy of a corporate borrower.



|                                                                                        |  | 2002 |         |   | 2001 |   |         | 2000 | 
|--------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|Average amount of loans and leases outstanding(1)                                       |  | $    | 425,603 |   |      | $ | 371,831 |      | 
|                                                                                        |  |      |         |   |      |   |         |      | 
|Loan and lease loss reserve at beginning of year                                        |  |      | 4,206   |   |      |   | 3,692   |      | 
|                                                                                        |  |      |         |   |      |   |         |      | 
|Charge-Offs  Domestic Loans(2):                                                        |  |      |         |   |      |   |         |      | 
|Commercial, financial and agricultural                                                  |  |      | (77     | ) |      |   | (46     | )    | 
|Real Estate-construction                                                                |  |      |        |   |      |   |        |      | 
|Real Estate-mortgage                                                                    |  |      |        |   |      |   |        |      | 
|Consumer                                                                                |  |      | (18     | ) |      |   | (40     | )    | 
|Other                                                                                   |  |      |        |   |      |   |        |      | 
|                                                                                        |  |      |         |   |      |   |         |      | 
|Total Charge-Offs                                                                       |  |      | (95     | ) |      |   | (86     | )    | 
|Recoveries  Domestic Loans(2):                                                         |  |      |         |   |      |   |         |      | 
|Commercial, financial and agricultural                                                  |  |      | 46      |   |      |   | 46      |      | 
|Real Estate-construction                                                                |  |      |        |   |      |   | 20      |      | 
|Real Estate-mortgage                                                                    |  |      |        |   |      |   | 16      |      | 
|Consumer                                                                                |  |      | 2       |   |      |   | 20      |      | 
|                                                                                        |  |      |         |   |      |   |         |      | 
|Total Recoveries                                                                        |  |      | 48      |   |      |   | 102     |      | 
|                                                                                        |  |      |         |   |      |   |         |      | 
|Net Recoveries (Net Charge-Offs)                                                        |  |      | (47     | ) |      |   | 16      |      | 
|Additions charged to operations                                                         |  |      | 460     |   |      |   | 498     |      | 
|                                                                                        |  |      |         |   |      |   |         |      | 
|Loan and lease loss reserve  balance at end of year                                    |  | $    | 4,619   |   |      | $ | 4,206   |      | 
|                                                                                        |  |      |         |   |      |   |         |      | 
|Ratios:                                                                                 |  |      |         |   |      |   |         |      | 
|Net charge-offs during the year to average loans and leases outstanding during the
year |  |      | 0.01    | % |      |   | (0.004  | )%   | 
|Loan loss reserve to total gross loans                                                  |  |      | 1.04    | % |      |   | 1.030   | %    | 
|Net loan charge-offs to loan loss reserve                                               |  |      | 1.02    | % |      |   | (0.380  | )%   | 
|Net loan charge-offs to provision for loan losses                                       |  |      | 10.22   | % |      |   | (3.210  | )%   | 
|Loan loss reserve to non-performing loans                                               |  |      | 317.46  | % |      |   | 154.800 | %    | 

---

|(1) |  | Net of unearned discount.
|--- |  | -------------------------



|(2) |  | We do not have any loans outstanding to borrowers in foreign countries and therefore there are no foreign loan charge-offs or recoveries to report for any of the
periods presented in the table above.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The amount of non-performing loans (which consist primarily of loans for which there have been no payments of principal or interest for more than 90 days) at December 31, 2002 was $1,455,000, or 0.4% of total loans then outstanding,
compared to $2,717,000, or 0.7%, of total loans outstanding at December 31, 2001 and $2,319,000 or 0.6% of total loans outstanding at December 31, 2000. The ratio of the Loan Loss Reserve to non-performing loans was 317.46% at December 31, 2002, as
compared to 154.80% and 159.21% at December 31, 2001 and 2000, respectively.



Net loan charge-offs totaled $47,000 in 2002, which represented one hundredth of one percent (0.01%) of average loans and leases outstanding during the year. In 2001, recoveries of previously
charged off loans exceeded loan charge-offs by $16,000. In 2000, loan charge-offs totaled $3,480,000. However, but for the charge-off of loans to a single corporate borrower, recoveries of previously charged-off loans would have exceeded
loan charge-offs by $270,000 in 2000.



Non-Interest Income.    In 2002, non-interest income (also sometimes referred to as other income) increased by $280,000 or 5.2% as compared to
2001. The increase was attributable to a number of factors, the most significant of which was a one-time $107,000 gain on the sale of a parcel of real property on which the Bank had foreclosed several



25



---



years ago. In 2001,
non-interest income increased by $810,000 or 17.6% as compared to 2000, primarily as a result of increases in transaction fees and service charges on deposit accounts and other banking transactions, and a one-time $72,000 gain realized on the sale
of a parcel of real property that the Bank had been using as a parking lot, but which it no longer 1 needed.



Non-Interest Expense.    Non-interest expense (also sometimes referred to as other expense)
consists primarily of (i) salaries and other employee expenses, (ii) occupancy and furniture and equipment expenses, and (iii) other operating and miscellaneous expenses that include insurance premiums, marketing expenses, data processing costs, and
professional fees and expenses.



In order to
attract a higher volume of non-interest bearing demand and lower cost savings and money market deposits as a means of maintaining the Banks net interest margin, it has been our policy to provide a higher level of personal service to our
customers than the level of service that is typically provided by many of our competitors. As a result, we have more banking personnel than many of our competitors of comparable size, which is reflected in our non-interest expense. However, we
believe that this higher level of service has helped us to retain our existing deposit customers and attract new customers which has enabled us to achieve an average net interest margin that exceeds the average net interest margin of the banks in
our Peer Group.



Non-interest expense increased
by approximately $1,088,000, or 5.0%, in 2002 as compared to 2001 primarily due to increases in salaries and in employee benefit expenses and, to a lesser extent, the addition of personnel. The increase in salaries was primarily attributable to a
general increase in employee base salaries and bonuses paid to loan officers and other employees for meeting loan and deposit growth targets established for 2002. Notwithstanding that increase, however, due primarily to the increase in our net
interest income in 2002, we were able to improve our efficiency ratio to 62.7% from 66.4% in 2001. The efficiency ratio is, basically, the ratio of non-interest expense (adjusted to exclude non-recurring expenses) to the sum of net interest income
and non-interest income (as adjusted to exclude any non-recurring income).



In 2001 our non-interest expenses increased by $1,052,000, or 5.1%, as compared to 2000, primarily as a result of our opening, in December 2000, of a new banking office, in Temecula, California, that
necessitated the addition of new personnel and increased our occupancy and equipment expenses in 2001. That increase in non-interest expense caused our efficiency ratio in 2001 to increase to 66.4% from 62.7% in 2000.



Income Taxes.    Income taxes
increased by approximately $452,000 or 11.5% in 2002 and $6,000 or 0.2% in 2001, in each case as compared to the prior year, primarily as a result of the increases in pre-tax income in those two years, in each case as compared to the preceding year.



The provision that we make for income taxes is
based on, among other things, the ability to use certain income tax benefits available under state and federal income tax laws to reduce our income tax liability. As of December 31, 2002, the total of the unused income tax benefits (referred to in
our consolidated financial statements as a deferred tax assets), available to reduce our income taxes in future periods was $2,317,000. Such tax benefits expire over time unless used and the realization of those benefits is dependent on
generating taxable income in the future in amounts sufficient to utilize those tax benefits prior to their expiration. We have made a judgment that it is more likely than not that we will generate taxable income in future years sufficient to fully
utilize those benefits. In the event that our income were to decline in future periods such that it was no longer more likely than not that we would be able to fully utilize those benefits, we would be required to establish a valuation reserve for
the benefits we estimate would be lost. Establishment of such a reserve would require us to increase the provision we make for income taxes, which would have the effect of reducing our net income.



FINANCIAL CONDITION



Total Assets.    Our average total
assets increased during 2002 by approximately $54,191,000, or 10.4%, compared to average total assets for 2001. The increase in average total assets was primarily due to an increase of $51,893,000, or 13.9%, in the average loans and leases
outstanding, together with an increase in the average volume of federal funds sold of $6,461,000, or 30.7%, which offset a decrease in the average volume of other earning assets, including overnight repurchase agreements, time deposits held at other
banks, and investment securities.



26



---



We currently
anticipate that we will achieve modest asset growth in the year ending December 31, 2003, which is expected to result from increased lending and deposit activity that we expect will be generated by our marketing programs.



Loans.    Set forth below is
information regarding the average volume of our loans, by type or category of loan, for each of the years in the five-year period ended December 31, 2002:



|                                       |  | December 31,   |        
|-------------------------------------- |  | -------------- | -------
|                                       |  | 2002           |        
|                                       |  | (In Thousands) |        
|Types of Loans                         |  |                |        
|Commercial, financial and agricultural |  | $              | 36,125 
|Real Estate construction               |  |                | 20,526 
|Real Estate mortgage                   |  |                | 362,502
|Consumer                               |  |                | 4,362  
|Lease Financing                        |  |                | 1,160  
|All other (including overdrafts)       |  |                | 510    
|                                       |  |                |        
|Subtotal:                              |  | $              | 425,185
|Less:                                  |  |                |        
|Unearned Discount                      |  |                | (82    
|Reserve for loan and lease losses      |  |                | (4,378 
|                                       |  |                |        
|Total                                  |  | $              | 420,725
|                                       |  |                |        



The
maturities of our loans, as of December 31, 2002, presented by type or category of loan, is set forth below (in thousands):



|                                       |  | MATURING       
|-------------------------------------- |  | ---------------
|                                       |  | Within One Year
|Commercial, financial and agricultural |  | $              
|Real Estate construction               |  |                
|Real Estate mortgage                   |  |                
|Consumer                               |  |                
|Lease Financing                        |  |                
|All other                              |  |                
|                                       |  |                
|Total                                  |  | $              
|                                       |  |                



Deposits.     During 2002 we conducted programs by which we were able to increase deposits to provide additional funds that we used to increase loan volume. Overall, in 2002 the average volume of deposits
increased by $46,809,000, or 10.4%, as compared to the average volume of deposits during 2001. Contributing to that increase was an increase of $66,974,000, or 18.8%, in the volume of our core deposits, made up of demand deposits, which do not bear
interest, and savings and money market deposits, on which we pay lower rates of interests than on time deposits. At the same time, during 2002, the average volume of time deposits (including those in denominations of $100,000 or more) decreased by
$20,165,000, or 18.5%. As a result, our core demand, savings and money market deposits represented 82.7% of average total deposits in 2002 as compared to 76.6% in 2001, with time deposits (including those in denominations of $100,000 or more)
representing 17.3% of average total deposits in 2002 as compared to 23.4% in 2001. The decreases in the volume of time deposits, together with decreases in interest rates that we paid, primarily in response to decreases in market rates of interest,
resulted in a decrease in interest expense in 2002 as compared to 2001. See the discussion above under the captions Results of Operations  Net Interest Income and Results of Operations  Rate Sensitivity, Net Interest
Margins and Market Risk.



27



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The average
amounts (in thousands) of and the average rates paid on deposits in each of 2002, 2001 and 2000 are summarized below:



|                                    |  | 2002            |         |              | 2001 |   |                 | 2000 |             
|----------------------------------- |  | --------------- | ------- | ------------ | ---- | - | --------------- | ---- | ------------
|                                    |  | Average Balance |         | Average Rate |      |   | Average Balance |      | Average Rate
|Noninterest bearing demand deposits |  | $               | 181,680 |              |     |   |                 | $    | 155,828     
|Savings Deposits(1)                 |  |                 | 242,305 |              | 1.15 | % |                 |      | 201,183     
|Time Deposits(2)                    |  |                 | 88,824  |              | 2.49 | % |                 |      | 108,989     
|                                    |  |                 |         |              |      |   |                 |      |             
|Total Deposits                      |  | $               | 512,809 |              | 0.98 | % |                 | $    | 466,000     
|                                    |  |                 |         |              |      |   |                 |      |             

---

|(1) |  | Includes NOW, Super NOW, and Money Market Deposit Accounts.
|--- |  | -----------------------------------------------------------



|(2) |  | Includes time certificates of deposit in denominations greater than and less than $100,000.
|--- |  | -------------------------------------------------------------------------------------------



Set forth below is a maturity schedule of domestic time
certificates of deposit of $100,000 or more (with amounts stated in thousands) as of December 31, 2002:



|                               |  | At December 31, 2002
|------------------------------ |  | --------------------
|                               |  | (In thousands)      
|Three Months or Less           |  | $                   
|Over Three through Six Months  |  |                     
|Over Six through Twelve Months |  |                     
|Over Twelve Months             |  |                     
|                               |  |                     
|                               |  | $                   
|                               |  |                     

Liquidity Management.    Liquidity management policies
attempt to achieve a matching of sources and uses of funds in order to enable us to fund the requirements of our customers for loans and for deposit withdrawals. In conformity with those policies, we maintain a number of short-term sources of funds
to meet periodic increases in loan demand and deposit withdrawals and maturities. At December 31, 2002, the principal sources of liquidity consisted of $32,665,000 in cash and demand balances due from other banks and $16,300,000 of Federal funds
sold, which together totaled $48,965,000. Other sources of liquidity include $59,703,000 in securities available for sale, of which approximately $1,095,000 mature within one year; $230,000 in securities held to maturity which mature within one
year; and $7,922,000 in interest-bearing deposits at other financial institutions, which mature in 6 months or less. In addition, substantially all of the Banks installment loans and leases, the amount of which aggregated $5,478,000 at
December 31, 2002, require regular installment payments from customers, providing us with a steady flow of cash funds.



We also maintain a line of credit from the Federal Home Loan Bank, the amount of which was $34,916,000 as of December 31, 2002. Borrowings
under that credit line are secured by a pledge of some of our outstanding loans. We also have established loan facilities that would enable us to borrow up to $13,000,000 of Federal funds from other banks and we have an account with the Federal
Reserve Bank of San Francisco that will also allow us to borrow at its discount window should the need arise. Finally, if necessary, we could obtain additional cash by means of sales of time certificates of deposit into the CD market.
However, as a general rule, it has been and continues to be our policy to make use of borrowings under the credit line or loan facilities to fund short term cash requirements, before selling securities or reducing deposit balances at other banks and
before selling time certificates of deposit.



In
late December of 2001 we borrowed $19,000,000 under the Federal Home Loan Bank credit line to fund increases in loans and seasonal withdrawals of demand and savings deposits which typically occur during the holiday season. We repaid those borrowings
in their entirety at the end of January 2002 and there has been no other borrowing outstanding under the credit line, or any of our other borrowing facilities, again in 2002. However, we expect that we may make use of that Federal Home Loan Bank
credit line and other credit loan facilities in the future primarily to fund our short term cash requirements during periods of either significant loan growth or increased deposit withdrawals.



We believe that our cash and cash equivalent resources,
together with available borrowings under our line of credit and credit facilities, will be sufficient to enable us to meet any increases in demand for loans and leases and any increase in deposit withdrawals that might occur in the foreseeable
future.



28



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Capital
Resources and Dividends.    It has been and continues to be the objective of our Board of Directors to retain earnings that are needed to meet capital requirements under applicable government regulations and to support our
growth. At the same time, it is the policy of the Board of Directors to pay cash dividends if earnings exceed the amounts required to meet that objective. Pursuant to that policy, the Company has paid regular quarterly cash dividends since September
of 1999 and, in January of 2003, the Board of Directors declared an $0.11 per share cash dividend, which is the 14thconsecutive quarterly cash dividend declared since the current dividend policy was adopted by the Board of Directors. However, the Board may change the amount or frequency of cash dividends to the extent that it deems necessary or appropriate to
achieve our objective of maintaining capital in amounts sufficient to support our growth. For example the retention of earnings in previous years enabled us to fund the opening of four new banking offices and extend the Banks market areas, all
of which have contributed to our increased profitability and the maintenance of our capital adequacy ratios well above regulatory requirements.



We continue to evaluate and explore opportunities to expand our market into areas such as eastern Los Angeles County, western San
Bernardino County, north Orange County and northern Riverside County, all of which are contiguous to our existing markets. The number of independent banks based in our market areas has declined significantly, due to a consolidation in the Banking
industry that occurred approximately two to three years ago. We believe that this consolidation has created opportunities for us to increase our market share in those areas. We have taken advantage of those opportunities by establishing a
substantial number of new customer relationships and increasing the volume of our demand, savings and money market deposit balances. We also opened a branch banking office in the city of Temecula, California, in late December of 2000, which is our
12thbanking office, and we believe that there are still additional expansion and growth opportunities that we will
seek to take advantage of in the future.



Stock Repurchase Programs.    In January of 2003 the Board of Directors authorized a stock repurchase program that provides for the Company to repurchase up to $5,000,000 of its common stock. Repurchases
may be made from time-to-time in the open market or in privately negotiated transactions when opportunities to do so at favorable prices present themselves, in compliance with Securities and Exchange Commission (SEC) guidelines. In May of 2001 we
completed a previously authorized open market and private stock repurchase program which began in late 1998 and resulted in the purchase of a total of 976,588 shares of our common stock for an aggregate price of approximately $11,970,000.



Sale of Trust Preferred
Securities.    In December of 2002, we completed a private sale of $8,000,000 of trust preferred securities to an institutional investor as part of a pooled securitization transaction by that investor. The trust preferred
securities mature in 30 years, and are redeemable at our option beginning after five years. We are required to make quarterly interest payments, initially at a rate of 4.66%, which will re-set semi-annually at the three-month LIBOR (London Inter
Bank Offered Rate) rate plus 3.05%. The trust preferred securities are subordinated to other borrowings that may be obtained by the Company in the future and qualify as Tier 1 capital for regulatory purposes. (See discussion below regarding our
Regulatory Capital Requirements.) The proceeds from the sale of the trust preferred securities will be used to fund the continued growth of the Bank and may also be used to repurchase our common stock under our stock repurchase plan and to purchase
bank-owned life insurance on key employees of the Bank. Such insurance (which is commonly referred to in the banking industry as BOLI) would be purchased for two primary purposes: (i) to provide a source of funds to offset the
Banks future payment obligations under its employee retirement and benefit plans, and (ii) to protect the Bank against the costs or losses that could occur as a result of the death of any key employees.



Regulatory Capital
Requirements.    Federal banking agencies require banks to maintain a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital (essentially, the sum of a banks
capital stock and retained earnings, less any intangibles) to risk-adjusted assets of 4%. In addition to the risked-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total
average assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to average assets must be 5%. In
addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, federal and state bank regulatory agencies have the discretion to set minimum capital requirements for specific banking institutions at rates
significantly above the minimum guidelines and ratios and encourage banks to maintain their ratios above those minimums as a matter of prudent banking practices.



The risk-based capital ratio is determined by weighting our assets in accordance with certain risk factors
and, the higher the risk profile of the assets, the greater is the amount of capital that is required to maintain an adequate risk



29



---



based capital ratio, which
generally is at least 8%. Additionally, the level of supervision to which a bank will be subject by federal bank regulatory authorities will depend largely on the extent to which a bank meets or exceeds federally mandated leverage capital ratios. A
bank that maintains a leverage capital ratio of 5% or more generally will be categorized by federal bank regulatory agencies as well capitalized and, therefore, as a general matter will be subject to less extensive regulatory supervision
than banks with lower leverage capital ratios. However, a bank with a leverage capital ratio exceeding 5% may be downgraded by its primary federal regulatory agency due to other factors.



The Bank has been categorized as a well
capitalized institution by its primary federal banking agency and its Tier 1 capital and Tier 1 risk-based capital ratios compare favorably with those of the Peer Group Banks and exceed minimum regulatory requirements.



The following table compares, as of December 31, 2002, the
actual capital ratios of the Bank to the capital ratios that the Bank is required to meet under applicable banking regulations:



|                                       |  | Actual |   |  | For Capital Adequacy Purposes |   |  | To Be Categorized as Well Capitalized |  
|-------------------------------------- |  | ------ | - |  | ----------------------------- | - |  | ------------------------------------- | -
|Total Capital to Risk Weighted Assets  |  | 12.6   | % |  | 8.0                           | % |  | 10.0                                  | %
|Tier 1 Capital to Risk Weighted Assets |  | 11.6   | % |  | 4.0                           | % |  | 6.0                                   | %
|Tier 1 Capital to Average Assets       |  | 9.4    | % |  | 4.0                           | % |  | 5.0                                   | %



FORWARD LOOKING
INFORMATION AND UNCERTAINTIES REGARDING FUTURE FINANCIAL PERFORMANCE



Statements contained in this Annual Report that are not historical facts or that discuss our expectations or beliefs about our future financial performance (including statements concerning business or financial trends) are
forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Our actual financial results in future periods may differ, possibly materially, from those forecast, or identified as expected or anticipated,
in this Annual Report due to a number of risks and uncertainties. Certain of those risks and uncertainties are discussed above in the section of the Report entitled Managements Discussion and Analysis of Finance Condition and Results of
Operation. In addition, included among the risks and uncertainties that could affect our future financial performance and condition are the following:



Increased Competition.    Increased competition from other financial institutions, mutual funds and securities
brokerage and investment banking firms that offer competitive loan and investment products could require us to reduce interest rates and loan fees in order to attract new loans or to increase interest rates that we offer on time deposits, either or
both of which could, in turn, reduce our interest income or increase our interest expense, thereby reducing our net interest income and margins.



Possible Adverse Changes in Local Economic Conditions.    Adverse changes in economic conditions, either
national or local, could (i) reduce loan demand that could, in turn, reduce interest income and net interest margins; (ii) weaken the financial capability of borrowers to meet their loan obligations, resulting in increases in loan losses and require
increases in reserves for possible loan losses through additional charges against income; and (iii) lead to reductions in real property values that, due to our reliance on real property to secure many of our loans, could make it more difficult for
us to prevent losses from being incurred on non-performing loans through the sale of such real properties.



Possible Adverse Changes in Federal Reserve Board Monetary Policies.    Changes in national economic
conditions, such as increases in inflation or declines in economic output often prompt changes in Federal Reserve Board monetary policies that could increase the cost of funds to us or reduce yields on interest earning assets and, thereby, reduce
net interest margins and net interest income. As discussed above, in the past 24 months the Federal Reserve Board has lowered market rates of interest in an effort to stimulate the national economy. Those reductions caused our net interest margin to
decline and could continue to do so in the future.



Real Estate Mortgage Loans.    Approximately 90% of the Banks loans are secured by deeds of trust or mortgages on real property. Although a significant portion of these loans were made to businesses
for commercial



30



---



purposes and the primary
source of payment for these loans is the cash that they generate from their operations, a significant decline in real property values in Southern California could result in a deterioration in some of those loans that would necessitate increases in
the loan loss reserve and could result in loan write-offs that would adversely affect our earnings.



Changes in Regulatory Policies.    Changes of federal and state bank regulatory policies, such as increases in
capital requirements or in loan loss reserves, or changes in required asset/liability ratios, could adversely affect earnings by reducing yields on earning assets or increasing operating costs.



Effects of Growth.    It is our
intention to take advantage of opportunities to increase our business, either through acquisitions of other banks, the establishment of new banking offices or the offering of new products or services to our customers. If we do acquire any other
banks or open any additional banking offices or begin offering new products or services, we are likely to incur additional operating costs that may adversely affect our operating results, at least on an interim basis.



Due to these and other possible uncertainties and risks,
readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date of this Annual Report. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.



ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



Market risk is the risk of loss to future earnings, to fair values of assets or to future cash flows that may result from changes in the
price or value of financial instruments. The value of a financial instrument may change as a result of changes in interest rates and other market conditions. Market risk is attributed to all market risk sensitive financial instruments, including
loans and investment securities, deposits and borrowings. We do not engage in trading activities or participate in foreign currency transactions for our own account. Accordingly, our exposure to market risk is primarily a function of our asset and
liability management activities and of changes in market rates of interest that can cause or require increases in the rates we pay on deposits that may take effect more rapidly or may be greater than the increases in the interest rates we are able
to charge on loans and the yields that we can realize on our investments. The extent of that market risk depends on a number of variables, including the sensitivity to changes in market interest rates and the maturities of our interest earning
assets and our deposits.



The table below sets
forth information concerning the interest rate sensitivity of our consolidated assets and liabilities as of December 31, 2002. Assets and liabilities are classified by the earliest possible repricing date or maturity, whichever comes first.



Generally, where rate-sensitive assets
(principally loans, investment securities and other interest earning assets) exceed rate-sensitive liabilities (principally interest bearing deposits), the net interest margin will be positively impacted during periods of increasing interest rates
and negatively impacted during periods of decreasing interest rates. When rate-sensitive liabilities exceed rate-sensitive assets, the net interest margin generally will be negatively affected during periods of increasing interest rates and
positively affected during periods of decreasing interest rates.



31



---

|                                          |  | Three Months or Less   |          |   | Over Three Through Twelve Months |   |          | Over One Year Through Five Years |  |   | Over Five Years |   | Non- Interest Bearing |   |         | Total
|----------------------------------------- |  | ---------------------- | -------- | - | -------------------------------- | - | -------- | -------------------------------- |  | - | --------------- | - | --------------------- | - | ------- | -----
|                                          |  | (Dollars in Thousands)
|Assets                                    |  |                        |          |   |                                  |   |          |                                  |  |   |                 |   |                       |   |         |      
|Interest-bearing deposits in banks        |  | $                      | 5,248    |   |                                  | $ | 2,674    |                                  |  | $ |                |   |                       | $ |        |      
|Investment securities                     |  |                        | 12,318   |   |                                  |   | 59,357   |                                  |  |   | 12,950          |   |                       |   | 6,153   |      
|Federal Funds Sold                        |  |                        | 16,300   |   |                                  |   |         |                                  |  |   |                |   |                       |   |        |      
|Net loans                                 |  |                        | 135,106  |   |                                  |   | 5,220    |                                  |  |   | 77,812          |   |                       |   | 219,303 |      
|Noninterest-earning assets                |  |                        |         |   |                                  |   |         |                                  |  |   |                |   |                       |   |        |      
|                                          |  |                        |          |   |                                  |   |          |                                  |  |   |                 |   |                       |   |         |      
|Total assets                              |  | $                      | 168,972  |   |                                  | $ | 67,251   |                                  |  | $ | 90,762          |   |                       | $ | 225,456 |      
|                                          |  |                        |          |   |                                  |   |          |                                  |  |   |                 |   |                       |   |         |      
|Liabilities and Stockholders Equity:     |  |                        |          |   |                                  |   |          |                                  |  |   |                 |   |                       |   |         |      
|Noninterest-bearing deposits              |  | $                      |         |   |                                  | $ |         |                                  |  | $ |                |   |                       | $ |        |      
|Interest-bearing deposits                 |  |                        | 288,920  |   |                                  |   | 40,170   |                                  |  |   | 7,173           |   |                       |   | 13      |      
|Short-term borrowings                     |  |                        |         |   |                                  |   |         |                                  |  |   |                |   |                       |   |        |      
|Long-term borrowings                      |  |                        | 8,000    |   |                                  |   |         |                                  |  |   |                |   |                       |   |        |      
|Other liabilities                         |  |                        |         |   |                                  |   |         |                                  |  |   |                |   |                       |   |        |      
|Stockholders equity                      |  |                        |         |   |                                  |   |         |                                  |  |   |                |   |                       |   |        |      
|                                          |  |                        |          |   |                                  |   |          |                                  |  |   |                 |   |                       |   |         |      
|Total liabilities and stockholders equity |  | $                      | 296,920  |   |                                  | $ | 40,170   |                                  |  | $ | 7,173           |   |                       | $ | 13      |      
|                                          |  |                        |          |   |                                  |   |          |                                  |  |   |                 |   |                       |   |         |      
|Interest rate sensitivity gap             |  | $                      | (127,948 | ) |                                  | $ | 27,081   |                                  |  | $ | 83,589          |   |                       | $ | 225,443 |      
|                                          |  |                        |          |   |                                  |   |          |                                  |  |   |                 |   |                       |   |         |      
|Cumulative interest rate sensitivity gap  |  | $                      | (127,948 | ) |                                  | $ | (100,867 | )                                |  | $ | (17,278         | ) |                       | $ | 208,165 |      
|                                          |  |                        |          |   |                                  |   |          |                                  |  |   |                 |   |                       |   |         |      



We use a
dynamic simulation model to forecast the anticipated impact of changes in market interest rates on our net interest income. That model is used to assist management in evaluating, and in determining and adjusting strategies designed to reduce, our
exposure to these market risks, which may include, for example, changing the mix of earning assets or interest-bearing deposits.



|Simulated Rate Changes |  | Estimated Net Interest Income Sensitivity |  | Market Value
|---------------------- |  | ----------------------------------------- |  | ------------
|                       | 
|                       |  | Assets                                    |  | Liabilities 
|(Dollars in Thousands)
|+100 basis points      |  | (1.77)%                                   |  | $598,589    
|+300 basis points      |  | (8.50)%                                   |  | $582,595    
|-100 basis points      |  | 1.84%                                     |  | $616,594    
|-300 basis points      |  | (9.04)%                                   |  | $637,053    



32



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ITEM 8.    
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



|                                                                                                        |  | Page
|------------------------------------------------------------------------------------------------------- |  | ----
|Footnote Independent Bancorp and Subsidiaries:                                                          |  |     
|                                                                                                       
|Independent Auditors Report                                                                            |  | 36  
|                                                                                                       
|Consolidated Balance Sheets at December 31, 2002 and 2001                                               |  | 37  
|                                                                                                       
|Consolidated Statements if IncomeYears Ended December 31, 2002, 2001, and
2000                         |  | 39  
|                                                                                                       
|Consolidated Statements of Charges in Stockholders EquityYears Ended
December 31, 2002, 2001 and 2000 |  | 40  
|                                                                                                       
|Consolidated Statements of Cash FlowsYears Ended December 31, 2002, 2001 and
2000                      |  | 41  
|                                                                                                       
|Notes to Consolidated Financial Statements                                                              |  | 43  



33



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Independent Auditors Report



Board of Directors and Stockholders

Foothill Independent Bancorp and Subsidiaries

Glendora, California



We have audited the accompanying consolidated balance sheets of Foothill Independent Bancorp and Subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of income and changes in stockholders equity and statements of cash flows for the three years ended December 31, 2002. These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.



In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial position of Foothill Independent Bancorp and Subsidiaries as of December 31, 2002 and 2001, and the results of its operations and cash flows for the three
years ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.



/s/    VAVRINEK, TRINE, DAY & CO., LLP



Vavrinek, Trine, Day & Co., LLP

Rancho Cucamonga, California

January 24, 2003





34



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2002 AND 2001



|                                                                                                                                            |  | 2002                   |         |   | 2001 |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | -
|ASSETS                                                                                                                                      |  | (dollars in thousands) |        
|                                                                                                                                            |  |                        |         |   |      |  
|Cash and due from banks                                                                                                                     |  | $                      | 32,665  |   |      | $
|Federal funds sold                                                                                                                          |  |                        | 16,300  |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Total Cash and Cash Equivalents                                                                                                             |  |                        | 48,965  |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Interest-bearing deposits in other financial institutions                                                                                   |  |                        | 7,922   |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Investment securities held-to-maturity                                                                                                      |  |                        | 9,279   |   |      |  
|Investment securities available-for-sale                                                                                                    |  |                        | 81,499  |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Total Investments                                                                                                                           |  |                        | 90,778  |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Federal Home Loan Bank stock, at cost                                                                                                       |  |                        | 357     |   |      |  
|Federal Reserve Bank stock, at cost                                                                                                         |  |                        | 229     |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Loans, net of unearned income                                                                                                               |  |                        | 440,849 |   |      |  
|Direct lease financing                                                                                                                      |  |                        | 1,211   |   |      |  
|Allowance for Loan Losses                                                                                                                   |  |                        | (4,619  | ) |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Total Loans                                                                                                                                 |  |                        | 437,441 |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Premises and equipment                                                                                                                      |  |                        | 5,498   |   |      |  
|Other real estate owned                                                                                                                     |  |                        | 387     |   |      |  
|Cash surrender value of life insurance                                                                                                      |  |                        | 6,778   |   |      |  
|Deferred tax assets                                                                                                                         |  |                        | 2,317   |   |      |  
|Accrued interest and other assets                                                                                                           |  |                        | 3,898   |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|TOTAL ASSETS                                                                                                                                |  | $                      | 604,570 |   |      | $
|                                                                                                                                            |  |                        |         |   |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                       
|Liabilities                                                                                                                                 |  |                        |         |   |      |  
|Demand deposits                                                                                                                             |  | $                      | 198,286 |   |      | $
|Savings and NOW deposits                                                                                                                    |  |                        | 138,430 |   |      |  
|Money market deposits                                                                                                                       |  |                        | 113,081 |   |      |  
|Time deposits $100,000 or over                                                                                                              |  |                        | 34,446  |   |      |  
|Time deposits under $100,000                                                                                                                |  |                        | 50,319  |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Total Deposits                                                                                                                              |  |                        | 534,562 |   |      |  
|Accrued employee benefits                                                                                                                   |  |                        | 2,792   |   |      |  
|Accrued interest and other liabilities                                                                                                      |  |                        | 1,640   |   |      |  
|Short-term borrowings                                                                                                                       |  |                        |        |   |      |  
|Company obligated preferred securities of subsidiary trust holding floating rate junior
subordinated deferrable interest debentures         |  |                        | 8,000   |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Total Liabilities                                                                                                                           |  |                        | 546,994 |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Commitments and ContingenciesNote #19                                                                                                      |  |                        |         |   |      |  
|Stockholders Equity                                                                                                                        |  |                        |         |   |      |  
|Common Stock  authorized, 25,000,000 shares $.001 par value; issued and
outstanding, 6,032,277 shares in 2002 and 5,514,363 shares in 2001 |  |                        | 6       |   |      |  
|Additional paid-in capital                                                                                                                  |  |                        | 43,110  |   |      |  
|Stock Dividend to be distributed                                                                                                            |  |                        | 9,328   |   |      |  
|Retained earnings                                                                                                                           |  |                        | 4,868   |   |      |  
|Accumulated other comprehensive incomeNet unrealized gains on available for sale
securities, net of taxes of $89 in 2002 and $37 in 2001   |  |                        | 264     |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|Total Stockholders Equity                                                                                                                  |  |                        | 57,576  |   |      |  
|                                                                                                                                            |  |                        |         |   |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                  |  | $                      | 604,570 |   |      | $
|                                                                                                                                            |  |                        |         |   |      |  



35



---



FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000



|                                                    |  | 2002                                             |        |   | 2001 |   |        | 2000 | 
|--------------------------------------------------- |  | ------------------------------------------------ | ------ | - | ---- | - | ------ | ---- | 
|                                                    |  | (dollars in thousands, except per share amounts) |       
|Interest Income                                     |  |                                                  |        |   |      |   |        |      | 
|Interest and fees on loans                          |  | $                                                | 31,257 |   |      | $ | 31,720 |      | 
|Interest on Investment Securities                   |  |                                                  |        |   |      |   |        |      | 
|Taxable                                             |  |                                                  | 2,438  |   |      |   | 3,313  |      | 
|Exempt from federal taxes                           |  |                                                  | 419    |   |      |   | 275    |      | 
|Interest on deposits                                |  |                                                  | 194    |   |      |   | 564    |      | 
|Interest on federal funds sold                      |  |                                                  | 430    |   |      |   | 808    |      | 
|Lease financing income exempt from federal taxes    |  |                                                  | 73     |   |      |   | 56     |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|Total Interest Income                               |  |                                                  | 34,811 |   |      |   | 36,736 |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|Interest Expense                                    |  |                                                  |        |   |      |   |        |      | 
|Interest on savings, NOW and money market deposits  |  |                                                  | 2,784  |   |      |   | 3,743  |      | 
|Interest on time deposits over $100,000             |  |                                                  | 874    |   |      |   | 2,225  |      | 
|Interest on time deposits under $100,000            |  |                                                  | 1,342  |   |      |   | 3,057  |      | 
|Interest on borrowings                              |  |                                                  | 39     |   |      |   | 5      |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|Total Interest Expense                              |  |                                                  | 5,039  |   |      |   | 9,030  |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|Net Interest Income                                 |  |                                                  | 29,772 |   |      |   | 27,706 |      | 
|Provision for Loan Losses                           |  |                                                  | (460   | ) |      |   | (498   | )    | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|Net interest income after provision for loan losses |  |                                                  | 29,312 |   |      |   | 27,208 |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|Non Interest Income                                 |  |                                                  |        |   |      |   |        |      | 
|Services fees                                       |  |                                                  | 5,214  |   |      |   | 5,231  |      | 
|Gain on sale of SBA loans                           |  |                                                  | 3      |   |      |   | 24     |      | 
|Other                                               |  |                                                  | 477    |   |      |   | 159    |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|                                                    |  |                                                  | 5,694  |   |      |   | 5,414  |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|Non Interest Expenses                               |  |                                                  |        |   |      |   |        |      | 
|Salaries and employee benefits                      |  |                                                  | 11,397 |   |      |   | 10,454 |      | 
|Net occupancy expense of premises                   |  |                                                  | 2,470  |   |      |   | 2,488  |      | 
|Furniture and equipment expenses                    |  |                                                  | 1,576  |   |      |   | 1,550  |      | 
|Other expenses                                      |  |                                                  | 7,491  |   |      |   | 7,354  |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|                                                    |  |                                                  | 22,934 |   |      |   | 21,846 |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|Income before income taxes                          |  |                                                  | 12,072 |   |      |   | 10,776 |      | 
|Income Taxes                                        |  |                                                  | 4,378  |   |      |   | 3,926  |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|NET INCOME                                          |  | $                                                | 7,694  |   |      | $ | 6,850  |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|Earnings Per Share                                  |  |                                                  |        |   |      |   |        |      | 
|Basic                                               |  | $                                                | 1.28   |   |      | $ | 1.14   |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 
|Diluted                                             |  | $                                                | 1.19   |   |      | $ | 1.08   |      | 
|                                                    |  |                                                  |        |   |      |   |        |      | 



36



---



FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000



|                                                                                                   |  | Number of Shares Outstanding |   |  | Common Stock |   | Additional Paid-in Capital |   | Stock Dividend to be Distributed |  | Comprehensive Income |       | Retained Earnings |   |       | Accumulated Other Comprehensive Income |   |        | Total | 
|-------------------------------------------------------------------------------------------------- |  | ---------------------------- | - |  | ------------ | - | -------------------------- | - | -------------------------------- |  | -------------------- | ----- | ----------------- | - | ----- | -------------------------------------- | - | ------ | ----- | 
|                                                                                                   |  | (dollars in thousands)       |  
|Balance, January 1, 2000                                                                           |  | 5,772,614                    |   |  | $            | 5 |                            | $ | 37,373                           |  | $                    |      |                   |   |       |                                        | $ | 11,898 |       | 
|Cash dividend                                                                                      |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   | (1,383 | )     | 
|Exercise of stock options                                                                          |  | 4,048                        |   |  |              |   |                            |   | 24                               |  |                      |       |                   |   |       |                                        |   |        |       | 
|Common stock issued under employee benefit and dividend reinvestment and optional
investment plans |  | 36,079                       |   |  |              |   |                            |   | 357                              |  |                      |       |                   |   |       |                                        |   |        |       | 
|Common stock repurchased, cancelled and retired                                                    |  | (568,878                     | ) |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   | (6,469 | )     | 
|Comprehensive income:                                                                              |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   |        |       | 
|Net income                                                                                         |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   | $ | 6,700 |                                        |   | 6,700  |       | 
|Net unrealized holding gains on available-for-sale securities (Net of taxes of
$240)               |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   | 595   |                                        |   |        |       | 
|                                                                                                   |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   |        |       | 
|Total Comprehensive Income                                                                         |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   | $ | 7,295 |                                        |   |        |       | 
|                                                                                                   |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   |        |       | 
|Balance, December 31, 2000                                                                         |  | 5,243,863                    |   |  |              | 5 |                            |   | 37,754                           |  |                      |      |                   |   |       |                                        |   | 10,746 |       | 
|7% stock dividend                                                                                  |  | 361,421                      |   |  |              | 1 |                            |   | 4,626                            |  |                      |       |                   |   |       |                                        |   | (4,627 | )     | 
|Cash paid in lieu of fractional shares                                                             |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   | (7     | )     | 
|Cash dividend                                                                                      |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   | (2,177 | )     | 
|Exercise of stock options                                                                          |  | 38,417                       |   |  |              |   |                            |   | 224                              |  |                      |       |                   |   |       |                                        |   |        |       | 
|Common stock issued under employee benefit and dividend reinvestment and optional
investment plans |  | 22,130                       |   |  |              |   |                            |   | 288                              |  |                      |       |                   |   |       |                                        |   |        |       | 
|Common stock repurchased, cancelled and retired                                                    |  | (151,468                     | ) |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   | (1,908 | )     | 
|Comprehensive income:                                                                              |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   |        |       | 
|Net income                                                                                         |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   | 6,850 |                                        |   | 6,850  |       | 
|Net unrealized holding gains on available-for-sale securities (Net of taxes of
$37)                |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   | 319   |                                        |   |        |       | 
|                                                                                                   |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   |        |       | 
|Total Comprehensive Income                                                                         |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   | $ | 7,169 |                                        |   |        |       | 
|                                                                                                   |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   |        |       | 
|Balance, December 31, 2001                                                                         |  | 5,514,363                    |   |  |              | 6 |                            |   | 42,892                           |  |                      |      |                   |   |       |                                        |   | 8,877  |       | 
|9% stock dividend                                                                                  |  | 497,498                      |   |  |              |   |                            |   |                                  |  |                      | 9,328 |                   |   |       |                                        |   | (9,328 | )     | 
|Cash dividend                                                                                      |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   | (2,375 | )     | 
|Exercise of stock options                                                                          |  | 13,168                       |   |  |              |   |                            |   | 120                              |  |                      |       |                   |   |       |                                        |   |        |       | 
|Common stock issued under employee benefit and dividend reinvestment and optional
investment plans |  | 7,248                        |   |  |              |   |                            |   | 98                               |  |                      |       |                   |   |       |                                        |   |        |       | 
|Comprehensive income:                                                                              |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   |        |       | 
|Net income                                                                                         |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   | 7,694 |                                        |   | 7,694  |       | 
|Net unrealized holding gains on available-for-sale securities (Net of taxes of
$89)                |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   | 187   |                                        |   |        |       | 
|                                                                                                   |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   |        |       | 
|Total Comprehensive Income                                                                         |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   | $ | 7,881 |                                        |   |        |       | 
|                                                                                                   |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   |        |       | 
|Balance, December 31, 2002                                                                         |  | 6,032,277                    |   |  | $            | 6 |                            | $ | 43,110                           |  | $                    | 9,328 |                   |   |       |                                        | $ | 4,868  |       | 
|                                                                                                   |  |                              |   |  |              |   |                            |   |                                  |  |                      |       |                   |   |       |                                        |   |        |       | 



37



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000



|                                                                        |  | 2002                   |            |   | 2001 |   |            | 2000 | 
|----------------------------------------------------------------------- |  | ---------------------- | ---------- | - | ---- | - | ---------- | ---- | 
|                                                                        |  | (dollars in thousands) |           
|Cash Flows From Operating Activities                                    |  |                        |            |   |      |   |            |      | 
|Interest and fees received                                              |  | $                      | 35,469     |   |      | $ | 37,238     |      | 
|Service fees and other income received                                  |  |                        | 4,982      |   |      |   | 4,814      |      | 
|Financing revenue received under leases                                 |  |                        | 73         |   |      |   | 56         |      | 
|Interest paid                                                           |  |                        | (5,160     | ) |      |   | (9,379     | )    | 
|Cash paid to suppliers and employees                                    |  |                        | (20,914    | ) |      |   | (18,107    | )    | 
|Income taxes paid                                                       |  |                        | (4,423     | ) |      |   | (4,033     | )    | 
|                                                                        |  |                        |            |   |      |   |            |      | 
|Net Cash Provided By Operating Activities                               |  |                        | 10,027     |   |      |   | 10,589     |      | 
|                                                                        |  |                        |            |   |      |   |            |      | 
|Cash Flows From Investing Activities                                    |  |                        |            |   |      |   |            |      | 
|Proceeds from maturity of held-to-maturity securities                   |  |                        | 3,775      |   |      |   | 13,806     |      | 
|Purchase of held-to-maturity securities                                 |  |                        | (46        | ) |      |   | (6,116     | )    | 
|Proceeds from maturity of available-for-sale securities                 |  |                        | 3,410,172  |   |      |   | 3,544,927  |      | 
|Purchase of available-for-sale securities                               |  |                        | (3,424,094 | ) |      |   | (3,562,013 | )    | 
|Net (increase) decrease in deposits in other financial institutions     |  |                        | 5,336      |   |      |   | (5,253     | )    | 
|Net (increase) decrease in credit card and revolving credit receivables |  |                        | 254        |   |      |   | (154       | )    | 
|Recoveries and deferred recoveries on loans previously written off      |  |                        | 33         |   |      |   | 75         |      | 
|Net increase in loans                                                   |  |                        | (34,191    | ) |      |   | (39,711    | )    | 
|Net (increase) decrease in leases                                       |  |                        | 117        |   |      |   | (164       | )    | 
|Capital expenditures                                                    |  |                        | (570       | ) |      |   | (1,838     | )    | 
|Proceeds from sale of other real estate owned                           |  |                        | 1,903      |   |      |   |           |      | 
|Proceeds from sale of property, plant and equipment                     |  |                        | 1          |   |      |   | 1,094      |      | 
|                                                                        |  |                        |            |   |      |   |            |      | 
|Net Cash Used In Investing Activities                                   |  |                        | (37,310    | ) |      |   | (55,347    | )    | 
|                                                                        |  |                        |            |   |      |   |            |      | 
|Cash Flows From Financing Activities                                    |  |                        |            |   |      |   |            |      | 
|Net increase (decrease) in deposits                                     |  |                        | 59,158     |   |      |   | 21,307     |      | 
|Net increase (decrease) in short term borrowing                         |  |                        | (19,000    | ) |      |   | 19,092     |      | 
|Issuance of Trust Preferred Securities                                  |  |                        | 8,000      |   |      |   |           |      | 
|Proceeds from exercise of stock options                                 |  |                        | 120        |   |      |   | 224        |      | 
|Proceeds from stock issuance                                            |  |                        | 98         |   |      |   | 288        |      | 
|Principal payments on long-term debt                                    |  |                        |           |   |      |   |           |      | 
|Dividends paid                                                          |  |                        | (2,375     | ) |      |   | (2,184     | )    | 
|Stock repurchased and retired                                           |  |                        |           |   |      |   | (1,908     | )    | 
|                                                                        |  |                        |            |   |      |   |            |      | 
|Net Cash Provided By Financing Activities                               |  |                        | 46,001     |   |      |   | 36,819     |      | 
|                                                                        |  |                        |            |   |      |   |            |      | 
|Net Increase (Decrease) in Cash and Cash Equivalents                    |  |                        | 18,718     |   |      |   | (7,939     | )    | 
|Cash and Cash Equivalents, Beginning of Year                            |  |                        | 30,247     |   |      |   | 38,186     |      | 
|Cash and Cash Equivalents, End of Year                                  |  | $                      | 48,965     |   |      | $ | 30,247     |      | 
|                                                                        |  |                        |            |   |      |   |            |      | 



38



---



FOOTHILL
INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000



|                                                                                 |  | 2002                   |        |   | 2001 |   |        | 2000 | 
|-------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- | 
|                                                                                 |  | (dollars in thousands) |       
|Reconciliation of Net Income to Net Cash Provided By Operating
Activities        |  |                        |        |   |      |   |        |      | 
|Net Income                                                                       |  | $                      | 7,694  |   |      | $ | 6,850  |      | 
|Adjustments to Reconcile Net Income to Net Cash Provided By Operating
Activities |  |                        |        |   |      |   |        |      | 
|Depreciation and amortization                                                    |  |                        | 1,385  |   |      |   | 1,364  |      | 
|Provision for possible credit losses                                             |  |                        | 460    |   |      |   | 498    |      | 
|Provision for possible OREO losses                                               |  |                        |       |   |      |   | 125    |      | 
|Provision (credit) for deferred taxes                                            |  |                        | (342   | ) |      |   | (174   | )    | 
|(Gain) loss on sale of equipment                                                 |  |                        | 7      |   |      |   | (72    | )    | 
|Gain on sale of other real estate owned                                          |  |                        | (108   | ) |      |   |       |      | 
|(Increase) decrease in other assets                                              |  |                        | 131    |   |      |   | 231    |      | 
|(Increase) decrease in interest receivable                                       |  |                        | 669    |   |      |   | 335    |      | 
|(Increase) decrease in discounts and premiums                                    |  |                        | 62     |   |      |   | 223    |      | 
|(Increase) decrease in prepaid expenses                                          |  |                        | 241    |   |      |   | 1,352  |      | 
|Increase in cash surrender value of life insurance                               |  |                        | (611   | ) |      |   | (528   | )    | 
|Increase (decrease) in interest payable                                          |  |                        | (121   | ) |      |   | (349   | )    | 
|Increase (decrease) in taxes payable                                             |  |                        | 297    |   |      |   | 67     |      | 
|Increase (decrease) in accrued expenses and other liabilities                    |  |                        | 263    |   |      |   | 667    |      | 
|                                                                                 |  |                        |        |   |      |   |        |      | 
|Total Adjustments                                                                |  |                        | 2,333  |   |      |   | 3,739  |      | 
|                                                                                 |  |                        |        |   |      |   |        |      | 
|Net Cash Provided By Operating Activities                                        |  | $                      | 10,027 |   |      | $ | 10,589 |      | 
|                                                                                 |  |                        |        |   |      |   |        |      | 





39



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #1Summary of Significant Accounting Policies



Principles of Consolidation



The consolidated financial statements include the accounts of Foothill Independent Bancorp and its wholly owned subsidiaries, Foothill Independent Bank (the Bank), Foothill BPC, Inc., Platinum Results, Inc., and Foothill
Independent Statutory Trust I, collectively referred to herein as the Company. Intercompany balances and transactions have been eliminated.



Nature of Operations



The Bank has been organized as a single operating segment and operates twelve branches in various locations in the Los Angeles, Riverside,
and San Bernardino Counties of Southern California. The Banks primary source of revenue is from providing loans to customers, who are predominately small and middle market businesses and individuals.



Foothill BPC, Inc. is the entity that accounts for leasing of
certain bank branches.



On December 18, 2000, the
Company formed Platinum Results, Inc., as a California corporation and data processing subsidiary of the Company.



On December 6, 2002, the Company formed Foothill Independent Statutory Trust I for the purpose of issuing Trust Preferred Securities (See
Note #10).



Use of Estimates



The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term
relate to the determination of the allowance for loan losses (See Note #5), the valuation of foreclosed real estate (See Note #7) and deferred tax assets (See Note #17).



Cash and Cash Equivalents



For purposes of reporting cash flows, cash and cash equivalents include cash, due from banks and federal funds sold. Generally, federal
funds are sold for one day periods.



Cash and Due From
Banks



Banking regulations require that all
banks maintain a percentage of their deposits as reserves in cash or on deposit with the Federal Reserve Bank. The Bank complied with the reserve requirements as of December 31, 2002.



Investment Securities



Securities held-to-maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts over the period to
maturity, or to an earlier call, if appropriate, on a straight-line basis. Such securities include those that management intends and has the ability to hold into the foreseeable future.





40



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #1Summary of
Significant Accounting Policies,Continued



Investment Securities, Continued



Securities are considered available-for-sale if they would be sold under certain conditions, among these being changes in interest rates, fluctuations in deposit levels or loan demand, or need to restructure the portfolio to better
match the maturity or interest rate characteristics of liabilities with assets. Securities classified as available-for-sale are accounted for at their current fair value rather than amortized historical cost. Unrealized gains or losses are excluded
from net income and reported as an amount net of taxes as a separate component of other comprehensive income included in shareholders equity (See Note #2).



Loans and Interest on Loans



Loans are stated at unpaid principal balances, net of deferred loan fees and unearned discounts. The Bank recognizes loan origination fees
to the extent they represent reimbursement for initial direct costs, as income at the time of loan boarding. The excess of fees over costs, if any, is deferred and recognized as an adjustment to yield of the loan (See Note #3).



The accrual of interest on impaired loans is discontinued
when, in managements opinion, the borrower may be unable to make all payments due according to the contractual terms of the loan agreement. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are received.



For impairment recognized in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
SFAS No. 118, the entire change in the present value of expected cash flows of the impaired loan is reported as either provision for loan losses in the same manner in which impairment initially was recognized, or as reduction in the amount of
provision for loan losses that otherwise would be reported (See Note #5).



Provision for Loan Losses



The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Managements periodic evaluation of the adequacy of the allowance is based on the Companys past loan loss
experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay, the estimated value of any underlying collateral, and current economic conditions. The provision for the current increase
to the allowance for loan losses is charged to expense (See Note #5).



Direct Lease Financing



The investment in lease contracts is recorded using the finance method of accounting. Under the finance method, an asset is recorded in the amount of the total lease payments receivable and estimated residual value, reduced by
unearned income. Income, represented by the excess of the total receivable over the cost of the related asset, is recorded in income in decreasing amounts over the term of the contract based upon the principal amount outstanding. The financing lease
portfolio consists of equipment with terms from three to seven years.



Premises and Equipment



Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives, which ranges from three to
ten years for furniture and fixtures and twenty to thirty for buildings. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements or the remaining lease term, whichever is shorter.
Expenditures for improvements or major repairs are capitalized and those for ordinary repairs and maintenance are charged to operations as incurred (See Note #6).



41



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #1Summary of
Significant Accounting Policies, Continued



Other Real
Estate Owned



Real estate properties acquired
through, or in lieu of, loan foreclosure are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the
lower of cost or fair value minus estimated costs to sell. Revenue and expenses from operations and additions to the valuation allowance are included in other expenses (See Note #7).



Loan Sales and Servicing



Gains and losses from the sale of participating interests in loans guaranteed by the Small Business Administration (SBA) are recognized
based on the premium received or discount paid and the cost basis of the portion of the loan sold. The cost basis of the portion of the loan sold was arrived at by allocating the total cost of each loan between the guaranteed portion of the loan
sold and the unguaranteed portion of the loan retained, based on their relative fair values. The book value allocated to the unguaranteed portion of the loan, if less than the principal amount, is recorded as a discount on the principal amount
retained. The discount is accreted to interest income over the remaining estimated life of the loan. The Bank retains the servicing on the portion of the loans sold and recognizes income on the servicing fees when they are received.



Income Taxes



Deferred income taxes are computed using the asset and
liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the consolidated financial statements. A
valuation allowance is established to the extent necessary to reduce the deferred tax asset to the level at which it is more likely than not that the tax asset or benefits will be realized. Realization of tax benefits for deductible
temporary differences and operating loss carryforwards depends on having sufficient taxable income of an appropriate character within the carryforward periods (See Note #17).



Comprehensive Income



Beginning in 1998, the Bank adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, which requires the disclosure of comprehensive income and its components. Changes in unrealized gain (loss) on available-for-sale securities net of income taxes is the only component of accumulated other comprehensive income for
the Bank.



Earnings Per Share (EPS)



Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Earnings per share and stock option amounts have been retroactively restated to give effect to all stock dividends (See Note
#18).



Stock-Based Compensation



SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require, companies to record compensation costs for stock-based employee compensation plans at fair value. The Bank has chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation costs for stock options is measured as the
excess, if any, of the quoted market price of the Companys stock at the date of the grant over the amount an employee must pay to acquire the stock.



42



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #1Summary of
Significant Accounting Policies,Continued



Had compensation cost for the Banks stock options plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Banks net income and earnings
per share would have been reduced to the pro forma amount indicated below:



|                                                                                               |  | 2002 |       |   | 2001 |   |       | 2000 | 
|---------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- | 
|Net income:                                                                                    |  |      |       |   |      |   |       |      | 
|As reported                                                                                    |  | $    | 7,694 |   |      | $ | 6,850 |      | 
|Stock-Based compensation using the intrinsic value method                                      |  |      |      |   |      |   |      |      | 
|Stock-Based compensation that would have been reported using the fair value method of SFAS 123 |  | $    | (132  | ) |      | $ | (154  | )    | 
|Pro forma                                                                                      |  |      | 7,562 |   |      |   | 6,696 |      | 
|Per share data:                                                                                |  |      |       |   |      |   |       |      | 
|Net incomeBasic                                                                               |  |      |       |   |      |   |       |      | 
|As reported                                                                                    |  | $    | 1.28  |   |      | $ | 1.14  |      | 
|Pro forma                                                                                      |  | $    | 1.26  |   |      | $ | 1.11  |      | 
|Net incomediluted                                                                             |  |      |       |   |      |   |       |      | 
|As reported                                                                                    |  | $    | 1.19  |   |      | $ | 1.08  |      | 
|Pro forma                                                                                      |  | $    | 1.17  |   |      | $ | 1.06  |      | 



Disclosure About Fair
Value of Financial Instruments



SFAS No. 107
specifies the disclosure of the estimated fair value of financial instruments. The Companys estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies.



However, considerable judgment is required to
develop the estimate of fair value. Accordingly, the estimates are not necessarily indicative of the amounts the Company could have realized in a current market exchange. The use of different market assumptions and/or estimates of methodologies may
have a material effect on the estimated fair value amounts.



Although management is not aware of any factor that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since the balance sheet
date and, therefore, current estimates of fair value may differ significantly from the amounts presented in the accompanying notes (See Note #21).



Current Accounting Pronouncements



In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard
(SFAS) No. 143, Accounting for Asset Retirement Obligations, which requires the Bank to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated
with the retirement of long-term assets. SFAS No. 143 is effective for the Bank in 2003; however, management does not believe adoption will have a material impact on the Banks financial statements.



Reclassifications



Certain reclassifications were made to prior years
presentations to conform to the current year.



43



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #2Investment
Securities



Debt and equity securities have
been classified in the consolidated balance sheets according to managements intent. The carrying amounts of securities and their approximate fair market values at December 31, were as follows (in thousands):



Held-To-Maturity Securities



|                                   |  | December 31, 2002
|---------------------------------- |  | -----------------
|                                   |  | Amortized Cost   
|U.S. Treasury Securities           |  | $                
|Other Government Agency Securities |  |                  
|Municipal Agencies                 |  |                  
|Other Securities                   |  |                  
|                                   |  |                  
|Total Held-to-Maturity Securities  |  | $                
|                                   |  |                  



|                                   |  | December 31, 2001
|---------------------------------- |  | -----------------
|                                   |  | Amortized Cost   
|U.S. Treasury Securities           |  | $                
|Other Government Agency Securities |  |                  
|Municipal Agencies                 |  |                  
|Other Securities                   |  |                  
|                                   |  |                  
|Total Held-to-Maturity Securities  |  | $                
|                                   |  |                  



Available-For-Sale
Securities



|                                  |  | December 31, 2002
|--------------------------------- |  | -----------------
|                                  |  | Amortized Cost   
|Government Agency Securities      |  | $                
|Certificates of Participation (b) |  |                  
|Municipal Agencies                |  |                  
|Repurchase Agreement              |  |                  
|Mortgage-Back Securities          |  |                  
|Other Securities                  |  |                  
|                                  |  |                  
|Total Available-for-Sale          |  | $                
|                                  |  |                  



44



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #2Investment
Securities,Continued



Available-For-Sale
Securities, Continued



|                                  |  | December 31, 2001
|--------------------------------- |  | -----------------
|                                  |  | Amortized Cost   
|Government Agency Securities      |  | $                
|Certificates of Participation (b) |  |                  
|Municipal Agencies                |  |                  
|Repurchase Agreement              |  |                  
|Mortgage-Back Securities          |  |                  
|Other Securities                  |  |                  
|                                  |  |                  
|Total Available-for-Sale          |  | $                
|                                  |  |                  

---

|(a) |  | The Banks portfolio of securities primarily consists of investment-grade securities. The fair value of actively traded securities is determined by the
secondary market, while the fair value for non-actively-traded securities is based on independent broker quotations.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Non-rated certificates of participation evidencing ownership interest in the California Statewide Communities Development AuthoritySan Joaquin County Limited
Obligation Bond Trust with book values of $1,835,000 and $2,765,000 and market values of $1,890,000 and $2,899,000 at December 31, 2002 and 2001, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Proceeds from maturities of investment securities held-to-maturity during 2002, were $3,775,000. Proceeds
from maturities of investment securities available-for-sale during 2002, were $3,410,172,000. There were no gains or losses recognized.



Proceeds from maturities of investment securities held-to-maturity during 2001, were $13,806,000. Proceeds from maturities of investment
securities available-for-sale during 2001, were $3,544,927,000. There were no gains or losses recognized.



Proceeds from maturities of investment securities held-to-maturity during 2000, were $2,140,000. Proceeds from maturities of investment
securities available-for-sale during 2000, were $1,815,301,000. There were no gains or losses recognized.



Securities with a book value of $15,688,000 and $11,025,000 and market value of $16,069,000 and $11,306,000 at December 31, 2002 and 2001,
respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.



The amortized cost, estimated fair value and average yield of securities at December 31, 2002, by contractual maturity were as follows (in
thousands):



|                                      |  | Held-to-Maturity Securities |      
|------------------------------------- |  | --------------------------- | -----
|                                      |  | Amortized Cost              |      
|Due in one year or less               |  | $                           | 2,890
|Due after one year through five years |  |                             | 3,289
|Due after five years                  |  |                             | 3,100
|                                      |  |                             |      
|Carried at Amortized Cost             |  | $                           | 9,279
|                                      |  |                             |      

---

|(a) |  | The average yield is based on effective rates of book balances at the end of the year. Yields are derived by dividing interest income, adjusted for amortization of
premiums and accretion of discounts, by total amortized cost.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



45



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #2Investment
Securities,Continued



|                                      |  | Available-for-Sale Securities |       
|------------------------------------- |  | ----------------------------- | ------
|                                      |  | Amortized Cost                |       
|Due in one year or less               |  | $                             | 19,100
|Due after one year through five years |  |                               | 54,773
|Due after five through ten years      |  |                               | 4,576 
|Due after ten years                   |  |                               | 2,699 
|                                      |  |                               |       
|Carried at Fair Value                 |  | $                             | 81,148
|                                      |  |                               |       

|(a) |  | The average yield is based on effective rates of book balances at the end of the year. Yields are derived by dividing interest income, adjusted for amortization of
premiums and accretion of discounts, by total amortized cost.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note #3Loans



The
composition of the loan portfolio at December 31, 2002 and 2001, was as follows (in thousands):



|                                                                           |  | 2002 |         |   | 2001 |  
|-------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|Commercial, financial and agricultural                                     |  | $    | 44,136  |   |      | $
|Real Estateconstruction                                                   |  |      | 34,492  |   |      |  
|Real Estatemortgage                                                       |  |      |         |   |      |  
|Commercial                                                                 |  |      | 331,108 |   |      |  
|Residential                                                                |  |      | 26,599  |   |      |  
|Loans to individuals for household, family and other personal
expenditures |  |      | 4,073   |   |      |  
|All other loans (including overdrafts)                                     |  |      | 508     |   |      |  
|                                                                           |  |      |         |   |      |  
|                                                                           |  |      | 440,916 |   |      |  
|Deferred income on loans                                                   |  |      | (67     | ) |      |  
|                                                                           |  |      |         |   |      |  
|Loans, net of deferred income                                              |  | $    | 440,849 |   |      | $
|                                                                           |  |      |         |   |      |  



Nonaccruing loans totaled approximately $1,455,000 and $2,717,000 at December 31, 2002 and 2001, respectively. Interest income that would have been recognized on nonaccrual loans if they had performed in accordance with the terms of
those loans was approximately $117,000, $197,000, and $644,000 for the years ended December 31, 2002, 2001, and 2000, respectively.



At December 31, 2002 and 2001, the Bank had approximately $5,000 and $34,000, respectively, of loans that were past due 90 days or more in
interest or principal but which were still accruing interest. These loans are collateralized and in the process of collection.



Note #4Direct Lease Financing



The Bank leases equipment to parties under agreements which range generally from three to seven years. Executory costs are paid by the
lessee and leases do not include any contingent rental features. The net investment in direct lease financing at December 31, 2002 and 2001, consists of the following (in thousands):



|                          |  | 2002 |       |   | 2001 |  
|------------------------- |  | ---- | ----- | - | ---- | -
|Lease payments receivable |  | $    | 1,329 |   |      | $
|Unearned income           |  |      | (118  | ) |      |  
|                          |  |      |       |   |      |  
|Total                     |  | $    | 1,211 |   |      | $
|                          |  |      |       |   |      |  



At
December 31, 2002, the Bank had no outstanding lease commitments.



46



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #4Direct
Lease Financing,Continued



At
December 31, 2002, future minimum lease payments receivable under direct financing leases are as follows (in thousands):



|Year                 |  |       
|-------------------- |  | ------
|2003                 |  | $664  
|2004                 |  | 324   
|2005                 |  | 127   
|2006                 |  | 123   
|2007                 |  | 88    
|Thereafter           |  | 3     
|                     |  |       
|                     |  | 1,329 
|Less unearned income |  | (118) 
|                     |  |       
|Total                |  | $1,211
|                     |  |       



Note
#5Allowance For Loan and Lease Losses



Transactions in the reserve for loan and lease losses are summarized as follows (in thousands):



|                                           |  | 2002 |       |   | 2001 |   |       | 2000 | 
|------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- | 
|Balance, Beginning of Year                 |  | $    | 4,206 |   |      | $ | 3,692 |      | 
|Recoveries on loans previously charged off |  |      | 48    |   |      |   | 102   |      | 
|Provision charged to operating expense     |  |      | 460   |   |      |   | 498   |      | 
|Loans charged off                          |  |      | (95   | ) |      |   | (86   | )    | 
|                                           |  |      |       |   |      |   |       |      | 
|Balance, End of Year                       |  | $    | 4,619 |   |      | $ | 4,206 |      | 
|                                           |  |      |       |   |      |   |       |      | 



The Bank
treats all nonaccruing loans and troubled debt restructurings as impaired loans. The allowances for loan losses related to impaired loans amounted to approximately $1,455,000 and $305,000 for the years ended December 31, 2002 and 2001, respectively,
and those allowances are included in the above balances. The average balance of these loans amounted to approximately $2,428,000 and $2,634,000 for the years ended December 31, 2002 and 2001, respectively. During 2002, cash receipts totaling
approximately $104,740 were applied to reduce the principal balances of, and no interest income was recognized on, impaired loans. During 2001, cash receipts totaling approximately $981,000 were applied to reduce the principal balances of, and
approximately $366,000 of interest income was recognized on, impaired loans.



Note #6Bank Premises and Equipment



Major classifications of bank premises and equipment are summarized as follows (in thousands):



|                                                |  | 2002 |         |   | 2001 |  
|----------------------------------------------- |  | ---- | ------- | - | ---- | -
|Buildings                                       |  | $    | 2,424   |   |      | $
|Furniture and equipment                         |  |      | 9,885   |   |      |  
|Leasehold improvements                          |  |      | 3,650   |   |      |  
|                                                |  |      |         |   |      |  
|                                                |  |      | 15,959  |   |      |  
|Less: Accumulated depreciation and amortization |  |      | (10,836 | ) |      |  
|                                                |  |      |         |   |      |  
|                                                |  |      | 5,123   |   |      |  
|Land                                            |  |      | 375     |   |      |  
|                                                |  |      |         |   |      |  
|Total                                           |  | $    | 5,498   |   |      | $
|                                                |  |      |         |   |      |  



47



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #6Bank
Premises and Equipment,Continued



The
Bank leases land and buildings under noncancelable operating leases expiring at various dates through 2014. The following is a schedule of future minimum lease payments based upon obligations at year-end (in thousands):



|Year       |  |  
|---------- |  | -
|2003       |  | $
|2004       |  |  
|2005       |  |  
|2006       |  |  
|2007       |  |  
|Thereafter |  |  
|           |  |  
|Total      |  | $
|           |  |  



Total
rental expense for the three years ended December 31, 2002, 2001, and 2000, was $1,353,000, $1,329,000, and $1,269,000, respectively.



Note #7Other Real Estate Owned



Other Real Estate Owned is carried at the estimated fair value of the real estate. An analysis of the transactions for December 31, 2002
and 2001, were as follows (in thousands):



|                                           |  | 2002 |        |   | 2001 |  
|------------------------------------------ |  | ---- | ------ | - | ---- | -
|Balance, Beginning of Year                 |  | $    | 2,182  |   |      | $
|Additions                                  |  |      | 33     |   |      |  
|Valuation adjustments and other reductions |  |      | (1,828 | ) |      |  
|                                           |  |      |        |   |      |  
|Balance, End of Year                       |  | $    | 387    |   |      | $
|                                           |  |      |        |   |      |  



The
balances at December 31, 2002 and 2001 are shown net of reserves of $-0- and $125,000, respectively.



Transactions in the reserve for other real estate owned are summarized for December 31, 2002, 2001, and 2000 as follows (in thousands):



|                                   |  | 2002 |      |   | 2001 |   | 2000 | 
|---------------------------------- |  | ---- | ---- | - | ---- | - | ---- | 
|Balance, Beginning of Year         |  | $    | 125  |   |      | $ |     | 
|Provision charged to other expense |  |      |     |   |      |   | 125  | 
|Charge-offs and other reductions   |  |      | (125 | ) |      |   |     | 
|                                   |  |      |      |   |      |   |      | 
|Balance, End of Year               |  | $    |     |   |      | $ | 125  | 
|                                   |  |      |      |   |      |   |      | 



Note #8Deposits



At December 31, 2002, the scheduled
maturities of time deposits are as follows (in thousands):



|Year       |  |  
|---------- |  | -
|2003       |  | $
|2004       |  |  
|2005       |  |  
|2006       |  |  
|2007       |  |  
|Thereafter |  |  
|           |  |  
|Total      |  | $
|           |  |  



48



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #9Short-Term
Borrowings



In 2001, the bank had a short
term borrowing of $19,000,000 at a fixed rate representing an advance from the Federal Home Loan Bank of San Francisco with a due date of January 28, 2002, and interest payable at 1.92%. This advance was repaid on January 28, 2002.



Note #10Trust Preferred Securities



On December 6, 2002, Foothill Independent Statutory Trust I, a
wholly owned subsidiary of Foothill Independent Bancorp, issued $8,000,000 of Floating Rate Trust Securities. The trust invested the gross proceeds from the offering in Floating Rate Junior Subordinated Deferrable Interest Debentures issued by
Foothill Independent Bancorp. The subordinated debentures were issued concurrent with the issuance of the Trust Securities. Foothill Independent Bancorp will pay the interest on the junior subordinated debentures to the Trust, which represents the
sole revenue and sole source of dividend distributions by the trust to the holders of the Trust Securities. Foothill Independent Bancorp has guaranteed, on a subordinated basis, payment of the Trusts obligation. Foothill Independent Bancorp
has the right, assuming no default has occurred, to defer payments of interest on the junior subordinated debentures at any time for a period not to exceed 20 consecutive quarters. The Trust Securities will mature on December 6, 2032 but can be
called at any time commencing in 2007 at par.



Note
#11Stock Option Plan



The Company
maintains an employee incentive and nonqualified stock option plan which was approved by its stockholders in 1993 (the 1993 Option Plan). The Company applies APB Opinion No. 25 and related interpretations in accounting with respect to
this Option Plan. Accordingly, no compensation cost has been recognized with respect to options granted under the 1993 Option Plan.



The 1993 Option Plan provides for the issuance of up to an aggregate of 1,147,041 shares of the Company Common Stock (which number gives
retroactive effect to stock dividends declared prior to December 31, 2002). Options to purchase those shares may be granted to officers, key employees and directors of the Company and its subsidiaries, including the Bank, at prices not less than the
fair market value of such shares at dates of grant. Options granted expire within a period of not more than ten years from the dates on which the options are granted.



The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions for 2002, 2001, and 2000, respectively: risk-free rates of 2.57%, 4.37%, and 5.08%, dividend yields of 3%, 3%, and 2%, expected life of five years; and volatility of 30%, 31%, and 33%.



Information with respect to the number of shares of Common
Stock that were subject to options that were granted or exercised, and those that expired without exercise, under the 1993 Option Plan during the years ended December 31, 2002, 2001, and 2000, the weighted exercise prices thereof, and the number of
shares subject to exercisable options at the end of each of those years, is presented below:



|                                                               |  | 2002   |         |   | 2001                            |   |        | 2000   |  |   |                                 |  
|-------------------------------------------------------------- |  | ------ | ------- | - | ------------------------------- | - | ------ | ------ |  | - | ------------------------------- | -
|                                                               |  | Shares |         |   | Weighted Average Exercise Price |   |        | Shares |  |   | Weighted Average Exercise Price |  
|Outstanding, Beginning of Year                                 |  |        | 920,483 |   |                                 | $ | 7.80   |        |  |   | 987,564                         |  
|Granted                                                        |  |        | 13,080  |   |                                 |   | 13.58  |        |  |   | 43,736                          |  
|Exercised                                                      |  |        | (14,308 | ) |                                 |   | (7.80  | )      |  |   | (97,509                         | )
|Forfeited                                                      |  |        | (4,339  | ) |                                 |   | (11.22 | )      |  |   | (13,308                         | )
|                                                               |  |        |         |   |                                 |   |        |        |  |   |                                 |  
|Outstanding, End of Year                                       |  |        | 914,916 |   |                                 |   | 7.88   |        |  |   | 920,483                         |  
|                                                               |  |        |         |   |                                 |   |        |        |  |   |                                 |  
|Options exercisable at year end                                |  |        | 876,321 |   |                                 | $ | 7.75   |        |  |   | 777,835                         |  
|Weighted average fair value of options granted during the year |  | $      | 3.35    |   |                                 |   |        |        |  | $ | 3.05                            |  



|
|



49



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #11Stock
Option Plan,Continued



The following
table summarizes information about fixed stock options outstanding at December 31, 2002:



|                 |  | Options Outstanding |  | Options Exercisable                        
|---------------- |  | ------------------- |  | -------------------------------------------
|Exercise Price   |  | Number Outstanding  |  | Weighted Average Remaining Contractual Life
|$4.47 to $5.85   |  | 361,804             |  | 2.2                                        
|$7.79 to $9.23   |  | 308,587             |  | 5.0                                        
|$10.08 to $12.17 |  | 173,000             |  | 6.3                                        
|$13,17 to $15.01 |  | 71,525              |  | 6.2                                        
|                 |  |                     |  |                                            
|$4.47 to $15.01  |  | 914,916             |  |                                            
|                 |  |                     |  |                                            



Note #12Defined
Contribution Plan (401K)



The Company
sponsors a defined contribution pension plan that covers all employees with 1,000 or more hours worked in a year. Contributions to the plan are based on the employees gross salary less the IRS Section 125 flex plan. For the years ending
December 31, 2002, 2001, and 2000, the amount of the Company contributions amounted to approximately $179,000, $248,000, and $272,000, respectively.



Note #13Deferred Compensation



The Bank maintained a nonqualified, unfunded deferred compensation plan for certain key management personnel whereby they may defer
compensation which will then provide for certain payments upon retirement, death, or disability. The plan provides for payments for ten years commencing upon retirement. The plan provides for reduced benefits upon early retirement, disability, or
termination of employment. The deferred compensation expense for 2002 was $428,000 ($253,000 net of income taxes), 2001 was $378,000 ($223,020 net of income taxes), and 2000 was $324,000 ($190,836 net of income taxes).



Note #14Restriction on Transfers of Funds to Parent



There are legal limitations on the ability of the Bank to
provide funds to the Company. Dividends declared by the Bank may not exceed, in any calendar year, without approval of the California Commissioner of Financial Institutions, net income for the year and the retained net income for the preceding two
years. Section 23A of the Federal Reserve Act restricts the Bank from extending credit to the Company and other affiliates of the Company amounting to more than 20% of its contributed capital and retained earnings. At December 31, 2002, the maximum
combined amount of funds that were available from these two sources was approximately $19,363,000 or 34% consolidated stockholders equity.



Note #15Stock Dividend



On November 21, 2002, the Board of Directors declared a 9% stock dividend payable on January 29, 2003, to stockholders of record on
January 8, 2003. All references in the accompanying financial statements to the number of common shares and per share amounts for all years presented have been restated to reflect the stock dividend.



50



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #16Other
Expenses



The following is a breakdown of
other expenses for the years ended December 31, 2002, 2001, and 2000 (amounts in thousands):



|                                       |  | 2002 |       | 2001 |   | 2000 
|-------------------------------------- |  | ---- | ----- | ---- | - | -----
|Data processing                        |  | $    | 1,416 |      | $ | 1,248
|Marketing expenses                     |  |      | 982   |      |   | 1,086
|Office supplies, postage and telephone |  |      | 1,117 |      |   | 1,086
|Bank insurance                         |  |      | 529   |      |   | 448  
|Supervisory assessments                |  |      | 123   |      |   | 127  
|Professional fees                      |  |      | 1,170 |      |   | 1,287
|Operating losses                       |  |      | 175   |      |   | 151  
|OREO expenses                          |  |      | 35    |      |   | 197  
|Other                                  |  |      | 1,944 |      |   | 1,724
|                                       |  |      |       |      |   |      
|Total                                  |  | $    | 7,491 |      | $ | 7,354
|                                       |  |      |       |      |   |      



Note #17Income
Taxes



The provisions for income taxes
consist of the following (amounts in thousands):



|                                                       |  | 2002 |       |   | 2001 |   |       | 2000
|------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ----
|Tax provision applicable to income before income taxes |  | $    | 4,378 |   |      | $ | 3,926 |     
|                                                       |  |      |       |   |      |   |       |     
|Federal Income Tax                                     |  |      |       |   |      |   |       |     
|Current                                                |  |      | 3,570 |   |      |   | 3,048 |     
|Deferred                                               |  |      | (388  | ) |      |   | (174  | )   
|State Franchise Tax                                    |  |      |       |   |      |   |       |     
|Current                                                |  |      | 1,334 |   |      |   | 1,095 |     
|Deferred                                               |  |      | (138  | ) |      |   | (43   | )   
|                                                       |  |      |       |   |      |   |       |     
|Total                                                  |  | $    | 4,378 |   |      | $ | 3,926 |     
|                                                       |  |      |       |   |      |   |       |     



The
following is a summary of the components of the deferred tax assets accounts recognized in the accompanying statements of financial condition as of December 31 (amounts in thousands):



|                                                             |  | 2002 |       |   | 2001 |   |       | 2000 | 
|------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- | 
|Deferred Tax Assets                                          |  |      |       |   |      |   |       |      | 
|Allowance for loan losses due to tax limitations             |  | $    | 1,502 |   |      | $ | 1,137 |      | 
|Deferred compensation plan                                   |  |      | 1,201 |   |      |   | 1,050 |      | 
|Allowance for other real estate owned                        |  |      |      |   |      |   | 129   |      | 
|Other assets and liabilities                                 |  |      | 267   |   |      |   | 80    |      | 
|Net unrealized loss on available-for-sale securities         |  |      |      |   |      |   |      |      | 
|                                                             |  |      |       |   |      |   |       |      | 
|Total Deferred Tax Assets                                    |  |      | 2,970 |   |      |   | 2,396 |      | 
|Deferred Tax Liabilities                                     |  |      |       |   |      |   |       |      | 
|Premises and equipment due to depreciation difference        |  |      | (295  | ) |      |   | (384  | )    | 
|Other assets and liabilities                                 |  |      | (269  | ) |      |   |      |      | 
|Net unrealized appreciation on available-for-sale securities |  |      | (89   | ) |      |   | (37   | )    | 
|                                                             |  |      |       |   |      |   |       |      | 
|Net Deferred Tax Assets                                      |  | $    | 2,317 |   |      | $ | 1,975 |      | 
|                                                             |  |      |       |   |      |   |       |      | 



51



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #17Income
Taxes,Continued



As a result of the
following items, the total tax expenses for 2002, 2001, and 2000, were less than the amount computed by applying the statutory U.S. Federal income tax rate to income before taxes (dollars in thousands):



|                                                            |  | 2002   |       |   | 2001                     |      |   | 2000   |  
|----------------------------------------------------------- |  | ------ | ----- | - | ------------------------ | ---- | - | ------ | -
|                                                            |  | Amount |       |   | Percent of Pretax Income |      |   | Amount |  
|Federal rate                                                |  | $      | 4,104 |   |                          | 34.0 |   |        | $
|Changes due to State income tax, net of Federal tax benefit |  |        | 857   |   |                          | 7.1  |   |        |  
|Exempt income                                               |  |        | (570  | ) |                          | (4.7 | ) |        |  
|Other, net                                                  |  |        | (13   | ) |                          | (0.1 | ) |        |  
|                                                            |  |        |       |   |                          |      |   |        |  
|Total                                                       |  | $      | 4,378 |   |                          | 36.3 |   |        | $
|                                                            |  |        |       |   |                          |      |   |        |  



Note
#18Earnings Per Share (EPS)



The
following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute earnings per share (EPS). All amounts in the table are in thousands. Shares have been retroactively restated to give
effect to 9% stock dividend declared November 21, 2002 to shareholders on January 29, 2003 to shareholders of record January 8, 2003.



|                                                     |  | 2002   |       |        | 2001  |   | 2000  
|---------------------------------------------------- |  | ------ | ----- | ------ | ----- | - | ------
|                                                     |  | Income |       | Shares |       |   | Income
|Net income as reported                               |  | $      | 7,694 |        |       |   |       
|Shares outstanding at year end                       |  |        |      |        | 6,032 |   |       
|Impact of weighting shares purchased during the year |  |        |      |        | (11   | ) |       
|                                                     |  |        |       |        |       |   |       
|Used in Basic EPS                                    |  |        | 7,694 |        | 6,021 |   |       
|Dilutive effect of outstanding stock options         |  |        |      |        | 443   |   |       
|Used in Dilutive EPS                                 |  | $      | 7,694 |        | 6,464 |   |       
|                                                     |  |        |       |        |       |   |       



Note
#19Commitments and Contingencies



The
Bank is involved in various litigation that has arisen in the ordinary course of its business. In the opinion of management, the disposition of pending litigation will not have a material effect on the Companys financial statements.



In the normal course of business, the Bank is a
party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby commercial letters of credit. To varying degrees, these instruments involve elements of credit and interest rate
risk in excess of the amount recognized in the statement of financial position. The Banks exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments. At December 31, 2002 and 2001, the Bank had commitments to extend credit of $83,586,000 and $52,368,000, respectively, and obligations under standby letters of credit
of $1,404,000 and $1,373,000, respectively.



Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customers creditworthiness on
a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on managements credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant
and equipment, income-producing commercial properties, residential properties and properties under construction.



52



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note
#19Commitments and Contingencies,Continued



Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in
extending loans to customers.



Note #20Regulatory
Matters



The Company (on a consolidated
basis) and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Under applicable law and government regulations, a failure by the Company or the Bank to meet certain minimum capital requirements
would result in the imposition of operational restrictions and other requirements and the possible initiation of additional discretionary actions by government regulatory agencies that could have a direct material effect on the Companys and
the Banks financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital requirements that involve quantitative measures of the Banks
assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. The most recent notification from the federal regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. Prompt corrective action provisions are not applicable to
bank holding companies.



Quantitative measures
established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts (set forth in the table below) of total capital and Tier 1 capital (as defined in the regulations) and ratios of total capital and Tier 1 capital to
risk-weighted assets (as defined), and to average assets (as defined). The following table compares, as of December 31, 2002 and December 31, 2001, the total capital and Tier 1 capital of the Company (on a consolidated basis), and that of the Bank,
to the capital requirements imposed by government regulations (with amounts stated in thousands):



FOOTHILL INDEPENDENT BANCORP



|                                       |  |        |        |       | Capital Needed               
|-------------------------------------- |  | ------ | ------ | ----- | -----------------------------
|                                       |  | Actual |        |       | For Capital Adequacy Purposes
|                                       |  | Amount |        | Ratio |                              
|As of December 31, 2002:               |  |        |        |       |                              
|Total capital to risk-weighted assets  |  | $      | 69,749 |       | 14.2                         
|Tier 1 capital to risk-weighted assets |  |        | 65,130 |       | 13.3                         
|Tier 1 capital to average assets       |  |        | 65,130 |       | 10.8                         
|As of December 31, 2001:               |  |        |        |       |                              
|Total capital to risk-weighted assets  |  | $      | 55,752 |       | 12.4                         
|Tier 1 capital to risk-weighted assets |  |        | 51,546 |       | 11.5                         
|Tier 1 capital to average assets       |  |        | 51,546 |       | 9.4                          



FOOTHILL INDEPENDENT
BANK



|                                       |  |        |        |       | Capital Needed                |  
|-------------------------------------- |  | ------ | ------ | ----- | ----------------------------- | -
|                                       |  | Actual |        |       | For Capital Adequacy Purposes |  
|                                       |  | Amount |        | Ratio |                               |  
|As of December 31, 2002:               |  |        |        |       |                               |  
|Total capital to risk-weighted assets  |  | $      | 60,860 |       | 12.6                          | %
|Tier 1 capital to risk-weighted assets |  |        | 56,241 |       | 11.6                          | %
|Tier 1 capital to average assets       |  |        | 56,241 |       | 9.4                           | %
|As of December 31, 2001:               |  |        |        |       |                               |  
|Total capital to risk-weighted assets  |  | $      | 55,051 |       | 12.3                          | %
|Tier 1 capital to risk-weighted assets |  |        | 50,846 |       | 11.3                          | %
|Tier 1 capital to average assets       |  |        | 50,846 |       | 9.3                           | %



53



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #21Fair
Value of Financial Instruments



The table
below presents the carrying amounts and fair values of financial instruments at December 31, 2002 and 2001 (with dollars in thousands). FAS Statement 107, Disclosures about Fair Value of Financial Instruments, defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point-in-time based on relevant
market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holding of a particular financial instrument. Because no market
value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments, future expected loss experience and other
factors. These estimates are subjective in nature, involve uncertainties and matters of judgment, and therefore can not be determined with precision. Changes and assumptions could significantly affect the estimates.



The following methods and assumptions were used to estimate
the fair value of financial instruments:



| |  |  | Investment Securities
| | - |  | ---------------------



For U.S. Treasury and U.S. Government Agency securities, fair values are based on market prices. For other investment securities, fair
value equals quoted market price if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities as the basis for a pricing matrix.



| |  |  | Loans
| | - |  | -----





The fair value for loans with variable interest rates is the carrying amount. The fair value of fixed rate
loans is derived by calculating the discounted value of the future cash flows expected to be received from the various homogeneous categories of loans. All loans have been adjusted to reflect changes in credit risk.



| |  |  | Deposits
| | - |  | --------



The fair value of demand deposits, money market deposits, savings accounts and NOW accounts is defined as the amounts payable on demand at
December 31, 2002, and December 31, 2001. The fair value of fixed maturity certificates of deposit is estimated based on the discounted value of the future cash flows expected to be paid on the deposits.



| |  |  | Short-Term Borrowings
| | - |  | ---------------------





Rates currently available to the Bank for debt with similar
terms and remaining maturities are used to estimate the fair value of existing debt.



|                                   |  | December 31, 2002 |         | December 31, 2001
|---------------------------------- |  | ----------------- | ------- | -----------------
|                                   |  | Carrying Amount   |         | Fair Value       
|Financial Assets                   |  |                   |         |                  
|Cash and cash equivalents          |  | $                 | 48,965  |                  
|Investment securities and deposits |  |                   | 98,700  |                  
|Loans                              |  |                   | 440,849 |                  
|Direct lease financing             |  |                   | 1,211   |                  
|Cash surrender value               |  |                   | 6,778   |                  
|Financial Liabilities              |  |                   |         |                  
|Deposits                           |  |                   | 534,562 |                  
|Short-Term borrowings              |  |                   |        |                  
|Trust Preferred Securities         |  |                   | 8,000   |                  
|Unrecognized Financial Instruments |  |                   |         |                  
|Commitments to extend credit       |  |                   | 55,933  |                  
|Standby letters of credit          |  |                   | 1,404   |                  



54



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #22Condensed
Financial Information of Foothill Independent Bancorp (Parent Company)



|                                                        
|--------------------------------------------------------
|                                                        
|                                                        
|Balance Sheets                                          
|Assets                                                  
|Cash                                                    
|Interest-bearing deposits in financial institutions     
|Investment securities available-for-sale                
|Investment in subsidiaries                              
|Accounts receivable                                     
|Excess of cost over net assets of company acquired (net)
|Prepaid expenses                                        
|Accrued interest and other assets                       
|                                                        
|Total Assets                                            
|                                                        
|Liabilities and Stockholders Equity Liabilities        
|Accounts payable                                        
|Long term debentures                                    
|                                                        
|                                                        
|                                                        
|Stockholders Equity                                    
|Common stock                                            
|Additional paid-in capital                              
|Retained earnings                                       
|                                                        
|Total Stockholders Equity                              
|                                                        
|Total Liabilities and Stockholders Equity              
|                                                        
|Statements of Income                                    
|Income                                                  
|Equity in undistributed income of subsidiaries          
|Interest income                                         
|                                                        
|                                                        
|Expense                                                 
|Amortization and other expenses                         
|                                                        
|Total Operating Income                                  
|Tax benefit of parents operating expenses              
|                                                        
|Net Income                                              
|                                                        



55



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #22 - Condensed
Financial Information of Foothill Independent Bancorp (Parent Company)(Contd)



Statements of Cash Flows

For the Years Ended December 31, 2002,
2001, and 2000



|                                                                            |  | 2002                   |        |   | 2001 |   |        | 2000 | 
|--------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- | 
|                                                                            |  | (dollars in thousands) |       
|Cash Flows From Operating Activities                                        |  |                        |        |   |      |   |        |      | 
|Cash received for tax benefit from Foothill Independent Bank                |  | $                      | 213    |   |      | $ | 175    |      | 
|Cash paid for operating expenses                                            |  |                        | (779   | ) |      |   | (629   | )    | 
|                                                                            |  |                        |        |   |      |   |        |      | 
|Net Cash Provided (Used) By Operating Activities                            |  |                        | (566   | ) |      |   | (454   | )    | 
|                                                                            |  |                        |        |   |      |   |        |      | 
|Cash Flows From Investing Activities                                        |  |                        |        |   |      |   |        |      | 
|Purchase of deposits in other financial institutions                        |  |                        | (1,500 | ) |      |   |       |      | 
|Purchase of investment securities available-for-sale                        |  |                        | (5,999 | ) |      |   |        |      | 
|Capital contributed to subsidiary                                           |  |                        | (248   | ) |      |   | (150   | )    | 
|                                                                            |  |                        |        |   |      |   |        |      | 
|Net Cash Provided (Used) By Investing Activities                            |  |                        | (7,747 | ) |      |   | (150   | )    | 
|                                                                            |  |                        |        |   |      |   |        |      | 
|Cash Flows From Financing Activities                                        |  |                        |        |   |      |   |        |      | 
|Dividends paid                                                              |  |                        | (2,375 | ) |      |   | (2,184 | )    | 
|Dividends received from Foothill Independent Bank                           |  |                        | 2,630  |   |      |   | 4,280  |      | 
|Issuance of debentures                                                      |  |                        | 8,248  |   |      |   |        |      | 
|Proceeds from stock purchased                                               |  |                        | 98     |   |      |   | 288    |      | 
|Proceeds from exercise of stock options                                     |  |                        | 98     |   |      |   | 52     |      | 
|Capital stock repurchased                                                   |  |                        |       |   |      |   | (1,908 | )    | 
|                                                                            |  |                        |        |   |      |   |        |      | 
|Net Cash Provided (Used) By Financing Activities                            |  |                        | 8,699  |   |      |   | 528    |      | 
|                                                                            |  |                        |        |   |      |   |        |      | 
|Net Increase (Decrease) in Cash                                             |  |                        | 386    |   |      |   | (76    | )    | 
|Cash, Beginning of Year                                                     |  |                        | 122    |   |      |   | 198    |      | 
|                                                                            |  |                        |        |   |      |   |        |      | 
|Cash, End of Year                                                           |  | $                      | 508    |   |      | $ | 122    |      | 
|                                                                            |  |                        |        |   |      |   |        |      | 
|Reconciliation of Net Increase to Net Cash Provided by Operating
Activities |  |                        |        |   |      |   |        |      | 
|Net Income                                                                  |  | $                      | 7,694  |   |      | $ | 6,850  |      | 
|                                                                            |  |                        |        |   |      |   |        |      | 
|Adjustments to Reconcile Net Income to Net Cash                             |  |                        |        |   |      |   |        |      | 
|Provided by Operating Activities                                            |  |                        |        |   |      |   |        |      | 
|Amortization                                                                |  |                        |       |   |      |   | 42     |      | 
|Undistributed earnings of subsidiaries                                      |  |                        | (8,072 | ) |      |   | (7,197 | )    | 
|(Increase) Decrease in accounts receivable                                  |  |                        | (51    | ) |      |   | (39    | )    | 
|Increase in accrued interest receivable                                     |  |                        | (4     | ) |      |   |       |      | 
|Increase in prepaid expenses                                                |  |                        | (188   | ) |      |   | (57    | )    | 
|Increase (Decrease) in accounts payable                                     |  |                        | 55     |   |      |   | (53    | )    | 
|                                                                            |  |                        |        |   |      |   |        |      | 
|Total Adjustments                                                           |  |                        | (8,260 | ) |      |   | (7,304 | )    | 
|                                                                            |  |                        |        |   |      |   |        |      | 
|Net Cash Provided (Used) by Operating Activities                            |  | $                      | (566   | ) |      | $ | (454   | )    | 
|                                                                            |  |                        |        |   |      |   |        |      | 



56



---

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2002,
2001, AND 2000





Note #23Summary
of Quarterly Financial Information (Unaudited)



The following quarterly financial information for the Company and its subsidiaries for the two years ended December 31, 2002 and 2001, is summarized below:



|                                                    |  | 2002                                            
|--------------------------------------------------- |  | ------------------------------------------------
|                                                    |  | First                                           
|                                                    |  | (dollars in thousands, except per share amounts)
|Summary of Operations                               |  |                                                 
|Interest income                                     |  | $                                               
|Interest expense                                    |  |                                                 
|Net interest income                                 |  |                                                 
|Provision for loan losses                           |  |                                                 
|Net interest income after provision for loan losses |  |                                                 
|Other income                                        |  |                                                 
|Other expense                                       |  |                                                 
|Income before taxes                                 |  |                                                 
|Applicable income taxes                             |  |                                                 
|                                                    |  |                                                 
|Net Income                                          |  | $                                               
|                                                    |  |                                                 
|Earnings Per ShareBasic                            |  | $                                               
|                                                    |  |                                                 
|Earnings Per ShareDiluted                          |  | $                                               
|                                                    |  |                                                 
|                                                    |  | 2001                                            
|                                                    |  | First                                           
|                                                    |  | (dollars in thousands, except per share amounts)
|Summary of Operations                               |  |                                                 
|Interest income                                     |  | $                                               
|Interest expense                                    |  |                                                 
|Net interest income                                 |  |                                                 
|Provision for loan losses                           |  |                                                 
|Net interest income after provision for loan losses |  |                                                 
|Other income                                        |  |                                                 
|Other expense                                       |  |                                                 
|Income before taxes                                 |  |                                                 
|Applicable income taxes                             |  |                                                 
|                                                    |  |                                                 
|Net Income                                          |  | $                                               
|                                                    |  |                                                 
|Earnings Per ShareBasic                            |  | $                                               
|                                                    |  |                                                 
|Earnings Per ShareDiluted                          |  | $                                               
|                                                    |  |                                                 





57



---



ITEM 9.     DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



PART III



ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



Except for information regarding our executive officers which is included in Part I of this Report, the information called for by Item 10
is incorporated herein by reference from the Companys definitive proxy statement, for the Companys 2003 annual meeting of shareholders, to be filed with the Commission on or before April 30, 2003.



ITEM 11.     EXECUTIVE COMPENSATION



The information required by Item 11 is incorporated herein by
reference from the Companys definitive proxy statement to be filed with the Commission on or before April 30, 2003 for the Companys 2003 annual shareholders meeting.



ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

STOCKHOLDER MATTERS



Except for
the information regarding equity compensation plans set forth below, the information required by Item 12 is incorporated herein by reference from the Companys definitive proxy statement to be filed with the Commission on or before April 30,
2003 for the Companys 2003 annual shareholders meeting.



The following table provides information relating to our equity compensation plans as of December 31, 2002:



|                                                   |  | Column A                                                               |  | Column B |                                                        | Column C
|-------------------------------------------------- |  | ---------------------------------------------------------------------- |  | -------- | ------------------------------------------------------ | --------
|                                                   |  | Number of Securities to be Issued upon Exercise of Outstanding
Options |  |          | Weighted-Average Exercise Price of Outstanding Options |         
|                                                   |  |                                                                        |  |          |                                                        |         
|Equity compensation plans approved by shareholders |  | 914,916                                                                |  | $        | 7.88                                                   |         
|Equity compensation not approved by shareholders   |  |                                                                       |  |          |                                                       |         
|                                                   |  |                                                                        |  |          |                                                        |         
|                                                   |  | 914,916                                                                |  | $        | 7.88                                                   |         
|                                                   |  |                                                                        |  |          |                                                        |         

---

|(1) |  | The equity compensation plan under which these shares were available for the grant of options terminated at the close of business on December 31, 2002. As a result,
they are no longer available for option grants.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The information required by Item 13 is incorporated herein by reference from the Companys definitive proxy statement to be filed
with the Commission on or before April 30, 2003 for the Companys 2003 annual shareholders meeting.



ITEM 14.     CONTROLS AND PROCEDURES



Within the past 90 days, we carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that those controls and procedures were effective in making known to them, on a timely basis, the material information needed for the preparation of
this Annual Report on Form 10-K.



The officers
also concluded that there were no significant changes in our internal controls or in other factors that could significantly affect those internal controls subsequent to the date of our evaluation nor did we find any significant deficiencies or
material weaknesses that would have required corrective actions to be taken with respect to those controls.



58



---



PART IV



ITEM 15.
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



The following documents are filed as part of this Form 10-K:



| | (1) |  | Financial Statements:
| | --- |  | ---------------------



See Index to Financial Statements in Item 8 on Page 35 of this Report.



| | (2) |  | Financial Statement Schedules:
| | --- |  | ------------------------------



All schedules are omitted as the information is not required, is not material or is otherwise furnished.



| | (3) |  | Exhibits:
| | --- |  | ---------



See Index to Exhibits on Page E-1 of this Form 10-K.



| | (4) |  | Reports on Form 8-K:
| | --- |  | --------------------



None





59



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POWER OF ATTORNEY



Each person whose signature appears below hereby authorizes George E. Langley, Donna L. Miltenberger and
Carol Ann Graf, and each of them individually, as attorney-in-fact, to sign in his or her behalf and in each capacity stated below, and to file, all amendments and/or supplements to this Annual Report on form 10-K.



SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 25th day of March 2003.



FOOTHILL INDEPENDENT BANCORPBy:

/s/    GEORGE E. LANGLEYGeorge E. Langley, President and Chief Executive Officer




Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following officers and directors of the registrant in the capacities indicated on March 25, 2003.



|                                                 
|-------------------------------------------------
|/s/    GEORGE E. LANGLEYGeorge E. Langley        
|                                                 
|/s/    CAROL ANN GRAFCarol Ann Graf              
|                                                 
|/s/    DONNA L. MILTENBERGERDonna L. Miltenberger
|                                                 
|/s/    WILLIAM V. LANDECENAWilliam V. Landecena  
|                                                 
|/s/    RICHARD GALICHRichard Galich              
|                                                 
|/s/    O. L. MESTADO. L. Mestad                  
|                                                 
|/s/    GEORGE SELLERSGeorge Sellers              
|                                                 
|/s/    MAX E. WILLIAMSMax E. Williams            



S-1



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CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER

UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT



I,
George E. Langley, Chief Executive Officer of Foothill Independent Bancorp, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Foothill Independent Bancorp;
|-- |  | --------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-14
and 15d-14 of the Exchange Act) for the registrant and we have:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: March 25, 2003



/s/    GEORGE E. LANGLEYGeorge E. LangleyPresident and Chief Executive Officer




S-2



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CERTIFICATIONS OF CHIEF FINANCIAL OFFICER

UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT



I,
Carol Ann Graf, Chief Financial Officer of Foothill Independent Bancorp, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Foothill Independent Bancorp;
|-- |  | --------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-14
and 15d-14 of the Exchange Act) for the registrant and we have:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date:    March 25, 2003



/s/    CAROL ANN GRAFCarol Ann Graf Senior Vice President and Chief Financial Officer




S-3



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EXHIBIT INDEX



|Exhibit No |  | Description of Exhibit                                                                                                                                                                                                                                                 
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1*       |  | Agreement and Plan of Merger dated May 4, 2000 between Foothill Independent Bancorp, Inc (Foothill
Delaware) and Foothill Independent Bancorp (Foothill California) pursuant to which the Companys state of incorporation was changed from California to Delaware.
|2.28*      |  | Certificate of Merger filed with the Delaware Secretary of State on July 18, 2000 effectuating the reincorporation of
the Company in Delaware.                                                                                                                         
|3.1*       |  | Certificate of Incorporation of the Company as filed in Delaware.                                                                                                                                                                                                      
|3.2*       |  | Bylaws of the Company, as in effect under Delaware Law.                                                                                                                                                                                                                
|4.1*       |  | Rights Agreement between the Company and ChaseMellon Shareholder Services setting forth the rights of the holders of
Rights to Purchase Common Stock of the Company.                                                                                                   
|4.2**      |  | Amendment dated February 13, 2002 to Rights Agreement to appoint Registrar and Transfer Company as the successor
Rights Agent to ChaseMellon Shareholder Services LLC                                                                                                  
|21         |  | Subsidiaries of the Company.                                                                                                                                                                                                                                           
|23.1       |  | Consent of Independent Public Accountants.                                                                                                                                                                                                                             
|99.1       |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002                                                                                                                                                                     
|99.2       |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002                                                                                                                                                                     

---

|* |  | Incorporated by reference from the Companys Current Report on Form 8-K dated July 18, 2000.
|- |  | --------------------------------------------------------------------------------------------

|** |  | Incorporated by reference from the Companys Annual Report on Form 10-K for its fiscal year ended December 31, 2001.
|-- |  | --------------------------------------------------------------------------------------------------------------------