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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K



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(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, 2004



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)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 95-3815805                          
|(State or other jurisdiction of 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)



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



Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001 per share



Rights to Purchase Common Stock

(Title of Class)



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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. ̈.



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



The aggregate market value of voting shares held by non-affiliates of Registrant as of June 30, 2003, which was determined
on the basis of the closing price of Registrants shares on that date, was approximately $94,884,000.



As of March 9, 2005, there were 6,747,195 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 to be
filed with the Commission on or before April 29, 2005 for its 2005 Annual Meeting.



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##### Table of Contents

FOOTHILL INDEPENDENT BANCORP, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004



TABLE OF CONTENTS



|                           |  |                                                                                                                |  |         
|-------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | --------
|                           |  |                                                                                                                |  | Page No.
|Forward Looking Statements |  | 1                                                                                                             
|                           |  |                                                                                                               
|Part I                     |  |                                                                                                                |  |         
|                           |  |                                                                                                               
|Item 1                     |  | Business                                                                                                       |  | 1       
|                           |  | Overview                                                                                                       |  | 1       
|                           |  | Deposits                                                                                                       |  | 2       
|                           |  | Loan Portfolio                                                                                                 |  | 3       
|                           |  | Investment Portfolio                                                                                           |  | 6       
|                           |  | Competition                                                                                                    |  | 7       
|                           |  | Supervision and Regulation                                                                                     |  | 8       
|                           |  |                                                                                                               
|Item 2                     |  | Properties                                                                                                     |  | 16      
|                           |  |                                                                                                               
|Item 3                     |  | Legal Proceedings                                                                                              |  | 16      
|                           |  |                                                                                                               
|Item 4                     |  | Submission of Matters to a Vote of Security Holders                                                            |  | 16      
|                           |  |                                                                                                               
|Item 4A                    |  | Executive Officers of the Registrant                                                                           |  | 16      
|                           |  |                                                                                                               
|Part II                    |  |                                                                                                                |  |         
|                           |  |                                                                                                               
|Item 5                     |  | Market for Registrants Common Equity and Related Stockholder Matters                                          |  | 18      
|                           |  |                                                                                                               
|Item 6                     |  | Selected Financial Data                                                                                        |  | 20      
|                           |  |                                                                                                               
|Item 7                     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                          |  | 21      
|                           |  | General                                                                                                        |  | 21      
|                           |  | Forward-Looking Statements                                                                                     |  | 21      
|                           |  | Critical Accounting Policies                                                                                   |  | 21      
|                           |  | Results of Operations                                                                                          |  | 22      
|                           |  | Financial Condition                                                                                            |  | 30      
|                           |  | Capital Resources and Dividends                                                                                |  | 35      
|                           |  | Factors That Could Affect Our Future Financial Performance                                                     |  | 36      
|                           |  |                                                                                                               
|Item 7A                    |  | Quantitative and Qualitative Disclosure About Market Risk                                                      |  | 37      
|                           |  |                                                                                                               
|Item 8                     |  | Financial Statements and Supplementary Data                                                                    |  | 39      
|                           |  |                                                                                                               
|                           |  | Report of Independent Registered Public Accounting Firm                                                        |  | 40      
|                           |  |                                                                                                               
|                           |  | Consolidated Balance Sheets at December 31, 2004 and 2003                                                      |  | 41      
|                           |  |                                                                                                               
|                           |  | Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002                         |  | 42      
|                           |  |                                                                                                               
|                           |  | Consolidated Statement of Changes in Stockholders Equity for the Years Ended December 31, 2004, 2003 and 2002 |  | 43      
|                           |  |                                                                                                               
|                           |  | Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002                     |  | 44      
|                           |  |                                                                                                               
|                           |  | Notes to Consolidated Financial Statements                                                                     |  | 46      
|                           |  |                                                                                                               
|Item 9                     |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures                          |  | 67      



(i)



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|                  |  |                                                                                                |  |   
|----------------- |  | ---------------------------------------------------------------------------------------------- |  | --
|Item 9A           |  | Controls and Procedures                                                                        |  | 67
|                  |  |                                                                                               
|Item 9B           |  | Other Information                                                                              |  | 68
|                  |  |                                                                                               
|Part III          |  |                                                                                                |  |   
|                  |  |                                                                                               
|Item 10           |  | Directors and Executive Officers of the Registrant                                             |  | 68
|                  |  |                                                                                               
|Item 11           |  | Executive Compensation                                                                         |  | 68
|                  |  |                                                                                               
|Item 12           |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 68
|                  |  |                                                                                               
|Item 13           |  | Certain Relationships and Related Transactions                                                 |  | 69
|                  |  |                                                                                               
|Item 14           |  | Principal Accountant Fees and Services                                                         |  | 69
|                  |  |                                                                                               
|Part IV           |  |                                                                                                |  |   
|                  |  |                                                                                               
|Item 15           |  | Exhibits, Financial Statement Schedules, Reports on Form 8-K                                   |  | 69
|                  | 
|Signature Page    |  | S-1                                                                                           
|Index to Exhibits |  | E-1                                                                                           



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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 trends 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. The expectations or
beliefs discussed in forward-looking statements are based on current information and the outcome of those matters are subject to a number of risks and uncertainties that could cause our financial condition or operating results in the future to
differ, possibly 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, 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



Overview



Foothill Independent
Bancorp (the Company), which was organized in 1982, is a one-bank holding company that is registered, as such, under the Bank Holding Company Act of 1956, as amended (the BHCA). Like other bank holding companies in the United
States, we are subject to regulation, supervision and periodic examination by the Board of Governors of the Federal Reserve System (commonly known as the Federal Reserve Board). We own all of the capital stock of Foothill Independent
Bank, a California state-chartered bank (the Bank), which is our principal subsidiary and accounts for substantially all of our consolidated assets, liabilities and operating results.



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, 2004 had total assets of $787,000,000. The Banks deposits are insured by the Federal Deposit
Insurance Corporation (FDIC) to the maximum extent permitted by law, and the Bank is a California state chartered bank and a member of the Federal Reserve System. As a member of the Federal Reserve System and a California state chartered bank, the
Bank is subject to regulation, supervision and periodic examination by the Federal Reserve Board, which is its principal federal regulatory agency, and by the California Department of Financial Institutions (the DFI). See Supervision and
Regulation below in this Section of this Report.



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, (ii) the western portions of San Bernardino County, and (iii) the western and southern portions of Riverside County, 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 small-to-medium sized businesses, professionals and consumers, primarily in its market areas.



The Bank emphasizes personalized service, convenience and the ability to
customize services to meet the banking needs of its customers in order to attract business within its market areas. 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 internet banking services to its customers, enabling them to conduct many of their banking transactions with us



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online, from their businesses or residences, 24 hours per day, seven days per week; and a computerized telephone service, which enables customers to obtain
information concerning their bank deposit accounts telephonically at any time day or night.



Consolidated Average Assets and Liabilities. The following table sets forth the 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, 2004. 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 have been used) are not significant. (Dollars are set forth in thousands.)



|                                           |  |                 |         |   |                 |       |   |                 |   |         |                  |  |       |                 |  |   |                  |   |  |       |  
|------------------------------------------ |  | --------------- | ------- | - | --------------- | ----- | - | --------------- | - | ------- | ---------------- |  | ----- | --------------- |  | - | ---------------- | - |  | ----- | -
|                                           |  | 2004            |         |   | 2003            |       |   | 2002            |  
|                                           |  | AverageBalances |         |   | Percentof Total |       |   | AverageBalances |   |         | Percent of Total |  |       | AverageBalances |  |   | Percent of Total |  
|Assets                                     |  |                 |         |   |                 |       |   |                 |   |         |                  |  |       |                 |  |   |                  |   |  |       |  
|Investment SecuritiesTaxable              |  | $               | 145,119 |   |                 | 19.4  | % |                 | $ | 99,453  |                  |  | 15.2  | %               |  | $ | 47,100           |   |  | 8.2   | %
|Investment SecuritiesNon-Taxable          |  |                 | 15,345  |   |                 | 2.1   |   |                 |   | 7,992   |                  |  | 1.2   |                 |  |   | 8,119            |   |  | 1.4   |  
|Federal Funds Sold & Repos                 |  |                 | 46,176  |   |                 | 6.2   |   |                 |   | 34,370  |                  |  | 5.3   |                 |  |   | 40,808           |   |  | 7.1   |  
|Due from BanksTime Deposits               |  |                 | 7,934   |   |                 | 1.1   |   |                 |   | 8,320   |                  |  | 1.3   |                 |  |   | 7,544            |   |  | 1.3   |  
|Loans                                      |  |                 | 472,250 |   |                 | 63.3  |   |                 |   | 451,351 |                  |  | 69.1  |                 |  |   | 424,443          |   |  | 73.9  |  
|Direct Lease Financing                     |  |                 | 414     |   |                 | 0.1   |   |                 |   | 971     |                  |  | 0.1   |                 |  |   | 1,160            |   |  | 0.2   |  
|Reserve for Loan and Lease Losses          |  |                 | (4,975  | ) |                 | (0.7  | ) |                 |   | (4,710  | )                |  | (0.7  | )               |  |   | (4,378           | ) |  | (0.8  | )
|                                           |  |                 |         |   |                 |       |   |                 |   |         |                  |  |       |                 |  |   |                  |   |  |       |  
|Net Loans and Leases                       |  |                 | 467,689 |   |                 | 62.7  |   |                 |   | 447,612 |                  |  | 68.5  |                 |  |   | 421,225          |   |  | 73.3  |  
|                                           |  |                 |         |   |                 |       |   |                 |   |         |                  |  |       |                 |  |   |                  |   |  |       |  
|Total Interest Earning Assets              |  |                 | 682,263 |   |                 | 91.5  |   |                 |   | 597,747 |                  |  | 91.5  |                 |  |   | 524,796          |   |  | 91.3  |  
|Cash and Non-interest Earning Deposits     |  |                 | 37,227  |   |                 | 5.0   |   |                 |   | 32,085  |                  |  | 4.9   |                 |  |   | 29,610           |   |  | 5.2   |  
|Net Premises, Furniture and Equipment      |  |                 | 4,824   |   |                 | 0.5   |   |                 |   | 4,591   |                  |  | 0.7   |                 |  |   | 5,206            |   |  | 0.9   |  
|Other Assets                               |  |                 | 22,019  |   |                 | 3.0   |   |                 |   | 18,894  |                  |  | 2.9   |                 |  |   | 14,722           |   |  | 2.6   |  
|                                           |  |                 |         |   |                 |       |   |                 |   |         |                  |  |       |                 |  |   |                  |   |  |       |  
|Total Assets                               |  | $               | 746,333 |   |                 | 100.0 | % |                 | $ | 653,317 |                  |  | 100.0 | %               |  | $ | 574,334          |   |  | 100.0 | %
|                                           |  |                 |         |   |                 |       |   |                 |   |         |                  |  |       |                 |  |   |                  |   |  |       |  
|Liabilities and Stockholders Equity        |  |                 |         |   |                 |       |   |                 |   |         |                  |  |       |                 |  |   |                  |   |  |       |  
|Savings Deposits                           |  | $               | 351,309 |   |                 | 47.1  | % |                 | $ | 288,756 |                  |  | 44.2  | %               |  | $ | 242,304          |   |  | 42.2  | %
|Time Deposits                              |  |                 | 70,801  |   |                 | 9.5   |   |                 |   | 80,612  |                  |  | 12.3  |                 |  |   | 88,824           |   |  | 15.5  |  
|Short-term Borrowings                      |  |                 | 0       |   |                 |      |   |                 |   | 0       |                  |  |      |                 |  |   | 0                |   |  |      |  
|Long-term Borrowings                       |  |                 | 8,248   |   |                 | 1.1   |   |                 |   | 8,248   |                  |  | 1.3   |                 |  |   | 667              |   |  | 0.1   |  
|                                           |  |                 |         |   |                 |       |   |                 |   |         |                  |  |       |                 |  |   |                  |   |  |       |  
|Total Interest-Bearing Liabilities         |  |                 | 430,358 |   |                 | 57.7  |   |                 |   | 377,616 |                  |  | 57.8  |                 |  |   | 331,795          |   |  | 57.8  |  
|Demand Deposits                            |  |                 | 248,386 |   |                 | 33.3  |   |                 |   | 212,278 |                  |  | 32.5  |                 |  |   | 182,178          |   |  | 31.7  |  
|Other Liabilities                          |  |                 | 5,420   |   |                 | 0.7   |   |                 |   | 4,843   |                  |  | 0.7   |                 |  |   | 5,655            |   |  | 1.0   |  
|                                           |  |                 |         |   |                 |       |   |                 |   |         |                  |  |       |                 |  |   |                  |   |  |       |  
|Total Liabilities                          |  |                 | 684,164 |   |                 | 91.7  |   |                 |   | 594,737 |                  |  | 91.0  |                 |  |   | 519,628          |   |  | 90.5  |  
|Stockholders Equity                       |  |                 | 62,169  |   |                 | 8.3   |   |                 |   | 58,580  |                  |  | 9.0   |                 |  |   | 54,706           |   |  | 9.5   |  
|                                           |  |                 |         |   |                 |       |   |                 |   |         |                  |  |       |                 |  |   |                  |   |  |       |  
|Total Liabilities and Stockholders Equity |  | $               | 746,333 |   |                 | 100.0 | % |                 | $ | 653,317 |                  |  | 100.0 | %               |  | $ | 574,334          |   |  | 100.0 | %
|                                           |  |                 |         |   |                 |       |   |                 |   |         |                  |  |       |                 |  |   |                  |   |  |       |  



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, 2004, 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:



|                           |  |                   |  |                        |         |                |   |         |    
|-------------------------- |  | ----------------- |  | ---------------------- | ------- | -------------- | - | ------- | ---
|Type of Deposit Account    |  | Numberof Accounts |  | AverageAccount Balance |         | Total Deposits |  
|                           |  |                   |  | (Dollars in thousands) |        
|Demand (checking) accounts |  | 28,270            |  | $                      | 12,735  |                | $ | 360,010 | (1)
|Money market accounts      |  | 1,837             |  |                        | 112,640 |                |   | 206,919 | (2)
|Savings accounts           |  | 9,919             |  |                        | 6,475   |                |   | 64,222  |    
|Time Deposits(3)           |  |                   |  |                        |         |                |   |         |    
|TCDs                       |  | 181               |  |                        | 232,376 |                |   | 42,060  |    
|Other time deposits        |  | 1,793             |  |                        | 19,988  |                |   | 35,839  |    

---

|(1) | Includes $11,170,000 of municipal and other government agency deposits.
|--- | -----------------------------------------------------------------------

|(2) | Includes $193,000 of municipal and other government agency deposits.
|--- | --------------------------------------------------------------------



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|(3) | In this Report, we use the term TCDs to mean time certificates of deposit in denominations of more than $100,000, the term other time deposits to 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 year ended December 31, 2004, average non-interest bearing demand deposits increased by $46.8 million, or 15.4%;
average money market checking account deposits increased by $45.1 million, or 32.1%; average savings deposits increased by $6.0 million, or 10.1%; and average time deposits decreased by $9.8 million, or 12.2%, which was attributable to decreases of
$1.9 million in TCDs and $8.0 million in other time deposits.



Although there are some business and public agency customers that carry large deposits with the Bank, we do not believe that the Bank is dependent on a single customer or even 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 that can result from the loss of a
substantial depositor. At December 31, 2004, no individual, corporate or public agency depositor accounted for more than 5% of the Banks total deposits and the five largest deposit accounts represented, collectively, 10% of total deposits.



Loan Portfolio



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, and the amounts (in thousands of dollars), by type, of the loans that were outstanding at December 31, 2004, 2003, and 2002, respectively.



|                                       |      |              |         |      |  |   |         |   |  |   |         |  
|-------------------------------------- | ---- | ------------ | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|Types Of Loans(1)                      |      | December 31, |        
|                                       | 2004 |              |         | 2003 |  |   | 2002    |  
|Commercial, Financial and Agricultural |      | $            | 40,287  |      |  | $ | 44,855  |   |  | $ | 44,136  |  
|Real Estate Construction               |      |              | 15,326  |      |  |   | 27,077  |   |  |   | 34,492  |  
|Real Estate Mortgage(2)                |      |              | 445,769 |      |  |   | 381,563 |   |  |   | 357,707 |  
|Consumer Loans                         |      |              | 3,101   |      |  |   | 3,816   |   |  |   | 4,073   |  
|Lease Financing(3)                     |      |              | 341     |      |  |   | 528     |   |  |   | 1,211   |  
|All other Loans (including overdrafts) |      |              | 1,251   |      |  |   | 2,263   |   |  |   | 508     |  
|                                       |      |              |         |      |  |   |         |   |  |   |         |  
|Subtotal                               |      |              | 506,075 |      |  |   | 460,102 |   |  |   | 442,127 |  
|Less:                                  |      |              |         |      |  |   |         |   |  |   |         |  
|Unearned Discount                      |      |              | (452    | )    |  |   | (54     | ) |  |   | (67     | )
|                                       |      |              |         |      |  |   |         |   |  |   |         |  
|Reserve for Loan and Lease Losses      |      |              | (5,016  | )    |  |   | (4,947  | ) |  |   | (4,619  | )
|                                       |      |              |         |      |  |   |         |   |  |   |         |  
|Total                                  |      | $            | 500,607 |      |  | $ | 455,101 |   |  | $ | 437,441 |  
|                                       |      |              |         |      |  |   |         |   |  |   |         |  

---

|(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 estate mortgage loans.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Lease financing amounts are stated net of unearned income of $33 for 2004; $69 for 2003; and $118,000 for 2002.
|--- | ---------------------------------------------------------------------------------------------------------------



Except for the categories of loans set forth in the table above, at December
31, 2004 there were no loans outstanding to borrowers engaged in similar businesses activities that aggregated more than 10% of our loan portfolio.



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.
| | - |  | ----------------------------------------------------------------



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In order to mitigate the risk of borrower defaults, we generally require collateral to support the credit
or personal guarantees from the borrowers owners, 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
frequent periodic reviews.



We also offer asset-based lending
products that involve a higher degree of risk than other types of commercial loans, because asset-based loans are designed for those borrowers who do not generate cash flow from their operations that is sufficient to enable them to qualify, under
our credit underwriting criteria, for unsecured loans. These borrowers generally consist of businesses that are growing rapidly, but 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-value ratios of not more than 80% and by regularly monitoring the amount and value of the collateral in order to maintain that ratio. These loans often are supported by additional
collateral, usually in the form of first or second mortgages or deeds of trust on real property.



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.



Real Estate Loans. Nonresidential real estate
loans make up approximately 90% of our real estate loan portfolio, and substantially all of those loans are secured by first mortgages or deeds of trust. 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 the results of operations and dependable cash flows generated by the businesses of the borrowers or tenants at the property. As a result, repayment of these loans is affected by changes in
economic conditions 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 as security for the repayment of such loans.



A customer seeking to obtain a commercial real estate loan must have a good payment record and the real property that will secure the loan must generate sufficient cash flow to cover the debt service of the loan by at least 1.25-to-1 (debt
coverage ratio). If the property is owner-occupied, the owners business generally must have a debt coverage ratio of at least 1.50-to-1. In addition, we require insurance on the property adequate 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 loan and credit products to consumers that include 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, we sometimes renegotiate 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 we believe 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 loan is discontinued and any previously accrued but unpaid interest on the loan is reversed and, therefore, the loan 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.



4



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##### Table of Contents

The following table sets forth, as of the end of each of the years in the five year period ended December
31, 2004, the amounts of our loans, by type, (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), or (iii) that had been placed on
non-accrual status.



|                                     |  |                |     |      |   |      |  |      |       |      |   |       |  |   |      
|------------------------------------ |  | -------------- | --- | ---- | - | ---- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                                     |  | December 31,  
|                                     |  | 2004           |     | 2003 |   | 2002 |  | 2001 |       | 2000
|                                     |  | (In thousands)
|Loans More Than 90 Days Past Due(1): |  |                |     |      |   |      |  |      |       |      |   |       |  |   |      
|Commercial                           |  | $              | 9   |      | $ |     |  | $    |      |      | $ | 34    |  | $ |     
|Real Estate                          |  |                |    |      |   | 120  |  |      |      |      |   |      |  |   |     
|Consumer                             |  |                | 1   |      |   |     |  |      | 5     |      |   |      |  |   | 17   
|Leases                               |  |                |    |      |   |     |  |      |      |      |   |      |  |   |     
|Troubled Debt Restructurings(2)      |  |                |    |      |   | 18   |  |      | 1,096 |      |   | 1,178 |  |   | 858  
|Non-Accrual Loans(3)                 |  |                | 127 |      |   | 608  |  |      | 1,455 |      |   | 2,717 |  |   | 2,319
|                                     |  |                |     |      |   |      |  |      |       |      |   |       |  |   |      
|                                     |  | $              | 137 |      | $ | 746  |  | $    | 2,556 |      | $ | 3,929 |  | $ | 3,194
|                                     |  |                |     |      |   |      |  |      |       |      |   |       |  |   |      

---

|(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 2004, 2003, 2002, 2001, and 2000, were those required to have
been paid in accordance with the original terms of those loans.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | There was one loan on non-accrual status at December 31, 2004, three loans at December 31, 2003, four loans at December 31, 2002, and six loans at each of December 31, 2001 and
December 31, 2000. The interest income that would have been collected on these loans had they remained current in accordance with their original terms were $0 in 2004, $90,000 in 2003, $117,000 in 2002, $197,000 in 2001 and $644,000 in 2000.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 the classification of such loans 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 its 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 or written down when the possibility of collecting the full balance of the loan becomes remote. The average balances of impaired loans in our loan portfolio
totaled approximately $641,000 for the fiscal year ended December 31, 2004, down from $1,140,000 for fiscal 2003. During 2004, cash receipts totaling approximately $847,000 were applied to reduce the principal balances of, and $355,000 of interest
income was recognized on, impaired loans and we set aside reserves for possible losses specifically on those loans of approximately $27,000, as compared to $19,000 during 2003. 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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##### Table of Contents

Other Potential Problem Loans or Assets. At December 31, 2004, there were no loans in our loan
portfolio as to which there were serious doubts as to the ability of the borrower to comply with then present loan repayment terms as to which we had not ceased accruing interest and there were no other interest-earning assets as to which we believe
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 or allowance for loan losses by means of periodic charges to income referred to as provisions for loan losses. When we believe that collection of a loan has become unlikely, either in whole
or in part, the carrying amount of the loan is written down to what is believed to be its recoverable value (in any case where the loan is believed to be collectible in part) or written off in its entirety (in any case where the loan is believed to
have become uncollectible in full). The write-down in the value, or the write-off, of the loan 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 increase the potential for future loan losses. At December 31, 2004 the loan loss reserve totaled approximately $5 million or 1% of total loans and leases then
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 a general reserve
applicable to the entire portfolio. Dollar amounts in the table are set forth in thousands.



|                                       |  |                         |       |                          |        |   |                       |      |                          |  |        |                         |  |                        |       |  |                        |   |                         |   |       |                         |        |                           |  |   |       |  |        |  
|-------------------------------------- |  | ----------------------- | ----- | ------------------------ | ------ | - | --------------------- | ---- | ------------------------ |  | ------ | ----------------------- |  | ---------------------- | ----- |  | ---------------------- | - | ----------------------- | - | ----- | ----------------------- | ------ | ------------------------- |  | - | ----- |  | ------ | -
|                                       |  | 2004                    |       |                          | 2003   |   |                       | 2002 |                          |  | 2001   |                         |  | 2000                   |      
|                                       |  | Reserve for Loan Losses |       | % ofLoans to Total Loans |        |   | Reservefor LoanLosses |      | % ofLoans to Total Loans |  |        | Reserve for Loan Losses |  | % ofLoans toTotalLoans |       |  | Reserve for LoanLosses |   | % ofLoans to TotalLoans |   |       | Reserve for Loan Losses |        | % of Loans to Total Loans | 
|Commercial, Financial and Agricultural |  | $                       | 525   |                          | 7.58   | % |                       | $    | 1,226                    |  | 10.14  | %                       |  | $                      | 1,156 |  | 8.60                   | % |                         | $ | 2,668 |                         | 11.49  | %                         |  | $ | 1,762 |  | 12.01  | %
|Real Estate-construction               |  |                         | 159   |                          | 3.41   |   |                       |      | 248                      |  | 5.88   |                         |  |                        | 276   |  | 4.82                   |   |                         |   | 59    |                         | 3.94   |                           |  |   | 97    |  | 3.43   |  
|Real Estate-mortgage                   |  |                         | 4,296 |                          | 87.86  |   |                       |      | 3,401                    |  | 82.55  |                         |  |                        | 3,136 |  | 85.17                  |   |                         |   | 1,452 |                         | 82.65  |                           |  |   | 1,765 |  | 82.32  |  
|Installment loans                      |  |                         | 34    |                          | 0.72   |   |                       |      | 68                       |  | 0.83   |                         |  |                        | 39    |  | 1.02                   |   |                         |   | 22    |                         | 1.15   |                           |  |   | 48    |  | 1.74   |  
|Lease financing                        |  |                         | 2     |                          | 0.09   |   |                       |      | 4                        |  | 0.11   |                         |  |                        | 12    |  | 0.27                   |   |                         |   | 5     |                         | 0.32   |                           |  |   | 20    |  | 0.32   |  
|Other                                  |  |                         | 0     |                          | 0.33   |   |                       |      | 0                        |  | 0.49   |                         |  |                        |      |  | 0.12                   |   |                         |   |      |                         | 0.45   |                           |  |   |      |  | 0.18   |  
|                                       |  |                         |       |                          |        |   |                       |      |                          |  |        |                         |  |                        |       |  |                        |   |                         |   |       |                         |        |                           |  |   |       |  |        |  
|                                       |  | $                       | 5,016 |                          | 100.00 |   |                       | $    | 4,947                    |  | 100.00 |                         |  | $                      | 4,619 |  | 100.00                 |   |                         | $ | 4,206 |                         | 100.00 |                           |  | $ | 3,692 |  | 100.00 |  
|                                       |  |                         |       |                          |        |   |                       |      |                          |  |        |                         |  |                        |       |  |                        |   |                         |   |       |                         |        |                           |  |   |       |  |        |  



The Investment Portfolio



As a
customary part of our business, we purchase 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 our investment
risks and provide a source of liquidity for our operations. Additional objectives of our investment policy are to manage interest rate risk, and reinvest in our market areas, while maximizing earnings that can be generated from a portfolio of
investment-grade securities. Each security purchased is subject to credit, maturity and liquidity guidelines that are defined in our investment policy and the securities are reviewed regularly to verify their continued creditworthiness.



6



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##### Table of Contents

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



|                                         |  |                |         |             |   |                |  |             |         |               |   |              |  |   |        |  |   |       
|---------------------------------------- |  | -------------- | ------- | ----------- | - | -------------- |  | ----------- | ------- | ------------- | - | ------------ |  | - | ------ |  | - | ------
|                                         |  | December 31,  
|                                         |  | 2004           |         | 2003        |   | 2002          
|                                         |  | Amortized Cost |         | MarketValue |   | Amortized Cost |  | MarketValue |         | AmortizedCost |   | Market Value
|Investment SecuritiesHeld-To-Maturity   |  |                |         |             |   |                |  |             |         |               |   |              |  |   |        |  |   |       
|U.S. Treasury and Agency                 |  | $              | 1,795   |             | $ | 1,790          |  | $           | 2,141   |               | $ | 2,154        |  | $ | 2,290  |  | $ | 2,386 
|State and Political Subdivisions         |  |                | 4,222   |             |   | 4,407          |  |             | 4,448   |               |   | 4,715        |  |   | 4,678  |  |   | 4,973 
|Other Securities                         |  |                | 1,963   |             |   | 1,963          |  |             | 2,311   |               |   | 2,311        |  |   | 2,311  |  |   | 2,311 
|                                         |  |                |         |             |   |                |  |             |         |               |   |              |  |   |        |  |   |       
|Total                                    |  | $              | 7,980   |             | $ | 8,160          |  | $           | 8,900   |               | $ | 9,180        |  | $ | 9,279  |  | $ | 9,670 
|                                         |  |                |         |             |   |                |  |             |         |               |   |              |  |   |        |  |   |       
|Investment SecuritiesAvailable-For-Sale |  |                |         |             |   |                |  |             |         |               |   |              |  |   |        |  |   |       
|U.S. Treasury and Agency                 |  | $              | 183,562 |             | $ | 182,517        |  | $           | 127,514 |               | $ | 127,668      |  | $ | 58,057 |  | $ | 58,588
|State and Political Subdivisions(1)      |  |                | 2,237   |             |   | 2,247          |  |             | 7,012   |               |   | 7,169        |  |   | 3,085  |  |   | 3,194 
|Other Securities                         |  |                | 1,954   |             |   | 1,811          |  |             | 1,955   |               |   | 1,813        |  |   | 10,006 |  |   | 9,717 
|                                         |  |                |         |             |   |                |  |             |         |               |   |              |  |   |        |  |   |       
|Total                                    |  | $              | 187,753 |             | $ | 186,575        |  | $           | 136,481 |               | $ | 136,650      |  | $ | 71,148 |  | $ | 71,499
|                                         |  |                |         |             |   |                |  |             |         |               |   |              |  |   |        |  |   |       

---

|(1) | Includes, in 2004, 2003 and 2002, non-rated certificates of participation evidencing ownership interests in the California Statewide Communities Development AuthoritySan
Joaquin County Limited Obligation Bond Trust, with an amortized cost of $630,000, $840,000, and $1,835,000, and market values of $631,000, $863,000 and $1,890,000, at December 31, 204, 2003, and 2002, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table presents the maturities of our investment securities at
December 31, 2004, 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 36.0% tax rate).



|                                         |  |                 |        |       |                                |   |        |                                |         |  |                 |        |  |       |        |  |        |   |       |   |        |  |      |  
|---------------------------------------- |  | --------------- | ------ | ----- | ------------------------------ | - | ------ | ------------------------------ | ------- |  | --------------- | ------ |  | ----- | ------ |  | ------ | - | ----- | - | ------ |  | ---- | -
|                                         |  | Within One Year |        |       | After One andWithin Five Years |   |        | After Five andWithin Ten Years |         |  | After Ten Years |       
|                                         |  | Amount          |        | Yield |                                |   | Amount |                                | Yield   |  |                 | Amount |  | Yield |        |  | Amount |   | Yield |  
|Investment Securities Held to Maturity   |  |                 |        |       |                                |   |        |                                |         |  |                 |        |  |       |        |  |        |   |       |   |        |  |      |  
|U.S. Treasury and Agency                 |  | $               |       |       |                               | % |        | $                              | 1,795   |  | 1.84            | %      |  | $     |       |  |       | % |       | $ |       |  |     | %
|State and Political Subdivisions         |  |                 | 270    |       | 4.52                           |   |        |                                | 2,352   |  | 4.41            |        |  |       | 1,600  |  | 5.03   |   |       |   |       |  |     |  
|Other Securities                         |  |                 | 1,963  |       |                               |   |        |                                |        |  |                |        |  |       |       |  |       |   |       |   |       |  |     |  
|                                         |  |                 |        |       |                                |   |        |                                |         |  |                 |        |  |       |        |  |        |   |       |   |        |  |      |  
|Total Securities Held to Maturity        |  | $               | 2,233  |       | 0.55                           |   |        | $                              | 4,147   |  | 3.30            |        |  | $     | 1,600  |  | 5.03   |   |       |   |       |  |     |  
|                                         |  |                 |        |       |                                |   |        |                                |         |  |                 |        |  |       |        |  |        |   |       |   |        |  |      |  
|Investment Securities Available for Sale |  |                 |        |       |                                |   |        |                                |         |  |                 |        |  |       |        |  |        |   |       |   |        |  |      |  
|U.S. Treasury and Agency                 |  | $               | 10,237 |       | 2.19                           |   |        | $                              | 135,660 |  | 3.12            |        |  | $     | 13,250 |  | 4.23   |   |       | $ | 23,370 |  | 4.70 |  
|State and Political Subdivisions         |  |                 | 631    |       | 6.21                           |   |        |                                |        |  |                |        |  |       |       |  |       |   |       |   | 1,616  |  | 3.96 |  
|Other Securities                         |  |                 | 133    |       |                               |   |        |                                |        |  |                |        |  |       |       |  |       |   |       |   | 1,678  |  |     |  
|                                         |  |                 |        |       |                                |   |        |                                |         |  |                 |        |  |       |        |  |        |   |       |   |        |  |      |  
|Total Securities Available for Sale      |  |                 | 11,011 |       | 2.39                           |   |        |                                | 135,660 |  | 3.12            |        |  |       | 13,250 |  | 4.23   |   |       |   | 26,664 |  | 4.36 |  
|                                         |  |                 |        |       |                                |   |        |                                |         |  |                 |        |  |       |        |  |        |   |       |   |        |  |      |  
|Total Investment Securities              |  | $               | 13,234 |       | 2.08                           | % |        | $                              | 139,807 |  | 3.13            | %      |  | $     | 14,850 |  | 4.08   | % |       | $ | 26,664 |  | 4.39 | %
|                                         |  |                 |        |       |                                |   |        |                                |         |  |                 |        |  |       |        |  |        |   |       |   |        |  |      |  



Competition



The banking business
in California generally, and in our market areas in particular, is highly competitive both for 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 covering
wide geographic areas. We compete for loans and deposits 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. Wells Fargo Bank, Bank of America, Comerica and Citibank and Washington Mutual Bank are headquartered outside of California. Independent banks or
financial institutions with offices in our service areas include, among others, City National Bank, Citizens Business Bank, PFF Bank & Trust and Vineyard Bank.



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##### Table of Contents

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 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 internet banking services to consumers 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 legislation may have on commercial banking in general or
on our business in particular. For additional information regarding these matters, see the discussion below under the caption Supervision and Regulation.



Supervision and Regulation



Bank
holding companies and banks are regulated under 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 stockholders. Set forth
below is a summary description of the material laws and regulations which affect 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.



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, particularly 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. For this reason, as well as others, 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. A bank holding companys failure to meet these requirements will generally be considered by the Federal Reserve Board to be an unsafe and unsound
banking practice.



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, a bank holding company also is required to file a written notice and obtain approval from the Federal Reserve Board prior to purchasing or redeeming its own
common stock or other equity securities. A bank holding company and its non-banking subsidiaries also are prohibited from engaging in tie-in arrangements that would require customers of any of its bank subsidiaries to purchase goods or
services from the bank holding company or any of its non-bank subsidiaries in order to obtain loan or other services from its bank subsidiaries.



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As a bank holding company, we must 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.



We also are 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).



Financial Services Modernization Legislation. In 1999, the
Gramm-Leach-Bliley Act of 1999 (the Financial Services Modernization Act) was enacted into law. The principal objectives of that Act were to establish a comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms and other financial service providers to permit a bank 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 Financial Services Modernization 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 federally insured banks with firms engaged principally in specified securities activities; and Section 32, which restricted officer, director, or employee interlocks between a
federally insured 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 longer-term activities of financial institutions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



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. 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In order for a bank holding company to become and to continue to be a financial holding company, and therefore to be eligible to engage in these
activities, all of its bank subsidiaries 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



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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 bank 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 even require the holding company to divest
itself of all of its bank subsidiaries.



In 2002, we became a
financial holding company under the Financial Services Modernization Act. Accordingly, as a financial holding company, we are now permitted to engage in any of the above described financial activities, in addition to those deemed closely related to
banking and which, as a result, may be engaged in by bank holding companies generally. Additionally, as a financial holding company, we do not need to obtain prior approval for the acquisition of companies or businesses engaged in such financial
activities. By contrast, 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 are 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.



At the present time we have no plans to engage in any of the financial activities that are permitted to be engaged in by financial holding companies.
Additionally, 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 extent 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.



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



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 Securities Exchange Act (public companies) and, therefore, applies to the Company. Among other things, the Sarbanes-Oxley Act:



| |  |  | provided for the creation of a five-member oversight board appointed by the Securities and Exchange Commission, known as the Public Company Accounting Oversight Board (or the
PCOAB), that sets standards for public accounting firms and invests the PCOAB with investigative and disciplinary powers in exercising its oversight responsibilities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | prohibits public 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | required 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 Securities Exchange Act of 1934 (Exchange Act Reports);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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 effectiveness of their disclosure procedures and controls;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requires, pursuant to Section 404 of the Sarbanes-Oxley Act, that (i) the chief executive and chief financial officers of a public company test and certify to the effectiveness of
their companys internal control over financial reporting and (ii) its outside auditors to independently test and issue a report as to whether the companys internal control over its financial reporting is effective and whether there are
any material weaknesses in the companys internal control over financial reporting;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requires that a majority of a public companys directors be independent of the companys management and the non-management directors that serve on a public companys
audit committee to meet standards of independence that are more stringent than those that apply to non-management directors generally;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requires public companies whose publicly traded securities have a value in excess of $75 million to file their Exchange Act Reports on a more accelerated basis than had been
required prior to the adoption of the Sarbanes-Oxley Act;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



We have taken the actions required by, and we believe we are in compliance with, the provisions of the Sarbanes-Oxley Act
that are applicable to us. Among other things, we have implemented disclosure controls and procedures and taken other actions to meet the expanded disclosure requirements and the certification requirements of the Sarbanes-Oxley Act. We also have
determined that six of our seven directors meet the independence requirements applicable to directors generally, and that all of the members of our audit committee meet the more stringent standards of independence, established pursuant to the
Sarbanes-Oxley Act.



Foothill Independent Bank



General. 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.



Various requirements and restrictions under the Federal and California banking laws affect the operations of the Bank. These 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 types
of deposits it may obtain and the interest it is permitted to pay on deposit accounts; the loans and investments that a bank may make; the borrowings that a bank may incur; the number and location of banking offices that a bank may establish and the
rate at which it may grow its assets; the acquisition and merger activities of a bank; the amount of dividends that a bank may pay; and the capital requirements that a bank must satisfy. A more detailed discussion regarding capital requirements that
are applicable to us and the Bank is set forth below under the caption Capital Standards and Prompt Corrective Action.



Like other FDIC-insured banks, the Bank is subject to periodic examination by its primary federal regulatory agency, which is the Federal Reserve Board.
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 have
become unsatisfactory or that the Bank or its management is violating any banking laws or regulations, 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 require the Bank to raise additional capital, to restrict
the Banks growth, to assess civil monetary penalties against the Banks officers or directors, to remove a banks officers or 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.



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Additionally, under California law the DFI conducts periodic examinations of the Bank and has many of the same remedial powers as the Federal Reserve Board.



Dividends and Other Transfers of Funds. Dividends from
the Bank constitute the principal source of cash for Foothill Independent Bancorp (the Bancorp), which is a legal entity separate and distinct from the Bank. The Bank is subject, however, 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 us to be an unsafe or
unsound practice.



Although dividend restrictions of this
nature have not been imposed on the Bank in the past, 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 by the Bank 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 the Bank would be permitted to pay to us, as well as restrictions on the Banks business operations that could restrict its growth and increase its costs of operations and thereby adversely
affect its operating results. See Capital Standards and Prompt Corrective Action below.



Restrictions on Transactions between the Bank and the Company and Company Affiliates. 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 the 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 federally insured 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 federally insured 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 (the sum of a banks common stock, non-redeemable preferred stock and retained earnings)-to-risk adjusted assets of 4%. In addition
to the risked-based guidelines, federal banking regulators require federally insured 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. However, for a banking organization to be rated by a bank regulatory agency above minimum capital requirements, the minimum leverage ratio of Tier 1 capital to total assets must be higher than 4% (see Prompt Corrective Action
and Other Enforcement Mechanisms below). In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, federal and state banking regulators have the discretion to set individual minimum
capital requirements for any banking organization at rates significantly above the minimum guidelines and ratios generally applicable to insured banking organizations, if the regulator believes that the financial condition or operating results of
the particular bank are worse than that of, or there are other risks faced by it that are greater than the risks faced by, most commercial banking organizations generally.



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 the minimum capital ratios prescribed by federal banking
regulations.



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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 practice at that institution warrants such treatment. At each
successive lower capital category, an insured depository institution is subject to greater operating restrictions and increased Prompt Corrective Action and Other Enforcement Mechanisms 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, 2004, the capital ratios of the Bank and compares those capital ratios to the federally established
capital requirements that must be met for a bank to be categorized as adequately-capitalized and well-capitalized, respectively, under the prompt corrective action regulations:



|                                       |  |                  |  |                             |  |                      
|-------------------------------------- |  | ---------------- |  | --------------------------- |  | ---------------------
|At December 31, 2004                   |  | The Banks Ratio |  | To be AdequatelyCapitalized |  | To be WellCapitalized
|Total Capital to Risk Weighted Assets  |  | 13.2%            |  | (=or>) 8.0%                 |  | (=or>) 10.0%         
|Tier I Capital to Risk Weighted Assets |  | 12.3%            |  | (=or>) 4.0%                 |  | (=or>) 6.0%          
|Tier I Capital to Average Assets       |  | 9.0%             |  | (=or>) 4.0%                 |  | (=or>) 5.0%          



As the table
indicates, at December 31, 2004 the Bank exceeded the capital ratios required to be classified, and it has been classified by the Federal Reserve Board, as a well capitalized institution under the federally established prompt corrective
action regulations.



Safety and Soundness Standards. In
addition to measures taken under the prompt corrective action provisions, federally insured banking organizations may be subject to potential enforcement actions by federal bank regulatory agencies 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 to liquidity or capital problems. 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 banking organization is expected to:



| |  |  | conduct periodic asset quality reviews to identify problem assets, such as problem loans or investments;
| | - |  | --------------------------------------------------------------------------------------------------------



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| |  |  | estimate the inherent losses in problem assets and establish and maintain adequate reserves, such as a loan loss reserve, sufficient to absorb estimated losses;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | compare problem asset totals to its 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 to which the bank is exposed.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 insured bank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 a banks deposit insurance upon finding that it has engaged in any unsafe or unsound practices, is in too unsafe or unsound a
condition to continue operations, or has violated any applicable laws, regulations, orders, or conditions imposed by the FDIC or the banks primary federal regulatory agency. California does not permit commercial banks to operate without FDIC
deposit insurance and, as a result, termination of a California banks FDIC insurance would result in its closure.



All FDIC-insured banking 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 first
quarter of 2005, the FDIC established the FICO assessment rate at approximately $0.0144 per $100 of assessable deposits of the insured banks. The FICO assessment rate for the fourth quarter of 2004 was approximately $0.0146 per $100 of assessable
deposits of the insured banks. The FICO assessment rates are subject to quarterly adjustments by the FDIC to reflect changes in the assessment bases of the FDICs insurance funds and, unlike the BIF assessments, do not vary on the basis of a
banks capital or supervisory risk categories.



Community Reinvestment Act and Fair Lending Developments. The Bank, like other federally insured banking organizations, 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 bank regulatory agencies to evaluate the performance of the financial institutions which they regulate to determine whether they
are meeting the credit needs of their local communities, including low-and moderate-income neighborhoods. A banks compliance with its CRA obligations is measured in accordance with a performance-based evaluation system. A bank may incur
substantial penalties and be required to take corrective measures in the event it is found to be in violation of the CRA or other fair lending laws. The federal banking agencies also may take compliance with those laws and CRA obligations into
account when regulating and supervising other activities of the banks they regulate and their bank holding companies. For example, when a bank holding company files an application with the Federal Reserve Board 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 holding companys
application.



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Interstate Banking and Branching. The Bank Holding Company Act permits bank holding companies from
any state to acquire banks and bank holding companies located in any other state, subject to conditions including nationwide- and state-imposed concentration limits. The Bank also has the ability, subject to certain restrictions, to acquire branches
outside California either by acquisition from or a merger with another bank. The establishment by a state bank of new bank branches (often referred to as de novo branches) in other states is also possible in states with laws that
expressly permit it. Interstate branches are subject to laws of the states in which they are located. Consolidations of and competition among banks has increased as banks have begun to branch across state lines and enter new markets.



USA Patriot Act of 2001. The USA Patriot Act of 2001, enacted into law
in response to the terrorist attacks on September 11, 2001, is intended to strengthen the ability of U.S. law enforcement and intelligence agencies 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 cash transactions exceeding $10,000; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



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



The U.S. Treasury Department also has adopted regulations requiring banking
institutions to incorporate a customer identification program into their written anti-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.
| | - |  | ---------------------------------------------------------------------------------------------------------------



Fair and Accurate Credit Transactions Act of 2003 (FACTA).
FACTA revises certain sections of the Fair Credit Reporting Act (FCRA) and establishes additional rights for consumers to obtain copies of and to correct their credit reports; addresses identity theft; and establishes additional
requirements for consumer reporting agencies and financial institutions that provide adverse credit information about consumers to those agencies. FACTA also extends the period during which consumers may opt-out of prescreened lists for credit or
insurance marketing solicitations; extends the statute of limitations for civil liability for violations of the Fair Credit Reporting Act; and requires a financial institutions affiliates that exchange consumer information for market
solicitation purposes to alert the consumer of the practice and allows the consumer to prohibit permanently all solicitations for marketing purposes. Certain provisions of FACTA became effective at the end of 2004, and its remaining provisions will
become effective on various dates in 2005. FACTA also preempts state laws that provide for similar or even more extensive regulations, such as the California Financial Information Privacy Act, which became effective in July 1, 2003 and had imposed
disclosure and reporting requirements on financial institutions based in California that were more extensive than those that are contained in FACTA. Because we had already implemented measures to comply with the California Financial Privacy Act, we
believe that we will be able to satisfy the material requirements of FACTA and the regulations implementing it without incurring any material increases in our operating expenses.



Check Clearing for the Twenty-First Century Act. The Check Clearing for the Twenty-First Century Act, also known as
Check 21, which became effective on October 28, 2004, is intended to revamp the way banks process checks. Check 21 will facilitate check truncation, a process which eliminates the original paper check from the check clearing process. As a result,
many checks will be processed electronically. Under Check 21, as a bank processes a check, funds



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from the check writers account are transferred to the check depositors account electronically, and an
electronic image of the check, which is a processable printout known as a substitute check or Image Replacement Document (IRD), will be considered the legal equivalent of the original check. Banks can choose to send substitute checks as electronic
files to be printed on-site or in close proximity to the paying bank. For banking institutions and their clients, these changes have the potential to reduce costs, improve efficiency in check collections and accelerate funds availability, while
alleviating dependence on the national transportation system.



Future Legislation and Regulatory Initiatives.In recent years, significant legislative proposals and reforms affecting the banking and 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, 2004, we had 163 full-time and 86 part-time employees,
all of whom are employees of the Bank and three of whom also are employees of the Bancorp. We believe that our relations with our employees is good.



Company Website



Our internet website address is www.foothillbank.com. Our Annual Report to Stockholders and Quarterly Reports as well as all of our SEC Filings 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



We
are subject to legal actions that arise in the ordinary course of our business. None of the legal proceedings that were pending at December 31, 2004 is expected to have a material adverse effect on us.



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



None.



ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT



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   |  | 64  |  | President and Chief Executive Officer                        |  | President and Chief Executive Officer                       
|                    |  |     | 
|Casey J. Cecala III |  | 49  |  | Executive Vice President                                     |  | Executive Vice President and Chief Credit Officer           
|                    |  |     | 
|Carol Ann Graf      |  | 59  |  | 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.



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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.



CASEY J. CECALA,
III. Mr. Cecala has been the Chief Credit Officer of the Bank since 2001 and was promoted to Executive Vice President in 2003. In May of 2004 he was appointed Executive Vice President of the Company. From 1998 to May 2001, he was a Senior Vice
President and Senior Credit Officer of the Bank. From 1992, when he joined the Bank, through September 1998, Mr. Cecala held other management positions with the Bank including as a Vice President.



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.



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PART II



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



Trading Market for Shares. Our shares of Common Stock are listed and trade on the NASDAQ National Market System under the symbol FOOT.
The following table sets forth the high and low closing sales prices per share of our Common Stock as reported on the NASDAQ National Market System for each of the fiscal quarters in 2004 and 2003. On March 9, 2005 the closing per share price was
$25.19 and, as of that same date, there were 1,026 record stockholders of the Company.



|                              |  |                                  |       |                 |   |       |                |     |   |  |   |     
|----------------------------- |  | -------------------------------- | ----- | --------------- | - | ----- | -------------- | --- | - |  | - | ----
|                              |  | Trading Prices ofCommon Stock(1) |       | Stock Dividends |   |       | Cash Dividends
|                              |  | High                             |       | Low             |   |      
|Year Ended December 31, 2004: |  |                                  |       |                 |   |       |                |     |   |  |   |     
|First Quarter                 |  | $                                | 23.44 |                 | $ | 20.00 |                |    |   |  | $ | 0.13
|Second Quarter                |  |                                  | 22.40 |                 |   | 18.91 |                |    |   |  |   | 0.13
|Third Quarter                 |  |                                  | 23.70 |                 |   | 20.00 |                |    |   |  |   | 0.13
|Fourth Quarter                |  |                                  | 23.85 |                 |   | 21.51 |                |    |   |  |   | 0.33
|                              |  |                                  |       |                
|Year Ended December 31, 2003: |  |                                  |       |                 |   |       |                |     |   |  |   |     
|First Quarter                 |  | $                                | 17.11 |                 | $ | 14.23 |                |    |   |  | $ | 0.11
|Second Quarter                |  |                                  | 18.81 |                 |   | 15.83 |                |    |   |  |   | 0.12
|Third Quarter                 |  |                                  | 20.97 |                 |   | 16.71 |                |    |   |  |   | 0.12
|Fourth Quarter                |  |                                  | 22.29 |                 |   | 19.13 |                | 9.0 | % |  |   | 0.33

---

|(1) | All trading prices have been retroactively adjusted for prior stock 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 applicable to the Company and the Bank under applicable government regulations, but also to support our further
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 this policy, the Company has paid regular quarterly cash dividends since September
of 1999 and, in January of 2005, the Board of Directors declared an $0.13 per share cash dividend, which is the 22nd consecutive 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 2005. However, the Board of Directors may change the amount or frequency of cash dividends, or even suspend the payment of dividends, to the extent that it deems
necessary or appropriate to achieve its objective of maintaining capital in amounts sufficient to support our growth as well as to meet regulatory capital requirements.



Stock Repurchases. In January of 2003, the Board of Directors authorized a 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. As of December 31, 2004, we had repurchased a total of 180,066 shares of our common stock under this program for an aggregate price of approximately $3,496,000.



Restrictions Applicable to the Payment of Dividends and Stock
Repurchases. Cash dividends from the Bank represent the principal source of funds available to the Company for paying cash dividends to stockholders and making stock repurchases, at least until such time, if any, as we may acquire or develop any
non-banking businesses. Therefore, government regulations, including the laws of the State of California, as they pertain to the payment of cash dividends by California state chartered banks, limit the amount of funds that will be available to the
Company to fund any



18



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##### Table of Contents

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. As of December 31, 2004, the sum of the Banks net income for that year plus its retained earnings for the prior two years totaled
$17,393,000 and its retained earnings totaled $50,298,000.



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. See BUSINESSSupervision and RegulationCapital Standards and Prompt Corrective Action contained in Part I of this Report. 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 DividendOn 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 these 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 foregoing description of the Rights is qualified in its entirety by reference to the Rights Agreement.



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



19



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##### Table of Contents

ITEM 6. SELECTED FINANCIAL DATA



The selected income statement data set forth below for the fiscal years ended December 31, 2004, 2003 and 2002, and the selected balance sheet data as of December 31, 2004 and 2003, are derived from the audited consolidated financial
statements of the Company examined by Vavrinek, Trine, Day and Company, LLP, registered public accountants, that are included elsewhere in this Report and should be read in conjunction with those consolidated financial statements and
Managements Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 of this Report. The selected income statement data for the fiscal years ended December 31, 2001 and 2000, and the selected balance sheet
data as of December 31, 2002, 2001 and 2000, are derived from audited consolidated financial statements examined by Vavrinek, Trine, Day and Company, LLP which are not included in this Report.



|                                                    |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|--------------------------------------------------- |  | --------------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                                    |  | Year Ended December 31,                       |          
|                                                    |  | 2004                                          |           |   | 2003 |   |           | 2002 |  |   | 2001      |   |  | 2000 |          
|                                                    |  | (Dollars in thousands, except per share data) |          
|Income Statement Data                               |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Interest income                                     |  | $                                             | 37,030    |   |      | $ | 35,680    |      |  | $ | 34,811    |   |  | $    | 36,736    |   |  | $ | 38,983    |  
|Interest expense                                    |  |                                               | (4,467    | ) |      |   | (4,283    | )    |  |   | (5,039    | ) |  |      | (9,030    | ) |  |   | (11,103   | )
|                                                    |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net interest income                                 |  |                                               | 32,563    |   |      |   | 31,397    |      |  |   | 29,772    |   |  |      | 27,706    |   |  |   | 27,880    |  
|Provision for possible loan losses                  |  |                                               |          |   |      |   | (348      | )    |  |   | (460      | ) |  |      | (498      | ) |  |   | (1,070    | )
|                                                    |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net interest income after provision for loan losses |  |                                               | 32,485    |   |      |   | 31,049    |      |  |   | 29,312    |   |  |      | 27,208    |   |  |   | 26,810    |  
|Other income                                        |  |                                               | 5,585     |   |      |   | 5,613     |      |  |   | 5,694     |   |  |      | 5,414     |   |  |   | 4,604     |  
|Other expense                                       |  |                                               | (23,610   | ) |      |   | (23,515   | )    |  |   | (22,934   | ) |  |      | (21,846   | ) |  |   | (20,794   | )
|                                                    |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Income before income taxes                          |  |                                               | 14,538    |   |      |   | 13,147    |      |  |   | 12,072    |   |  |      | 10,776    |   |  |   | 10,620    |  
|Applicable income taxes                             |  |                                               | (5,183    | ) |      |   | (4,726    | )    |  |   | (4,378    | ) |  |      | (3,926    | ) |  |   | (3,920    | )
|                                                    |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income                                          |  | $                                             | 9,355     |   |      | $ | 8,421     |      |  | $ | 7,694     |   |  | $    | 6,850     |   |  | $ | 6,700     |  
|                                                    |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Per Share Data                                      |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net incomeBasic(1) (2)                             |  | $                                             | 1.39      |   |      | $ | 1.27      |      |  | $ | 1.17      |   |  | $    | 1.04      |   |  | $ | 0.97      |  
|Net incomeDiluted(1) (2)                           |  |                                               | 1.31      |   |      |   | 1.18      |      |  |   | 1.09      |   |  |      | 0.99      |   |  |   | 0.94      |  
|Cash dividends(3)                                   |  |                                               | 0.72      |   |      |   | 0.68      |      |  |   | 0.43      |   |  |      | 0.40      |   |  |   | 0.36      |  
|Book value (at year-end)(1)                         |  | $                                             | 9.59      |   |      | $ | 9.07      |      |  | $ | 8.76      |   |  | $    | 7.92      |   |  | $ | 7.24      |  
|Weighted average shares outstandingBasic(1) (2)    |  |                                               | 6,721,826 |   |      |   | 6,613,062 |      |  |   | 6,562,700 |   |  |      | 6,571,543 |   |  |   | 6,906,748 |  
|Weighted average shares outstandingDiluted(1)(2)   |  |                                               | 7,158,586 |   |      |   | 7,140,144 |      |  |   | 7,059,565 |   |  |      | 6,912,383 |   |  |   | 7,149,019 |  
|                                                    | 
|                                                    |  | At December 31,                               |          
|                                                    |  | 2004                                          |           |   | 2003 |   |           | 2002 |  |   | 2001      |   |  | 2000 |          
|                                                    |  | (In thousands)                                |          
|Balance Sheet Data                                  |  |                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Investment securities                               |  | $                                             | 194,555   |   |      | $ | 145,550   |      |  | $ | 80,778    |   |  | $    | 79,743    |   |  | $ | 70,816    |  
|Loans and leases (net)                              |  |                                               | 500,607   |   |      |   | 455,101   |      |  |   | 437,441   |   |  |      | 404,200   |   |  |   | 364,782   |  
|Assets                                              |  |                                               | 786,955   |   |      |   | 686,158   |      |  |   | 604,818   |   |  |      | 550,141   |   |  |   | 505,825   |  
|Deposits                                            |  |                                               | 709,050   |   |      |   | 612,049   |      |  |   | 534,562   |   |  |      | 475,390   |   |  |   | 454,041   |  
|Other indebtedness(4)                               |  |                                               | 8,248     |   |      |   | 8,248     |      |  |   | 8,248     |   |  |      | 19,000    |   |  |   |          |  
|Stockholders equity                                |  | $                                             | 64,569    |   |      | $ | 60,788    |      |  | $ | 57,576    |   |  | $    | 51,852    |   |  | $ | 48,263    |  

---

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

|(2) | For information regarding the determination of basic and diluted earnings per share, see Note 17 to the Companys Consolidated Financial Statements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | For information regarding restrictions affecting the ability of the Company to pay cash dividends, see Note 13 to the Companys Consolidated Financial Statements.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | For information regarding other indebtedness, see Note 9 to the Companys Consolidated Financial Statements.
|--- | ------------------------------------------------------------------------------------------------------------



20



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##### Table of Contents

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 factors that could affect our future
financial 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. The Bank accounts for substantially all of our consolidated revenues and
income. Accordingly, the following discussion focuses primarily on the Banks operations and financial condition.



FORWARD-LOOKING STATEMENTS



The
discussion below in this Section of this Annual Report includes 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). Those Sections of the 1933 Act and 1934 Act provide a safe harbor for forward-looking statements to encourage companies to provide prospective information about their financial
performance so long as they provide meaningful, cautionary statements identifying important factors that could cause actual results to differ significantly from projected results. Forward-looking statements often 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. Any statements as to our expectations or beliefs concerning, or projections or forecasts of, our future financial performance or future financial condition, or with
respect to trends in our business or in our markets, are forward-looking statements. Factors that could affect our future operating results and cause them to differ, possibly significantly, from those currently anticipated are described in this
Section of this Report, including in the subsections entitled Critical Accounting Policies and Factors That Could Affect Our Future Financial Performance and, accordingly, this Section of this Report should be read in its
entirety.



CRITICAL ACCOUNTING POLICIES



Overview. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and general practices in the banking industry. The
information contained within our financial statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred. However, the carrying value of some of our assets can be
affected by the estimates and judgments we make about anticipated future events and circumstances and business and economic trends, and their effects on our operating results. In many cases, the occurrence or non-occurrence and the effects of those
events and circumstances are outside of our control. As a consequence, if events or circumstances, or their consequences, turn out differently than we had anticipated when we made our estimates or judgments, our operating results in the future also
could prove to be different, possibly materially, than those that are currently expected.



Judgments Regarding Reserves for Potential Loan Losses. The accounting policies we follow in determining the sufficiency of the reserves we establish for possible loan losses require us to make judgments and
assumptions about economic and market conditions and trends that can affect the ability of our borrowers to meet their loan payment obligations. For example, if economic or market conditions were to change in an unexpectedly adverse manner or
interest rates were to increase beyond the levels expected by us when we established the reserves for loan losses, those changed conditions could increase the risks of borrower payment defaults, which could require us to increase our reserves for
possible future loan losses. Since reserves are increased by a charge against income (known as the provision for loan losses), such changed conditions could cause our earnings to decline in the period when those increases are recorded.
(A more detailed discussion regarding the provision for loan losses is set forth below in the subsection entitled Results of Operation  Provision for Loan Losses.) Additionally, conditions or events of this nature could
require us to reduce the carrying values of the loans that are affected by these conditions (often referred to as loan write-downs or loan charge-offs). Since loans represent the largest component of our total assets, unanticipated
changes in economic or market conditions potentially can have a significant effect on the amount of our reported assets as set forth on our balance sheet.



21



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##### Table of Contents

Utilization of Deferred Income Tax Benefits. The provision that we make for income taxes in our
statements of income is based on, among other things, our 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, 2004, the total of the unused income tax
benefits (referred to in our consolidated financial statements as a deferred tax asset), available to reduce our income taxes in future periods was $3,382,000. Those tax benefits will expire over time unless used and, therefore, the
realization of those tax benefits is dependent on our generating taxable income in the future in amounts sufficient to enable us to use those tax benefits prior to their expiration. We have made a judgment, based on historical experience and current
and anticipated market and economic conditions and trends, that it is more likely than not that we will generate taxable income in future years sufficient to fully use those benefits. In the event, however, that our income was to decline in future
periods, making it less likely that those benefits could be fully used, we would be required to establish a valuation reserve to cover the potential loss of those tax benefits. The creation of such an allowance would result in an increase in the
provision we make for income taxes, and, therefore, would have the effect of reducing our net income.



RESULTS OF OPERATIONS



Overview
of Fiscal 2004 Operating Results



The principal
determinant of a banking organizations income is its 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 other interest bearing liabilities. A banks interest income and interest expense are, in turn, affected by a number of factors, many of which
are outside of our control, that affect interest rates and also the demand for loans and the ability of borrowers to meet their loan obligations. Those factors include the monetary policies of the Federal Reserve Board, national and local economic
conditions, and competition from other depository institutions and financial services companies.



The following table sets forth information regarding the interest income that we generated, the interest expense that we incurred, and our net interest
income and our net earnings, in the years ended December 31, 2004, 2003 and 2002:



|                    |  |                         |        |      |   |        |  |   |       
|------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                    |  | Year Ended December 31,
|                    |  | 2004                    |        | 2003 |   | 2002  
|                    |  | (In thousands)         
|Interest Income     |  | $                       | 37,030 |      | $ | 35,680 |  | $ | 34,811
|Interest Expense    |  |                         | 4,467  |      |   | 4,283  |  |   | 5,039 
|Net interest income |  |                         | 32,563 |      |   | 31,397 |  |   | 29,772
|Net Income          |  | $                       | 9,355  |      | $ | 8,421  |  | $ | 7,694 



During 2001 the
Federal Reserve Board adopted and began implementing 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 throughout 2002 and 2003,
as a hoped-for economic recovery had been slow to develop. Pursuant to that policy, the Federal Reserve Board reduced interest rates throughout that period, which caused the prime rate of interest charged by most banks to decline from a high of
9.50% to 4.75% in 2001, to 4.25% in November 2002 and, finally, to 4.00% in June 2003. 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 5.5% in fiscal 2004 from 6.0% in fiscal 2003 and from 6.6% in fiscal 2002.



Despite these declines in the yields on our interest earning assets, in fiscal 2004 we achieved a $934,000, or 11.1%, increase in net earnings to nearly
$9.4 million in fiscal 2004 from $8.4 million in fiscal 2003. This increase in net income in 2004 was primarily attributable to



| |  |  | an increase of $1.17 million in net interest income;
| | - |  | ----------------------------------------------------



| |  |  | an increase in non-interest bearing demand and lower interest bearing savings and money market deposits, and a decline in higher interest-bearing time deposits, in each case
relative to total deposits, which largely offset the effect of an increase in the volume of total deposits and increasing interest rates on interest expense; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a reduction in the growth of non-interest expenses, which increased by only $95,000, or less than 0.4%, in 2004 as compared to 2003, even though our total revenues (net interest
income plus other income) increased by $1.1 million or 3.1% in fiscal 2004.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



22



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##### Table of Contents

As the following table indicates, net earnings for 2004 represented a return on average assets of 1.25%
and a return on average equity of 15.05%, compared to 1.29% and 14.35%, respectively, for 2003.



|                      |  |       |   |  |       |   |  |       |  
|--------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|                      |  | 2004  |   |  | 2003  |   |  | 2002  |  
|Return on Assets      |  | 1.25  | % |  | 1.29  | % |  | 1.34  | %
|Return on Equity      |  | 15.05 | % |  | 14.35 | % |  | 14.07 | %
|Dividend Payout Ratio |  | 51.80 | % |  | 53.54 | % |  | 33.86 | %
|Equity to Asset Ratio |  | 8.33  | % |  | 8.99  | % |  | 9.53  | %



On June 30, 2004, the
Federal Reserve Board increased targeted interest rates by one-quarter percent, the first such increase in three and one-half years. Since then, the FRB has increased interest rates on five additional occasions, the most recent occurring on February
2, 2005, each time by one-quarter percent. Those increases, in turn, have led to increases in our prime rate of interest, as well as those charged by most banks, to a current level of 5.50%. Current forecasts project further increases in the prime
rate of interest to 6.50% or 7.00% by the end of calendar 2005. If those projected interest rate increases do occur, we expect that our net interest margin and, therefore, also our net interest income will increase modestly during the fiscal year
ending December 31, 2005.



Results of Operations for the
Years ended December 31, 2004 and 2003.



Net Interest
Income. The following table sets forth, for the years ended December 31, 2004, 2003 and 2002, respectively, our interest income and interest expense and our net interest income (in thousands of dollars) and the net yields on average earning
assets during those periods



|                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                               |  | Year Ended December 31, |        
|                                               |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|Total interest income(1) (2)                   |  | $                       | 37,456  |   |      | $ | 35,993  |      |  | $ | 35,165  |  
|Total interest expense(3)                      |  | $                       | 4,467   |   |      | $ | 4,283   |      |  | $ | 5,039   |  
|Net interest income                            |  | $                       | 32,989  |   |      | $ | 31,710  |      |  | $ | 30,126  |  
|Net average earning assets(2)                  |  | $                       | 687,238 |   |      | $ | 602,457 |      |  | $ | 529,174 |  
|Net yield on average earning assets(1) (2)(4)  |  |                         | 4.8     | % |      |   | 5.3     | %    |  |   | 5.7     | %
|Net yield on average earning assets(1) (2) (5) |  |                         | 4.6     | % |      |   | 4.8     | %    |  |   | 5.4     | %

---

|(1) | Interest income includes the effects of tax equivalent adjustments on tax exempt securities and leases using tax rates that approximate 35.6 percent for 2004, 35.9 percent for 2003
and 36.3 percent for 2002. Net yield on average assets excludes loan fees.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Loans, net of unearned discount, do not reflect average reserves for possible loan losses of $4,975,000 in 2004, $4,711,000 in 2003 and $4,378,000 in 2002. Loan fees of $1,456,000
in 2004, $2,581,000 in 2003 and $1,463,000 in 2002, 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 was one
non-accruing loan of $127,000 (0.02% of total loans outstanding) at December 31, 2004, and three non-accruing loans totaling $608,000 (0.1% of total loans outstanding) at December 31, 2003 and four non-accruing loans totaling $1,455,000 (0.4%, of
total loans outstanding) at December 31, 2002.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes savings, money market deposit accounts and time certificates of deposit.
|--- | ---------------------------------------------------------------------------------

|(4) | Net yields were determined inclusive of loan fees.
|--- | --------------------------------------------------

|(5) | Net yields were determined exclusive of loan fees.
|--- | --------------------------------------------------



Increase in interest income. The increase in interest income in fiscal 2004 was primarily attributable to the following factors (set forth in order
of importance in terms of their effect on interest income):



| |  |  | increases in loan volume and in the volume of investment securities; and
| | - |  | ------------------------------------------------------------------------



| |  |  | an increase in loan prepayment fees, due to refinancings of mortgage loans, or mortgage loan payoffs on sales of real properties, by borrowers who chose to take advantage of
declining interest rates or increasing property values in our markets.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Although these mortgage loan refinancings and payoffs generated increased fee income that helped to
increase our interest income in 2004, they could have the effect of reducing average yields on outstanding loans and, therefore, our net interest margin in future periods, because the loans that were refinanced or repaid generally bore interest at
higher rates than the other loans in our loan portfolio.



Increase in interest expense. The increase in interest expense was primarily attributable to the increase in the volume of interest bearing checking, savings and money market deposits, partially offset by a decline in time deposits
which bear higher rates of interest.



Information Regarding
Average Interest Earning Assets and Interest Bearing Liabilities. The following table sets forth (i) the average amounts of and the average interest rates charged on our interest earning assets and (ii) the average amounts of and the average
interest rates paid on our interest bearing liabilities. Averages were computed based upon daily balances and dollars are in thousands.



|                                    |  |                 |         |          |      |              |  |      |                 |  |          |         |              |   |        |                |     |          |  |             |         |  |   |        |  |     |  
|----------------------------------- |  | --------------- | ------- | -------- | ---- | ------------ |  | ---- | --------------- |  | -------- | ------- | ------------ | - | ------ | -------------- | --- | -------- |  | ----------- | ------- |  | - | ------ |  | --- | -
|                                    |  | 2004            |         |          | 2003 |              |  | 2002 |                
|                                    |  | Average Balance |         | Interest |      | Average Rate |  |      | Average Balance |  | Interest |         | Average Rate |   |        | AverageBalance |     | Interest |  | AverageRate |        
|Earning Assets:                     |  |                 |         |          |      |              |  |      |                 |  |          |         |              |   |        |                |     |          |  |             |         |  |   |        |  |     |  
|Investment Securities               |  |                 |         |          |      |              |  |      |                 |  |          |         |              |   |        |                |     |          |  |             |         |  |   |        |  |     |  
|U.S. Treasury                       |  | $               | 863     |          | $    | 18           |  | 2.1  | %               |  | $        | 555     |              | $ | 17     |                | 3.1 | %        |  | $           | 349     |  | $ | 15     |  | 4.3 | %
|U.S. Government Agencies            |  |                 | 139,477 |          |      | 4,365        |  | 3.1  |                 |  |          | 95,771  |              |   | 2,973  |                | 3.1 |          |  |             | 43,629  |  |   | 2,007  |  | 4.6 |  
|Municipal Securities(1)             |  |                 | 15,345  |          |      | 1,023        |  | 6.7  |                 |  |          | 7,992   |              |   | 600    |                | 7.5 |          |  |             | 8,119   |  |   | 657    |  | 8.1 |  
|Other Securities                    |  |                 | 4,779   |          |      | 184          |  | 3.9  |                 |  |          | 3,127   |              |   | 100    |                | 3.2 |          |  |             | 16,426  |  |   | 390    |  | 2.4 |  
|                                    |  |                 |         |          |      |              |  |      |                 |  |          |         |              |   |        |                |     |          |  |             |         |  |   |        |  |     |  
|Total Investment Securities         |  |                 | 160,464 |          |      | 5,590        |  | 3.5  |                 |  |          | 107,445 |              |   | 3,690  |                | 3.4 |          |  |             | 68,523  |  |   | 3,069  |  | 4.5 |  
|Federal Funds Sold                  |  |                 | 46,176  |          |      | 653          |  | 1.4  |                 |  |          | 34,370  |              |   | 359    |                | 1.0 |          |  |             | 27,504  |  |   | 430    |  | 1.6 |  
|Due from Banks  Time               |  |                 | 7,934   |          |      | 136          |  | 1.7  |                 |  |          | 8,320   |              |   | 122    |                | 1.5 |          |  |             | 7,544   |  |   | 194    |  | 2.6 |  
|Loans(2)                            |  |                 | 472,250 |          |      | 31,045       |  | 6.6  |                 |  |          | 451,351 |              |   | 31,742 |                | 7.0 |          |  |             | 424,443 |  |   | 31,379 |  | 7.4 |  
|Lease Financing(1)                  |  |                 | 414     |          |      | 32           |  | 7.7  |                 |  |          | 971     |              |   | 80     |                | 8.2 |          |  |             | 1,160   |  |   | 93     |  | 8.0 |  
|                                    |  |                 |         |          |      |              |  |      |                 |  |          |         |              |   |        |                |     |          |  |             |         |  |   |        |  |     |  
|Total Interest-Earning Assets(1)    |  | $               | 687,238 |          | $    | 37,456       |  | 5.5  | %               |  | $        | 602,457 |              | $ | 35,993 |                | 6.0 | %        |  | $           | 529,174 |  | $ | 35,165 |  | 6.6 | %
|                                    |  |                 |         |          |      |              |  |      |                 |  |          |         |              |   |        |                |     |          |  |             |         |  |   |        |  |     |  
|Interest Bearing Liabilities:       |  |                 |         |          |      |              |  |      |                 |  |          |         |              |   |        |                |     |          |  |             |         |  |   |        |  |     |  
|Domestic Deposits & Borrowed Funds: |  |                 |         |          |      |              |  |      |                 |  |          |         |              |   |        |                |     |          |  |             |         |  |   |        |  |     |  
|Savings Deposits(3)                 |  | $               | 351,309 |          | $    | 3,226        |  | 0.9  | %               |  | $        | 288,756 |              | $ | 2,585  |                | 0.9 | %        |  | $           | 242,305 |  | $ | 2,784  |  | 1.1 | %
|Time Deposits                       |  |                 | 70,801  |          |      | 847          |  | 1.2  |                 |  |          | 80,612  |              |   | 1,325  |                | 1.6 |          |  |             | 88,824  |  |   | 2,216  |  | 2.5 |  
|Short-Term borrowings               |  |                 |        |          |      |             |  | 0.0  |                 |  |          |        |              |   |       |                | 0.0 |          |  |             |        |  |   |       |  | 0.0 |  
|Long-Term borrowings                |  |                 | 8,248   |          |      | 394          |  | 4.8  |                 |  |          | 8,248   |              |   | 373    |                | 4.5 |          |  |             | 667     |  |   | 39     |  | 3.7 |  
|                                    |  |                 |         |          |      |              |  |      |                 |  |          |         |              |   |        |                |     |          |  |             |         |  |   |        |  |     |  
|Total Interest-Bearing Liabilities  |  | $               | 430,358 |          | $    | 4,467        |  | 1.0  | %               |  | $        | 377,616 |              | $ | 4,283  |                | 1.1 | %        |  | $           | 331,796 |  | $ | 5,039  |  | 1.5 | %
|                                    |  |                 |         |          |      |              |  |      |                 |  |          |         |              |   |        |                |     |          |  |             |         |  |   |        |  |     |  

---

|(1) | Interest income includes the effects of tax equivalent adjustments on tax exempt securities and leases using tax rates that approximate 35.6% for 2004, 35.9% for 2003 and 36.3% for
2002.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Loans, net of unearned discount, do not reflect average reserves for possible loan losses of $4,975,000 in 2004, $4,711,000 in 2003, and $4,378,000 in 2002. Loan fees of $1,455,000
in 2004, $2,582,000 in 2003, and $1,463,000 in 2002 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 was one
non-accruing loan of $127,000 (0.023 of total loans outstanding) at December 31, 2004, three non-accruing loans totaling $608,000 (0.1% of total loans outstanding) at December 31, 2003 and four non-accruing loans totaling $1,455,000 (0.4%, of total
loans outstanding) at December 31, 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



Net Interest Margin, Rate Sensitivity and Market Risk.



Net Interest Margin and Rate Sensitivity. Net interest margin is the difference between the interest we earn on our loans and other interest
earning assets, on the one hand, and the interest we pay on deposits and other interest bearing liabilities on the other hand, and is the principal determinant of net interest income.



24



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Like other banking organizations, our net interest margin is 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, savings and money market deposits, on the one hand, and higher priced time deposits, on the other hand.
| | - |  | ---------------------------------------------------------------------------------------------------------------



Impact of Changes in the Mix of Earning Assets and in the Mix of Interest
Bearing Liabilities. The increase in net interest income in 2004 was due primarily to (i) an increase in the volume of our outstanding loans, which we believe was attributable principally to marketing programs conducted in 2004, (ii) an increase
in the volume of investment securities, funded, in part, from reductions in other, lower yielding, earning assets, and (iii) the effects of a decline in interest rates paid on interest bearing deposits during the first nine months of 2004, coupled
with a reduction in the volume of our higher-priced time deposits that resulted from a decision we made to allow some of those deposits to run off rather than to seek their renewal.



The following table sets forth changes in interest earned, including loan
fees, and interest paid in each of the years ended December 31, 2004 and 2003 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 both to rate and volume changes 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 category. (Amounts are in thousands).



|                            |  |                       |       |                  |                   |      |   |           |   |      |                          |  |   |               |      |  |       |     |   |  |   |     |   |  |   |        |  
|--------------------------- |  | --------------------- | ----- | ---------------- | ----------------- | ---- | - | --------- | - | ---- | ------------------------ |  | - | ------------- | ---- |  | ----- | --- | - |  | - | --- | - |  | - | ------ | -
|                            |  | Investment Securities |       |                  | FederalFunds Sold |      |   | Loans (1) |   |      | Direct LeaseFinancing(1) |  |   | Time Deposits |      |  | Total |    
|Interest Earned On          |  | Taxable               |       | Non- Taxable (1) |                   |      |   |           |   |     
|2004 compared to 2003:      |  |                       |       |                  |                   |      |   |           |   |      |                          |  |   |               |      |  |       |     |   |  |   |     |   |  |   |        |  
|Increase (decrease) due to: |  |                       |       |                  |                   |      |   |           |   |      |                          |  |   |               |      |  |       |     |   |  |   |     |   |  |   |        |  
|Volume Changes              |  | $                     | 430   |                  | $                 | 923  |   |           | $ | 145  |                          |  | $ | 1,430         |      |  | $     | (43 | ) |  | $ | (6  | ) |  | $ | 2,879  |  
|Rate Changes                |  |                       | 1,047 |                  |                   | (500 | ) |           |   | 149  |                          |  |   | (2,127        | )(2) |  |       | (5  | ) |  |   | 20  |   |  |   | (1,416 | )
|                            |  |                       |       |                  |                   |      |   |           |   |      |                          |  |   |               |      |  |       |     |   |  |   |     |   |  |   |        |  
|Net Increase (Decrease)     |  | $                     | 1,477 |                  | $                 | 423  |   |           | $ | 294  |                          |  | $ | (697          | )    |  | $     | (48 | ) |  | $ | 14  |   |  | $ | 1,463  |  
|                            |  |                       |       |                  |                   |      |   |           |   |      |                          |  |   |               |      |  |       |     |   |  |   |     |   |  |   |        |  
|2003 compared to 2002:      |  |                       |       |                  |                   |      |   |           |   |      |                          |  |   |               |      |  |       |     |   |  |   |     |   |  |   |        |  
|Increase (decrease) due to: |  |                       |       |                  |                   |      |   |           |   |      |                          |  |   |               |      |  |       |     |   |  |   |     |   |  |   |        |  
|Volume Changes              |  | $                     | 438   |                  | $                 | (36  | ) |           | $ | 92   |                          |  | $ | 1,972         |      |  | $     | (16 | ) |  | $ | 18  |   |  | $ | 2,468  |  
|Rate Changes                |  |                       | 240   |                  |                   | (21  | ) |           |   | (163 | )                        |  |   | (1,609        | )(2) |  |       | 3   |   |  |   | (90 | ) |  |   | (1,640 | )
|                            |  |                       |       |                  |                   |      |   |           |   |      |                          |  |   |               |      |  |       |     |   |  |   |     |   |  |   |        |  
|Net Increase (Decrease)     |  | $                     | 678   |                  | $                 | (57  | ) |           | $ | (71  | )                        |  | $ | 363           |      |  | $     | (13 | ) |  | $ | (72 | ) |  | $ | 828    |  
|                            |  |                       |       |                  |                   |      |   |           |   |      |                          |  |   |               |      |  |       |     |   |  |   |     |   |  |   |        |  



|                            |  |                  |      |   |                     |   |      |                         |  |   |                      |   |       |   |   |  |   |        |  
|--------------------------- |  | ---------------- | ---- | - | ------------------- | - | ---- | ----------------------- |  | - | -------------------- | - | ----- | - | - |  | - | ------ | -
|Interest Paid On:           |  | Savings Deposits |      |   | Other Time Deposits |   |      | Long TermBorrowings (3) |  |   | Short TermBorrowings |   | Total |  
|2004 compared to 2003:      |  |                  |      |   |                     |   |      |                         |  |   |                      |   |       |   |   |  |   |        |  
|Increase (decrease) due to: |  |                  |      |   |                     |   |      |                         |  |   |                      |   |       |   |   |  |   |        |  
|Volume Changes              |  | $                | 573  |   |                     | $ | (147 | )                       |  | $ |                     |   |       | $ |  |  | $ | 426    |  
|Rate Changes                |  |                  | 68   |   |                     |   | (331 | )                       |  |   | 21                   |   |       |   |  |  |   | (242   | )
|                            |  |                  |      |   |                     |   |      |                         |  |   |                      |   |       |   |   |  |   |        |  
|Net Increase (Decrease)     |  | $                | 641  |   |                     | $ | (478 | )                       |  | $ | 21                   |   |       | $ |  |  | $ | 184    |  
|                            |  |                  |      |   |                     |   |      |                         |  |   |                      |   |       |   |   |  |   |        |  
|2003 compared to 2002:      |  |                  |      |   |                     |   |      |                         |  |   |                      |   |       |   |   |  |   |        |  
|Increase (decrease) due to: |  |                  |      |   |                     |   |      |                         |  |   |                      |   |       |   |   |  |   |        |  
|Volume Changes              |  | $                | 479  |   |                     | $ | (190 | )                       |  | $ | 345                  |   |       | $ |  |  | $ | 634    |  
|Rate Changes                |  |                  | (678 | ) |                     |   | (701 | )                       |  |   | (11                  | ) |       |   |  |  |   | (1,390 | )
|                            |  |                  |      |   |                     |   |      |                         |  |   |                      |   |       |   |   |  |   |        |  
|Net Increase (Decrease)     |  | $                | (199 | ) |                     | $ | (891 | )                       |  | $ | 334                  |   |       | $ |  |  | $ | (756   | )
|                            |  |                  |      |   |                     |   |      |                         |  |   |                      |   |       |   |   |  |   |        |  

---

|(1) | Interest income includes the effects of tax equivalent adjustments on tax exempt securities, loans and leases using tax rates which approximate 35.6% for 2004 and 35.9% in 2003.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes a decrease in loan fees of $1,126,000 in 2004 and an increase in loan fees of $1,119,000 in 2003. In 2002 loan fees declined by $100,000.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



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|(3) | Long term borrowings in 2004, 2003 and 2002 consist of junior subordinated debentures issued in December 2002. Those debentures mature in 30 years and bear interest at a rate equal
to the three-month LIBOR (London Inter Bank Offered Rate) rate plus 3.25% The interest rate on those borrowings in effect at December 31, 2004 was 5.80%.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Impact on Net Interest Margins of the Mix of Fixed and Variable Rate Loans. As a general rule, in an interest rate
environment characterized by declining market rates of interest, which occurred during the period from 2001 to mid-2004, a bank with a relatively high percentage of variable rate loans would experience a decline in net interest margins because such
loans would have repriced automatically when market rates of interest declined. By contrast, as a general rule, a bank with a large proportion of fixed rates loans would have experienced an increase in net interest margins, because (i)
the interest rates on those fixed rate loans would not have declined in response to declines in market rates of interest (although such declines might eventually have resulted in early prepayments of some of those loans by borrowers seeking to
refinance at lower rates of interest), and (ii) the interest paid on its deposits would have declined. 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. A bank with a higher proportion of variable loans in an
environment of increasing market rates of interest will, on the other hand, generally be able to offset more fully 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, 2004 (in thousands):



|                          |  |                |        |                  |   |                 |  |       |         |  |   |        
|------------------------- |  | -------------- | ------ | ---------------- | - | --------------- |  | ----- | ------- |  | - | -------
|                          |  | Maturing      
|                          |  | Within OneYear |        | One to FiveYears |   | After FiveYears |  | Total
|Total fixed rate loans    |  | $              | 4,922  |                  | $ | 53,892          |  | $     | 278,646 |  | $ | 337,460
|Total variable rate loans |  |                | 32,918 |                  |   | 29,493          |  |       | 106,204 |  |   | 168,615
|                          |  |                |        |                  |   |                 |  |       |         |  |   |        
|Total                     |  | $              | 37,840 |                  | $ | 83,385          |  | $     | 384,850 |  | $ | 506,075
|                          |  |                |        |                  |   |                 |  |       |         |  |   |        



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, savings and money market deposit accounts (core
deposits), as compared to time deposits, is likely to have, at least for the short term, a higher interest margin than a bank with a greater proportion of time deposits. A bank with a higher proportion of time deposits 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. By contrast, such reductions can be implemented more quickly on savings and money market
deposits. 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, at least for the short term, 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 will usually have to increase its interest rates on savings and money
market deposits to be able to retain them in response to increasing market rates of interest and competition from other depository institutions.



The average amounts (in thousands) of and the average rates paid on our deposits, by type, in the year ended December 31, 2004 are summarized below:



|                                    |  |                              |         |              |     |  
|----------------------------------- |  | ---------------------------- | ------- | ------------ | --- | -
|                                    |  | Year Ended December 31, 2004 |        
|                                    |  | Average Balance              |         | Average Rate |    
|Noninterest bearing demand deposits |  | $                            | 248,386 |              | 0.0 | %
|Savings Deposits(1)                 |  |                              | 351,309 |              | 0.9 | %
|Time Deposits(2)                    |  |                              | 70,801  |              | 1.2 | %
|                                    |  |                              |         |              |     |  
|Total Deposits                      |  | $                            | 670,496 |              | 0.6 | %
|                                    |  |                              |         |              |     |  



Market Risk and Net
Interest Margin in 2004 and 2003. As demonstrated by the impact of the reductions in market rates of interest during the three year period that ended in June 2004, our net interest margin and, therefore, our net interest income and net earnings
are affected by changes in market rates of interest (which we sometimes refer to as market risk). We attempt to reduce our exposure to market risk associated with interest rate fluctuations by seeking (i) to attract and maintain a
significant volume of demand and savings deposits that are not as sensitive to interest rate fluctuations or as costly as are time deposits, (ii) to match opportunities to reprice interest earning assets and interest bearing liabilities
in response to changes in market rates of interest, and (iii) to change the mix of interest earning assets and interest bearing liabilities in a manner that is designed to achieve increases in net interest income.



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In an effort to counteract the downward pressure on net interest margin, during the past year we have (i)
continued sales and marketing programs that are designed to increase our volume of loans, on which yields are higher than other earning assets, (ii) continued marketing programs designed to attract lower cost and less volatile core deposits while
allowing higher priced time deposits to run-off, in order to reduce our interest expense; and (iii) continued a loan repricing policy, first implemented in 2003, which places an interest rate floor, currently at 4.59%, that
is applicable to all new variable interest rate loans that we make. There is also an interest cap on these loans, which is currently at 8.99%.



As a result of these measures, at December 31, 2004:



| |  |  | the volume of outstanding loans was $45.8 million, or 10.0%, greater than at December 31, 2003;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | the volume of demand, savings and money market deposits was $93.7 million, or 17.4%, greater than at December 31, 2003, and represented 89% of total deposits as compared to 88% at
December 31, 2003; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | time deposits (including those in denominations of $100,000 or more) represented 11%, of total deposits, as compared to 12% at December 31, 2003.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



Despite these measures, our net interest margin (that is, tax-adjusted net
interest income stated as a percentage of average interest-earning assets) was 4.80% for the year ended December 31, 2004, compared to 5.27% for the year ended December 31, 2003. That decline was primarily due to the decrease in market rates of
interest during the first nine months of 2004. 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 $500 million-to-$1 billion (Peer Group Banks), primarily because we have been able to maintain the ratio of demand and savings deposits to total deposits at a higher level than that of the Peer Group Banks and to increase
the volume of our loans which generate higher yields than do our other interest earning assets.



The ability to maintain our net interest margin is not entirely within our control, however, 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 national monetary policies established and implemented by the Federal Reserve Board and by competitive conditions in our service areas.



Moreover, the effect on a banks net interest margin of changes in
market rates of interest is affected by the types and maturities of its earning assets and deposits. For example, a bank with a relatively high percentage of fixed rate loans will often encounter an increase in prepayments of those loans during
periods characterized by declining market rates of interest, thereby offsetting the potential positive impact of the fixed rate loans on net interest margins. Additionally, 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. Also, 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 will affect a banks net interest margin.



Provision for Loan and Lease Losses. Like virtually all banking organizations, 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 payment in full of a loan has become unlikely, the carrying value of the loan is reduced to what we estimate is its realizable value. This reduction, which is referred to as a loan
charge-off or write-down, is charged against and, to that extent, reduces the amount of our Loan Loss Reserve. We also periodically increase the Loan Loss Reserve (i) to replenish that Reserve after it has been reduced due to
loan charge-offs, (ii) to reflect changes in the volume of our outstanding loans, and (iii) to take account of increases in the risk of potential losses, which can occur due to a deterioration in the condition of borrowers or in the value of the
property or other assets 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, to that extent, increase the Loan Loss Reserve and, therefore, may reduce the amount of the provision that we would need to make to maintain the Loan Loss Reserve at a
level that we believe to be adequate.



We employ economic
models that are based on bank regulatory guidelines, industry standards and historical experience, to evaluate and determine the adequacy of our Loan Loss Reserve and, therefore, also the amount of the provision that we make for potential loan
losses. However, those determinations involve judgments or forecasts about



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existing economic trends and future economic and market conditions, and about the impact those trends and conditions may have on the ability of borrowers to
repay their loans. Those judgments and forecasts are subject to uncertainties over which we have no control. As a result, actual trends or future conditions and their effects on the performance of our loan portfolio may differ, possibly
significantly, from those anticipated by us at the time we make judgments about the adequacy of our Loan Loss Reserve and the need to make additional provisions for potential loan losses. Additionally, the actual performance of our portfolio of
loans in the future also can be affected by unanticipated events or conditions that might affect our particular service areas, such as earthquakes or other natural disasters. See the discussion above under the caption Critical Accounting
Policies and below under the caption Factors That Could Affect Our Future Financial Performance. Since loans represent the largest portion of our total assets, these judgments and forecasts can have a significant effect on the
amount of our reported assets as set forth on our balance sheet. Those judgments also determine the amount of the provisions we make for possible loan losses and, therefore, can have a significant effect on our operating results, as well. If
conditions or circumstances change from those that were expected at the time those judgments or forecasts were made, it could become necessary to increase the Loan Loss Reserve by making additional provisions for loan losses that would adversely
affect our operating results. Additionally, to the extent those conditions or events were to result in loan charge-offs, the total amount of our reported loans would decline as well.



One circumstance that could affect the adequacy of our Loan Loss Reserve would be an adverse change in the financial
condition of some of our borrowers. As a result, we review trends in loan delinquencies and in non-accrual loans as one of the indicators of the financial condition of our borrowers. An increase in loan delinquencies or non-accrual loans would
indicate that some of our borrowers are encountering financial difficulties; while a decline in loan delinquencies and, particularly in non-accrual loans, would suggest that borrowers are not encountering such financial problems.



The following table sets forth an analysis of our loan loss experience, by
category, for the past three years (with dollars in thousands).



|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |  
|------------------------------------------------------------------- |  | ----------------------- | ------- | -- | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                    |  | Year Ended December 31, |        
|                                                                    |  | 2004                    |         |    | 2003 |   |         | 2002 | 
|Average amount of loans and leases outstanding(1)                   |  | $                       | 472,664 |    |      | $ | 452,322 |      |  | $ | 425,603 |  
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |  
|Loan and lease loss reserve at beginning of year                    |  |                         | 4,947   |    |      |   | 4,619   |      |  |   | 4,206   |  
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |  
|Charge-Offs  Domestic Loans(2):                                    |  |                         |         |    |      |   |         |      |  |   |         |  
|Commercial, financial and agricultural                              |  |                         | (74     | )  |      |   |        |      |  |   | (77     | )
|Real Estate-construction                                            |  |                         |        |    |      |   |        |      |  |   |        |  
|Real Estate-mortgage                                                |  |                         |        |    |      |   | (25     | )    |  |   |        |  
|Consumer                                                            |  |                         | (15     | )  |      |   | (46     | )    |  |   | (18     | )
|Lease Financing                                                     |  |                         |        |    |      |   | (12     | )    |  |   |        |  
|Other                                                               |  |                         |        |    |      |   |        |      |  |   |        |  
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |  
|Total Charge-Offs                                                   |  |                         | (89     | )  |      |   | (83     | )    |  |   | (95     | )
|Recoveries  Domestic Loans(2):                                     |  |                         |         |    |      |   |         |      |  |   |         |  
|Commercial, financial and agricultural                              |  |                         | 126     |    |      |   | 62      |      |  |   | 46      |  
|Real Estate-construction                                            |  |                         |        |    |      |   |        |      |  |   |        |  
|Real Estate-mortgage                                                |  |                         | 26      |    |      |   |        |      |  |   |        |  
|Consumer                                                            |  |                         | 6       |    |      |   | 1       |      |  |   | 2       |  
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |  
|Total Recoveries                                                    |  |                         | 158     |    |      |   | 63      |      |  |   | 48      |  
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |  
|Net Recoveries (Net Charge-Offs)                                    |  |                         | 69      |    |      |   | (20     | )    |  |   | (47     | )
|Additions charged to operations                                     |  |                         |        |    |      |   | 348     |      |  |   | 460     |  
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |  
|Loan and lease loss reserve  balance at end of year                |  | $                       | 5,016   |    |      | $ | 4,947   |      |  | $ | 4,619   |  
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |  
|Ratios:                                                             |  |                         |         |    |      |   |         |      |  |   |         |  
|Net charge-offs to average loans/leases outstanding during the year |  |                         | (0.015  | )% |      |   | 0.004   | %    |  |   | 0.011   | %
|Loan loss reserve to total gross loans                              |  |                         | 1.00    | %  |      |   | 1.08    | %    |  |   | 1.04    | %
|Net loan charge-offs to loan loss reserve                           |  |                         | (1.38   | )% |      |   | 0.40    | %    |  |   | 1.02    | %
|Net loan charge-offs to provision for loan losses                   |  |                         | 0.00    | %  |      |   | 5.75    | %    |  |   | 10.22   | %
|Loan loss reserve to non-performing loans                           |  |                         | 3949.61 | %  |      |   | 813.65  | %    |  |   | 317.46  | %

---

|(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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



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We did not make any provisions for potential loan losses during 2004. By contrast, in 2003 we made
provisions totaling $348,000. Our decision not to make any provisions in 2004 for potential loan losses was based on our review of the quality of our loans, our historical loan loss experience in the prior two years during which loan losses were
immaterial despite difficult economic conditions, and our forecasts of economic and market trends, all of which led us to conclude that our Loan Loss Reserve remained adequate to cover possible future loan losses. At December 31, 2004 the Loan Loss
Reserve was approximately $5,016,000 or 1.00% of total loans and leases outstanding, compared to approximately $4,947,000 or 1.08% of total loans and leases outstanding at December 31, 2003. While we did not make a provision in 2004 for potential
loan losses, we did make a $78,000 provision to the reserve for potential losses on off-balance sheet commitments in the third quarter of 2004. That provision, which is recorded as part of our other expenses, was necessitated by an increase in the
balance of outstanding unfunded lines of credit during that period and was not due to any perceived change of an adverse nature in the financial condition of customers to which unfunded lines of credit had been made.



At December 31, 2004, non-performing loans (which consist primarily of loans
for which there have been no payments of principal or interest for more than 90 days) totaled $127,000, or 0.02% of total loans then outstanding, compared to $608,000, or 0.1%, of total loans outstanding at December 31, 2003 and $1,455,000 or 0.4%
of total loans outstanding at December 31, 2002. As a result of that improvement, the ratio of our Loan Loss Reserve to non-performing loans improved to 3,949.61% at December 31, 2003, as compared to 813.65% and 317.468% at December 31, 2003 and
2002, respectively.



Non-Interest Income. The following
table identifies the components of and the percentage changes in non-interest income in 2004 as compared to 2003.



|                          |  |                         |       |                      |   |               |  |      |   
|------------------------- |  | ----------------------- | ----- | -------------------- | - | ------------- |  | ---- | --
|                          |  | Year Ended December 31, |       | % Increase(Decrease) |  
|                          |  | 2004                    |       | 2003                 |   | 2004 vs. 2003 | 
|                          |  | (Dollars in thousands)  |       |                      |  
|Non Interest Income       |  |                         |       |                      |   |               |  |      |   
|Services fees             |  | $                       | 4,999 |                      | $ | 5,000         |  | (0.2 | )%
|Gain on sale of SBA loans |  |                         | 5     |                      |   | 5             |  | N/M  |   
|Other                     |  |                         | 581   |                      |   | 608           |  | (4.4 | )%
|                          |  |                         |       |                      |   |               |  |      |   
|                          |  | $                       | 5,585 |                      | $ | 5,613         |  | (0.5 | )%
|                          |  |                         |       |                      |   |               |  |      |   



The decrease in
non-interest income was primarily attributable to decreases in transaction fees and service charges collected on deposits and other banking transactions as compared to 2003.



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, such as insurance premiums, marketing expenses, data processing costs, professional
fees and provisions made to establish contingency reserves, such as the $78,000 provision to the reserve for potential losses on off-balance sheet commitments discussed above.



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.



Set forth below is information regarding non-interest expense incurred by us in the years ended December 31, 2004 and 2003:



|                                  |  |                         |        |   |                       |   |        |               |  |      |   
|--------------------------------- |  | ----------------------- | ------ | - | --------------------- | - | ------ | ------------- |  | ---- | --
|                                  |  | Year Ended December 31, |        |   | % Increase (Decrease) |  
|                                  |  | 2004                    |        |   | 2003                  |   |        | 2004 vs. 2003 | 
|Non Interest Expenses             |  |                         |        |   |                       |   |        |               |  |      |   
|Salaries and employee benefits    |  | $                       | 11,697 |   |                       | $ | 11,822 |               |  | (1.1 | )%
|Net occupancy expense of premises |  |                         | 2,631  |   |                       |   | 2,496  |               |  | 5.4  | % 
|Furniture and equipment expenses  |  |                         | 1,665  |   |                       |   | 1,537  |               |  | 8.3  | % 
|Other expenses                    |  |                         | 7,617  |   |                       |   | 7,660  |               |  | (0.6 | )%
|                                  |  |                         |        |   |                       |   |        |               |  |      |   
|                                  |  | $                       | 23,610 |   |                       | $ | 23,515 |               |  | 0.4  | % 
|                                  |  |                         |        |   |                       |   |        |               |  |      |   
|Efficiency Ratio                  |  |                         | 63.0   | % |                       |   | 63.9   | %             |  |      |   



29



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##### Table of Contents

As the table above indicates, non-interest expense increased only modestly in 2004, as compared to 2003,
as reductions in employee compensation expenses substantially offset increases in our net occupancy expense and expenses incurred in procuring additional equipment and furnishings. As a result of the fact that, in 2004, non-interest expense
increased by only $95,000, while our net interest income increased by nearly $1.2 million, we were able to improve our efficiency ratio to 63.0% from 63.9% in 2003. 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).



Income Taxes. The following table sets forth comparative information regarding the provisions that we made for income taxes and our effective
income tax rates for the periods ended December 31, 2004 2003 and 2002, respectively:



|                           |  |      |        |   |      |   |        |      |  |   |        |  
|-------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                           |  | 2004 |        |   | 2003 |   |        | 2002 | 
|Income before income taxes |  | $    | 14,538 |   |      | $ | 13,147 |      |  | $ | 12,072 |  
|Provision for income taxes |  | $    | 5,183  |   |      | $ | 4,726  |      |  | $ | 4,378  |  
|Effective tax rate         |  |      | 35.7   | % |      |   | 36.0   | %    |  |   | 36.3   | %



The increase in the
provision for income taxes was primarily the result of the increases in our pre-tax income. As discussed above, under the caption Critical Accounting Policies our effective income tax rates reflect the beneficial impact of our ability to
use certain income tax benefits available under state and federal income tax laws.



FINANCIAL CONDITION



Total
Assets. Our total assets increased during 2004 by approximately $100.8 million, or 14.7%, to $786.9 million at December 31, 2004 from $686.2 million at December 31, 2003. Contributing to the growth of our assets in 2004 were increases of $45.5
million, or 10.0%, in outstanding loans and $49.0 million, or 33.7%, in our investment portfolio. Those increases were funded primarily by an increase in total deposits.



The following tale sets forth the dollar amounts (in thousands) of our interest earning assets at December 31:



|                                                          |  |                |         |      |   |        
|--------------------------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                                          |  | 2004           |         | 2003
|                                                          |  | (In thousands)
|Federal funds sold and overnight repurchase agreements    |  | $              | 28,900  |      | $ | 18,500 
|Interest-bearing deposits in other financial institutions |  |                | 9,803   |      |   | 7,425  
|Investment securities held-to-maturity                    |  |                | 7,980   |      |   | 8,900  
|Investment securities available-for-sale                  |  |                | 186,575 |      |   | 136,650
|Total loans, net                                          |  |                | 500,607 |      |   | 455,101



We currently
anticipate that we will achieve modest asset growth in the year ending December 31, 2005, which is expected to result from increased lending and deposit activity that we expect will be generated by our marketing programs.



Loans



Types of Loans. Set forth below is information regarding the actual volume of our loans, by type or category of loan,
at December 31:



|                                       |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                       |  | 2004           |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                       |  | (In thousands) |        
|Types of Loans:                        |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial, financial and agricultural |  | $              | 40,287  |   |      | $ | 44,855  |      |  | $ | 44,136  |   |  | $    | 48,077  |   |  | $ | 47,744  |  
|Real Estate construction               |  |                | 15,326  |   |      |   | 27,077  |      |  |   | 34,492  |   |  |      | 16,091  |   |  |   | 12,647  |  
|Real Estate mortgage                   |  |                | 445,769 |   |      |   | 381,563 |      |  |   | 357,707 |   |  |      | 337,626 |   |  |   | 299,981 |  
|Consumer                               |  |                | 3,101   |   |      |   | 3,816   |      |  |   | 4,073   |   |  |      | 4,718   |   |  |   | 6,400   |  
|Lease Financing                        |  |                | 341     |   |      |   | 528     |      |  |   | 1,211   |   |  |      | 1,360   |   |  |   | 1,164   |  
|All other (including overdrafts)       |  |                | 1,251   |   |      |   | 2,263   |      |  |   | 508     |   |  |      | 626     |   |  |   | 679     |  
|                                       |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Subtotal:                              |  | $              | 503,075 |   |      | $ | 460,102 |      |  | $ | 442,127 |   |  | $    | 408,498 |   |  | $ | 368,615 |  
|                                       |  |                |         |   |     
|Less:                                  |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Unearned Discount                      |  |                | (452    | ) |      |   | (54     | )    |  |   | (67     | ) |  |      | (92     | ) |  |   | (141    | )
|Reserve for loan and lease losses      |  |                | (5,016  | ) |      |   | (4,947  | )    |  |   | (4,619  | ) |  |      | (4,206  | ) |  |   | (3,692  | )
|                                       |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total                                  |  | $              | 500,607 |   |      | $ | 455,101 |      |  | $ | 437,441 |   |  | $    | 404,200 |   |  | $ | 364,782 |  
|                                       |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  



30



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##### Table of Contents

Loan Maturities. The maturities of our loans, as of December 31, 2004, presented by type or
category of loan, is set forth below (in thousands):



|                                       |  |                 |        |                   |   |                  |  |       |         |  |   |        
|-------------------------------------- |  | --------------- | ------ | ----------------- | - | ---------------- |  | ----- | ------- |  | - | -------
|                                       |  | Maturing       
|                                       |  | Within One Year |        | One to Five Years |   | After Five Years |  | Total
|Commercial, financial and agricultural |  | $               | 17,217 |                   | $ | 10,885           |  | $     | 10,496  |  | $ | 38,598 
|Real Estate construction               |  |                 | 5,981  |                   |   | 2,221            |  |       | 7,124   |  |   | 15,326 
|Real Estate mortgage                   |  |                 | 12,024 |                   |   | 68,816           |  |       | 366,618 |  |   | 447,458
|Consumer                               |  |                 | 1,903  |                   |   | 665              |  |       | 533     |  |   | 3,101  
|Lease Financing                        |  |                 | 0      |                   |   | 341              |  |       |        |  |   | 341    
|All other                              |  |                 | 716    |                   |   | 457              |  |       | 78      |  |   | 1,251  
|                                       |  |                 |        |                   |   |                  |  |       |         |  |   |        
|Total                                  |  | $               | 37,841 |                   | $ | 83,385           |  | $     | 384,849 |  | $ | 506,075
|                                       |  |                 |        |                   |   |                  |  |       |         |  |   |        



Information
Regarding Non-Performing Loans. The table which follows sets forth, as of the end of each of the years in the five year period ended December 31, 2004, 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), or (iii) that had been placed on non-accrual status.



|                                     |  |                 |     |      |   |      |  |      |       |      |   |       |  |   |      
|------------------------------------ |  | --------------- | --- | ---- | - | ---- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                                     |  | At December 31,
|                                     |  | 2004            |     | 2003 |   | 2002 |  | 2001 |       | 2000
|                                     |  | (In thousands) 
|Loans More Than 90 Days Past Due(1): |  |                 |     |      |   |      |  |      |       |      |   |       |  |   |      
|Aggregate Loan Amounts:              |  |                 |     |      |   |      |  |      |       |      |   |       |  |   |      
|Commercial                           |  | $               | 9   |      | $ |     |  | $    |      |      | $ | 34    |  | $ |     
|Real Estate                          |  |                 |    |      |   | 120  |  |      |      |      |   |      |  |   |     
|Consumer                             |  |                 | 1   |      |   |     |  |      | 5     |      |   |      |  |   | 17   
|Aggregate Leases                     |  |                 |    |      |   |     |  |      |      |      |   |      |  |   |     
|Troubled Debt Restructurings(2)      |  |                 |    |      |   | 18   |  |      | 1,096 |      |   | 1,178 |  |   | 858  
|Non-Accrual Loans(3)                 |  |                 | 127 |      |   | 608  |  |      | 1,455 |      |   | 2,717 |  |   | 2,319
|                                     |  |                 |     |      |   |      |  |      |       |      |   |       |  |   |      
|                                     |  | $               | 137 |      | $ | 746  |  | $    | 2,556 |      | $ | 3,929 |  | $ | 3,194
|                                     |  |                 |     |      |   |      |  |      |       |      |   |       |  |   |      

---

|(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 2003, 2002, 2001 and 2000 were those required to have been paid
in accordance with the original terms of those loans.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | There was one loan on non-accrual status at December 31, 2004, three loans at December 31, 2003, four loans at December 31, 2002, six loans at each of December 31, 2001 and December
31, 2000. The interest amounts that would have been collected on these loans had they remained current in accordance with their original terms were $-0- in 2004, $90,000 in 2003, $117,000 in 2002, $197,000 in 2001, and $644,000 in 2000.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Deposits. During 2004 we again conducted
programs that enabled us to increase deposits to provide additional funds that we used to grow our loan and investment portfolios. Set forth below are the average amounts (in thousands of dollars) of, and the average rates paid on, deposits in each
of the years ended December 31, 2004, 2003 and 2002:



|                                    |  |                         |         |             |      |   |                |      |             |  |      |                |  |             |         |  |      |  
|----------------------------------- |  | ----------------------- | ------- | ----------- | ---- | - | -------------- | ---- | ----------- |  | ---- | -------------- |  | ----------- | ------- |  | ---- | -
|                                    |  | Year Ended December 31, |        
|                                    |  | 2004                    |         |             | 2003 |   |                | 2002 |            
|                                    |  | AverageBalance          |         | AverageRate |      |   | AverageBalance |      | AverageRate |  |      | AverageBalance |  | AverageRate |        
|Noninterest-bearing demand deposits |  | $                       | 248,386 |             |     |   |                | $    | 212,278     |  |     |                |  | $           | 182,178 |  |     |  
|Savings deposits(1)                 |  |                         | 351,309 |             | 0.92 | % |                |      | 288,756     |  | 0.89 | %              |  |             | 242,304 |  | 1.15 | %
|Time deposits(2)                    |  |                         | 70,801  |             | 1.20 | % |                |      | 80,612      |  | 1.64 | %              |  |             | 88,824  |  | 2.49 | %
|                                    |  |                         |         |             |      |   |                |      |             |  |      |                |  |             |         |  |      |  
|Total deposits                      |  | $                       | 670,496 |             | 0.61 | % |                | $    | 581,646     |  | 0.67 | %              |  | $           | 513,306 |  | 0.98 | %
|                                    |  |                         |         |             |      |   |                |      |             |  |      |                |  |             |         |  |      |  

---

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

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



31



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##### Table of Contents

As indicated in the above table, in 2004 the average volume of deposits increased by $88.2 million, or
15.1%, as compared to the volume of deposits during 2003. Contributing to that increase was an increase of $98.0 million, or 19.5%, in the volume of our average 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 2004, we reduced the average volume of time deposits (including those in denominations of $100,000 or more) by $9.8 million, or 12.2%. As
a result, our core demand, savings and money market deposits represented 89.0% of total deposits at the end of 2004 as compared to 87.8% at the end of 2003, with time deposits (including those in denominations of $100,000 or more) representing 11.0%
of total deposits in 2004 as compared to 12.2% in 2003.



Liquidity Management. We have established liquidity management policies which are designed to achieve a matching of sources and uses of funds in order to enable us to fund our customers requirements for loans and for deposit
withdrawals. In accordance 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, 2004, the principal sources of liquidity consisted
of $23.6 million in cash and demand balances due from other banks and $28.9 million of Federal funds sold and overnight repurchase agreements which, together, totaled $52.5 million. Other sources of liquidity include $176.1 million in securities
available for sale, of which approximately $10.9 million mature within one year; $0.3 million in securities held to maturity which mature within one year; and $9.8 million 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 $3.4 million at December 31, 2004, require regular installment payments from customers, providing us with a steady flow
of internally generated cash.



We also have a revolving line of
credit from the Federal Home Loan Bank, under which available and unused borrowings totaled $35.0 million as of December 31, 2004. 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 million 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 selling 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.



Cash Flows.



Net Cash Provided by Operations. During the year ended December 31, 2004 operations generated net cash of $9.4 million as compared to $4.6 million
in the year ended December 31, 2003. This increase was primarily attributable to a $1.8 million increase in interest and fee income generated by our interest-earning assets and a $3.9 million increase in service fees and other income. By contrast,
cash outflows from operations, principally interest paid on interest-bearing deposits and cash paid to fund employee compensation expense and accounts payable, increased by only $870,000 in 2004 as compared to 2003.



Net Cash Used in Investment Activities. In 2004, we used cash of
approximately $102.3 million for investment activities, consisting primarily of purchases of securities held for sale and increases in loan volume, that were funded primarily by sales of lower yielding held-for-sale securities, funds from increases
in deposits, and decreases in the amount of deposits held at other banks.



Net Cash Provided by Financing Activities. Financing activities, consisting primarily of a $97.1 million increase in deposits and proceeds from the exercise of employee stock options, generated net cash of
$92.3 million in 2004, as compared to $72.4 million in 2003. We used that cash in 2004 to fund the increases, as described above, in interest earning assets, principally loans and available-for-sale securities, and to pay cash dividends to our
stockholders totaling $4.9 million and to repurchase $500,000 of our outstanding shares.



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Contractual Obligations.



Set forth below is information regarding our material contractual obligations as of December 31, 2004:



Operating Lease Obligations. As of December 31, 2004, the amounts of
our future minimum payment obligations (stated in thousands) under real property and equipment leases were:



|           |  |        |      
|---------- |  | ------ | -----
|Year       |  | Amount
|2005       |  | $      | 1,325
|2006       |  |        | 1,046
|2007       |  |        | 879  
|2008       |  |        | 744  
|2009       |  |        | 677  
|Thereafter |  |        | 1,645
|           |  |        |      
|Total      |  | $      | 6,316
|           |  |        |      



Maturing Time
Certificates Of Deposits. Set forth below is a maturity schedule, as of December 31, 2004, of domestic time certificates of deposit of $100,000 or more (with amounts stated in thousands):



|                               |  |                     |       
|------------------------------ |  | ------------------- | ------
|                               |  | At December 31,2004
|Three Months or Less           |  | $                   | 19,542
|Over Three through Six Months  |  |                     | 5,777 
|Over Six through Twelve Months |  |                     | 5,725 
|Over Twelve Months             |  |                     | 11,016
|                               |  |                     |       
|Total                          |  | $                   | 42,060
|                               |  |                     |       



Based on our
historical experience, we believe that at least 80% of these time certificates of deposit will be renewed by depositors, unless we decide to reduce the volume of such deposits by reducing the interest rates we will pay to maintain them.



Junior Subordinated Debentures. Pursuant to rulings of the Federal
Reserve Board, bank holding companies have been permitted to issue long term subordinated debt instruments that will, subject to certain conditions, qualify as, and augment, capital for regulatory purposes. Pursuant to those rulings, in December of
2002 we issued $8,248,000 of floating rate junior subordinated deferrable interest debentures (the Debentures) to an institutional investor as part of a pooled securitization transaction by that investor. The trust preferred securities
were issued and sold by a grantor trust, of which we own all of the outstanding common securities, and the net proceeds from the sale of the trust preferred securities were paid to us in exchange for the issuance of the Debentures to the trust. The
payment terms of the Junior Subordinated Debentures correspond to the payment terms of the trust preferred securities and payments on the Debentures have been and in the future will be used to make interest and principal payments that come due to
the institutional investor on the trust preferred securities.



The Debentures are subordinated to all of our existing and future borrowings and mature on December 26, 2032; but are redeemable, at par, at our option beginning December 26, 2007. We are required to make quarterly interest payments on
these Debentures at an interest rate which, as of December 26, 2004, was 3.25% above the three-month LIBOR Rate (London Inter Bank Offered Rate). The interest rate resets quarterly and the interest rate on the Debentures for the three-month period
ending March 25, 2005 is 5.80%.



Until December 2003, we
consolidated the trust into our consolidated financial statements and in accordance with a ruling issued by the Federal Reserve Board, reported the net amount of the trust preferred securities it had issued as Tier 1 capital for regulatory purposes.
In accordance with FASB Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, which was adopted and became effective on December 31, 2003, we have ceased consolidating the trust
into our consolidated financial statements. The adoption of FIN No. 46 created uncertainty for us, as well as other bank holding companies that had issued similar debentures, as to whether the Debentures would continue to qualify as Tier 1 capital,
because we could no longer consolidate the trust into our consolidated financial statements. However, on February 28, 2005, the Federal Reserve Board issued a new rule which provides that, notwithstanding the deconsolidation of such trusts, junior
subordinated debentures, such as those issued by us, may continue to constitute up to 25% of a bank holding companys Tier 1 capital, subject to certain new limitations which will not become effective until March 31, 2009 and which, in any
event, are not expected to affect the treatment of the Companys Debentures as Tier 1 capital for regulatory purposes.



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During the second quarter of 2003, $4 million of the net proceeds from the issuance of the Debentures
were used to purchase Bank-owned life insurance policies on key management employees of the Bank, with the Bank as the beneficiary under such policies. The purposes of bank-owned life insurance (commonly known in the banking industry as
BOLI) are (i) to enable the Bank to offer employee retirement and benefit plans designed to attract and retain key management employees, by providing the Bank with a source of funds (primarily from the cash surrender value of such
policies) that the Bank can use to pay benefits under those plans, and (ii) to protect the Bank against the costs or losses that could occur as a result of the death of any key management employee. The remainder of the proceeds from the issuance of
the Debentures 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.



Deferred Compensation Obligations. We maintain a nonqualified, unfunded deferred compensation plan for certain key management personnel. Under this
plan, participating management employees may defer compensation, in return for which those employees will receive certain payments upon retirement, death, or disability, consisting of payments for 10 years commencing upon retirement or reduced
benefits upon early retirement, disability, or termination of employment. At December 31, 2004, our aggregate payment obligations under this plan totaled $4.6 million. Based on the age of the participants in this plan, it is our current expectation
that this amount would be paid over a period that should range from the year 2005 to the year 2021. In order to provide funds to pay these benefits, we purchased life insurance policies on the participants in this plan, the cash surrender values or
death benefits of which are designed to cover the payments that we will become obligated to make to plan participants.



Supplemental Executive Retirement Plan. We maintain a nonqualified, unfunded supplemental executive retirement plan for certain key management
personnel. Under this plan, participating employees are eligible to receive 40% of their final average monthly salary upon reaching 65 years of age and completing 10 years of service with the Bank. This plan provides for payments for fifteen years
commencing upon retirement. At December 31, 2004, our aggregate payment obligations under this plan totaled $8.3 million. Based on the age of the participants in this plan, it is our current expectation that this amount would be paid over a period
that should range from 2010 to 2049. In order to provide funds to pay these benefits, we have purchased life insurance policies on a group of employees of the Bank, the cash surrender values or death benefits of which are designed to cover the
payments that we will become obligated to make to plan participants.



Loan Commitments and Standby Letters of Credit. In the ordinary course of business we make commitments to extend credit and issue standby commercial letters of credit to or for our customers. At December 31, 2004 and 2003,
contractual commitments to extend credit to customers totaled $53.9 million and $46.0 million, respectively, and obligations under standby letters of credit totaled $3.0 and $1.4 million, respectively, at the end of each of those years.



Commitments to extend credit and standby letters of credit generally have
fixed expiration dates or other termination clauses and the customer may be required to pay a fee and meet other conditions in order to draw on those commitments or standby letters of credit. We expect, based on historical experience, that many of
the commitments will expire without being drawn upon and, therefore, the total commitment amounts do not necessarily represent future cash requirements.



To varying degrees, commitments to extend credit involve elements of credit and interest rate risk for us that are in excess of the amounts recognized in
our balance sheet. Our exposure to credit loss in the event of nonperformance by the customers to whom such commitments are made is equal to the amount of those commitments. As a result, before making such a commitment to a customer, we evaluate the
customers creditworthiness using the same underwriting standards that we would apply when deciding whether or not to approve loans to the customer. In addition, we often require the customer to secure its payment obligations for amounts drawn
on such commitments with collateral such as accounts receivable, inventory, property, plant and equipment, income-producing commercial properties, residential properties or properties under construction.



A standby letter of credit is a conditional commitment 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 loan commitments to customers.



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 or in the utilization of outstanding loan commitments or standby letters of credit and any
increase in deposit withdrawals that might occur in the foreseeable future.



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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 the continuing growth of our banking franchise. At the same
time, it is the policy of the Board of Directors to pay cash dividends if earnings exceed the amounts the Board deems to be necessary to meet that objective. Pursuant to that policy, we have paid regular quarterly cash dividends to our stockholders
since September of 1999 and, in January of 2005, the Board of Directors declared a $0.13 per share cash dividend, which was the 22nd consecutive quarterly cash dividend declared since the current dividend policy was adopted. However, in the future,
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. For example the retention
of earnings in previous years enabled us to fund the opening of new banking offices and to 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 over the past several years. 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 believe that
there are still additional expansion and growth opportunities that we will seek to take advantage of in the future.



Stock Repurchase Program. In January of 2003 the Board of Directors authorized a stock repurchase program that provided for us 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. As of December 31, 2004, we had repurchased a total of 180,066 shares of our common stock under this program for an aggregate price of approximately $3,496,174.



Regulatory Capital Requirements. Federal banking agencies require
United States based bank holding companies (on a consolidated basis) and FDIC-insured banks (on a stand-alone basis) 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, (which is referred to as a banks leverage ratio). For these purposes, subordinated indebtedness issued in connection with a sale of trust preferred securities may comprise
up to 25% of a banking organizations Tier 1 capital and, to the extent such indebtedness exceeds that limitation, such indebtedness will constitute Tier 2 capital for regulatory capital purposes. All of the subordinated indebtedness evidenced
by the Junior Subordinated Debentures that we issued in December 2002 qualifies as Tier 1 capital under Federal Reserve Board regulations.



The federal banking agencies have adopted uniform capital requirements for the banks that they supervise and assign each of those banks to one of the
following five categories based on their respective capital ratios:



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



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



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



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



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



As a general rule, banks that are categorized as well capitalized are subject to less stringent supervision by their federal regulatory
agencies than are banks that are classified in one of the other categories; and at each successive lower capital category, a bank is subject to greater operating restrictions and increased regulatory supervision.



For a banking organization rated in the highest of these five categories of
capital adequacy, 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.



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The risk-based capital ratio is determined by weighting a banks 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 in order to maintain an adequate risk-based capital ratio, which generally is at least 8%.



Set forth below are the minimum capital ratios that a bank must meet to be
categorized as adequately capitalized and well capitalized, respectively, and the corresponding capital ratios of the Bank at December 31, 2004. 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 exceed minimum regulatory requirements and compare favorably with those of the banks and bank holding companies in its Peer Group.



|                                                    |  |                                                           |  |                           |  |       
|--------------------------------------------------- |  | --------------------------------------------------------- |  | ------------------------- |  | ------
|                                                    |  | To be Categorized by a Federal Bank Regulatory Agency as: |  | Foothill Independent Bank
|                                                    |  | Adequately Capitalized                                    |  | Well Capitalized          |  | Actual
|Total Capital to Risk Weighted Assets               |  | 8.0%                                                      |  | 10.0%                     |  | 13.2% 
|Tier 1 Capital to Risk Weighted Assets              |  | 4.0%                                                      |  | 6.0%                      |  | 12.3% 
|Tier 1 Capital to Average Assets (Leverage Ratio) |  | 4.0%                                                      |  | 5.0%                      |  | 9.0%  



FACTORS THAT COULD AFFECT OUR FUTURE FINANCIAL PERFORMANCE



As described earlier in this Section of this Report, under the subcaption Forward-Looking Statements, this Report contains statements that discuss our expectations or beliefs regarding our future
operations or future financial performance, or financial or other trends in our business. These forward-looking statements are based on current information and on our judgments, assumptions and forecasts about future events over which we
do not have control and which, due to the possible occurrence of currently unexpected future events or changes in economic or market trends or conditions, may ultimately prove to have been incorrect. Additionally, the realization of our expected
financial results or performance discussed in those forward-looking statements is 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. Certain of those risks and uncertainties are discussed above in the section of the Report entitled MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. In addition, included
among the risks and uncertainties that could affect our future financial performance or financial 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 deposits, either or both of which could, in turn, reduce our interest income or increase our
interest expense, thereby reducing our net interest margin, net interest income and net earnings.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Possible Adverse Changes in Economic Conditions. An adverse change in future economic conditions, either national or local, could (i) reduce loan demand that could cause our
interest income and net interest margins to decline; (ii) weaken the financial capability of borrowers to meet their loan obligations, which could lead to increases in loan losses that would require us to increase our Loan Loss Reserve through
additional charges to income; and (iii) lead to declines 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. Increases in our costs of funds or reductions in yields on our earning assets could cause our
net interest margins and net interest income and, therefore, also our net earnings, to decline. As discussed above, during the three years ended in June 2004, the Federal Reserve Board lowered market rates of interest in an effort to stimulate the
national economy. Those reductions caused our net interest margin to decline, because they led to reductions in the interest paid by borrowers on outstanding variable rate loans or enabled borrowers to refinance existing fixed rate loans at lower
interest rates or to repay their loans. Although the Federal Reserve Board recently increased interest rates and has indicated an intention to continue doing so at a gradual pace, further reductions in our net interest margin and net interest income
and, therefore, in our net
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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earnings, could still occur depending on the pace of those increases. In addition, there is no assurance that economic or market conditions will not lead the
Federal Reserve Board to halt or even roll-back such interest rate increases.



| |  |  | Real Estate Mortgage Loans. Approximately 90% of our loans are secured by deeds of trust or mortgages on real property. Although a significant portion of these loans were
made to individuals, or entities controlled by individuals, whose businesses occupy the properties and the principal source of repayment is the cash flow generated by those businesses, if a significant decline in real property values occurred in
Southern California, such a decline could result in a deterioration in some of those loans that would necessitate increases in our Loan Loss Reserve and could result in loan write-offs that would adversely affect our financial conditions and lead to
reductions in earnings.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lack of Geographic Diversity of our Operations. Substantially all of our banking operations are conducted in the Inland Empire area of Southern California, within a radius of
approximately 75 miles. As a result, our operating results in the future could be hurt by events that could affect that geographic area, including natural disasters, such as earthquakes or fires, or localized economic downturns, or by financial
difficulties that might be encountered by local governments or the California state government.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in Regulatory Policies. Changes in 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 our operating costs.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Effects of Growth. It is our intention to take advantage of opportunities to increase our business, 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, 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Possible Change in Dividend Policy or Dividend Payments. In accordance with the Board of Directors dividend policy, we have paid a regular quarterly cash dividend since
September 1999 and have made periodic repurchases of our outstanding shares. Although there are no plans to reduce the amount or terminate the payment of cash dividends, there can be no assurance that the amount or frequency of cash dividends will
not have to be reduced or that cash dividends will not have to be suspended, as this will depend on such factors as economic and market conditions, our future financial performance and financial condition and our needs for capital to support future
growth or meet regulatory capital requirements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 Report.



We undertake 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 of our interest earning assets and our deposits to changes in market interest rates and the maturities.



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The following table sets forth information concerning the interest rate sensitivity of our consolidated
assets and liabilities as of December 31, 2004. Assets and liabilities are classified by the earliest possible repricing date or maturity, whichever comes first.



|                                          |  |                        |          |   |                                 |   |          |                                 |  |   |                 |   |                       |   |         |       |   |          |   |  |   |        
|----------------------------------------- |  | ---------------------- | -------- | - | ------------------------------- | - | -------- | ------------------------------- |  | - | --------------- | - | --------------------- | - | ------- | ----- | - | -------- | - |  | - | -------
|                                          |  | Three Months or Less   |          |   | Over Three Through TwelveMonths |   |          | Over OneYear Through Five Years |  |   | Over Five Years |   | Non- Interest Bearing |   |         | Total
|                                          |  | (Dollars in Thousands)
|Assets                                    |  |                        |          |   |                                 |   |          |                                 |  |   |                 |   |                       |   |         |       |   |          |   |  |   |        
|Interest-bearing deposits in banks        |  | $                      | 3,565    |   |                                 | $ | 6,238    |                                 |  | $ |                |   |                       | $ |        |       | $ |         |   |  | $ | 9,803  
|Investment securities                     |  |                        | 5,574    |   |                                 |   | 49,745   |                                 |  |   | 99,831          |   |                       |   | 35,631  |       |   | 3,774    |   |  |   | 194,555
|Federal Funds Sold                        |  |                        | 28,900   |   |                                 |   |         |                                 |  |   |                |   |                       |   |        |       |   |         |   |  |   | 28,900 
|Net loans                                 |  |                        | 162,330  |   |                                 |   | 3,465    |                                 |  |   | 56,886          |   |                       |   | 277,926 |       |   |         |   |  |   | 500,607
|Noninterest-earning assets                |  |                        |         |   |                                 |   |         |                                 |  |   |                |   |                       |   |        |       |   | 53,090   |   |  |   | 53,090 
|                                          |  |                        |          |   |                                 |   |          |                                 |  |   |                 |   |                       |   |         |       |   |          |   |  |   |        
|Total assets                              |  | $                      | 200,369  |   |                                 | $ | 59,448   |                                 |  | $ | 156,717         |   |                       | $ | 313,557 |       | $ | 56,864   |   |  | $ | 786,955
|                                          |  |                        |          |   |                                 |   |          |                                 |  |   |                 |   |                       |   |         |       |   |          |   |  |   |        
|Liabilities and Stockholders Equity:     |  |                        |          |   |                                 |   |          |                                 |  |   |                 |   |                       |   |         |       |   |          |   |  |   |        
|Noninterest-bearing deposits              |  | $                      |         |   |                                 | $ |         |                                 |  | $ |                |   |                       | $ |        |       | $ | 259,285  |   |  | $ | 259,285
|Interest-bearing deposits                 |  |                        | 409,495  |   |                                 |   | 26,771   |                                 |  |   | 13,496          |   |                       |   | 3       |       |   |         |   |  |   | 449,765
|Short-term borrowings                     |  |                        |         |   |                                 |   |         |                                 |  |   |                |   |                       |   |        |       |   |         |   |  |   |       
|Long-term borrowings                      |  |                        | 8,248    |   |                                 |   |         |                                 |  |   |                |   |                       |   |        |       |   |         |   |  |   | 8,248  
|Other liabilities                         |  |                        |         |   |                                 |   |         |                                 |  |   |                |   |                       |   |        |       |   | 5,088    |   |  |   | 5,088  
|Stockholders equity                      |  |                        |         |   |                                 |   |         |                                 |  |   |                |   |                       |   |        |       |   | 64,569   |   |  |   | 64,569 
|                                          |  |                        |          |   |                                 |   |          |                                 |  |   |                 |   |                       |   |         |       |   |          |   |  |   |        
|Total liabilities and stockholders equity |  | $                      | 417,743  |   |                                 | $ | 26,771   |                                 |  | $ | 1,496           |   |                       | $ | 3       |       | $ | 328,942  |   |  | $ | 786,955
|                                          |  |                        |          |   |                                 |   |          |                                 |  |   |                 |   |                       |   |         |       |   |          |   |  |   |        
|Interest rate sensitivity gap             |  | $                      | (217,374 | ) |                                 | $ | 32,677   |                                 |  | $ | 143,221         |   |                       | $ | 313,554 |       | $ | (272,078 | ) |  | $ |       
|                                          |  |                        |          |   |                                 |   |          |                                 |  |   |                 |   |                       |   |         |       |   |          |   |  |   |        
|Cumulative interest rate sensitivity gap  |  | $                      | (217,374 | ) |                                 | $ | (184,697 | )                               |  | $ | (41,476         | ) |                       | $ | 272,078 |       | $ |         |   |  | $ |       
|                                          |  |                        |          |   |                                 |   |          |                                 |  |   |                 |   |                       |   |         |       |   |          |   |  |   |        



Generally, where
rate-sensitive assets (principally loans, investment securities and other interest earning assets) exceed rate-sensitive liabilities (principally interest bearing deposits), 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.



As of December 31, 2004, our rate sensitive balance sheet was shown to be in a negative three-month gap position because our rate sensitive liabilities exceeded our rate sensitive assets for that period. This implies
that our net interest margin would decrease in the shortterm if interest rates were to rise and would increase in the shortterm if interest rates were to fall. However, the extent to which our net interest margin will be impacted by
changes in prevailing interests rates will depend on a number of factors, including how quickly rate sensitive assets and liabilities react to changes in interest rates, which will depend on a number of factors, including the mix of interest earning
assets between loans, on the one hand, and other earning assets, on the other hand, and the mix of core and time certificates of deposit and the actions we take, in terms of changing the mix of our interest earning assets and interest bearing
liabilities in response to changes in the interest rate environment. See MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION  RESULTS OF OPERATION Net Interest Margin, Rate Sensitivity and
Market Risk



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 InterestIncome Sensitivity |    |             | Market Value
|                       |                        | Assets                                   |    | Liabilities
|                       | (Dollars in Thousands) |                                          |    |            
|+100 basis points      |                        | (7.84                                    | )% |             | $            | 770,962 |  | $ | 716,531
|+300 basis points      |                        | (23.66                                   | )% |             | $            | 737,817 |  | $ | 715,851
|-100 basis points      |                        | 6.63                                     | %  |             | $            | 808,702 |  | $ | 717,228
|-300 basis points      |                        | 1.70                                     | %  |             | $            | 851,942 |  | $ | 717,942



As is the case with
the interest rate gap analysis, this model provides a snap-shot of what impact changes in interest rates would have on our net interest income, assuming all other conditions remained unchanged, and does not take into account actions that
management would take in response to market trends indicating either that interest rates will be increasing or will be decreasing.



38



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##### Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



|                                                                                                                |  |     
|--------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                |  | Page
|Foothill Independent Bancorp and Subsidiaries:                                                                  |  |     
|                                                                                                                | 
|Report of Independent Registered Public Accounting Firm                                                         |  | 40  
|                                                                                                                | 
|Consolidated Balance Sheets at December 31, 2004 and 2003                                                       |  | 41  
|                                                                                                                | 
|Consolidated Statements of Income for the Years Ended December 31, 2004, 2003, and 2002                         |  | 42  
|                                                                                                                | 
|Consolidated Statements of Changes in Stockholders Equity for the Years Ended December 31, 2004, 2003 and 2002 |  | 43  
|                                                                                                                | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002                      |  | 44  
|                                                                                                                | 
|Notes to Consolidated Financial Statements                                                                      |  | 46  







39



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Report of Independent Registered Public Accounting Firm



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 (the Company) as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders equity and cash
flows for each of the three years in the period ended December 31, 2004. 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 the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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, 2004 and 2003, and the results of its operations, changes in its stockholders equity, and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles.



/s/ Vavrinek, Trine, Day & Co., LLP



Rancho Cucamonga, California

January 21, 2005



40



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2004 AND 2003



|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                      |  | 2004                   |         |   | 2003 |  
|                                                                                                                                                      |  | (Dollars in thousands) |        
|ASSETS                                                                                                                                                |  |                        |         |   |      |   |         |  
|Cash and due from banks                                                                                                                               |  | $                      | 23,611  |   |      | $ | 34,565  |  
|Federal funds sold and overnight Repurchase Agreements                                                                                                |  |                        | 28,900  |   |      |   | 18,500  |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Total Cash And Cash Equivalents                                                                                                                       |  |                        | 52,511  |   |      |   | 53,065  |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Interest-bearing deposits in other financial institutions                                                                                             |  |                        | 9,803   |   |      |   | 7,425   |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Investment securities held-to-maturity                                                                                                                |  |                        | 7,980   |   |      |   | 8,900   |  
|Investment securities available-for-sale                                                                                                              |  |                        | 186,575 |   |      |   | 136,650 |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Total Investments                                                                                                                                     |  |                        | 194,555 |   |      |   | 145,550 |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Federal Home Loan Bank stock, at cost                                                                                                                 |  |                        | 3,460   |   |      |   | 374     |  
|Federal Reserve Bank stock, at cost                                                                                                                   |  |                        | 348     |   |      |   | 351     |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Loans, net of unearned income                                                                                                                         |  |                        | 505,282 |   |      |   | 459,520 |  
|Direct lease financing                                                                                                                                |  |                        | 341     |   |      |   | 528     |  
|Allowance for Loan Losses                                                                                                                             |  |                        | (5,016  | ) |      |   | (4,947  | )
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Total Loans                                                                                                                                           |  |                        | 500,607 |   |      |   | 455,101 |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Premises and equipment                                                                                                                                |  |                        | 4,815   |   |      |   | 5,061   |  
|                                                                                                                                                      |  |                       
|Cash surrender value of life insurance                                                                                                                |  |                        | 12,300  |   |      |   | 11,491  |  
|Deferred tax assets                                                                                                                                   |  |                        | 3,382   |   |      |   | 2,818   |  
|Accrued interest and other assets                                                                                                                     |  |                        | 5,174   |   |      |   | 4,922   |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|TOTAL ASSETS                                                                                                                                          |  | $                      | 786,955 |   |      | $ | 686,158 |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                  |  |                        |         |   |      |   |         |  
|Liabilities                                                                                                                                           |  |                        |         |   |      |   |         |  
|Demand deposits                                                                                                                                       |  | $                      | 259,285 |   |      | $ | 225,863 |  
|Savings and NOW deposits                                                                                                                              |  |                        | 164,947 |   |      |   | 155,868 |  
|Money market deposits                                                                                                                                 |  |                        | 206,919 |   |      |   | 155,717 |  
|Time deposits $100,000 or over                                                                                                                        |  |                        | 42,060  |   |      |   | 30,247  |  
|Time deposits under $100,000                                                                                                                          |  |                        | 35,839  |   |      |   | 44,354  |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Total Deposits                                                                                                                                        |  |                        | 709,050 |   |      |   | 612,049 |  
|Accrued employee benefits                                                                                                                             |  |                        | 3,446   |   |      |   | 3,154   |  
|                                                                                                                                                      |  |                       
|Accrued interest and other liabilities                                                                                                                |  |                        | 1,642   |   |      |   | 1,919   |  
|                                                                                                                                                      |  |                       
|Junior subordinated debentures                                                                                                                        |  |                        | 8,248   |   |      |   | 8,248   |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Total Liabilities                                                                                                                                     |  |                        | 722,386 |   |      |   | 625,370 |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Commitments and Contingencies - Note #18                                                                                                              |  |                        |        |   |      |   |        |  
|Stockholders Equity                                                                                                                                  |  |                        |         |   |      |   |         |  
|Common Stock  authorized, 25,000,000 shares $.001 par value, issued and outstanding, 6,731,631 shares in 2004 and 6,702,912 shares in
2003           |  |                        | 7       |   |      |   | 6       |  
|Additional paid-in capital                                                                                                                            |  |                        | 67,831  |   |      |   | 55,048  |  
|Stock Dividend to be distributed                                                                                                                      |  |                        |        |   |      |   | 12,174  |  
|Retained earnings                                                                                                                                     |  |                        | (2,608  | ) |      |   | (6,605  | )
|Accumulated other comprehensive income - Net unrealized gains (losses) on available for sale securities, net of taxes of $517 in 2004 and $83
in 2003 |  |                        | (661    | ) |      |   | 165     |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|Total stockholders equity                                                                                                                            |  |                        | 64,569  |   |      |   | 60,788  |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                            |  | $                      | 786,955 |   |      | $ | 686,158 |  
|                                                                                                                                                      |  |                        |         |   |      |   |         |  



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



41



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##### Table of Contents

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002



|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|------------------------------------------------------------------ |  | ------------------------------------------------ | ------ | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                   |  | 2004                                             |        | 2003 |   |        | 2002 | 
|                                                                   |  | (Dollars in thousands, except per share amounts) |       
|Interest Income                                                    |  |                                                  |        |      |   |        |      |  |   |        |  
|Interest and fees on loans                                         |  | $                                                | 30,992 |      | $ | 31,623 |      |  | $ | 31,257 |  
|Interest on Investment Securities                                  |  |                                                  |        |      |   |        |      |  |   |        |  
|Taxable                                                            |  |                                                  | 4,567  |      |   | 3,131  |      |  |   | 2,438  |  
|Exempt from federal taxes                                          |  |                                                  | 658    |      |   | 384    |      |  |   | 419    |  
|Interest on deposits                                               |  |                                                  | 136    |      |   | 122    |      |  |   | 194    |  
|Interest on federal funds sold and overnight repurchase agreements |  |                                                  | 653    |      |   | 360    |      |  |   | 430    |  
|Lease financing income exempt from federal taxes                   |  |                                                  | 24     |      |   | 60     |      |  |   | 73     |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Total Interest Income                                              |  |                                                  | 37,030 |      |   | 35,680 |      |  |   | 34,811 |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Interest Expense                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Interest on savings, NOW and money market deposits                 |  |                                                  | 3,227  |      |   | 2,585  |      |  |   | 2,784  |  
|Interest on time deposits over $100,000                            |  |                                                  | 415    |      |   | 568    |      |  |   | 874    |  
|Interest on time deposits under $100,000                           |  |                                                  | 431    |      |   | 757    |      |  |   | 1,342  |  
|Interest on borrowings                                             |  |                                                  | 394    |      |   | 373    |      |  |   | 39     |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Total Interest Expense                                             |  |                                                  | 4,467  |      |   | 4,283  |      |  |   | 5,039  |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Net Interest Income                                                |  |                                                  | 32,563 |      |   | 31,397 |      |  |   | 29,772 |  
|Provision for Loan Losses                                          |  |                                                  |       |      |   | (348   | )    |  |   | (460   | )
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Net Interest Income After Provision For Loan Losses                |  |                                                  | 32,563 |      |   | 31,049 |      |  |   | 29,312 |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Non Interest Income                                                |  |                                                  |        |      |   |        |      |  |   |        |  
|Services fees                                                      |  |                                                  | 4,999  |      |   | 5,000  |      |  |   | 5,214  |  
|Gain on sale of SBA loans                                          |  |                                                  | 5      |      |   | 5      |      |  |   | 3      |  
|Other                                                              |  |                                                  | 581    |      |   | 608    |      |  |   | 477    |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|                                                                   |  |                                                  | 5,585  |      |   | 5,613  |      |  |   | 5,694  |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Non Interest Expenses                                              |  |                                                  |        |      |   |        |      |  |   |        |  
|Salaries and employee benefits                                     |  |                                                  | 11,697 |      |   | 11,822 |      |  |   | 11,397 |  
|Net occupancy expense of premises                                  |  |                                                  | 2,631  |      |   | 2,496  |      |  |   | 2,470  |  
|Furniture and equipment expenses                                   |  |                                                  | 1,665  |      |   | 1,537  |      |  |   | 1,576  |  
|Other expenses                                                     |  |                                                  | 7,617  |      |   | 7,660  |      |  |   | 7,491  |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|                                                                   |  |                                                  | 23,610 |      |   | 23,515 |      |  |   | 22,934 |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Income before income taxes                                         |  |                                                  | 14,538 |      |   | 13,147 |      |  |   | 12,072 |  
|Income taxes                                                       |  |                                                  | 5,183  |      |   | 4,726  |      |  |   | 4,378  |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Net Income                                                         |  | $                                                | 9,355  |      | $ | 8,421  |      |  | $ | 7,694  |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Earnings Per Share                                                 |  |                                                  |        |      |   |        |      |  |   |        |  
|Basic                                                              |  | $                                                | 1.39   |      | $ | 1.27   |      |  | $ | 1.17   |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  
|Diluted                                                            |  | $                                                | 1.31   |      | $ | 1.18   |      |  | $ | 1.09   |  
|                                                                   |  |                                                  |        |      |   |        |      |  |   |        |  



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



42



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##### Table of Contents

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002



|                                                                                                   |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|-------------------------------------------------------------------------------------------------- |  | -------------------------- | - |  | ----------- | - | ------------------------ | - | ----------------------------- |  | - | ------------------- | - |  | ------------------------- | ----- | - | ----------------------------------- | - | ------- | ----- |  | - | ---- | - |  | - | ------ | -
|                                                                                                   |  | Number ofSharesOutstanding |   |  | CommonStock |   | AdditionalPaid-inCapital |   | StockDividendto beDistributed |  |   | ComprehensiveIncome |   |  | RetainedEarnings(Deficit) |       |   | AccumulatedOtherComprehensiveIncome |   |         | Total | 
|                                                                                                   |  | (Dollars in thousands)     |  
|Balance, January 1, 2002                                                                           |  | 5,514,363                  |   |  | $           | 6 |                          | $ | 42,892                        |  | $ |                    |   |  | $                         |      |   |                                     | $ | 8,877   |       |  | $ | 77   |   |  | $ | 51,852 |  
|9% stock dividend                                                                                  |  | 497,498                    |   |  |             |  |                          |   |                              |  |   | 9,328               |   |  |                           |       |   |                                     |   | (9,328  | )     |  |   |      |   |  |   |       |  
|Cash dividend                                                                                      |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   | (2,375  | )     |  |   |      |   |  |   | (2,375 | )
|Exercise of stock options                                                                          |  | 13,168                     |   |  |             |  |                          |   | 120                           |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   | 120    |  
|Common stock issued under employee benefit and dividend reinvestment and optional investment plans |  | 7,248                      |   |  |             |  |                          |   | 98                            |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   | 98     |  
|Comprehensive income:                                                                              |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|Net income                                                                                         |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           | 7,694 |   |                                     |   | 7,694   |       |  |   |      |   |  |   | 7,694  |  
|Net unrealized holding gains                                                                       |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|On available-for-sale securities (net of taxes of $89)                                             |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           | 187   |   |                                     |   |         |       |  |   | 187  |   |  |   | 187    |  
|                                                                                                   |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|Total Comprehensive Income                                                                         |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  | $                         | 7,881 |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|                                                                                                   |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|Balance, December 31, 2002                                                                         |  | 6,032,277                  |   |  |             | 6 |                          |   | 43,110                        |  |   | 9,328               |   |  |                           |       |   |                                     |   | 4,868   |       |  |   | 264  |   |  |   | 57,576 |  
|Stock dividend distributed                                                                         |  |                            |   |  |             |   |                          |   | 9,328                         |  |   | (9,328              | ) |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |       |  
|9% stock dividend                                                                                  |  | 552,839                    |   |  |             |   |                          |   |                               |  |   | 12,174              |   |  |                           |       |   |                                     |   | (12,174 | )     |  |   |      |   |  |   |       |  
|Cash dividend                                                                                      |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   | (4,158  | )     |  |   |      |   |  |   | (4,158 | )
|Exercise of stock options                                                                          |  | 303,447                    |   |  |             |   |                          |   | 2,610                         |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   | 2,610  |  
|Common stock repurchased, cancelled and retired                                                    |  | (185,651                   | ) |  |             |  |                          |   |                              |  |   |                     |   |  |                           |       |   |                                     |   | (3,562  | )     |  |   |      |   |  |   | (3,562 | )
|Comprehensive Income:                                                                              |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|Net income                                                                                         |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           | 8,421 |   |                                     |   | 8,421   |       |  |   |      |   |  |   | 8,421  |  
|Net unrealized holding gains on available-for-sale securities (net of taxes of $83)                |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           | (99   | ) |                                     |   |         |       |  |   | (99  | ) |  |   | (99    | )
|                                                                                                   |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|Total Comprehensive Income                                                                         |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  | $                         | 8,322 |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|                                                                                                   |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|Balance, December 31, 2003                                                                         |  | 6,702,912                  |   |  |             | 6 |                          |   | 55,048                        |  |   | 12,174              |   |  |                           |       |   |                                     |   | (6,605  | )     |  |   | 165  |   |  |   | 60,788 |  
|Stock dividend distributed                                                                         |  |                            |   |  |             |   |                          |   | 12,174                        |  |   | (12,174             | ) |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |       |  
|Cash dividend                                                                                      |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   | (4,856  | )     |  |   |      |   |  |   | (4,856 | )
|Exercise of stock options                                                                          |  | 53,104                     |   |  |             | 1 |                          |   | 609                           |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   | 610    |  
|Common stock repurchased, cancelled and retired                                                    |  | (24,385                    | ) |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   | (502    | )     |  |   |      |   |  |   | (502   | )
|Comprehensive income:                                                                              |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|Net income                                                                                         |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           | 9,355 |   |                                     |   | 9,355   |       |  |   |      |   |  |   | 9,355  |  
|Net unrealized holding gains (losses) on available-for-sale securities (net of taxes of $517)      |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           | (826  | ) |                                     |   |         |       |  |   | (826 | ) |  |   | (826   | )
|                                                                                                   |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|Total Comprehensive Income                                                                         |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  | $                         | 8,529 |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|                                                                                                   |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  
|Balance, December 31, 2004                                                                         |  | 6,731,631                  |   |  | $           | 7 |                          | $ | 67,831                        |  | $ |                    |   |  |                           |       |   |                                     | $ | (2,608  | )     |  | $ | (661 | ) |  | $ | 64,569 |  
|                                                                                                   |  |                            |   |  |             |   |                          |   |                               |  |   |                     |   |  |                           |       |   |                                     |   |         |       |  |   |      |   |  |   |        |  



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



43



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002



|                                                                        |  |                |          |   |      |   |          |      |  |   |         |  
|----------------------------------------------------------------------- |  | -------------- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                        |  | 2004           |          |   | 2003 |   |          | 2002 | 
|                                                                        |  | (In thousands) |         
|Cash Flows From Operating Activities                                    |  |                |          |   |      |   |          |      |  |   |         |  
|Interest and fees received                                              |  | $              | 36,845   |   |      | $ | 35,000   |      |  | $ | 35,469  |  
|Service fees and other income received                                  |  |                | 4,761    |   |      |   | 880      |      |  |   | 4,982   |  
|Financing revenue received under leases                                 |  |                | 24       |   |      |   | 60       |      |  |   | 73      |  
|Interest paid                                                           |  |                | (4,448   | ) |      |   | (4,342   | )    |  |   | (5,160  | )
|Cash paid to suppliers and employees                                    |  |                | (22,469  | ) |      |   | (18,031  | )    |  |   | (20,914 | )
|Income taxes paid                                                       |  |                | (5,306   | ) |      |   | (4,980   | )    |  |   | (4,423  | )
|                                                                        |  |                |          |   |      |   |          |      |  |   |         |  
|Net Cash Provided By Operating Activities                               |  |                | 9,407    |   |      |   | 8,587    |      |  |   | 10,027  |  
|                                                                        |  |                |          |   |      |   |          |      |  |   |         |  
|Cash Flows From Investing Activities                                    |  |                |          |   |      |   |          |      |  |   |         |  
|Proceeds from maturity of available-for-sale securities                 |  |                | 73,262   |   |      |   | 109,830  |      |  |   | 89,172  |  
|Purchase of available-for-sale securities                               |  |                | (127,637 | ) |      |   | (175,259 | )    |  |   | (93,342 | )
|Proceeds from maturity of held-to-maturity securities                   |  |                | 2,723    |   |      |   | 955      |      |  |   | 3,775   |  
|Purchase of held-to-maturity securities                                 |  |                | (1,800   | ) |      |   | (580     | )    |  |   | (46     | )
|Net (increase) decrease in deposits in other financial institutions     |  |                | (2,378   | ) |      |   | 497      |      |  |   | 5,336   |  
|Net (increase) decrease in credit card and revolving credit receivables |  |                | 294      |   |      |   | (530     | )    |  |   | 254     |  
|Recoveries and deferred recoveries on loans previously written off      |  |                | 158      |   |      |   | 6        |      |  |   | 33      |  
|Net increase in loans                                                   |  |                | (46,080  | ) |      |   | (18,375  | )    |  |   | (34,191 | )
|Net decrease in leases                                                  |  |                | 187      |   |      |   | 683      |      |  |   | 117     |  
|Capital expenditures                                                    |  |                | (1,040   | ) |      |   | (615     | )    |  |   | (570    | )
|Purchase of life insurance                                              |  |                |         |   |      |   | (4,000   | )    |  |   |        |  
|Proceeds from sale of other real estate owned                           |  |                |         |   |      |   | 387      |      |  |   | 1,903   |  
|Proceeds from sale of property, plant and equipment                     |  |                | 33       |   |      |   | 78       |      |  |   | 1       |  
|                                                                        |  |                |          |   |      |   |          |      |  |   |         |  
|Net Cash Used In Investing Activities                                   |  |                | (102,278 | ) |      |   | (86,923  | )    |  |   | (27,558 | )
|                                                                        |  |                |          |   |      |   |          |      |  |   |         |  
|Cash Flows From Financing Activities                                    |  |                |          |   |      |   |          |      |  |   |         |  
|Net increase in deposits                                                |  |                | 97,065   |   |      |   | 77,546   |      |  |   | 59,158  |  
|Net decrease in short term borrowing                                    |  |                |         |   |      |   |         |      |  |   | (19,000 | )
|Net increase in junior subordinated debentures                          |  |                |         |   |      |   |         |      |  |   | 8,248   |  
|Proceeds from exercise of stock options                                 |  |                | 610      |   |      |   | 2,610    |      |  |   | 120     |  
|Proceeds from stock issuance                                            |  |                |         |   |      |   |         |      |  |   | 98      |  
|Dividends paid                                                          |  |                | (4,856   | ) |      |   | (4,158   | )    |  |   | (2,375  | )
|Stock repurchased and retired                                           |  |                | (502     | ) |      |   | (3,562   | )    |  |   |        |  
|                                                                        |  |                |          |   |      |   |          |      |  |   |         |  
|Net Cash Provided By Financing Activities                               |  |                | 92,317   |   |      |   | 72,436   |      |  |   | 46,249  |  
|                                                                        |  |                |          |   |      |   |          |      |  |   |         |  
|Net Increase (Decrease) in Cash and Cash Equivalents                    |  |                | (554     | ) |      |   | (5,900   | )    |  |   | 28,718  |  
|Cash and Cash Equivalents, Beginning of Year                            |  |                | 53,065   |   |      |   | 58,965   |      |  |   | 30,247  |  
|                                                                        |  |                |          |   |      |   |          |      |  |   |         |  
|Cash and Cash Equivalents, End of Year                                  |  | $              | 52,511   |   |      | $ | 53,065   |      |  | $ | 58,965  |  
|                                                                        |  |                |          |   |      |   |          |      |  |   |         |  



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



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##### Table of Contents

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

(Continued)



|                                                                          |  |                |       |   |      |   |       |      |  |   |        |  
|------------------------------------------------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                                          |  | 2004           |       |   | 2003 |   |       | 2002 | 
|                                                                          |  | (In thousands) |      
|Reconciliation of Net Income to Net Cash Provided By Operating Activities |  |                |       |   |      |   |       |      |  |   |        |  
|Net Income                                                                |  | $              | 9,355 |   |      | $ | 8,421 |      |  | $ | 7,694  |  
|Adjustments to Reconcile Net Income to Net                                |  |                |       |   |      |   |       |      |  |   |        |  
|Cash Provided By Operating Activities                                     |  |                |       |   |      |   |       |      |  |   |        |  
|Depreciation and amortization                                             |  |                | 1,254 |   |      |   | 979   |      |  |   | 1,385  |  
|Provision for possible credit losses                                      |  |                |      |   |      |   | 348   |      |  |   | 460    |  
|                                                                          |  |                |      
|(Gain) loss on sale of equipment                                          |  |                | (1    | ) |      |   | (5    | )    |  |   | 7      |  
|Gain on sale of other real estate owned                                   |  |                |      |   |      |   |      |      |  |   | (108   | )
|Credit for deferred taxes                                                 |  |                | (564  | ) |      |   | (501  | )    |  |   | (342   | )
|Increase in taxes payable                                                 |  |                | 441   |   |      |   | 248   |      |  |   | 297    |  
|(Increase) decrease in other assets                                       |  |                | (65   | ) |      |   | (99   | )    |  |   | 131    |  
|(Increase) decrease in interest receivable                                |  |                | (182  | ) |      |   | (581  | )    |  |   | 669    |  
|(Increase) decrease in discounts and premiums                             |  |                | 21    |   |      |   | (39   | )    |  |   | 62     |  
|(Increase) decrease in prepaid expenses                                   |  |                | (70   | ) |      |   | 55    |      |  |   | 241    |  
|Increase in cash surrender value of life insurance                        |  |                | (809  | ) |      |   | (713  | )    |  |   | (611   | )
|Increase (decrease) in interest payable                                   |  |                | 19    |   |      |   | (59   | )    |  |   | (121   | )
|Increase in accrued expenses and other liabilities                        |  |                | 8     |   |      |   | 533   |      |  |   | 263    |  
|                                                                          |  |                |       |   |      |   |       |      |  |   |        |  
|Total Adjustments                                                         |  |                | 52    |   |      |   | 166   |      |  |   | 2,333  |  
|                                                                          |  |                |       |   |      |   |       |      |  |   |        |  
|Net Cash Provided By Operating Activities                                 |  | $              | 9,407 |   |      | $ | 8,587 |      |  | $ | 10,027 |  
|                                                                          |  |                |       |   |      |   |       |      |  |   |        |  



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



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##### Table of Contents

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



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), and Foothill BPC, Inc., collectively referred to herein as the Company. Intercompany balances and transactions have been eliminated.



Investment in Nonconsolidated Subsidiary



The Company accounts for its investment in its wholly owned special purpose entity, Foothill Independent Statutory Trust I, using the equity method under which the
subsidiarys net earnings are recognized in the Bancorps statement of income, pursuant to Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 46, Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. 



Nature of
Operations



We operate in a single operating segment, consisting of
commercial banking operations that are conducted from twelve branch banking offices in various locations in the Los Angeles, Riverside, and San Bernardino Counties of Southern California. Our primary sources of revenue are interest income and fees
paid to us on loans made to customers, who are predominately small and middle market businesses and individuals.



Foothill BPC, Inc. is an entity that owns or holds leasehold interests in certain of our branch banking offices and leases or subleases those offices to the Bank.



On December 18, 2000, the Company formed Platinum Results, Inc., as a
California corporation and data processing subsidiary of the Company. As of December 31, 2003, Platinum Results, Inc. was dissolved.



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 #16).



Cash and Cash Equivalents



For purposes of reporting cash flows, cash and cash equivalents include cash, due from
banks, Federal funds sold, and overnight repurchase agreements. 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. We were in compliance with the reserve requirements as of December
31, 2004.



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.



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #1 - Summary of
Significant Accounting Policies,Continued



Securities are
considered available-for-sale if they would be sold in response to certain conditions, such as 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 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 expense 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 leases 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).



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##### Table of Contents

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



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 the lower of fair value or cost less estimated costs to sell 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. We retain the servicing on the portion of the loans sold and recognize 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 #16).



Advertising Costs



The Company expenses the costs of advertising in the period benefited.



Comprehensive Income



Beginning in
1998, we 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 #17).



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. We have 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.



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #1 - Summary of
Significant Accounting Policies,Continued



Had compensation cost
for our stock option 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, our net income and earnings per share would have been reduced to the pro forma amount
indicated below:



|                                                                                               |  |      |       |   |      |   |       |      |  |   |       |  
|---------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                                               |  | 2004 |       |   | 2003 |   |       | 2002 | 
|Net income:                                                                                    |  |      |       |   |      |   |       |      |  |   |       |  
|As reported                                                                                    |  | $    | 9,355 |   |      | $ | 8,421 |      |  | $ | 7,694 |  
|Stock-Based compensation using the intrinsic value method                                      |  |      |      |   |      |   |      |      |  |   |      |  
|Stock-Based compensation that would have been reported using the fair value method of SFAS 123 |  |      | (109  | ) |      |   | (318  | )    |  |   | (132  | )
|                                                                                               |  |      |       |   |      |   |       |      |  |   |       |  
|Pro forma                                                                                      |  | $    | 9,246 |   |      | $ | 8,103 |      |  | $ | 7,562 |  
|                                                                                               |  |      |       |   |      |   |       |      |  |   |       |  
|Per share data:                                                                                |  |      |       |   |      |   |       |      |  |   |       |  
|Net income - Basic                                                                             |  |      |       |   |      |   |       |      |  |   |       |  
|As reported                                                                                    |  | $    | 1.39  |   |      | $ | 1.27  |      |  | $ | 1.17  |  
|Pro forma                                                                                      |  | $    | 1.38  |   |      | $ | 1.22  |      |  | $ | 1.15  |  
|Net income - diluted                                                                           |  |      |       |   |      |   |       |      |  |   |       |  
|As reported                                                                                    |  | $    | 1.31  |   |      | $ | 1.18  |      |  | $ | 1.09  |  
|Pro forma                                                                                      |  | $    | 1.29  |   |      | $ | 1.13  |      |  | $ | 1.06  |  



Disclosure About Fair Value of Financial Instruments



SFAS No.
107 specifies the disclosure of the estimated fair value of financial instruments. The estimated fair value amounts of our financial instruments have been determined by us 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 we 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 we are 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 #20).



Current Accounting Pronouncements



In January 2003, the
FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities an Interpretation of ARB NO. 51 (FIN 46); and in December 2003, FASB issued a revision (FIN 46R). FIN46 and FIN46R address the
requirements for consolidation by business enterprises of variable interest entities. It has been determined that subsidiary business trusts, formed by bank holding companies to issue trust preferred securities and lend the proceeds to the parent
holding company, do not meet the definition of a variable interest entity and, therefore, may no longer be consolidated for financial reporting purposes. Bank holding companies have previously consolidated these entities and reported the trust
preferred securities as liabilities in the consolidated financial statements. Accordingly, effective December 31, 2003 we ceased consolidating our trust preferred securities which, however, did not have a material impact on our financial statements.
For additional disclosure regarding the potential impact on regulatory capital requirements, see the Note 19  Regulatory Matters.



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##### Table of Contents

FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #1 - Summary of
Significant Accounting Policies,Continued



In March 2004,
the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. EITF 03-1 provides guidance for determining the meaning of
other-than-temporarily impaired and its application to certain debt and equity securities within the scope of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities
(SFAS 115) and investments accounted for under the cost method. The guidance set forth in the Statement was originally effective for the Company in the December 31, 2004 consolidated financial statements. However, in September 2004, the
effective dates of certain parts of the Statement were delayed. We are currently assessing the impact of Issue 03-1 on the consolidated financial statements.



In March 2004, the Financial Accounting Standards Board (FASB) issued an Exposure Draft, Share-Base Paymentan amendment of Statements No. 123 and 95.
This Statement amends SFAS Statement No. 123, Accounting for Stock-Based Compensation, SFAS Statement No. 95, Statement of Cash Flows, and APB Opinion No. 125, Accounting for Stock Issued to Employees. The objective of the amendment to SFAS No. 123
is to recognize in the financial statements the cost of employee services received in exchange for equity instruments and liabilities incurred as the result of such transactions. The grant-date fair value of stock options would be determined using
an option-pricing model, and expense would be recognized over the vesting period. In October 2004, the FASB postponed the effective date of the proposed standard from fiscal years beginning after December 15, 2004 to periods beginning after June 15,
2005. We are reviewing the proposed standard to determine the impact on our financial statements.



Reclassifications



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



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, 2004
|                                   |  | AmortizedCost     |       | GrossUnrealized Gains  |   | GrossUnrealized Losses  |  | Fair Value
|U.S. Treasury Securities           |  | $                 | 1,795 |                        | $ |                        |  | $          | 5 |  | $ | 1,709
|Other Government Agency Securities |  |                   |      |                        |   |                        |  |            |  |  |   |     
|Municipal Agencies                 |  |                   | 4,222 |                        |   | 185                     |  |            |  |  |   | 4,407
|Other Securities                   |  |                   | 1,963 |                        |   |                        |  |            |  |  |   | 1,963
|                                   |  |                   |       |                        |   |                         |  |            |   |  |   |      
|Total                              |  | $                 | 7,980 |                        | $ | 185                     |  | $          | 5 |  | $ | 8,160
|                                   |  |                   |       |                        |   |                         |  |            |   |  |   |      
|                                   | 
|                                   |  | December 31, 2003
|                                   |  | AmortizedCost     |       | Gross Unrealized Gains |   | Gross Unrealized Losses |  | FairValue 
|U.S. Treasury Securities           |  | $                 | 201   |                        | $ |                        |  | $          |  |  | $ | 201  
|Other Government Agency Securities |  |                   | 1,940 |                        |   | 12                      |  |            |  |  |   | 1,952
|Municipal Agencies                 |  |                   | 4,448 |                        |   | 268                     |  |            |  |  |   | 4,716
|Other Securities                   |  |                   | 2,311 |                        |   |                        |  |            |  |  |   | 2,311
|                                   |  |                   |       |                        |   |                         |  |            |   |  |   |      
|Total                              |  | $                 | 8,900 |                        | $ | 280                     |  | $          |  |  | $ | 9,180
|                                   |  |                   |       |                        |   |                         |  |            |   |  |   |      



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #2 - Investment
Securities,Continued



Available for Sale Securities



|                              |  |                   |         |                        |   |                         |  |            |       |  |   |        
|----------------------------- |  | ----------------- | ------- | ---------------------- | - | ----------------------- |  | ---------- | ----- |  | - | -------
|                              |  | December 31, 2004
|                              |  | AmortizedCost     |         | Gross Unrealized Gains |   | GrossUnrealized Losses  |  | Fair Value
|U. S. Treasury Securities     |  | $                 |        |                        | $ |                        |  | $          |      |  | $ |       
|Government Agency Securities  |  |                   | 160,650 |                        |   | 379                     |  |            | 1,271 |  |   | 159,758
|Certificates of Participation |  |                   | 630     |                        |   | 1                       |  |            |      |  |   | 631    
|Municipal Agencies            |  |                   | 1,607   |                        |   | 15                      |  |            | 6     |  |   | 1,616  
|Mortgage-Back Securities      |  |                   | 22,912  |                        |   | 33                      |  |            | 186   |  |   | 22,759 
|Other Securities              |  |                   | 1,954   |                        |   |                        |  |            | 143   |  |   | 1,811  
|                              |  |                   |         |                        |   |                         |  |            |       |  |   |        
|Total                         |  | $                 | 187,753 |                        | $ | 428                     |  | $          | 1,606 |  | $ | 186,575
|                              |  |                   |         |                        |   |                         |  |            |       |  |   |        
|                              | 
|                              |  | December 31, 2003
|                              |  | AmortizedCost     |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value
|U. S. Treasury Securities     |  | $                 | 373     |                        | $ | 2                       |  | $          |      |  | $ | 375    
|Government Agency Securities  |  |                   | 124,776 |                        |   | 487                     |  |            | 344   |  |   | 124,919
|Certificates of Participation |  |                   | 840     |                        |   | 23                      |  |            |      |  |   | 863    
|Municipal Agencies            |  |                   | 6,172   |                        |   | 136                     |  |            | 2     |  |   | 6,306  
|Mortgage-Back Securities      |  |                   | 2,366   |                        |   | 10                      |  |            | 1     |  |   | 2,375  
|Other Securities              |  |                   | 1,954   |                        |   |                        |  |            | 142   |  |   | 1,812  
|                              |  |                   |         |                        |   |                         |  |            |       |  |   |        
|Total                         |  | $                 | 136,481 |                        | $ | 658                     |  | $          | 489   |  | $ | 136,650
|                              |  |                   |         |                        |   |                         |  |            |       |  |   |        



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.



Non-rated certificates of participation consist of ownership interests in the
California Statewide Communities Development Authority - San Joaquin County Limited Obligation Bond Trust with book values of $630,000 and $840,000 and market values of $631,000 and $863,000 at December 31, 2004 and 2003, respectively.



Proceeds from maturities of investment securities held-to-maturity during 2004, were
$2,723,000. Proceeds from maturities of investment securities available-for-sale during 2004, were $73,262,000. There were no gains or losses recognized.



Proceeds from maturities of investment securities held-to-maturity during 2003, were $955,000. Proceeds from maturities of investment securities available-for-sale during
2003, were $109,830,000. There were no gains or losses recognized.



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 $89,172,000. There were no gains or losses recognized.



Securities with book values of $22,456,000 and $16,602,000 and market values of $22,633,000
and $16,596,000 at December 31, 2004 and 2003, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #2 - Investment
Securities,Continued



A total of 73 securities had unrealized
losses at December 31, 2004. Those securities, with unrealized losses segregated by length of impairment, were as follows:



|                                    |  |                      |        |                     |   |                      |  |                  |        |                     |   |                   |  |   |         |  |   |      
|----------------------------------- |  | -------------------- | ------ | ------------------- | - | -------------------- |  | ---------------- | ------ | ------------------- | - | ----------------- |  | - | ------- |  | - | -----
|                                    |  | Less than 12 Months  |        | More than 12 Months |   | Total               
|                                    |  | Estimated Fair Value |        | UnrealizedLosses    |   | Estimated Fair Value |  | UnrealizedLosses |        | EstimatedFair Value |   | Unrealized Losses
|Held to Maturity Securities         |  |                      |        |                     |   |                      |  |                  |        |                     |   |                   |  |   |         |  |   |      
|U.S. Treasury Securities            |  | $                    | 1,790  |                     | $ | 5                    |  | $                |       |                     | $ |                  |  | $ | 1,790   |  | $ | 5    
|                                    |  |                      |        |                     |   |                      |  |                  |        |                     |   |                   |  |   |         |  |   |      
|Total Held-to Maturity Securities   |  | $                    | 1,790  |                     | $ | 5                    |  | $                |       |                     | $ |                  |  | $ | 1,790   |  | $ | 5    
|                                    |  |                      |        |                     |   |                      |  |                  |        |                     |   |                   |  |   |         |  |   |      
|Available-for-Sale Securities       |  |                      |        |                     |   |                      |  |                  |        |                     |   |                   |  |   |         |  |   |      
|Government Agency Securities        |  | $                    | 65,749 |                     | $ | 671                  |  | $                | 38,814 |                     | $ | 600               |  | $ | 104,563 |  | $ | 1,271
|Municipal Agencies                  |  |                      | 569    |                     |   | 5                    |  |                  |       |                     |   |                  |  |   | 569     |  |   | 5    
|Mortgage Backed Securities          |  |                      | 18,439 |                     |   | 180                  |  |                  | 851    |                     |   | 6                 |  |   | 19,290  |  |   | 186  
|Other Securities                    |  |                      |       |                     |   |                     |  |                  | 1,678  |                     |   | 144               |  |   | 1,678   |  |   | 144  
|                                    |  |                      |        |                     |   |                      |  |                  |        |                     |   |                   |  |   |         |  |   |      
|Total Available-for-Sale Securities |  | $                    | 84,757 |                     | $ | 856                  |  | $                | 41,343 |                     | $ | 750               |  | $ | 126,100 |  | $ | 1,606
|                                    |  |                      |        |                     |   |                      |  |                  |        |                     |   |                   |  |   |         |  |   |      



Declines in the fair value of
held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other
things, (ii) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Bank to retain its investment in the issuer
for a period of time sufficient to allow for any anticipated recovery in fair value.



Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Bank will receive full value for the securities. Furthermore, as of December 31, 2004, management also had the
ability and intent to hold the securities classified as available for sale for a period of time sufficient for a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the
underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired
due to reasons of credit quality. Accordingly, as of December 31, 2004, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Companys consolidated income statement.



The amortized cost, estimated fair value and average yield of securities at
December 31, 2004, by contractual maturity were as follows (in thousands):



|                                                    |  |                               |         |            |   |                  |  |      |  
|--------------------------------------------------- |  | ----------------------------- | ------- | ---------- | - | ---------------- |  | ---- | -
|                                                    |  | Held-to-Maturity Securities   |        
|Maturities Schedule of Securities December
31, 2004 |  | AmortizedCost                 |         | Fair Value |   | AverageYield (a) | 
|Due in one year or less                             |  | $                             | 2,233   |            | $ | 2,234            |  | 0.55 | %
|Due after one year through five years               |  |                               | 4,147   |            |   | 4,233            |  | 3.30 | %
|Due after five years                                |  |                               | 1,600   |            |   | 1,693            |  | 5.03 | %
|                                                    |  |                               |         |            |   |                  |  |      |  
|Carried at Amortized Cost                           |  | $                             | 7,980   |            | $ | 8,160            |  | 2.88 | %
|                                                    |  |                               |         |            |   |                  |  |      |  
|                                                    | 
|                                                    |  | Available-for-Sale Securities |        
|Maturities Schedule of Securities December
31, 2004 |  | AmortizedCost                 |         | Fair Value |   | AverageYield (a) | 
|Due in one year or less                             |  | $                             | 11,064  |            | $ | 11,000           |  | 2.38 | %
|Due after one year through five years               |  |                               | 136,733 |            |   | 135,660          |  | 3.10 | %
|Due after five through ten years                    |  |                               | 13,225  |            |   | 13,250           |  | 4.24 | %
|Due after ten years                                 |  |                               | 26,731  |            |   | 26,665           |  | 4.35 | %
|                                                    |  |                               |         |            |   |                  |  |      |  
|Carried at Fair Value                               |  | $                             | 187,753 |            | $ | 186,575          |  | 3.31 | %
|                                                    |  |                               |         |            |   |                  |  |      |  



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #2 - Investment
Securities,Continued



In the case of both securities held to
maturity and securities available for sale, the average yields are 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, 2004 and 2003, was as follows (in
thousands):



|                                                                           |  |      |         |   |      |   |         |  
|-------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                           |  | 2004 |         |   | 2003 |  
|Commercial, financial and agricultural                                     |  | $    | 40,287  |   |      | $ | 46,648  |  
|Real Estate  construction                                                 |  |      | 15,326  |   |      |   | 27,077  |  
|Real Estate  mortgage                                                     |  |      |         |   |      |   |         |  
|Commercial                                                                 |  |      | 423,542 |   |      |   | 360,751 |  
|Residential                                                                |  |      | 22,227  |   |      |   | 19,019  |  
|Loans to individuals for household, family                                 |  |      |         |   |      |   |         |  
|Loans to individuals for household, family and other personal expenditures |  |      | 3,101   |   |      |   | 3,816   |  
|All other loans (including overdrafts)                                     |  |      | 1,251   |   |      |   | 2,263   |  
|                                                                           |  |      |         |   |      |   |         |  
|                                                                           |  |      | 505,282 |   |      |   | 459,574 |  
|Deferred income on loans                                                   |  |      | (452    | ) |      |   | (54     | )
|                                                                           |  |      |         |   |      |   |         |  
|Loans, net of deferred income                                              |  | $    | 505,282 |   |      | $ | 459,520 |  
|                                                                           |  |      |         |   |      |   |         |  



Nonaccruing loans totaled
approximately $127,000 and $608,000 at December 31, 2004 and 2003, 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 $0, $90,000, and
$117,000 for the years ended December 31, 2004, 2003, and 2002, respectively.



At December 31, 2004 and 2003, the Bank had approximately $10,000 and $120,000, 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



We lease equipment to customers 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 investments in direct lease financing at December 31, 2004 and 2003, consists of the following (in thousands):



|                          |  |      |     |   |      |   |     |  
|------------------------- |  | ---- | --- | - | ---- | - | --- | -
|                          |  | 2004 |     |   | 2003 |  
|Lease payment receivables |  | $    | 374 |   |      | $ | 597 |  
|Unearned income           |  |      | (33 | ) |      |   | (69 | )
|                          |  |      |     |   |      |   |     |  
|Total                     |  | $    | 341 |   |      | $ | 528 |  
|                          |  |      |     |   |      |   |     |  



At December 31, 2004, future minimum
lease payments receivable under direct financing leases are as follows (in thousands):



|                     |  |        |     |  
|-------------------- |  | ------ | --- | -
|Year                 |  | Amount |    
|2005                 |  | $      | 134 |  
|2006                 |  |        | 123 |  
|2007                 |  |        | 88  |  
|2008                 |  |        | 29  |  
|                     |  |        |     |  
|                     |  |        | 374 |  
|Less unearned income |  |        | (33 | )
|                     |  |        |     |  
|Total                |  | $      | 341 |  
|                     |  |        |     |  



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #5 - Allowance For
Loan and Lease Losses



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



|                                           |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                           |  | 2004 |       |   | 2003 |   |       | 2002 | 
|Balance at beginning of year               |  | $    | 4,947 |   |      | $ | 4,619 |      |  | $ | 4,206 |  
|Recoveries on loans previously charged off |  |      | 158   |   |      |   | 63    |      |  |   | 48    |  
|Provision charged to operating expense     |  |      |      |   |      |   | 348   |      |  |   | 460   |  
|Loans charged off                          |  |      | (89   | ) |      |   | (83   | )    |  |   | (95   | )
|                                           |  |      |       |   |      |   |       |      |  |   |       |  
|Balance at end of year                     |  | $    | 5,016 |   |      | $ | 4,947 |      |  | $ | 4,619 |  
|                                           |  |      |       |   |      |   |       |      |  |   |       |  



We treat all nonaccruing loans and
troubled debt restructurings as impaired loans. The allowances for loan losses related to impaired loans amounted to approximately $26,800 and $18,800 for the years ended December 31, 2004 and 2003, respectively, and those allowances are included in
the above balances. The average balance of these loans amounted to approximately $641,000, $1,140,000 and $2,488,000 for the years ended December 31, 2004, 2003 and 2002, respectively. During 2004, cash receipts totaling approximately $847,000 were
applied to reduce the principal balances of, and $355,000 was recognized as interest income on, impaired loans. During 2003, cash receipts totaling approximately $2,086,000 were applied to reduce the principal balances of, and $39,000 was recognized
as interest income on, impaired loans. During 2002, cash receipts totaling approximately $105,000 were applied to reduce the principal balances of, and $-0- was recognized as interest on, impaired loans.



Note #6 - Bank Premises and Equipment



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



|                                                |  |                 |         |   |      |   |         |  
|----------------------------------------------- |  | --------------- | ------- | - | ---- | - | ------- | -
|                                                |  | At December 31, |        
|                                                |  | 2004            |         |   | 2003 |  
|Buildings                                       |  | $               | 2,424   |   |      | $ | 2,424   |  
|Furniture and equipment                         |  |                 | 10,921  |   |      |   | 10,156  |  
|Leasehold improvements                          |  |                 | 3,904   |   |      |   | 3,743   |  
|                                                |  |                 |         |   |      |   |         |  
|                                                |  |                 | 17,249  |   |      |   | 16,314  |  
|Less: Accumulated depreciation and amortization |  |                 | (12,809 | ) |      |   | (11,628 | )
|                                                |  |                 |         |   |      |   |         |  
|                                                |  |                 | 4,440   |   |      |   | 4,686   |  
|Land                                            |  |                 | 375     |   |      |   | 375     |  
|                                                |  |                 |         |   |      |   |         |  
|Total                                           |  | $               | 4,815   |   |      | $ | 5,061   |  
|                                                |  |                 |         |   |      |   |         |  



We lease 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       |  | Amount
|2005       |  | $      | 1,325
|2006       |  |        | 1,046
|2007       |  |        | 879  
|2008       |  |        | 744  
|2009       |  |        | 677  
|Thereafter |  |        | 1,645
|           |  |        |      
|Total      |  | $      | 6,316
|           |  |        |      



Total rental expense for the three
years ended December 31, 2004, 2003, and 2002, was $1,432,000, $1,407,000, and $1,353,000, respectively.



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



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, 2004 and 2003, were as follows (in thousands):



|                                           |  |      |   |      |   |      |  
|------------------------------------------ |  | ---- | - | ---- | - | ---- | -
|                                           |  | 2004 |   | 2003 |  
|Balance at beginning of year               |  | $    |  |      | $ | 387  |  
|Additions                                  |  |      |  |      |   |     |  
|Valuation adjustments and other reductions |  |      |  |      |   | (387 | )
|                                           |  |      |   |      |   |      |  
|Balance at end of year                     |  | $    |  |      | $ |     |  
|                                           |  |      |   |      |   |      |  



The balances at December 31, 2004 and
2003 are shown net of reserves of $-0- and $-0-, respectively.



Transactions in
the reserve for other real estate owned are summarized for December 31, 2004, 2003, and 2002 as follows (in thousands):



|                                   |  |      |   |      |   |      |  |   |      |  
|---------------------------------- |  | ---- | - | ---- | - | ---- |  | - | ---- | -
|                                   |  | 2004 |   | 2003 |   | 2002 | 
|Balance at beginning of year       |  | $    |  |      | $ |     |  | $ | 125  |  
|Provision charged to other expense |  |      |  |      |   |     |  |   |     |  
|Charge offs and other reductions   |  |      |  |      |   |     |  |   | (125 | )
|                                   |  |      |   |      |   |      |  |   |      |  
|Balance at end of year             |  | $    |  |      | $ |     |  | $ |     |  
|                                   |  |      |   |      |   |      |  |   |      |  



Note #8 - Deposits



At December 31, 2004, the scheduled maturities of time deposits are as follows (in
thousands):



|      |  |        |       
|----- |  | ------ | ------
|Year  |  | Amount
|2005  |  | $      | 64,390
|2006  |  |        | 13,074
|2007  |  |        | 403   
|2008  |  |        | 14    
|2009  |  |        | 18    
|      |  |        |       
|Total |  | $      | 77,899
|      |  |        |       



Directors and executive officers of
the Company and the Bank accounted for $1,217,000 of the Banks deposits as of December 31, 2004.



Note #9 - Junior Subordinated Debentures



On December 6, 2002, the Company issued $8,248,000 of Floating Rate Junior Subordinated Deferrable Interest Debentures (the Subordinated Debentures) to Foothill Independent Statutory Trust I, a Connecticut business trust (the
Trust). These Debentures, which are subordinated, effectively, to all other borrowings of the Company, become due and payable on December 6, 2032, but are redeemable, at par, at the Companys option after December 26, 2007, or at
any time upon the occurrence of a circumstance that would adversely affect the tax or capital treatment of the Debentures. Interest is payable quarterly on the Subordinated Debentures at the 3-Month LIBOR plus 3.25%. At December 31, 2004 that rate
was 5.80%. The Company also purchased for $248,000 common securities in the Trust, which is included in other assets.



Until December 31, 2003 the Trust was treated, for accounting purposes, as a consolidated subsidiary of the Company. In accordance with FASB Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, which became effective on December 31, 2003, the Company ceased consolidating the Trust into its consolidated financial statements.



Under the Federal Reserve Boards regulations that were in effect at the time we issued
the Subordinated Debentures, the indebtedness evidenced by those Debentures qualified as Tier 1 capital for regulatory capital purposes, because they satisfied certain requirements established by the Federal Reserve Board. One of those requirements
was that the Debentures had to be issued to a trust that was treated, for financial reporting purposes, as a consolidated subsidiary of the Company. As a result, the adoption of FIN No. 46 created uncertainty for us, as well as other bank holding
companies that had issued such debentures, as to whether they would continue to qualify as Tier 1 capital for regulatory purposes. However, on February 28, 2005, the Federal Reserve Board issued a new rule which provides that, notwithstanding the
deconsolidation of such trusts, junior subordinated debentures, such as those issued by us, may continue to constitute up to 25% of a bank holding companys Tier 1 capital, subject to certain new limitations which will not become effective
until March 31, 2009 and which, in any event, are not expected to affect the treatment of the Companys Subordinated Debentures as Tier 1 capital for regulatory purposes.



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #10 - 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 provided for the issuance of up to an aggregate of 1,147,041 shares of the Company Common Stock (as adjusted for stock dividends), pursuant to options that could be granted to officers, key employees and directors of
the Company and its subsidiaries at prices that were not less than the fair market value of such shares at dates of grant. Generally, options were granted under this Plan for a term of up to 10 years. This Plan expired in 2003 and the Company no
longer may grant options under this Plan; however, options granted prior to the expiration date of the Plan will continue to remain outstanding until they are exercised, expire or are terminated pursuant to the terms of the Plan.



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: risk-free rates of 2.57%, dividend yields of 3%, expected life of five years; and volatility of 30%.



Information with respect to the number of shares of common stock that were subject to options granted or exercised, and those that expired
without exercise, under the 1993 Option Plan during the years ended December 31, 2004, 2003, and 2002, 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:



1993 Stock Option Plan



|                                                               |  |         |   |  |                              |       |   |        |          |   |                              |   |       |        |  |   |                              |   |  |   |        |  
|-------------------------------------------------------------- |  | ------- | - |  | ---------------------------- | ----- | - | ------ | -------- | - | ---------------------------- | - | ----- | ------ |  | - | ---------------------------- | - |  | - | ------ | -
|                                                               |  | 2004    |   |  | 2003                         |       |   | 2002   |         
|                                                               |  | Shares  |   |  | WeightedAverageExercisePrice |       |   | Shares |          |   | WeightedAverageExercisePrice |   |       | Shares |  |   | WeightedAverageExercisePrice |  
|Outstanding, Beginning of Year                                 |  | 661,667 |   |  | $                            | 7.78  |   |        | 997,191  |   |                              | $ | 7.80  |        |  |   | 1,003,259                    |   |  | $ | 7.15   |  
|Granted                                                        |  |        |   |  |                              |      |   |        |         |   |                              |   |      |        |  |   | 14,257                       |   |  |   | 12.46  |  
|Exercised                                                      |  | (52,559 | ) |  |                              | (5.79 | ) |        | (330,732 | ) |                              |   | (6.18 | )      |  |   | (15,595                      | ) |  |   | (7.16  | )
|Forfeited                                                      |  |        |   |  |                              |      |   |        | (4,792   | ) |                              |   | (7.06 | )      |  |   | (4,730                       | ) |  |   | (10.29 | )
|                                                               |  |         |   |  |                              |       |   |        |          |   |                              |   |       |        |  |   |                              |   |  |   |        |  
|Outstanding, End of Year                                       |  | 609,108 |   |  | $                            | 7.95  |   |        | 661,667  |   |                              | $ | 7.78  |        |  |   | 997,191                      |   |  | $ | 7.80   |  
|                                                               |  |         |   |  |                              |       |   |        |          |   |                              |   |       |        |  |   |                              |   |  |   |        |  
|Options exercisable at year end                                |  | 609,108 |   |  | $                            | 7.95  |   |        | 655,915  |   |                              | $ | 7.76  |        |  |   | 955,190                      |   |  | $ | 7.11   |  
|Weighted average fair value of options granted during the year |  |         |   |  |                              |       |   |        |          |   |                              |   |       |        |  | $ | 2.25                         |   |  |   |        |  



The Company also maintains an employee
incentive and nonqualified stock option plan which was approved by its stockholders in 2003 (the 2003 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 2003 Option Plan.



At December 31, 2004, the 2003 Option Plan provided for the issuance of up to an aggregate of 490,500 shares of the Company common stock (retroactively adjusted for a 9%
stock dividend declared in November 2003). Options to purchase those shares may be granted to officers, key employees and directors of the Company and its subsidiaries at prices that are 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.



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #10 - Stock Option Plan, Continued



The fair value of
each option grant under the 2003 Option Plan in 2003 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions for 2003, respectively: risk-free rate of 3.07%, dividend yield of and 2.3%, expected
life of five years, and volatility of 27%. No options were granted in 2004.



2003 Stock Option Plan



|                                                               |  |         |   |  |                              |        |   |        |   |                              |  |   |      
|-------------------------------------------------------------- |  | ------- | - |  | ---------------------------- | ------ | - | ------ | - | ---------------------------- |  | - | -----
|                                                               |  | 2004    |   |  | 2003                        
|                                                               |  | Shares  |   |  | WeightedAverageExercisePrice |        |   | Shares |   | WeightedAverageExercisePrice
|Outstanding, Beginning of Year                                 |  | 170,040 |   |  | $                            | 16.93  |   |        |   |                              |  |   |      
|Granted                                                        |  |        |   |  |                              |       |   |        |   | 170,040                      |  | $ | 16.93
|Exercised                                                      |  | (594    | ) |  |                              | (16.93 | ) |        |   |                             |  |   |     
|Forfeited                                                      |  | (1,635  | ) |  |                              | (16.93 | ) |        |   |                             |  |   |     
|                                                               |  |         |   |  |                              |        |   |        |   |                              |  |   |      
|Outstanding, End of Year                                       |  | 167,860 |   |  | $                            | 16.93  |   |        |   | 170,040                      |  | $ | 16.93
|                                                               |  |         |   |  |                              |        |   |        |   |                              |  |   |      
|Options exercisable at year end                                |  | 116,102 |   |  | $                            | 16.93  |   |        |   | 92,485                       |  | $ | 16.93
|Weighted average fair value of options granted during the year |  |         |   |  |                              |        |   |        | $ | 3.78                         |  |   |      



The following table summarizes
information about fixed stock options outstanding at December 31, 2004



|                 |  |                     |  |                                         |  |                              |       |                   |         |                              |   |      
|---------------- |  | ------------------- |  | --------------------------------------- |  | ---------------------------- | ----- | ----------------- | ------- | ---------------------------- | - | -----
|                 |  | Options Outstanding |  | Options Exercisable                    
|Exercise Price   |  | NumberOutstanding   |  | WeightedAverageRemainingContractualLife |  | WeightedAverageExercisePrice |       | NumberExercisable |         | WeightedAverageExercisePrice
|$4.47 to $5.36   |  | 112,688             |  | 1.06                                    |  | $                            | 4.94  |                   | 112,688 |                              | $ | 4.94 
|$7.15 to $8.46   |  | 319,802             |  | 2.89                                    |  |                              | 7.39  |                   | 319,802 |                              |   | 7.39 
|$9.25 to $9.54   |  | 33,628              |  | 3.16                                    |  |                              | 9.47  |                   | 33,628  |                              |   | 9.47 
|$10.07 to $13.77 |  | 142,990             |  | 5.09                                    |  |                              | 11.21 |                   | 142,990 |                              |   | 11.24
|$15.50 to $16.97 |  | 113,360             |  | 8.29                                    |  |                              | 16.22 |                   | 92,577  |                              |   | 16.09
|$17.20 to $20.20 |  | 54,500              |  | 8.62                                    |  |                              | 18.40 |                   | 23,525  |                              |   | 18.46
|                 |  |                     |  |                                         |  |                              |       |                   |         |                              |   |      
|$4.47 to $20.20  |  | 776,968             |  |                                         |  |                              |       |                   | 725,210 |                              |   |      
|                 |  |                     |  |                                         |  |                              |       |                   |         |                              |   |      



Note #11 - 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, 2004, 2003, and 2002, the amount of the
Company contributions amounted to approximately $307,000, $311,000, and $179,000, respectively.



Note #12 - 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 was $441,000 ($260,000 net of income taxes) for 2004,
$428,000 ($253,000 net of income taxes) for 2003, and $428,000 ($253,020 net of income taxes) for 2002.



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #13 - 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,
2004, the maximum combined amount of funds that were available from these two sources was approximately $29,254,000 or 45% consolidated stockholders equity.



Note #14 - Stock Dividend



On November 26, 2003, the Board of Directors declared a 9% stock dividend payable on January 29, 2004, to stockholders of record on January 8, 2004. 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.



Note #15 - Other Expenses



The following is a breakdown of other expenses for the years ended December 31, 2004, 2003, and 2002 (amounts in thousands):



|                                       |  |      |       |      |   |       |  |   |      
|-------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                                       |  | 2004 |       | 2003 |   | 2002 
|Data processing                        |  | $    | 1,408 |      | $ | 1,575 |  | $ | 1,416
|Marketing expenses                     |  |      | 957   |      |   | 1,156 |  |   | 982  
|Office supplies, postage and telephone |  |      | 1,030 |      |   | 1,090 |  |   | 1,117
|Bank insurance                         |  |      | 408   |      |   | 559   |  |   | 529  
|Supervisory assessments                |  |      | 169   |      |   | 148   |  |   | 123  
|Professional fees                      |  |      | 1,290 |      |   | 1,000 |  |   | 1,170
|Operating losses                       |  |      | 121   |      |   | 200   |  |   | 175  
|OREO expenses                          |  |      |      |      |   | 10    |  |   | 35   
|Other                                  |  |      | 2,234 |      |   | 1,922 |  |   | 1,944
|                                       |  |      |       |      |   |       |  |   |      
|Total                                  |  | $    | 7,617 |      | $ | 7,660 |  | $ | 7,491
|                                       |  |      |       |      |   |       |  |   |      



Note #16 - Income Taxes



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



|                                                       |  |                         |       |   |      |   |       |      |  |   |       |  
|------------------------------------------------------ |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                       |  | Year Ended December 31, |      
|                                                       |  | 2004                    |       |   | 2003 |   |       | 2002 | 
|Tax provision applicable to income before income taxes |  | $                       | 5,183 |   |      | $ | 4,726 |      |  | $ | 4,378 |  
|                                                       |  |                         |       |   |      |   |       |      |  |   |       |  
|Federal income tax                                     |  |                         |       |   |      |   |       |      |  |   |       |  
|Current                                                |  |                         | 3,867 |   |      |   | 3,564 |      |  |   | 3,570 |  
|Deferred                                               |  |                         | (130  | ) |      |   | (250  | )    |  |   | (388  | )
|State franchise taxes                                  |  |                         |       |   |      |   |       |      |  |   |       |  
|Current                                                |  |                         | 1,447 |   |      |   | 1,503 |      |  |   | 1,334 |  
|Deferred                                               |  |                         | (1    | ) |      |   | (91   | )    |  |   | (138  | )
|                                                       |  |                         |       |   |      |   |       |      |  |   |       |  
|Total                                                  |  | $                       | 5,183 |   |      | $ | 4,726 |      |  | $ | 4,378 |  
|                                                       |  |                         |       |   |      |   |       |      |  |   |       |  



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #16 - Income Taxes, Continued



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



|                                                             |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                             |  | 2004 |       |   | 2003 |   |       | 2002 | 
|Deferred Tax Assets                                          |  |      |       |   |      |   |       |      |  |   |       |  
|Allowance for loan losses due to tax limitations             |  | $    | 1,816 |   |      | $ | 1,667 |      |  | $ | 1,502 |  
|Deferred compensation plan                                   |  |      | 1,490 |   |      |   | 1,373 |      |  |   | 1,201 |  
|Net unrealized loss on available-for-sale securities         |  |      | 517   |   |      |   |      |      |  |   |      |  
|Other assets and liabilities                                 |  |      | 558   |   |      |   | 438   |      |  |   | 267   |  
|                                                             |  |      |       |   |      |   |       |      |  |   |       |  
|Total Deferred Tax Assets                                    |  |      | 4,381 |   |      |   | 3,478 |      |  |   | 2,970 |  
|                                                             |  |      |      
|Deferred Tax Liabilities                                     |  |      |       |   |      |   |       |      |  |   |       |  
|Premises and equipment due to depreciation difference        |  |      | (416  | ) |      |   | (336  | )    |  |   | (295  | )
|Other assets and liabilities                                 |  |      | (583  | ) |      |   | (320  | )    |  |   | (269  | )
|Net unrealized appreciation on available-for-sale securities |  |      |      |   |      |   | (4    | )    |  |   | (89   | )
|                                                             |  |      |       |   |      |   |       |      |  |   |       |  
|Net Deferred Tax Assets                                      |  | $    | 3,382 |   |      | $ | 2,818 |      |  | $ | 2,317 |  
|                                                             |  |      |       |   |      |   |       |      |  |   |       |  



As a result of the following items,
the total tax expenses for 2004, 2003, and 2002, were less than the amount computed by applying the statutory U.S. Federal income tax rate to income before taxes (dollars in thousands):



|                                                              |  |        |       |   |                        |      |   |        |   |       |                        |  |      |        |  |   |                        |   |  |      |  
|------------------------------------------------------------- |  | ------ | ----- | - | ---------------------- | ---- | - | ------ | - | ----- | ---------------------- |  | ---- | ------ |  | - | ---------------------- | - |  | ---- | -
|                                                              |  | 2004   |       |   | 2003                   |      |   | 2002   |  
|                                                              |  | Amount |       |   | Percent ofPretaxIncome |      |   | Amount |   |       | Percent ofPretaxIncome |  |      | Amount |  |   | Percent ofPretaxIncome |  
|Federal rate                                                  |  | $      | 4,943 |   |                        | 34.0 |   |        | $ | 4,465 |                        |  | 34.0 |        |  | $ | 4,104                  |   |  | 34.0 |  
|Changes due to State income tax, (net of Federal tax benefit) |  |        | 1,032 |   |                        | 7.1  |   |        |   | 932   |                        |  | 7.1  |        |  |   | 857                    |   |  | 7.1  |  
|Exempt income                                                 |  |        | (424  | ) |                        | (2.9 | ) |        |   | (517  | )                      |  | (3.9 | )      |  |   | (570                   | ) |  | (4.7 | )
|Other, net                                                    |  |        | (368  | ) |                        | (2.5 | ) |        |   | (154  | )                      |  | (1.2 | )      |  |   | (13                    | ) |  | (0.1 | )
|                                                              |  |        |       |   |                        |      |   |        |   |       |                        |  |      |        |  |   |                        |   |  |      |  
|Total                                                         |  | $      | 5,183 |   |                        | 35.7 |   |        | $ | 4,726 |                        |  | 36.0 |        |  | $ | 4,378                  |   |  | 36.3 |  
|                                                              |  |        |       |   |                        |      |   |        |   |       |                        |  |      |        |  |   |                        |   |  |      |  



Note #17 - 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 adjusted to give effect to the 9% stock dividend declared November 26, 2003 and paid on
January 29, 2004 to shareholders of record January 8, 2004.



|                                                     |  |        |       |        |       |   |        |      |        |  |       |        |  |        |       |  |       |  
|---------------------------------------------------- |  | ------ | ----- | ------ | ----- | - | ------ | ---- | ------ |  | ----- | ------ |  | ------ | ----- |  | ----- | -
|                                                     |  | 2004   |       |        | 2003  |   |        | 2002 |       
|                                                     |  | Income |       | Shares |       |   | Income |      | Shares |  |       | Income |  | Shares |      
|Net income as reported                               |  | $      | 9,355 |        |       |   |        | $    | 8,421  |  |       |        |  | $      | 7,694 |  |       |  
|Shares outstanding at year end                       |  |        |      |        | 6,732 |   |        |      |       |  | 6,703 |        |  |        |      |  | 6,575 |  
|Impact of weighting shares purchased during the year |  |        |      |        | (10   | ) |        |      |       |  | (90   | )      |  |        |      |  | (12   | )
|                                                     |  |        |       |        |       |   |        |      |        |  |       |        |  |        |       |  |       |  
|Used in Basic EPS                                    |  |        | 9,355 |        | 6,722 |   |        |      | 8,421  |  | 6,613 |        |  |        | 7,694 |  | 6,563 |  
|Dilutive effect of outstanding stock options         |  |        |      |        | 436   |   |        |      |       |  | 527   |        |  |        |      |  | 497   |  
|                                                     |  |        |       |        |       |   |        |      |        |  |       |        |  |        |       |  |       |  
|Used in Dilutive EPS                                 |  | $      | 9,355 |        | 7,158 |   |        | $    | 8,421  |  | 7,140 |        |  | $      | 7,694 |  | 7,060 |  
|                                                     |  |        |       |        |       |   |        |      |        |  |       |        |  |        |       |  |       |  



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #18 - 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, 2004 and 2003, the Bank had commitments to extend credit of $53,902,000 and $46,022,000, respectively, and obligations under standby letters of credit of $2,968,000 and $1,422,000,
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.



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.



We have a line of credit at the Federal Home Loan Bank of approximately $31 million which is
secured by pledged securities. We also have lines of credit at our correspondent banks to borrow fed funds of approximately $13 million.



Note #19 - 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).



60



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #19 - Regulatory Matters, Continued



The following table
compares, as of December 31, 2004 and December 31, 2003, 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 CapitalAdequacy Purposes |   |                | To Be WellCapitalized UnderPrompt CorrectiveProvisions
|                                       |  | Amount |        | Ratio |                              |   | Amount         |                                                        | Ratio  |  |     | Amount |  | Ratio
|As of December 31, 2004:               |  |        |        |       |                              |   |                |                                                        |        |  |     |        |  |       |  |    
|Total capital to risk-weighted assets  |  | $      | 78,295 |       | 13.4                         | % |                | $                                                      | 46,638 |  | 8.0 | %      |  | N/A   |  | N/A
|Tier 1 capital to risk-weighted assets |  |        | 73,138 |       | 12.6                         | % |                |                                                        | 23,319 |  | 4.0 | %      |  | N/A   |  | N/A
|Tier 1 capital to average assets       |  |        | 73,138 |       | 9.1                          | % |                |                                                        | 32,023 |  | 4.0 | %      |  | N/A   |  | N/A
|                                       |  |        |        |       |                              |  
|As of December 31, 2003:               |  |        |        |       |                              |   |                |                                                        |        |  |     |        |  |       |  |    
|Total capital to risk-weighted assets  |  | $      | 73,541 |       | 13.2                         | % |                | $                                                      | 41,606 |  | 8.0 | %      |  | N/A   |  | N/A
|Tier 1 capital to risk-weighted assets |  |        | 68,531 |       | 14.1                         | % |                |                                                        | 20,803 |  | 4.0 | %      |  | N/A   |  | N/A
|Tier 1 capital to average assets       |  |        | 68,531 |       | 9.9                          | % |                |                                                        | 27,736 |  | 4.0 | %      |  | N/A   |  | N/A



FOOTHILL INDEPENDENT BANK



|                                       |  |        |        |       |                             |   |                |                                                        |        |  |     |        |  |       |        |  |      |  
|-------------------------------------- |  | ------ | ------ | ----- | --------------------------- | - | -------------- | ------------------------------------------------------ | ------ |  | --- | ------ |  | ----- | ------ |  | ---- | -
|                                       |  |        |        |       |                             |   | Capital Needed |                                                       
|                                       |  | Actual |        |       | For CapitalAdequacyPurposes |   |                | To Be WellCapitalized UnderPrompt CorrectiveProvisions |       
|                                       |  | Amount |        | Ratio |                             |   | Amount         |                                                        | Ratio  |  |     | Amount |  | Ratio |       
|As of December 31, 2004:               |  |        |        |       |                             |   |                |                                                        |        |  |     |        |  |       |        |  |      |  
|Total capital to risk-weighted assets  |  | $      | 76,871 |       | 13.2                        | % |                | $                                                      | 46,560 |  | 8.0 | %      |  | $     | 58,200 |  | 10.0 | %
|Tier 1 capital to risk-weighted assets |  |        | 71,714 |       | 12.3                        | % |                |                                                        | 23,280 |  | 4.0 | %      |  |       | 34,920 |  | 6.0  | %
|Tier 1 capital to average assets       |  |        | 71,714 |       | 9.0                         | % |                |                                                        | 31,862 |  | 4.0 | %      |  |       | 39,828 |  | 5.0  | %
|                                       |  |        |        |       |                             |  
|As of December 31, 2003:               |  |        |        |       |                             |   |                |                                                        |        |  |     |        |  |       |        |  |      |  
|Total capital to risk-weighted assets  |  | $      | 71,619 |       | 13.8                        | % |                | $                                                      | 41,504 |  | 8.0 | %      |  | $     | 51,880 |  | 10.0 | %
|Tier 1 capital to risk-weighted assets |  |        | 66,610 |       | 12.8                        | % |                |                                                        | 20,752 |  | 4.0 | %      |  |       | 31,128 |  | 6.0  | %
|Tier 1 capital to average assets       |  |        | 66,610 |       | 9.7                         | % |                |                                                        | 27,607 |  | 4.0 | %      |  |       | 34,509 |  | 5.0  | %



As disclosed in Note #9 - Junior
Subordinated Debentures, subject to percentage limitations, the proceeds from the issuance of trust preferred securities are considered Tier 1 capital by the Company for regulatory purposes. However, as a result of the issuance of FIN 46 and FIN
46R, the Companys trust subsidiary that issued the trust preferred securities is no longer consolidated in the Companys financial statements and, therefore, the proceeds received by the trust subsidiary from its sale of the trust
preferred securities, which were transferred to the Company in exchange for the Companys issuance of the Junior Subordinated Debentures is reported in these financial statements as subordinated debt of the Company.



61



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #20 - Fair Value of
Financial Instruments



The table below presents the carrying amounts and
fair values of financial instruments at December 31, 2004 and 2003 (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 cannot 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. Also included in investment securities are time certificates of
deposit held at other banks, Federal Home Loan Bank stock and Federal Reserve Bank stock owned by the Bank.



Note #20 - Fair Value of Financial Instrumentscontinued



| |  |  | Loans and Direct Lease Financing
| | - |  | --------------------------------



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.



| |  |  | Cash Surrender Value of Life Insurance
| | - |  | --------------------------------------



The fair value of cash surrender value of life insurance is defined as the cash value payable on demand at December 31, 2004 and December 31, 2003.



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #20 - Fair Value of Financial Instruments, Continued



| |  |  | 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,
2004, and December 31, 2003. 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.



|                                       |  |                   |         |                   |   |                |  |            |         |  |   |        
|-------------------------------------- |  | ----------------- | ------- | ----------------- | - | -------------- |  | ---------- | ------- |  | - | -------
|                                       |  | December 31, 2004 |         | December 31, 2003
|                                       |  | CarryingAmount    |         | Fair Value        |   | CarryingAmount |  | Fair Value
|Financial Assets                       |  |                   |         |                   |   |                |  |            |         |  |   |        
|Cash and cash equivalents              |  | $                 | 52,511  |                   | $ | 52,511         |  | $          | 53,065  |  | $ | 53,065 
|Investment securities and deposits     |  |                   | 208,166 |                   |   | 208,223        |  |            | 153,700 |  |   | 152,164
|Loans                                  |  |                   | 505,734 |                   |   | 528,366        |  |            | 459,574 |  |   | 494,162
|Direct lease financing                 |  |                   | 341     |                   |   | 342            |  |            | 528     |  |   | 542    
|Cash surrender value of life insurance |  |                   | 12,300  |                   |   | 12,300         |  |            | 11,491  |  |   | 11,491 
|Accrued interest receivable            |  |                   | 3,006   |                   |   | 3,006          |  |            | 2,824   |  |   | 2,824  
|Financial Liabilities                  |  |                   |         |                   |   |                |  |            |         |  |   |        
|Deposits                               |  |                   | 709,050 |                   |   | 708,168        |  |            | 612,050 |  |   | 611,616
|Junior subordinated debentures         |  |                   | 8,248   |                   |   | 8,248          |  |            | 8,248   |  |   | 8,248  
|Accrued interest payable               |  |                   | 103     |                   |   | 103            |  |            | 84      |  |   | 84     
|Unrecognized Financial Instruments     |  |                   |         |                   |   |                |  |            |         |  |   |        
|Commitments to extend credit           |  |                   | 53,902  |                   |   | 539            |  |            | 46,022  |  |   | 460    
|Standby letters of credit              |  |                   | 2,968   |                   |   | 30             |  |            | 1,422   |  |   | 14     



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004, 2003, AND 2002



Note #21 - Condensed
Financial Information of Foothill Independent Bancorp (Parent Company)



|                                                    |  |                        |        |   |      |   |        |      |  |   |       
|--------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------
|Balance Sheets                                     
|                                                    |  | 2004                   |        |   | 2003 |   |        | 2002
|                                                    |  | (dollars in thousands)
|Assets                                              |  |                        |        |   |      |   |        |      |  |   |       
|Cash                                                |  | $                      | 403    |   |      | $ | 371    |      |  | $ | 508   
|Interest-bearing deposits in financial institutions |  |                        |       |   |      |   | 297    |      |  |   | 1,500 
|Investment securities available-for-sale            |  |                        |       |   |      |   |       |      |  |   | 5,996 
|Investment in subsidiaries                          |  |                        | 71,490 |   |      |   | 67,194 |      |  |   | 57,240
|Accounts receivable                                 |  |                        | 694    |   |      |   | 908    |      |  |   | 285   
|Prepaid expenses                                    |  |                        | 267    |   |      |   | 289    |      |  |   | 264   
|Accrued interest and other assets                   |  |                        |       |   |      |   |       |      |  |   | 68    
|                                                    |  |                        |        |   |      |   |        |      |  |   |       
|Total Assets                                        |  | $                      | 72,854 |   |      | $ | 69,059 |      |  | $ | 65,861
|                                                    |  |                        |        |   |      |   |        |      |  |   |       
|Liabilities and Stockholders Equity                |  |                        |        |   |      |   |        |      |  |   |       
|Liabilities                                         |  |                        |        |   |      |   |        |      |  |   |       
|Accounts payable                                    |  | $                      | 37     |   |      | $ | 23     |      |  | $ | 37    
|Long term debentures                                |  |                        | 8,248  |   |      |   | 8,248  |      |  |   | 8,248 
|                                                    |  |                        |        |   |      |   |        |      |  |   |       
|                                                    |  |                        | 8,285  |   |      |   | 8,271  |      |  |   | 8,285 
|                                                    |  |                        |        |   |      |   |        |      |  |   |       
|Stockholders Equity                                |  |                        |        |   |      |   |        |      |  |   |       
|Common stock                                        |  |                        | 7      |   |      |   | 6      |      |  |   | 6     
|Additional paid-in capital                          |  |                        | 67,831 |   |      |   | 67,194 |      |  |   | 52,449
|Retained earnings                                   |  |                        | (3,269 | ) |      |   | (6,412 | )    |  |   | 5,121 
|                                                    |  |                        |        |   |      |   |        |      |  |   |       
|Total Stockholders Equity                          |  |                        | 64,569 |   |      |   | 60,788 |      |  |   | 57,576
|                                                    |  |                        |        |   |      |   |        |      |  |   |       
|Total Liabilities and Stockholders Equity           |  | $                      | 72,854 |   |      | $ | 69,059 |      |  | $ | 65,861
|                                                    |  |                        |        |   |      |   |        |      |  |   |       
|                                                   
|Statements of Income                               
|                                                    |  |                        |       
|Income                                              |  |                        |        |   |      |   |        |      |  |   |       
|Equity in undistributed income of subsidiaries      |  | $                      | 9,909  |   |      | $ | 8,910  |      |  | $ | 8,072 
|Interest income and other income                    |  |                        | 14     |   |      |   | 29     |      |  |   | 4     
|                                                    |  |                        |        |   |      |   |        |      |  |   |       
|                                                    |  |                        | 9,923  |   |      |   | 8,939  |      |  |   | 8,076 
|Expense                                             |  |                        |        |   |      |   |        |      |  |   |       
|Amortization and other expenses                     |  |                        | 964    |   |      |   | 860    |      |  |   | 646   
|                                                    |  |                        |        |   |      |   |        |      |  |   |       
|Total Operating Income                              |  |                        | 8,959  |   |      |   | 8,079  |      |  |   | 7,430 
|Income tax benefit                                  |  |                        | 396    |   |      |   | 342    |      |  |   | 264   
|                                                    |  |                        |        |   |      |   |        |      |  |   |       
|Net Income                                          |  | $                      | 9,355  |   |      | $ | 8,421  |      |  | $ | 7,694 
|                                                    |  |                        |        |   |      |   |        |      |  |   |       



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FOOTHILL INDEPENDENT BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003, 2002 AND 2001



Note #21 - Condensed Financial Information of Foothill Independent
Bancorp (Parent Company),Contd



Statements
of Cash Flows

For the Years Ended December 31, 2004, 2003, and 2002



|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                 |  | 2004                   |        |   | 2003 |   |        | 2002 | 
|                                                                                 |  | (dollars in thousands) |       
|Cash Flows From Operating Activities                                             |  |                        |        |   |      |   |        |      |  |   |        |  
|Cash received for tax benefit from Foothill Independent Bank                     |  | $                      | 342    |   |      | $ | 264    |      |  | $ | 213    |  
|Interest received                                                                |  |                        | 13     |   |      |   | 33     |      |  |   |       |  
|Cash paid for operating expenses                                                 |  |                        | (672   | ) |      |   | (1,173 | )    |  |   | (779   | )
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|Net Cash Used By Operating Activities                                            |  |                        | (317   | ) |      |   | (876   | )    |  |   | (566   | )
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|Cash Flows From Investing Activities                                             |  |                        |        |   |      |   |        |      |  |   |        |  
|Purchase of deposits in other financial institutions                             |  |                        | 297    |   |      |   | 1,203  |      |  |   | (1,500 | )
|Purchase of investment securities available-for-sale                             |  |                        |       |   |      |   | 5,996  |      |  |   | (5,999 | )
|Capital contributed to subsidiary                                                |  |                        |       |   |      |   | (4,000 | )    |  |   | (248   | )
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|Net Cash Provided (Used) By Investing Activities                                 |  |                        | 297    |   |      |   | 3,199  |      |  |   | (7,747 | )
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|Cash Flows From Financing Activities                                             |  |                        |        |   |      |   |        |      |  |   |        |  
|Dividends paid                                                                   |  |                        | (4,856 | ) |      |   | (4,158 | )    |  |   | (2,375 | )
|Dividends received from Foothill Independent Bank                                |  |                        | 4,800  |   |      |   | 2,650  |      |  |   | 2,630  |  
|Issuance of debentures                                                           |  |                        |       |   |      |   |       |      |  |   | 8,248  |  
|Proceeds from stock issuance                                                     |  |                        |       |   |      |   |       |      |  |   | 98     |  
|Proceeds from exercise of stock options                                          |  |                        | 610    |   |      |   | 2,610  |      |  |   | 98     |  
|Capital stock repurchased                                                        |  |                        | (502   | ) |      |   | (3,562 | )    |  |   |       |  
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|Net Cash Provided (Used) By Financing Activities                                 |  |                        | 52     |   |      |   | (2,460 | )    |  |   | 8,699  |  
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|Net Increase (Decrease) in Cash                                                  |  |                        | 32     |   |      |   | (137   | )    |  |   | 386    |  
|Cash, Beginning of Year                                                          |  |                        | 371    |   |      |   | 508    |      |  |   | 122    |  
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|Cash, End of Year                                                                |  | $                      | 403    |   |      | $ | 371    |      |  | $ | 508    |  
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|Reconciliation of Net Increase to Net Cash Provided by Operating Activities      |  |                        |        |   |      |   |        |      |  |   |        |  
|Net Income                                                                       |  | $                      | 9,355  |   |      | $ | 8,421  |      |  | $ | 7,694  |  
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities |  |                        |        |   |      |   |        |      |  |   |        |  
|Amortization                                                                     |  |                        |       |   |      |   | 8      |      |  |   |       |  
|Undistributed earnings of subsidiaries                                           |  |                        | (9,909 | ) |      |   | (8,910 | )    |  |   | (8,072 | )
|(Increase) Decrease in accounts receivable                                       |  |                        | 201    |   |      |   | (360   | )    |  |   | (51    | )
|(Increase) Decrease in accrued interest receivable                               |  |                        |       |   |      |   | 4      |      |  |   | (4     | )
|(Increase) Decrease in prepaid expenses                                          |  |                        | 22     |   |      |   | (25    | )    |  |   | (188   | )
|Increase (Decrease) in accounts payable                                          |  |                        | 14     |   |      |   | (14    | )    |  |   | 55     |  
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|Total Adjustments                                                                |  |                        | (9,672 | ) |      |   | (9,297 | )    |  |   | (8,260 | )
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  
|Net Cash Used by Operating Activities                                            |  | $                      | (317   | ) |      | $ | (876   | )    |  | $ | (566   | )
|                                                                                 |  |                        |        |   |      |   |        |      |  |   |        |  



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FOOTHILL INDEPENDENT BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003, 2002 AND 2001



Note #22 - Summary of Quarterly Financial Information (Unaudited)



The following quarterly financial information for the Company and its
subsidiaries for the two years ended December 31, 2004 and 2003, is summarized below:



|                                                    |  |                                                  |       |        |   |       |  |        |       |  |   |      
|--------------------------------------------------- |  | ------------------------------------------------ | ----- | ------ | - | ----- |  | ------ | ----- |  | - | -----
|                                                    |  | 2004                                            
|                                                    |  | First                                            |       | Second |   | Third |  | Fourth
|                                                    |  | (dollars in thousands, except per share amounts)
|Summary of Operations                               |  |                                                  |       |        |   |       |  |        |       |  |   |      
|Interest income                                     |  | $                                                | 8,879 |        | $ | 8,783 |  | $      | 9,484 |  | $ | 9,884
|Interest expense                                    |  |                                                  | 1,016 |        |   | 1,084 |  |        | 1,135 |  |   | 1,232
|Net interest income                                 |  |                                                  | 7,863 |        |   | 7,699 |  |        | 8,349 |  |   | 8,652
|Provision for loan losses                           |  |                                                  |      |        |   |      |  |        |      |  |   |     
|Net interest income after provision for loan losses |  |                                                  | 7,863 |        |   | 7,699 |  |        | 8,349 |  |   | 8,652
|Other income                                        |  |                                                  | 1,418 |        |   | 1,416 |  |        | 1,445 |  |   | 1,307
|Other expense                                       |  |                                                  | 5,843 |        |   | 5,666 |  |        | 6,075 |  |   | 6,027
|Income before taxes                                 |  |                                                  | 3,438 |        |   | 3,449 |  |        | 3,719 |  |   | 3,932
|Applicable income taxes                             |  |                                                  | 1,234 |        |   | 1,242 |  |        | 1,325 |  |   | 1,382
|                                                    |  |                                                  |       |        |   |       |  |        |       |  |   |      
|Net Income                                          |  | $                                                | 2,204 |        | $ | 2,207 |  | $      | 2,394 |  | $ | 2,550
|                                                    |  |                                                  |       |        |   |       |  |        |       |  |   |      
|Earnings Per Share - Basic                          |  | $                                                | 0.33  |        | $ | 0.33  |  | $      | 0.35  |  | $ | 0.38 
|                                                    |  |                                                  |       |        |   |       |  |        |       |  |   |      
|Earnings Per Share - Diluted                        |  | $                                                | 0.31  |        | $ | 0.31  |  | $      | 0.33  |  | $ | 0.36 
|                                                    |  |                                                  |       |        |   |       |  |        |       |  |   |      
|                                                    | 
|                                                    |  | 2003                                            
|                                                    |  | First                                            |       | Second |   | Third |  | Fourth
|                                                    |  | (dollars in thousands, except per share amounts)
|Summary of Operations                               |  |                                                  |       |        |   |       |  |        |       |  |   |      
|Interest income                                     |  | $                                                | 8,609 |        | $ | 8,556 |  | $      | 9,317 |  | $ | 9,198
|Interest expense                                    |  |                                                  | 1,104 |        |   | 1,138 |  |        | 1,043 |  |   | 998  
|Net interest income                                 |  |                                                  | 7,505 |        |   | 7,418 |  |        | 8,274 |  |   | 8,200
|Provision for loan losses                           |  |                                                  |      |        |   | 100   |  |        | 200   |  |   | 48   
|Net interest income after provision for loan losses |  |                                                  | 7,505 |        |   | 7,318 |  |        | 8,074 |  |   | 8,152
|Other income                                        |  |                                                  | 1,350 |        |   | 1,434 |  |        | 1,416 |  |   | 1,413
|Other expense                                       |  |                                                  | 5,672 |        |   | 5,664 |  |        | 6,077 |  |   | 6,102
|Income before taxes                                 |  |                                                  | 3,183 |        |   | 3,088 |  |        | 3,413 |  |   | 3,463
|Applicable income taxes                             |  |                                                  | 1,152 |        |   | 1,115 |  |        | 1,215 |  |   | 1,244
|                                                    |  |                                                  |       |        |   |       |  |        |       |  |   |      
|Net Income                                          |  | $                                                | 2,031 |        | $ | 1,973 |  | $      | 2,198 |  | $ | 2,219
|                                                    |  |                                                  |       |        |   |       |  |        |       |  |   |      
|Earnings Per Share - Basic                          |  | $                                                | 0.31  |        | $ | 0.30  |  | $      | 0.33  |  | $ | 0.33 
|                                                    |  |                                                  |       |        |   |       |  |        |       |  |   |      
|Earnings Per Share - Diluted                        |  | $                                                | 0.29  |        | $ | 0.28  |  | $      | 0.31  |  | $ | 0.31 
|                                                    |  |                                                  |       |        |   |       |  |        |       |  |   |      



Note 23 - Subsequent Event



On January 25, 2005 the Board of Directors approved a dividend in the
amount of $.13 per share to be paid on February 28, 2005 to shareholders of record as of February 9, 2005.



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##### Table of Contents

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 9A. CONTROLS AND PROCEDURES



Disclosure Controls and Procedures



Our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to provide reasonable assurance that information required to be disclosed in our reports filed under
that Act (the Exchange Act), such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. Our disclosure controls and procedures
also are designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.



Our management, under the supervision and with the participation of our Chief
Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures in effect as of December 31, 2004. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that, as of December 31, 2004, our disclosure controls and procedures were effective to provide reasonable assurance that material information, relating to the Company and its consolidated subsidiaries, required to be included in our Exchange Act
reports, including this Annual Report on Form 10K, is made known to management, including the Chief Executive Officer and Chief Financial Officer, on a timely basis.



Managements Assessment of the Effectiveness of Internal Control Over Financial Reporting



Internal Control Over Financial Reporting. Management of Foothill
Independent Bancorp is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America. Internal control over financial reporting includes those written policies and procedures that:



| |  |  | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in
the United States of America;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our consolidated
financial statements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Internal control over
financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct any deficiencies that may be found to exist in our internal control over financial reporting.



Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or because the degree of
compliance with the policies or procedures may deteriorate.



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##### Table of Contents

Status of Management Assessment Process. Our management has substantially completed its testing,
based on criteria for effective internal control over financial reporting described in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, of the effectiveness of
Foothill Independent Bancorps internal control over financial reporting as of December 31, 2004. So far it has not found any material weaknesses in the Companys internal control over financial reporting as of December 31, 2004.



The issuance of managements report on the effectiveness
of the Companys internal control over financial reporting as of December 31, 2004, together with the auditors attestation report, had been required to be issued as part of this Annual Report. However, the Securities and Exchange
Commission, by exemptive order issued on November 30, 2004, is allowing companies with fiscal years ending between November 15, 2004 and February 28, 2005, an additional 45 days within which to file such reports.



We expect that prior to the expiration of that 45-day period (i) our
management will have completed its testing and assessment of the effectiveness of Foothill Independent Bancorps internal control over financial reporting and will have made its determination and issued its report as to whether Foothill
Independent Bancorp maintained effective internal control over financial reporting as of December 31, 2004, and (ii) its independent registered public accounting firm will have issued an attestation report with regard to that assessment and
determination by management. At that time, we will file an amendment on Form 10-K/A to this Annual Report that will contain managements report regarding the effectiveness of the Companys internal control over financial reporting as of
December 31, 2004 and the attestation report with respect thereto of its independent registered public accounting firm.



Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during
the quarter ended December 31, 2004, that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



ITEM 9B. OTHER INFORMATION



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 to be filed with the Commission on or before April 29, 2005 for the Companys 2005 annual meeting of stockholders.



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 29, 2005 for the Companys 2005 annual stockholders
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 29, 2005 for the Companys 2005 annual stockholders meeting.



68



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##### Table of Contents

The following table provides information relating to our equity compensation plans as of December 31,
2004:



|                                                   |  |                                                                      |  |                                                      |      |                                                                                                                                        |        
|-------------------------------------------------- |  | -------------------------------------------------------------------- |  | ---------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------- | -------
|                                                   |  | Column A                                                             |  | Column B                                             |      | Column C                                                                                                                              
|                                                   |  | Number of Securities to beIssued upon Exercise ofOutstanding Options |  | Weighted-AverageExercise Price ofOutstanding Options |      | Number of Securities RemainingAvailable for Future Issuance underEquity Compensation Plans(Excluding Securities Reflected in Column A)
|Equity compensation plans approved by shareholders |  | 776,968                                                              |  | $                                                    | 9.89 |                                                                                                                                        | 322,026
|Equity compensation not approved by shareholders   |  |                                                                     |  |                                                      |     |                                                                                                                                        |       
|                                                   |  |                                                                      |  |                                                      |      |                                                                                                                                        |        
|                                                   |  | 776,968                                                              |  | $                                                    | 9.89 |                                                                                                                                        | 322,026
|                                                   |  |                                                                      |  |                                                      |      |                                                                                                                                        |        



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 29, 2005 for the Companys 2005 annual
stockholders meeting.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The information required by Item 14 is incorporated herein by reference from the Companys definitive proxy statement to be filed with the Commission on or before April 29, 2005 for the Companys 2005 annual
stockholders meeting.



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 41 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.



69



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POWER OF ATTORNEY



Each person
whose signature appears below hereby authorizes George E. Langley 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 14thday of March 2005.



FOOTHILL INDEPENDENT BANCORPBy:

/s/ GEORGE E. LANGLEYGeorge E. Langley, Presidentand 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 14, 2005.



|                         |  |                                                                              
|------------------------ |  | -----------------------------------------------------------------------------
|/s/ GEORGE E. LANGLEY    |  | President, Chief Executive Officer (Principal Executive Officer) and Director
|George E. Langley        |  |                                                                              
|                         | 
|/s/ CAROL ANN GRAF       |  | Chief Financial Officer (Principal Financial and Accounting Officer)         
|Carol Ann Graf           |  |                                                                              
|                         | 
|/s/ WILLIAM V. LANDECENA |  | Chairman of the Board of Directors                                           
|William V. Landecena     |  |                                                                              
|                         | 
|/s/ RICHARD GALICH       |  | Director                                                                     
|Richard Galich           |  |                                                                              
|                         | 
|/s/ O. L. MESTAD         |  | Director                                                                     
|O. L. Mestad             |  |                                                                              
|                         | 
|/s/ GEORGE SELLERS       |  | Director                                                                     
|George Sellers           |  |                                                                              
|                         | 
|/s/ DOUGLAS F. TESSITOR  |  | Director                                                                     
|Douglas F. Tessitor      |  |                                                                              
|                         | 
|/s/ MAX E. WILLIAMS      |  | Director                                                                     
|Max E. Williams          |  |                                                                              



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##### Table of Contents

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 LLC 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.                                                                                                                                                                                                                             
|           | 
|31.1       |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                     
|           | 
|31.2       |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                     
|           | 
|32.1       |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                     
|           | 
|32.2       |  | 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.
|-- | --------------------------------------------------------------------------------------------------------------------





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