##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



---



FORM 10-K

(Mark One)



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

For the fiscal year ended December 31, 2001

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, INC.
(Exact name of Registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)

|                                                            |  |                                             
|----------------------------------------------------------- |  | --------------------------------------------
|Securities registered pursuant to Section 12(b) of the Act: |  | None                                        
|                                                           
|Securities registered pursuant to Section 12(g) of the Act: |  | Common Stock
Rights to Purchase Common Stock
|                                                            |  |                                             
|                                                            |  | (Title of Class)                            

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

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

As of March 22, 2002 the aggregate market value of the voting shares held
by non-affiliates of the registrant was approximately $60,940,680.

As of March 22, 2002, there were 5,521,724 shares of Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of the Form 10-K is incorporated by reference form the
Registrants Definitive Proxy Statement for its 2002 Annual Meeting which will
be filed with the Commission on or before April 30, 2002.





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TABLE OF CONTENTS



|                             |                                                                                               |                                                           |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|PART I                      
|                             | ITEM 1. BUSINESS                                                                             
|                             | ITEM 2. PROPERTIES                                                                           
|                             | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                             | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                     
|                             | ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS             
|                             | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                             | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                             | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                           
|                             | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|Independent Auditors Report
|                             |                                                                                               | CONSOLIDATED BALANCE SHEETS                              
|                             |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME                        
|                             |                                                                                               | CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
|                             |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                    
|                             | ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                 
|PART III                    
|                             | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                             | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                             | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                             | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|PART IV                     
|                             | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|SIGNATURES                  
|EXHIBIT INDEX               
|EXHIBIT 4.2                 
|EXHIBIT 21                  
|EXHIBIT 23.1                



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##### Table of Contents



FOOTHILL INDEPENDENT BANCORP, INC.

ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

|                           |         |                                                                                       |     |  |                                            |                                                                                                  |  |    |    |          |  | 
|-------------------------- | ------- | ------------------------------------------------------------------------------------- | --- |  | ------------------------------------------ | ------------------------------------------------------------------------------------------------ |  | -- | -- | -------- |  | 
|                           |         |                                                                                       |     |  |                                            |                                                                                                  |  |    |    | Page No.
|                           |         |                                                                                       |     |  |                                            |                                                                                                  |  |    |    |         
|Forward Looking Statements |         |                                                                                       | 1   | 
|                          
|Part I                     |         |                                                                                       |     |  |                                            |                                                                                                  |  |    |    |          |  | 
|                           | Item 1  | Business                                                                              |     |  | 1                                          |                                                                                                 
|                           | Item 2  | Properties                                                                            |     |  | 14                                         |                                                                                                 
|                           | Item 3  | Legal Proceedings                                                                     |     |  | 14                                         |                                                                                                 
|                           | Item 4  | Submission of Matters to a Vote of Securities Holders                                 |     |  | 14                                         |                                                                                                 
|                           | Item 4A | Executive Officers of the Registrant                                                  |     |  | 15                                         |                                                                                                 
|                          
|Part II                    |         |                                                                                       |     |  |                                            |                                                                                                  |  |    |    |          |  | 
|                           | Item 5  | Market for Registrant's Common Equity and Related Stockholder Matters                 |     |  | 16                                         |                                                                                                 
|                           | Item 6  | Selected Financial Data                                                               |     |  | 18                                         |                                                                                                 
|                           | Item 7  | Management's Discussion and Analysis of Financial Condition and Results of Operations |     |  | 19                                         |                                                                                                 
|                           | Item 7A | Quantitative and Qualitative Disclosure About Market Risk                             |     |  | 29                                         |                                                                                                 
|                           | Item 8  | Financial Statements and Supplementary Data                                           |     |  | 31                                         |                                                                                                 
|                           |         |                                                                                       |     |  |                                            | Independent Auditors' Report                                                                     |  |    | 32 |         
|                           |         |                                                                                       |     |  |                                            | Consolidated Balance Sheets at December 31, 2001 and 2000                                        |  |    | 33 |         
|                           |         |                                                                                       |     |  |                                            | Consolidated Statements of Income for the Years ended December 31, 2001, 2000 and 1999           |  |    | 34 |         
|                           |         |                                                                                       |     |  |                                            | Consolidated Statements of Stockholders' Equity the Years ended December 31, 2001, 2000 and 1999 |  |    | 35 |         
|                           |         |                                                                                       |     |  |                                            | Consolidated Statements of Cash Flows for the Years ended December 31, 2001, 2000 and 1999       |  |    | 36 |         
|                           |         |                                                                                       |     |  | Notes to Consolidated Financial Statements |                                                                                                  |  | 38 |   
|                           | Item 9  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |     |  | 56                                         |                                                                                                 
|                          
|Part III                   |         |                                                                                       |     |  |                                            |                                                                                                  |  |    |    |          |  | 
|                           | Item 10 | Directors and Executive Officers of the Registrant                                    |     |  | 56                                         |                                                                                                 
|                           | Item 11 | Executive Compensation                                                                |     |  | 56                                         |                                                                                                 
|                           | Item 12 | Security Ownership of Certain Beneficial Owners and Management                        |     |  | 56                                         |                                                                                                 
|                           | Item 13 | Certain Relationships and Related Transactions                                        |     |  | 56                                         |                                                                                                 
|                          
|Part IV                    |         |                                                                                       |     |  |                                            |                                                                                                  |  |    |    |          |  | 
|                           | Item 14 | Exhibits, Financial Statement Schedules, Reports on Form 8-K                          |     |  | 57                                         |                                                                                                 
|Signature Page             |         |                                                                                       | S-1 | 
|Index to Exhibits          |         |                                                                                       | E-1 | 





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##### Table of Contents



FORWARD LOOKING STATEMENTS

Statements contained in this Report that are not historical facts or that
discuss our expectations or beliefs regarding our future operations or future
financial performance, or financial or other trend in our business, constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the 1933 Act) and Section 21E of the
Securities Exchange Act of 1934, as amended (the 1934 Act). Forward-looking
statements are estimates of, or expectations or beliefs regarding our future
financial condition or financial performance that are based on current
information and that are subject to a number of risks and uncertainties that
could cause our financial condition or operating results in the future to
differ significantly from those expected at the current time. Those risks and
uncertainties are described in Part II of this Report under the caption
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Cautionary Statements Regarding Expectations About Our Future
Financial Performance and readers of this Report are urged to read the
cautionary statements contained in that Section of this Report.




PART I




ITEM 1. BUSINESS

Foothill Independent Bancorp (the Company) is a one-bank holding company
which owns all of the capital stock of Foothill Independent Bank, a California
state-chartered bank (the Bank), that was organized and commenced business
operations in 1973 and conducts a commercial banking business in the contiguous
counties of Los Angeles, San Bernardino and Riverside, California. The
Company, which was organized in 1982, is a Delaware corporation and is
registered under the Bank Holding Company Act of 1956, as amended. The Company,
like other bank holding companies in the United States, is subject to
regulation, supervision and periodic examination by the Board of Governors of
the Federal Reserve System (commonly known as the Federal Reserve Board).
See Supervision and Regulation.

Until July 18, 2000, the Company was a California corporation. With the
approval of the Companys shareholders, on that date, the Company was
re-incorporated as a Delaware corporation and its articles of incorporation
were amended in several respects. Reference is hereby made to the Companys
Current Report on Form 8-K dated July 18, 2000 for additional information
regarding the Delaware reincorporation and those amendments to the Companys
articles of incorporation.

No changes were made to the state of incorporation or to the articles of
incorporation of the Bank.

THE BANK

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

The Bank emphasizes personalized service and convenience of banking and
attracts banking customers by offering services that are designed to meet the
banking requirements of the customers in its communities. Drive-up or walk-up
facilities and 24-hour Automated Teller Machines (ATMs) are available at all
of its banking offices. The Bank also offers a computerized telephone service
which enables customers to obtain information concerning their bank deposit
accounts telephonically at any time day or night, and the Bank offers Internet
banking services to consumers and plans to begin offering such services to its
business customers in 2002. The Banks deposit accounts are insured by the
Federal Deposit Insurance Corporation (FDIC) to the maximum extent allowed by
law. The Bank also is a member of the Federal Reserve System.

As a California state-chartered bank that is a member of the Federal
Reserve System (a state member bank), the Bank is subject to regulation,
supervision and periodic examination, at the state level, by the California
Department of Financial Institutions (the DFI), and, at the Federal level, by
the Federal Reserve Board. See Supervision and RegulationFoothill
Independent Bank.

1



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##### Table of Contents



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

The following table sets forth the condensed average balances for each
principal category of our consolidated assets and liabilities and also for our
stockholders equity for each of the years in the three year period ended
December 31, 2001. Average balances are based on daily averages for the Bank
and quarterly averages for the Company, since the Company does not maintain
daily average information. We believe that the difference between quarterly
and daily average data (where quarterly data has been used) is not significant.
(Dollars are set forth in thousands.)

|                                           |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |          |      |      |         |         |         |         |         |      |      |      |       |  
|------------------------------------------ | -------------------------------------- | ---------------------------------- | -------------------- | ------------ | ------- | ----------------------- | ------- | -------- | ---- | -------- | ------- | -------- | ------- | -------- | ------- | -------- | ---- | ---- | ------- | ------- | ------- | ------- | ------- | ---- | ---- | ---- | ----- | -
|                                           |                                        |                                    |                      |              |         | Year Ended December 31,
|                                           |                                        |                                    |                      |              |         |                        
|                                           |                                        |                                    |                      |              |         | 2001                    |         | 2000     |      | 1999    
|                                           |                                        |                                    |                      |              |         |                         |         |          |      |         
|                                           |                                        |                                    |                      |              |         | Average                 |         | Percent  |      | Average  |         | Percent  |         | Average  |         | Percent 
|                                           |                                        |                                    |                      |              |         | Balances                |         | of Total |      | Balances |         | of Total |         | Balances |         | of Total
|                                           |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |         
|Assets                                     |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |          |      |      |         |         |         |         |         |     
|                                           | Investment Securities  Taxable        |                                    | $                    | 63,760       |         |                         |         | 12.3     | %    |          | $       | 52,330   |         |          |         | 10.8     | %    |      | $       | 56,083  |         |         |         | 12.0 | %   
|                                           | Investment Securities  Non-Taxable    |                                    |                      | 5,060        |         |                         |         | 1.0      |      |          |         | 5,636    |         |          |         | 1.2      |      |      |         | 6,454   |         |         |         | 1.4  |     
|                                           | Federal Funds Sold & Repos             |                                    |                      | 21,043       |         |                         |         | 4.0      |      |          |         | 17,436   |         |          |         | 3.6      |      |      |         | 18,071  |         |         |         | 3.9  |     
|                                           | Due from Banks  Time Deposits         |                                    |                      | 12,119       |         |                         |         | 2.3      |      |          |         | 4,175    |         |          |         | 0.9      |      |      |         | 16,306  |         |         |         | 3.5  |     
|                                           | Loans                                  |                                    |                      | 370,882      |         |                         |         | 71.5     |      |          |         | 359,866  |         |          |         | 74.1     |      |      |         | 324,553 |         |         |         | 69.5 |     
|                                           | Direct Lease Financing                 |                                    |                      | 951          |         |                         |         | 0.2      |      |          |         | 1,443    |         |          |         | 0.3      |      |      |         | 2,835   |         |         |         | 0.6  |     
|                                           | Reserve for Loan and Lease Losses      |                                    |                      | (3,889       | )       |                         |         | (0.7     | )    |          |         | (4,798   | )       |          |         | (1.0     | )    |      |         | (5,865  | )       |         |         | (1.3 | )   
|                                           |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |          |      |      |         |         |         |         |         |     
|                                           | Net Loans and Leases                   |                                    |                      | 367,944      |         |                         |         | 71.0     |      |          |         | 356,511  |         |          |         | 73.4     |      |      |         | 321,523 |         |         |         | 68.8 |     
|                                           |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |          |      |      |         |         |         |         |         |     
|                                           |                                        | Total Interest Earning Assets      |                      |              | 469,926 |                         |         |          | 90.6 |          |         |          | 436,088 |          |         |          | 89.9 |      |         |         | 418,437 |         |         |      | 89.6 |     
|                                           | Cash and Non-interest Earning Deposits |                                    |                      | 27,690       |         |                         |         | 5.3      |      |          |         | 26,531   |         |          |         | 5.5      |      |      |         | 26,300  |         |         |         | 5.6  |     
|                                           | Net Premises, Furniture and Equipment  |                                    |                      | 5,864        |         |                         |         | 1.1      |      |          |         | 6,550    |         |          |         | 1.3      |      |      |         | 6,888   |         |         |         | 1.5  |     
|                                           | Other Assets                           |                                    |                      | 16,163       |         |                         |         | 3.0      |      |          |         | 16,484   |         |          |         | 3.3      |      |      |         | 15,403  |         |         |         | 3.3  |     
|                                           |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |          |      |      |         |         |         |         |         |     
|                                           |                                        |                                    |                      | Total Assets |         | $                       | 519,643 |          |      |          | 100.0   | %        |         | $        | 485,653 |          |      |      | 100.0   | %       |         | $       | 467,028 |      |      |      | 100.0 | %
|                                           |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |          |      |      |         |         |         |         |         |     
|Liabilities and Stockholders Equity        |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |          |      |      |         |         |         |         |         |     
|                                           | Savings Deposits(1)                    |                                    | $                    | 201,183      |         |                         |         | 38.7     | %    |          | $       | 179,465  |         |          |         | 37.0     | %    |      | $       | 184,122 |         |         |         | 39.4 | %   
|                                           | Time Deposits                          |                                    |                      | 108,989      |         |                         |         | 21.0     |      |          |         | 111,405  |         |          |         | 22.9     |      |      |         | 88,848  |         |         |         | 19.0 |     
|                                           | Short-term Borrowings                  |                                    |                      | 260          |         |                         |         | 0.1      |      |          |         | 1,508    |         |          |         | 0.3      |      |      |         | 351     |         |         |         | 0.1  |     
|                                           | Long-term Borrowings                   |                                    |                      |             |         |                         |         |         |      |          |         | 4        |         |          |         |         |      |      |         | 49      |         |         |         |     |     
|                                           |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |          |      |      |         |         |         |         |         |     
|                                           |                                        | Total Interest-Bearing Liabilities |                      |              | 310,432 |                         |         |          | 59.8 |          |         |          | 292,382 |          |         |          | 60.2 |      |         |         | 273,370 |         |         |      | 58.5 |     
|                                           | Demand Deposits                        |                                    |                      | 155,828      |         |                         |         | 30.0     |      |          |         | 142,133  |         |          |         | 29.3     |      |      |         | 141,554 |         |         |         | 30.3 |     
|                                           | Other Liabilities                      |                                    |                      | 3,779        |         |                         |         | 0.7      |      |          |         | 4,067    |         |          |         | 0.8      |      |      |         | 3,804   |         |         |         | 0.9  |     
|                                           |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |          |      |      |         |         |         |         |         |     
|                                           |                                        |                                    | Total Liabilities    |              |         | 470,039                 |         |          |      | 90.5     |         |          |         | 438,582  |         |          |      | 90.3 |         |         |         | 418,728 |         |      |      | 89.7 |      
|                                           |                                        |                                    | Stockholders Equity |              |         | 49,604                  |         |          |      | 9.5      |         |          |         | 47,071   |         |          |      | 9.7  |         |         |         | 48,300  |         |      |      | 10.3 |      
|                                           |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |          |      |      |         |         |         |         |         |     
|Total Liabilities and
Stockholders Equity |                                        | $                                  | 519,643              |              |         |                         | 100.0   | %        |      | $        | 485,653 |          |         |          | 100.0   | %        |      | $    | 467,028 |         |         |         | 100.0   | %   
|                                           |                                        |                                    |                      |              |         |                         |         |          |      |          |         |          |         |          |         |          |      |      |         |         |         |         |         |     



---

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

DEPOSITS

Deposits represent the Banks primary source of funds that it uses to make
loans and purchase investment securities. The following table sets forth, as of
December 31, 2001, 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:

|                       |  |           |        |                 |  |                |         |  |  |   |             |    
|---------------------- |  | --------- | ------ | --------------- |  | -------------- | ------- |  |  | - | ----------- | ---
|                       |  | Number of |        | Average Account |  |                |         | 
|Type of Account        |  | Accounts  |        | Balance         |  | Total Deposits
|                       |  |           |        |                 |  |               
|Demand                 |  |           | 16,568 |                 |  | $              | 9,768   |  |  | $ | 161,837,000 | (1)
|Money market(2)        |  |           | 8,930  |                 |  |                | 19,511  |  |  |   | 174,232,000 | (3)
|Savings                |  |           | 10,100 |                 |  |                | 4,292   |  |  |   | 43,350,000  |    
|TCDs(4)                |  |           | 304    |                 |  |                | 120,885 |  |  |   | 36,749,000  | (5)
|Other time deposits(4) |  |           | 2,954  |                 |  |                | 20,048  |  |  |   | 59,222,000  |    



---

|(1) |  | Includes $3,211,000 of municipal and other government agency
deposits.
|--- |  | ----------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes NOW checking accounts.                                     
|   
|   
|   
|   
|(3) |  | Includes $4,898,000 of municipal and other government agency
deposits.

2



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##### Table of Contents



|(4) |  | As used in this Report, the term TCDs means time certificates
of deposit in denominations greater than $100,000, the term other
time deposits means certificates of deposit in denominations of
$100,000 or less and the term time deposits means TCDs and other
time deposits, collectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(5) |  | Includes $142,000 of municipal and other government agency
deposits.                                                                                                                                                                                                                               

During the twelve months ended December 31, 2001, average demand deposits
increased by approximately $13,695,000 or 9.6%; average money market & NOW
checking accounts deposits decreased by approximately $16,956,000 or 11.9%;
average savings deposits increased by approximately $4,762,000 or 12.9%; and
average time deposits decreased by approximately $2,416,000 or 2.2%, which was
the result of a decrease of $1,111,000 in TCDs and a decrease of approximately
$1,305,000 in other time deposits.

Although there are some public agency depositors that carry large deposits
with the Bank, the Bank does not believe it is dependent on a single customer
or a few customers for its deposits. Most of the Banks deposits are obtained
from individuals and small and moderate size businesses. This results in
relatively small average deposit balances, but makes the Bank less subject to
the adverse effect on liquidity which can result from the loss of a substantial
depositor. No individual, corporate or public agency depositor accounted for
more than approximately 1% of the Banks total deposits and the five largest
deposit accounts represented, collectively 5% of total deposits.

THE LOAN PORTFOLIO

Loan Products

We offer a diverse line of loan products, including commercial loans and
credit lines, SBA guaranteed business loans, accounts receivable and inventory
financing, real estate mortgage and construction loans and consumer loans. The
following table sets forth the types of loans made by the Bank and the amounts
of the loans, by type, that were outstanding at December 31, 2001, 2000 and
1999.

|                  |                                        |                                   |       |         |                |         |   |         |        |         |   |         |        |         | 
|----------------- | -------------------------------------- | --------------------------------- | ----- | ------- | -------------- | ------- | - | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                  |                                        |                                   |       |         | December 31,  
|                  |                                        |                                   |       |         |               
|Types Of Loans(1) |                                        | 2001                              |       | 2000    |                | 1999   
|                  |                                        |                                   |       |         |                |        
|                  |                                        |                                   |       |         | (In thousands) |         |   |         |       
|                  | Commercial, Financial and Agricultural |                                   | $     | 46,936  |                |         | $ | 44,269  |        |         | $ | 41,091  |       
|                  | Real Estate Construction               |                                   |       | 16,091  |                |         |   | 12,647  |        |         |   | 11,144  |       
|                  | Real Estate Mortgage(2)                |                                   |       | 338,769 |                |         |   | 303,456 |        |         |   | 283,735 |       
|                  | Consumer Loans                         |                                   |       | 4,718   |                |         |   | 6,400   |        |         |   | 5,916   |       
|                  | Lease Financing(3)                     |                                   |       | 1,328   |                |         |   | 1,164   |        |         |   | 2,341   |       
|                  | All other Loans(including overdrafts)  |                                   |       | 656     |                |         |   | 679     |        |         |   | 1,707   |       
|                  |                                        |                                   |       |         |                |         |   |         |        |         |   |        
|                  | Subtotal:                              |                                   |       | 408,498 |                |         |   | 368,615 |        |         |   | 339,533 |       
|Less:             |                                        |                                   |       |         |                |         |   |         |        |         |   |        
|                  |                                        | Unearned Discount                 |       |         | (92            | )       |   |         | (141   | )       |   |         | (299   | )      
|                  |                                        |                                   |       |         |                |         |   |         |        |         |   |        
|                  |                                        | Reserve for Loan and Lease Losses |       |         | (4,206         | )       |   |         | (3,692 | )       |   |         | (6,102 | )      
|                  |                                        |                                   |       |         |                |         |   |         |        |         |   |        
|                  |                                        |                                   | Total |         | $              | 404,200 |   |         | $      | 364,782 |   |         | $      | 339,533 | 
|                  |                                        |                                   |       |         |                |         |   |         |        |         |   |        



---

|(1) |  | All of the Banks loans have been made to borrowers in the
United States.                                                                                                                                                                                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | A portion of these loans were made, not for the purpose of
financing real properties, but for commercial or agricultural
purposes. However, in accordance with the Banks credit policies,
such loans were secured by deeds of trust on real properties and,
therefore, are classified as real mortgage loans.
|   
|   
|   
|   
|(3) |  | Lease financing includes residual values of $0 for 2001; $0 for
2000; and $0 for 1999, and is net of unearned income of $158,000 for
2001; $72,000 for 2000; and $248,000 for 1999.                                                                                                                           

Commercial Loans. The commercial loans we offer include short-term
secured and unsecured loans with maturities ranging from 12 to 24 months; SBA
guaranteed business loans with terms not to exceed 10 years; accounts
receivable financing for terms not exceeding 12 months; and equipment and
automobile loans and leases which generally amortize over a period not to
exceed 15 years. In order to mitigate the risk of borrower default, we
generally require collateral to support the credit or personal guarantees from
the owners of the borrowers, or both. In addition, all loans must have
well-defined primary and secondary sources of repayment. Generally, lines of
credit are granted for no more than a 12-month period and are subject to more
frequent periodic reviews.

3



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##### Table of Contents



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

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, the borrower usually is required to have
debt-to-worth ratio of not more than four-to-one; its operating cash flow must
be sufficient to demonstrate the ability to pay obligations as they become due;
and must have a good payment history as evidenced by its credit report.

Real Estate Loans. Nonresidential real estate loans make up approximately
87.5% of our real estate loan portfolio, and substantially all of those loans
are secured by first trust deeds. The remainder of our real estate loans are
secured by first and second deeds of trust on residential real property.

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

Customers wishing to obtain a commercial real estate loan must have good
payment records with debt coverage ratios generally of at least 1.25 to 1. In
addition, we require adequate insurance on the property to protect the
collateral value. Generally, these types of loans are written for maximum
terms of 10 years with loan-to-value ratios of not more than 70%.

Consumer Loans. We offer a wide variety of products to consumers
including personal installment loans, lines of credit and credit cards. We
design these products to meet the needs of our customers and some are made at
fixed rates of interest and others at adjustable rates. Consumer loans often
entail greater risk than real estate mortgage loans, particularly in the case
of consumer loans which are unsecured or are secured by rapidly depreciable
assets, such as automobiles, which may not provide an adequate source of
repayment of the outstanding loan balance in the event of a default by the
borrower. Consumer loan collections are dependent on borrowers ongoing
financial stability. Furthermore, bankruptcy and insolvency laws may limit the
amount which can be recovered on such loans. We require the borrower to have a
good payment record and, typically, a debt ratio of not more than 40%.

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. The Bank sometimes renegotiates the payment terms of loans to permit
the borrower to defer interest or principal payments in instances where it
appears that the borrower is encountering temporary or short-term financial
difficulties and such deferrals will reduce the likelihood that the Bank will
incur 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 we increase our efforts to recover the amounts due us,
including the initiation of foreclosure proceedings against the collateral
securing the loan.

The table which follows sets forth, as of the end of each of the years in
the five year period ended December 31, 2001, the amounts of the Banks loans
(i) that were more than 90 days past due, (ii) as to which the terms of payment
had been renegotiated (referred to as troubled debt restructurings), and
(iii) that had been placed on non-accrual status.

4



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##### Table of Contents



|                                     |                         |   |       |    |      |   |                |    |      |   |       |     |  |   |       |    |  |   |        |   | 
|------------------------------------ | ----------------------- | - | ----- | -- | ---- | - | -------------- | -- | ---- | - | ----- | --- |  | - | ----- | -- |  | - | ------ | - | 
|                                     |                         |   |       |    |      |   | December 31,   |    |      |   |      
|                                     |                         |   |      
|                                     |                         |   | 2001  |    | 2000 |   | 1999           |    | 1998 |   | 1997 
|                                     |                         |   |       |    |      |   |                |    |      |   |      
|                                     |                         |   |       |    |      |   | (In thousands) |    |      |   |      
|Loans More Than 90 Days Past Due(1): |                         |   |       |    |      |   |                |    |      |   |       |     |  |   |       |    |  |   |        |  
|                                     | Aggregate Loan Amounts: |   |       |    |      |   |                |    |      |   |       |     |  |   |       |    |  |   |        |   | 
|                                     | Commercial              |   | $     | 34 |      |   | $              |   |      |   | $     | 148 |  |   | $     | 8  |  |   | $      |  | 
|                                     | Real Estate             |   |       |   |      |   |                |   |      |   |       | 50  |  |   |       |   |  |   |        |  | 
|                                     | Consumer                |   |       |   |      |   |                | 17 |      |   |       | 4   |  |   |       | 12 |  |   |        | 7 | 
|                                     | Aggregate Leases        |   |       |   |      |   |                |   |      |   |       |    |  |   |       | 17 |  |   |        |  | 
|Troubled Debt Restructurings(2)      |                         |   | 1,178 |    |      |   | 858            |    |      |   | 1,780 |     |  |   | 3,042 |    |  |   | 2,880  |  
|Non-Accrual Loans(3)                 |                         |   | 2,717 |    |      |   | 2,319          |    |      |   | 6,068 |     |  |   | 6,347 |    |  |   | 11,458 |  
|                                     |                         |   |       |    |      |   |                |    |      |   |       |     |  |   |       |    |  |   |        |  
|                                     |                         | $ | 3,929 |    |      | $ | 3,194          |    |      | $ | 8,050 |     |  | $ | 9,426 |    |  | $ | 14,345 |  
|                                     |                         |   |       |    |      |   |                |    |      |   |       |     |  |   |       |    |  |   |        |  



---

|(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 deferrals of
interest and interest collected in 2001, 2000, 1999, 1998 and 1997 and
were the same amounts that would have been collected in accordance with
the original terms of the loans.                                                                                                                                                                                                  
|   
|   
|   
|   
|(3) |  | There were six loans on non-accrual status at December 31, 2001 and
2000; respectively, fourteen loans at December 31, 1999; sixteen loans
at December 31, 1998 and twenty-seven loans at December 31, 1997. The
amount of interest that would have been collected on these loans had
they remained current in accordance with their original terms was
$644,000 in 2001, $819,000 in 2000, $967,000 in 1999, $981,000 in 1998
and $1,488,000 in 1997.

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 all amounts
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 its 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 levels of financial
difficulty. In general, payment delays of less than 90 days or payment
shortfalls of less than 1% are deemed insignificant and would not necessarily
result in classification of a loan as impaired. However, we consider all
non-accrual and trouble 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.

Loans identified as impaired are placed on non-accrual status and are
evaluated for write-off, write-down or renegotiations with the borrower.
Impaired loans are charged-off when the possibility of collecting the full
balance of the loan becomes remote. The reserves set aside for possible losses
related to impaired loans totaled approximately, $305,000 for the year ended
December 31, 2001 and were included in the Banks Reserve for Loan Losses at
December 31, 2001. The average balance of the impaired loans amounted to
approximately $2,634,000 for the year ended December 31, 2001. Cash receipts
during 2001 applied to reduce principal balances and recognized as interest
income were approximately $981,000 and $366,000, respectively. For additional
information regarding SFAS 114, see Note 5 to the Companys Consolidated
Financial Statements set forth in Part II, Item 8 of this Report.

Potential Problem Loans. At December 31, 2001, there were no loans on
accrual status where there were serious doubts as to the ability of the
borrower to comply with then present loan repayment terms.

5



---



##### Table of Contents



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

Other Interest-Bearing Assets. The Bank does not have any
interest-bearing assets as to which management believes that recovery of
principal or interest thereon is at significant risk.

THE RESERVE FOR LOAN LOSSES

The risk that borrowers will fail or be unable to repay their loans is an
inherent part of the banking business. In order to recognize on a timely
basis, to the extent practicable, losses that can result from such failures,
banks establish a reserve for loan losses by means of periodic charges to
income known as provisions for loan losses. Loans are charged against the
loan loss reserve for loan losses when management believes that collection of
the carrying amount of the loan, either in whole or in part, has become
unlikely. Periodic additions are made to the loan loss reserve (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 the deterioration in economic conditions or in the financial condition
of borrowers. At December 31, 2001 the loan loss reserve was approximately
$4,206,000 or 1.03% of total loans and leases outstanding.

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

|                                        |  |                         |       |            |  |         |        |            |  |         |       |            |  |         |        |            |  |         |       |            |  |  |        |   |  |   |       |  |  |  |        |   |  |   |       |  |  |  |        |  
|--------------------------------------- |  | ----------------------- | ----- | ---------- |  | ------- | ------ | ---------- |  | ------- | ----- | ---------- |  | ------- | ------ | ---------- |  | ------- | ----- | ---------- |  |  | ------ | - |  | - | ----- |  |  |  | ------ | - |  | - | ----- |  |  |  | ------ | -
|                                        |  | Year Ended December 31,
|                                        |  |                        
|                                        |  | 2001                    |       | 2000       |  | 1999    |        | 1998       |  | 1977   
|                                        |  |                         |       |            |  |         |        |            |  |        
|                                        |  | Reserve                 |       | % of Loans |  | Reserve |        | % of Loans |  | Reserve |       | % of Loans |  | Reserve |        | % of Loans |  | Reserve |       | % of Loans
|                                        |  | Loan                    |       | to Total   |  | Loan    |        | to Total   |  | Loan    |       | to Total   |  | Loan    |        | to Total   |  | Loan    |       | to Total  
|                                        |  | Losses                  |       | Loans      |  | Losses  |        | Loans      |  | Losses  |       | Loans      |  | Losses  |        | Loans      |  | Losses  |       | Loans     
|                                        |  |                         |       |            |  |         |        |            |  |         |       |            |  |         |        |            |  |         |       |           
|Commercial, Financial,
and Agricultural |  | $                       | 2,668 |            |  |         | 11.49  | %          |  | $       | 1,762 |            |  |         | 12.01  | %          |  | $       | 4,854 |            |  |  | 11.88  | % |  | $ | 3,745 |  |  |  | 14.27  | % |  | $ | 2,128 |  |  |  | 14.90  | %
|Real Estate-construction                |  |                         | 59    |            |  |         | 3.94   |            |  |         | 97    |            |  |         | 3.43   |            |  |         | 68    |            |  |  | 3.22   |   |  |   | 91    |  |  |  | 5.29   |   |  |   | 302   |  |  |  | 3.67   |  
|Real Estate-mortgage                    |  |                         | 1,452 |            |  |         | 82.65  |            |  |         | 1,765 |            |  |         | 82.32  |            |  |         | 1,125 |            |  |  | 82.02  |   |  |   | 1,630 |  |  |  | 76.08  |   |  |   | 2,415 |  |  |  | 76.92  |  
|Installment loans                       |  |                         | 22    |            |  |         | 1.15   |            |  |         | 48    |            |  |         | 1.74   |            |  |         | 30    |            |  |  | 1.72   |   |  |   | 76    |  |  |  | 2.38   |   |  |   | 79    |  |  |  | 2.17   |  
|Lease financing                         |  |                         | 5     |            |  |         | 0.32   |            |  |         | 20    |            |  |         | 0.32   |            |  |         | 25    |            |  |  | 0.68   |   |  |   | 34    |  |  |  | 1.26   |   |  |   | 96    |  |  |  | 1.60   |  
|Other                                   |  |                         |      |            |  |         | 0.45   |            |  |         |      |            |  |         | 0.18   |            |  |         |      |            |  |  | 0.48   |   |  |   |      |  |  |  | 0.72   |   |  |   | 145   |  |  |  | 0.74   |  
|                                        |  |                         |       |            |  |         |        |            |  |         |       |            |  |         |        |            |  |         |       |            |  |  |        |   |  |   |       |  |  |  |        |   |  |   |       |  |  |  |        |  
|                                        |  | $                       | 4,206 |            |  |         | 100.00 |            |  | $       | 3,692 |            |  |         | 100.00 |            |  | $       | 6,102 |            |  |  | 100.00 |   |  | $ | 5,576 |  |  |  | 100.00 |   |  | $ | 5,165 |  |  |  | 100.00 |  
|                                        |  |                         |       |            |  |         |        |            |  |         |       |            |  |         |        |            |  |         |       |            |  |  |        |   |  |   |       |  |  |  |        |   |  |   |       |  |  |  |        |  

THE INVESTMENT PORTFOLIO

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

6



---



##### Table of Contents



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

|                                           |                                     |                             |   |              |        |        |   |           |        |        |   |           |        |        |   |        |        |  |   |        |        |  |   |        |        | 
|------------------------------------------ | ----------------------------------- | --------------------------- | - | ------------ | ------ | ------ | - | --------- | ------ | ------ | - | --------- | ------ | ------ | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                           |                                     |                             |   | December 31,
|                                           |                                     |                             |   |             
|                                           |                                     |                             |   | 2001         |        | 2000   |   | 1999     
|                                           |                                     |                             |   |              |        |        |   |          
|                                           |                                     |                             |   | Amortized    |        | Market |   | Amortized |        | Market |   | Amortized |        | Market
|                                           |                                     |                             |   | Cost         |        | Value  |   | Cost      |        | Value  |   | Cost      |        | Value 
|                                           |                                     |                             |   |              |        |        |   |           |        |        |   |           |        |       
|Investment Securities  Held-To-Maturity   |                                     |                             |   |              |        |        |   |           |        |        |   |           |        |        |   |        |        |  |   |        |        |  |   |       
|                                           | U.S. Treasury and Agency            |                             | $ | 5,891        |        |        | $ | 5,980     |        |        | $ | 17,378    |        |        | $ | 17,325 |        |  | $ | 3,997  |        |  | $ | 3,950  |       
|                                           | State and Political Subdivisions    |                             |   | 4,853        |        |        |   | 4,908     |        |        |   | 1,053     |        |        |   | 1,063  |        |  |   | 1,062  |        |  |   | 1,045  |       
|                                           | Other Securities                    |                             |   | 2,311        |        |        |   | 2,311     |        |        |   | 2,311     |        |        |   | 2,311  |        |  |   | 2,250  |        |  |   | 2,250  |       
|                                           |                                     |                             |   |              |        |        |   |           |        |        |   |           |        |        |   |        |        |  |   |        |        |  |   |       
|                                           |                                     | Total Investment Securities |   | $            | 13,055 |        |   | $         | 13,199 |        |   | $         | 20,742 |        |   | $      | 20,699 |  |   | $      | 7,309  |  |   | $      | 7,245  | 
|                                           |                                     |                             |   |              |        |        |   |           |        |        |   |           |        |        |   |        |        |  |   |        |        |  |   |       
|Investment Securities  Available-For-Sale |                                     |                             |   |              |        |        |   |           |        |        |   |           |        |        |   |        |        |  |   |        |        |  |   |       
|                                           | U.S. Treasury and Agency            |                             | $ | 60,627       |        |        | $ | 60,881    |        |        | $ | 29,567    |        |        | $ | 29,557 |        |  | $ | 44,275 |        |  | $ | 43,601 |       
|                                           | State and Political Subdivisions(1) |                             |   | 4,013        |        |        |   | 4,156     |        |        |   | 4,390     |        |        |   | 4,530  |        |  |   | 5,029  |        |  |   | 5,065  |       
|                                           | Other Securities                    |                             |   | 2,008        |        |        |   | 1,651     |        |        |   | 16,366    |        |        |   | 15,987 |        |  |   | 6,019  |        |  |   | 5,573  |       
|                                           |                                     |                             |   |              |        |        |   |           |        |        |   |           |        |        |   |        |        |  |   |        |        |  |   |       
|                                           |                                     | Total Investment Securities |   | $            | 66,648 |        |   | $         | 66,688 |        |   | $         | 50,323 |        |   | $      | 50,074 |  |   | $      | 55,323 |  |   | $      | 54,239 | 
|                                           |                                     |                             |   |              |        |        |   |           |        |        |   |           |        |        |   |        |        |  |   |        |        |  |   |       



---

|(1) |  | Includes, in 2001, 2000 and 1999, non-rated certificates of participation
evidencing ownership interests in the California Statewide communities
Development Authority  San Joaquin County Limited Obligation Bond Trust
with amortized cost values of $2,765,000, $3,640,000 and $3,961,000 and
market values of $2,899,000, $3,777,000 and $4,044,000 at December 31,
2001, 2000 and 1999, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table presents the maturities of the Banks investment
securities at December 31, 2001, 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 36.4% tax rate).

|                                         |                                     |   |          |       |                   |  |                  |      |                 |   |        |        |       |  |        |      |       |   |        |       |  |  |      |      |   |   |       |       |  |  |      |      |  
|---------------------------------------- | ----------------------------------- | - | -------- | ----- | ----------------- |  | ---------------- | ---- | --------------- | - | ------ | ------ | ----- |  | ------ | ---- | ----- | - | ------ | ----- |  |  | ---- | ---- | - | - | ----- | ----- |  |  | ---- | ---- | -
|                                         |                                     |   | Within   |       | After One and     |  | After Five and   |      |                 |   |        |        |       |  |       
|                                         |                                     |   | One Year |       | Within Five Years |  | Within Ten Years |      | After Ten Years
|                                         |                                     |   |          |       |                   |  |                  |      |                
|                                         |                                     |   | Amount   |       | Yield             |  | Amount           |      | Yield           |   | Amount |        | Yield |  | Amount |      | Yield
|                                         |                                     |   |          |       |                   |  |                  |      |                 |   |        |        |       |  |        |      |      
|Investment Securities Held to Maturity   |                                     |   |          |       |                   |  |                  |      |                 |   |        |        |       |  |        |      |       |   |        |       |  |  |      |      |   |   |       |       |  |  |      |     
|U.S. Treasury and Agency                 |                                     | $ | 3,600    |       |                   |  | 5.18             | %    |                 | $ | 2,291  |        |       |  | 5.15   | %    |       | $ |       |       |  |  |     | %    |   | $ |      |       |  |  |     | %   
|State and Political Subdivisions         |                                     |   | 175      |       |                   |  | 4.20             |      |                 |   | 725    |        |       |  | 4.46   |      |       |   | 3,953  |       |  |  | 5.17 |      |   |   |      |       |  |  |     |     
|Other Securities                         |                                     |   | 2,311    |       |                   |  |                 |      |                 |   |       |        |       |  |       |      |       |   |       |       |  |  |     |      |   |   |      |       |  |  |     |     
|                                         |                                     |   |          |       |                   |  |                  |      |                 |   |        |        |       |  |        |      |       |   |        |       |  |  |      |      |   |   |       |       |  |  |      |     
|                                         | Total Securities Held to Maturity   |   | $        | 6,086 |                   |  |                  | 5.15 | %               |   | $      | 3,016  |       |  |        | 5.00 | %     |   | $      | 3,953 |  |  |      | 5.17 | % |   |       |      |  |  |      |     | %
|                                         |                                     |   |          |       |                   |  |                  |      |                 |   |        |        |       |  |        |      |       |   |        |       |  |  |      |      |   |   |       |       |  |  |      |     
|Investment Securities Available for Sale |                                     |   |          |       |                   |  |                  |      |                 |   |        |        |       |  |        |      |       |   |        |       |  |  |      |      |   |   |       |       |  |  |      |     
|U.S. Treasury and Agency                 |                                     | $ | 2,164    |       |                   |  | 6.64             | %    |                 | $ | 49,334 |        |       |  | 4.87   | %    |       | $ | 8,563  |       |  |  | 5.79 | %    |   | $ | 820   |       |  |  | 7.30 | %   
|State and Political Subdivisions         |                                     |   | 934      |       |                   |  | 6.40             |      |                 |   | 1,965  |        |       |  | 6.40   |      |       |   | 1,081  |       |  |  | 4.64 |      |   |   | 176   |       |  |  | 4.60 |     
|Other Securities                         |                                     |   | 8        |       |                   |  |                 |      |                 |   |       |        |       |  |       |      |       |   |       |       |  |  |     |      |   |   | 1,643 |       |  |  |     |     
|                                         |                                     |   |          |       |                   |  |                  |      |                 |   |        |        |       |  |        |      |       |   |        |       |  |  |      |      |   |   |       |       |  |  |      |     
|                                         | Total Securities Available for Sale |   |          | 3,106 |                   |  |                  | 6.57 |                 |   |        | 51,299 |       |  |        | 4.95 |       |   |        | 9,644 |  |  |      | 5.68 | % |   | $     | 2,639 |  |  |      | 6.98 | %
|                                         |                                     |   |          |       |                   |  |                  |      |                 |   |        |        |       |  |        |      |       |   |        |       |  |  |      |      |   |   |       |       |  |  |      |     
|TOTAL INVESTMENT SECURITIES              |                                     | $ | 9,192    |       |                   |  | 5.63             | %    |                 | $ | 54,315 |        |       |  | 4.95   | %    |       | $ | 13,597 |       |  |  | 5.53 | %    |   | $ | 2,639 |       |  |  | 6.98 | %   
|                                         |                                     |   |          |       |                   |  |                  |      |                 |   |        |        |       |  |        |      |       |   |        |       |  |  |      |      |   |   |       |       |  |  |      |     

COMPETITION

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

Major financial institutions that operate throughout California and that
have offices in our service areas include Wells Fargo Bank, Bank of America,
Union Bank of California, United California Bank, Washington Mutual Bank, U. S.
Bank, Comerica Bank-California and California Federal Bank. Bank of America,
U. S. Bank and Comerica Bank are headquartered outside of California.
Independent banks or financial institutions with offices in our service area
include, among others, City National Bank, Citizens Business Bank and PFF Bank
& Trust.

7



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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 which 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 that exceed our lending limits.

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

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

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

SUPERVISION AND REGULATION

General.

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

Foothill Independent Bancorp.

General. We are a registered bank holding company subject to regulation
under the Bank Holding Company Act and, pursuant to that Act we are required to
file periodic reports with, and we are subject to periodic examinations by the
Federal Reserve Board. In addition, we have recently filed an application to
become a financial holding company under the Bank Holding Company Act pursuant
to amendments to that Act promulgated by the Gramm-Leach-Bliley Act of 1999
(the Financial Services Modernization Act). For further information on the
Financial Services Modernization Act, see  Financial Services Modernization
Legislation below.

As a bank holding company, we are generally allowed to engage, directly or
indirectly, only in banking and other activities that the Federal Reserve Board
deemed to be so closely related to banking or managing or controlling banks as
to be a proper incident thereto. Assuming we become a financial holding
company, we will be permitted to engage not only in banking and other
activities deemed closely related to banking, but also in other financial
activities which the Federal Reserve Board has determined, or may determine in
the future, to be financial in nature, or incidental to such financial
activities or complementary to such a financial activity.

As a 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 Bancorp
with any other bank holding company. We also are required to 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 other entities engaged in banking related services. If
we become a financial holding company, however, we will no longer needs to
obtain such prior approval for the acquisition of companies or businesses
(other than banks) engaged in financial activities which the Federal Reserve
Board has determined to be financial in nature.

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

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

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

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

Our shares of common stock are registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended and,
therefore, we are subject to the information, proxy solicitation, insider
trading, and other requirements and restrictions of the Securities Exchange
Act.

Financial Services Modernization Legislation. On November 12, 1999,
President Clinton signed into law the Gramm-Leach-Bliley Act of 1999 (the
Financial Services Modernization Act). The Financial Services Modernization
Act repealed the two affiliation provisions of the Glass-Steagall Act: Section
20, which restricted the affiliation of Federal Reserve Member Banks with firms
engaged principally in specified securities activities; and Section 32, which
restricted officer, director, or employee interlocks between a member bank and
any company or person primarily engaged in specified securities activities.
The Financial Services Modernization Act also contains provisions that
expressly preempt any state law restricting the establishment of financial
affiliations, primarily related to insurance. The general effect of
the Act is
to establish a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms, and other financial service
providers by revising and expanding the BHCA framework to permit a holding
company system to engage in a broader range of financial activities if
it qualifies and elects to be designated as a financial holding
company. 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; and                                                                                     
|
| |  |  | addresses a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term activities of
financial institutions.                         

We do not believe that the Financial Services Modernization Act will have
a material adverse affect on our operations, at least in the near-term.
However, to the extent that it permits banks, securities firms, and insurance
companies to affiliate, the financial services industry may experience further
consolidation. The Financial Services Modernization Act is intended to grant
to community banks certain powers as a matter of right that larger institutions
have accumulated on an ad hoc basis. Nevertheless, this Act may have the
result of increasing the amount of competition that we face from larger
institutions and other types of companies offering financial products, many of
which may have substantially more financial resources than we have.

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A bank holding
company that elects to become a financial holding company
may affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature or are incidental or complementary to
activities that are financial in nature. We have recently filed an application
with the Federal Reserve Board to become a financial holding company and we
currently believe that the application will be approved. 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;                                                                                                                                                                             
|
| |  |  | insurance underwriting and brokerage;                                                                                                                                                                                         
|
| |  |  | merchant banking; and                                                                                                                                                                                                         
|
| |  |  | activities that the Federal Reserve, 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 thereto.

In order to become and to continue to be a financial holding company, all
of the bank holding companys bank subsidiaries must be well capitalized, well
managed, and except in limited circumstances, must be in compliance with the
Community Reinvestment Act.

Failure to comply with the financial holding company requirements could
lead to divestiture of a financial holding companys subsidiary banks or
require all of activities to conform to those permissible for a bank holding
company that is not a financial holding company. A bank holding company that is not also a financial holding company is
limited to engaging in banking and such other activities as determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.

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



| |  |  | initial notices to customers about their privacy policies,
describing the conditions under which they may disclose non-public
personal information to non-affiliated third parties and affiliates;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | annual notices of their privacy policies to current customers; and                                                                                                                                
|
| |  |  | a reasonable method for customers to opt out of disclosures to non-affiliated third parties.                                                                                                    

These privacy provisions will affect how consumer information is
transmitted through diversified financial companies and conveyed to outside
vendors. It is not possible at this time to assess the impact of the privacy
provisions on the Bancorps financial condition or results of operations.

Foothill Independent Bank.

As a California state chartered bank, the Bank is subject to primary
supervision, periodic examination and regulation by the DFI. As a member of
the Federal Reserve Bank of San Francisco, the Bank also is subject to
regulation by the Federal Reserve Board, which is its primary federal banking
regulator. Because its deposits are insured by the FDIC, the Bank also is
subject to regulations promulgated by the FDIC. If, as a result of an
examination of the Bank, the Federal Reserve Board should determine that the
financial condition, capital resources, asset quality, earnings prospects,
management, liquidity, or other aspects of the Banks operations are
unsatisfactory or that the Bank or its management is violating or has violated
any law or regulation, the Federal Reserve Board has various remedies
available. These remedies include the power to enjoin unsafe or unsound
practices, to require affirmative action to correct any conditions resulting
from any violation or practice, to issue an administrative order that can be
judicially enforced, to direct an increase in capital, to restrict the growth
of the Bank, to assess civil monetary penalties, to remove officers and
directors and ultimately to terminate the Banks deposit insurance, which would
result in a revocation of the Banks charter. The DFI has many of the same
remedial powers.

Various requirements and restrictions under the laws of the State of
California and the United States affect the operations of the Bank. State and
federal statutes and regulations relate to many aspects of the Banks
operations, including

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reserves against deposits, ownership of deposit accounts, interest rates
payable on deposits, loans, investments, mergers and acquisitions, borrowings,
dividends, locations of branch offices, and capital requirements. Further, the
Bank is required to maintain capital at or above stated levels. See the more
detailed discussion regarding capital requirements that are applicable to us
and the Bank that is set forth below under the caption Capital Standards and
Prompt Corrective Action.

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

The Federal Reserve Board and the DFI also have authority to prohibit the
Bank from engaging in activities that, in either of their opinions, constitute
unsafe or unsound practices in conducting its business. 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.
Compliance with the standards set forth in those guidelines and the
restrictions that are or may be imposed under the prompt corrective action
provisions of federal law could limit the amount of dividends which the Bank or
Bancorp may pay. An insured depository institution is prohibited from paying
management fees to any controlling persons or, with limited exceptions, paying
dividend if, after the transaction, the institution would be undercapitalized.
See Capital Standards and Prompt Corrective Action below for a discussion of
these additional restrictions.

The Bank is subject to restrictions imposed by federal law on any
extensions of credit to, and the issuance of a guarantee or letter of credit on
behalf of, the Bancorp or its other affiliates; the purchase of, or investments
in, Bancorp stock or other Bancorp securities; and the taking of such
securities as collateral for loans and the purchase of our assets or those of
our other affiliates. Such restrictions prevent the Bancorps affiliates from
borrowing from the Bank unless the loans are secured by marketable obligations
of designated amounts, and such secured loans and investments by the Bank to or
in Bancorp or any other Bancorp affiliates are limited, individually, to 10% of
the Banks capital and surplus (as defined by federal regulations) and, in the
aggregate, to 20% of the Banks capital and surplus. California law also
imposes restrictions with respect to transactions involving 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 as well as other federal
bank regulatory agencies, have adopted uniform risk-based minimum capital
guidelines intended to provide a measure of capital that reflects the degree of
risk associated with a banking organizations operations for both transactions
reported on the balance sheet as assets, and transactions, 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.

The Federal Reserve Board, as well as other federal bank agencies,
requires a minimum ratio of qualifying total capital to risk-adjusted assets of
8% and a minimum ratio of Tier 1 capital 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
assets, referred to as the leverage ratio. For a banking organization rated in
the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets
must be 3%. In addition to these uniform risk-based capital guidelines and
leverage ratios that apply across the industry, the regulators have the
discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.

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

11



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##### Table of Contents



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.       

An institution 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 the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. 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, 2001, the capital
ratios of the Bancorp and the Bank and compares those capital ratios to the
federally established capital requirements that must be met for a bank holding
company or a bank to be deemed adequately capitalized and to be deemed a well
capitalized institution under the prompt corrective action regulations
described below:

|                                       |         |        |  |              |   |                     |                  |  |                  |  |  |  | 
|-------------------------------------- | ------- | ------ |  | ------------ | - | ------------------- | ---------------- |  | ---------------- |  |  |  | 
|                                       |         |        |  |              |   |                     | Capital Adequacy |  | To be Classified
|At December 31, 2001                   |         | Actual |  | Requirements |   | as Well Capitalized
|                                       |         |        |  |              |   |                    
|Total Capital to Risk Weighted Assets  |         |        |  |              |   |                     |                  |  |                  |  |  | 
|                                       | Bancorp |        |  | 12.4         | % |                     | (>or=)8.0%       |  | (>or=)10.0%     
|                                       | Bank    |        |  | 12.3         | % |                     | (>or=)8.0%       |  | (>or=)10.0%     
|Tier I Capital to Risk Weighted Assets |         |        |  |              |   |                     |                  |  |                  |  |  | 
|                                       | Bancorp |        |  | 11.5         | % |                     | (>or=)4.0%       |  | (>or=)6.0%      
|                                       | Bank    |        |  | 11.3         | % |                     | (>or=)4.0%       |  | (>or=)6.0%      
|Tier I Capital to Average Assets       |         |        |  |              |   |                     |                  |  |                  |  |  | 
|                                       | Bancorp |        |  | 9.4          | % |                     | (>or=)4.0%       |  | (>or=)5.0%      
|                                       | Bank    |        |  | 9.3          | % |                     | (>or=)4.0%       |  | (>or=)5.0%      

As the table indicates, at December 31, 2001 the Bancorp and the Bank
exceeded the capital ratios required for classification as adequately
capitalized institutions, under federally mandated capital standards and as
well capitalized institutions under the federally established prompt
corrective action regulations.

In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices
in conducting their businesses or for violations of any law, rule, regulation,
or any condition imposed in writing by the agency or any written agreement with
the agency.

Safety and Soundness Standards. The federal banking agencies have adopted
guidelines designed to identify and address potential safety and soundness
concerns before capital becomes impaired. The guidelines set forth operational
and managerial standards relating to the following:



| |  |  | internal controls, information systems and internal audit systems;
| | - |  | ------------------------------------------------------------------
|
| |  |  | loan documentation;                                               
|
| |  |  | credit underwriting;                                              
|
| |  |  | asset growth;                                                     
|
| |  |  | earnings; and                                                     
|
| |  |  | compensation, fees and benefits.                                  

12



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In addition, the federal banking agencies have adopted safety and
soundness guidelines with respect to asset quality and earnings standards.
These guidelines provide six standards for establishing and maintaining a
system to identify problem assets and prevent those assets from deteriorating.
Under these standards, an insured depository institution is expected to:



| |  |  | conduct periodic asset quality reviews to identify problem
assets;                                                                           
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | estimate the inherent losses in problem assets and establish
reserves that are sufficient to absorb estimated losses;                        
|
| |  |  | compare problem asset totals to capital;                                                                                                     
|
| |  |  | take appropriate corrective action to resolve problem assets;                                                                                
|
| |  |  | consider the size and potential risks of material asset concentrations; and                                                                  
|
| |  |  | provide periodic asset quality reports with adequate
information for management and the board of directors to assess the
level of asset risk.

These guidelines also establish standards for evaluating and monitoring
earnings and for ensuring that earnings are sufficient for the maintenance of
adequate capital and reserves.

FDIC Deposit Insurance

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

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

All FDIC  insured depository institutions also are required to pay an
annual assessment for the payment of interest on bonds (known as FICO Bonds)
that were issued by the Financing Corporation, a federally chartered
corporation, to assist in the recovery of the savings and loan industry
following the failure of numerous savings and loan institutions in the 1980s.
Effective for the fourth quarter of 2001, the FDIC established the FICO
assessment rate at approximately $0.0184 per $100 of assessable deposits of the
insured banks. The FICO assessment rates are adjusted quarterly by the FDIC to
reflect changes in the assessment bases of the FDICs insurance funds and,
unlike the BIF assessments, do vary on the basis of a banks capital or
supervisory risk categories.

Community Reinvestment Act and Fair Lending Developments. The Bank is
subject to fair lending requirements and reporting obligations involving home
mortgage lending operations and Community Reinvestment Act activities. The
Community Reinvestment Act generally requires the federal banking agencies to
evaluate the record of a financial institution in meeting the credit needs of
its local communities, including low- and moderate-income neighborhoods. A bank
may be subject to substantial penalties and corrective measures for a violation
of fair lending laws. The federal banking agencies may take compliance with
those laws and Community Reinvestment Act obligations into account when
regulating and supervising other activities.

A banks compliance with its Community Reinvestment Act obligations is
based on a performance-based evaluation system which bases Community
Reinvestment Act ratings on an institutions lending service and investment
performance. When a bank holding company applies for approval to acquire a bank
or other bank holding company, the

13



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##### Table of Contents



Federal Reserve Board will review the assessment of each subsidiary bank
of the applicant bank holding company, and those records may be the basis for
denying the application.

USA Patriot Act of 2001.

On October 26, 2001, President Bush signed the USA Patriot Act of 2001.
Enacted in response to the terrorist attacks in New York, Pennsylvania and
Washington, D.C. on September 11, 2001, the Patriot Act is intended to
strengthen U.S. law enforcements and the intelligence communities abilities
to work cohesively to combat terrorism on a variety of fronts. The potential
impact of the Act on financial institutions of all kinds is significant and
wide ranging. The Act contains sweeping anti-money laundering and financial
transparency laws and requires various regulations, including:



| |  |  | due diligence requirements for financial institutions that
administer, maintain, or manage private bank accounts or
correspondent accounts for non-U.S. persons;                 
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | standards 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;
|
| |  |  | reports to the
Treasury Departments Financial Crimes Enforcement Network for
transactions exceeding $10,000; and                                                                
|
| |  |  | filing of suspicious activities
reports if a financial institution believes a customer may be violating U.S. laws and
regulations.                                               

We are not able to predict the impact of such laws on its financial
condition or results of operations at this time.

Future Legislation and Regulatory Initiatives.

In recent years, significant legislative proposals and reforms affecting
the financial services industry have been discussed and evaluated by Congress
and certain of these proposals have been adopted, including legislation that
expands the insurance and other activities in which bank holding companies and
their subsidiaries may engage. We cannot predict whether any other of these
proposals, or any form of them, will be introduced in the current Congress and
become law. Consequently, we cannot presently determine what effect, if any,
those other proposals may have on us.

EMPLOYEES

At December 31, 2001, the Bank had approximately 151 full-time and 77
part-time employees, which included the employees of the Bancorp, all of whom
are also employees of the Bank.




ITEM 2. PROPERTIES

The Companys executive offices are located at the Banks main banking
office at 510 South Grand Avenue, Glendora, California. The Bank owns the
building and the land on which its main banking office is located; 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. Management believes that the Banks
present facilities are adequate for its present purposes and anticipated growth
in the foreseeable future.




ITEM 3. LEGAL PROCEEDINGS

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




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

None.

14



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##### Table of Contents



EXECUTIVE OFFICERS OF THE COMPANY

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

|                   |  |     |    |                           |  |                                                              |  |                                                             
|------------------ |  | --- | -- | ------------------------- |  | ------------------------------------------------------------ |  | ------------------------------------------------------------
|Name               |  | Age |    | Position with the Company |  | Position with the Bank                                      
|                   |  |     |    |                           |  |                                                             
|George E. Langley  |  |     | 61 |                           |  | President and Chief Executive Officer                        |  | President and Chief Executive Officer                       
|Donna Miltenberger |  |     | 46 |                           |  | Executive Vice President
and Chief Operating Officer         |  | Executive Vice President
and Chief Operating Officer        
|Carol Ann Graf     |  |     | 56 |                           |  | 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
that Mr. Langley is employed under an Employment Agreement with the Bank.

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

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

CAROL ANN GRAF. Ms. Graf was appointed Chief Financial Officer of the
Company and First Vice President and Chief Financial Officer of the Bank in
January 1993 and Senior Vice President and Chief Financial Officer of the Bank
in January 1997. 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.

15



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##### Table of Contents






PART II




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

Trading Market for Shares. The Companys common stock is traded 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 the Companys Common
Stock as reported on the NASDAQ National Market System for all four quarters of
2001 and 2000. On March 22, 2002 the closing per share price was $13.15 and,
as of that same date, there were 1,088 record shareholders of the Company.

|      |                |  |                   |        |                |  |                |        |          |  |  |      |   |  |   |      | 
|----- | -------------- |  | ----------------- | ------ | -------------- |  | -------------- | ------ | -------- |  |  | ---- | - |  | - | ---- | 
|      |                |  | Trading Prices of |        |                |  |                |        |          |  | 
|      |                |  | Common Stock(1)   |        |                |  |                |        |          |  | 
|      |                |  |                   |        | Stock Dividend |  | Cash Dividends
|      |                |  | High              |        | Low            |  | Declared       |        | Declared
|      |                |  |                   |        |                |  |                |        |         
|2001: |                |  |                   |        |                |  |                |        |          |  |  |      |   |  |   |     
|      | First Quarter  |  | $                 | 12.383 |                |  | $              | 10.280 |          |  |  |      |   |  | $ | 0.10 | 
|      | Second Quarter |  |                   | 13.250 |                |  |                | 11.215 |          |  |  | 7.00 | % |  |   | 0.10 | 
|      | Third Quarter  |  |                   | 13.700 |                |  |                | 11.720 |          |  |  |      |   |  |   | 0.10 | 
|      | Fourth Quarter |  |                   | 14.750 |                |  |                | 12.500 |          |  |  |      |   |  |   | 0.10 | 
|2000: |                |  |                   |        |                |  |                |        |          |  |  |      |   |  |   |     
|      | First Quarter  |  | $                 | 12.383 |                |  | $              | 8.411  |          |  |  |      |   |  | $ | 0.08 | 
|      | Second Quarter |  |                   | 9.813  |                |  |                | 8.294  |          |  |  |      |   |  |   | 0.08 | 
|      | Third Quarter  |  |                   | 9.930  |                |  |                | 8.411  |          |  |  |      |   |  |   | 0.10 | 
|      | Fourth Quarter |  |                   | 11.215 |                |  |                | 8.879  |          |  |  |      |   |  |   | 0.10 | 



---

|(1) |  | All trading prices for periods prior to the issuance of the 7%
stock dividend in the second quarter of 2001 have been retroactively
adjusted to give effect to that dividend.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Change in Transfer Agent. Effective as of February 13, 2002, the Company
appointed Registrar and Transfer Company as the registrar and transfer agent
for its shares of common stock. The address of Registrar and Transfer Company
is 10 Commerce Drive, Cranford, New Jersey 07016

Dividends and Repurchases of Shares.

Dividend Policy. It is the current policy of the Board of Directors to
have the Company pay cash dividends when internally generated funds exceed the
cash required to meet applicable capital requirements and to support the
Companys growth. Pursuant to that new policy, the Company paid a $.25 per
share cash dividend in the second quarter of 1999 and, since the fourth quarter
of that year, the Company has paid 10 consecutive quarterly cash dividends
(inclusive of the quarter ending March 31, 2002). The first three of those
quarterly cash dividends were paid in the amount of $0.08 per share. All of
the subsequent quarterly dividends were paid at $0.10 per share. It is
currently anticipated that similar cash dividends will be paid during the
balance of 2002. In the second quarter of 2001, we also issued a 7% stock
dividend to all of the then record holders of our shares.

Stock Repurchases. Beginning in the fourth quarter of 1998 and continuing
until the second quarter of 2001, the Company made periodic repurchases of its
shares in open market or in privately negotiated transactions in compliance
with Securities and Exchange Commission guidelines. During that period a
total of 976,588 shares were repurchased at an aggregate cost of $11,970,179.
All of those shares were retired and cancelled.

Restrictions Applicable to the Payment of Dividends and Stock Repurchases.
The principal source of funds available to the Company for cash dividends and
stock repurchases, at least until such time, if any, as it may acquire or
develop other businesses, is cash dividends from the Bank. Therefore,
government regulations, including the laws of the State of California, as they
pertain to the payment of cash dividends by state chartered banks, limit the
amount of funds that will be available to the Company to pay cash dividends and
repurchase shares. California law places a statutory restriction on the amount
of cash dividends a bank may pay to its shareholders. Under that law,
dividends declared by the Bank may not exceed, in any calendar year, without
approval of the DFI, the lesser of (i) net income of the Bank for the year and
retained net income from the preceding two years (after deducting all dividends
paid during the period), or (ii) the Banks retained earnings. However,
because the payment of cash dividends has the effect of reducing a banks
capital, as a practical matter capital requirements imposed on federally
insured banks operate to preclude the payment of cash dividends in amounts that
might otherwise be permitted by California law. Additionally, Federal bank
regulatory agencies, as part of

16



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##### Table of Contents



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. Under
that law, a bank subsidiary may not extend credit to its parent company, unless
the loans are secured by specified obligations and are limited in amount to an
aggregate of no more than 10% of the banks contributed capital and retained
earnings.

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

RIGHTS DIVIDEND

On February 25, 1997, the Board of Directors of the Company 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 the outstanding shares of the Companys 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. Each Right
entitles the registered holder, on certain events, 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, 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.

In connection with the Rights dividend the Company appointed ChaseMellon
Shareholder Services as the Rights Agent under the Rights Agreement. Effective
as of February 13, 2002, Registrar and Transfer Company was appointed to
replace ChaseMellon as the Rights Agent.

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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, 2001, 2000 and 1999, and the selected balance sheet data as
of December 31, 2001 and 2000, are derived from the audited consolidated
financial statements of the Company examined by Vavrinek, Trine, Day and
Company, LLP, certified public accountants, that are included elsewhere in this
Report and should be read in conjunction with those consolidated financial
statements. The selected income statement data for the fiscal years ended
December 31, 1998 and 1997, and the selected balance sheet data as of December
31, 1999, 1998 and 1997, are derived from audited consolidated financial
statements examined by Vavrinek, Trine, Day and Company, LLP which are not
included in this Report.

|                                                             |            |   |                                             |       |      |   |           |       |      |   |           |       |  |   |           |       |  |   |           |       | 
|------------------------------------------------------------ | ---------- | - | ------------------------------------------- | ----- | ---- | - | --------- | ----- | ---- | - | --------- | ----- |  | - | --------- | ----- |  | - | --------- | ----- | 
|                                                             |            |   | 2001                                        |       | 2000 |   | 1999      |       | 1998 |   | 1997     
|                                                             |            |   |                                             |       |      |   |           |       |      |   |          
|                                                             |            |   | Dollars in thousands, except per share data
|                                                             |            |   |                                            
|Income Statement Data                                        |            |   |                                             |       |      |   |           |       |      |   |           |       |  |   |           |       |  |   |           |      
|Interest Income                                              |            | $ | 36,736                                      |       |      | $ | 38,983    |       |      | $ | 35,551    |       |  | $ | 36,237    |       |  | $ | 35,028    |      
|Interest Expense                                             |            |   | 9,030                                       |       |      |   | 11,103    |       |      |   | 8,333     |       |  |   | 9,827     |       |  |   | 9,738     |      
|Net Interest Income                                          |            |   | 27,706                                      |       |      |   | 27,880    |       |      |   | 27,218    |       |  |   | 26,410    |       |  |   | 25,290    |      
|Provision for Possible Loan Losses                           |            |   | (498                                        | )     |      |   | (1,070    | )     |      |   | (485      | )     |  |   | (775      | )     |  |   | (1,681    | )    
|Net Interest Income after
Provision for Possible Loan Losses |            |   | 27,208                                      |       |      |   | 26,810    |       |      |   | 26,733    |       |  |   | 25,635    |       |  |   | 23,609    |      
|Other Income                                                 |            |   | 5,414                                       |       |      |   | 4,604     |       |      |   | 4,521     |       |  |   | 5,086     |       |  |   | 6,040     |      
|Other Expense                                                |            |   | (21,846                                     | )     |      |   | (20,794   | )     |      |   | (21,342   | )     |  |   | (22,573   | )     |  |   | (22,599   | )    
|Income Before Income Taxes                                   |            |   | 10,776                                      |       |      |   | 10,620    |       |      |   | 9,912     |       |  |   | 8,148     |       |  |   | 7,050     |      
|Applicable Income Taxes                                      |            |   | 3,926                                       |       |      |   | 3,920     |       |      |   | 3,662     |       |  |   | 3,084     |       |  |   | 2,532     |      
|                                                             | Net Income |   | $                                           | 6,850 |      |   | $         | 6,700 |      |   | $         | 6,250 |  |   | $         | 5,064 |  |   | $         | 4,518 | 
|Per Share Data                                               |            |   |                                             |       |      |   |           |       |      |   |           |       |  |   |           |       |  |   |           |      
|Net Income  Basic(1)(2)                                     |            | $ | 1.24                                        |       |      | $ | 1.15      |       |      | $ | 0.99      |       |  | $ | 0.80      |       |  | $ | 0.73      |      
|Net Income  Diluted(1)(2)                                   |            |   | 1.18                                        |       |      |   | 1.10      |       |      |   | 0.93      |       |  |   | 0.74      |       |  |   | 0.72      |      
|Cash Dividends(3)                                            |            |   | 0.40                                        |       |      |   | 0.36      |       |      |   | 0.41      |       |  |   |          |       |  |   |          |      
|Book Value (At year-end)(1)                                  |            | $ | 9.40                                        |       |      | $ | 8.60      |       |      | $ | 7.84      |       |  | $ | 7.55      |       |  | $ | 6.68      |      
|Weighted Average Shares Outstanding
Basic(1)(2)              |            |   | 5,531,678                                   |       |      |   | 5,813,815 |       |      |   | 6,297,617 |       |  |   | 6,362,613 |       |  |   | 6,200,147 |      
|Balance Sheet Data                                           |            |   |                                             |       |      |   |           |       |      |   |           |       |  |   |           |       |  |   |           |      
|Investment Securities                                        |            | $ | 79,743                                      |       |      | $ | 70,816    |       |      | $ | 61,548    |       |  | $ | 104,654   |       |  | $ | 46,069    |      
|Loans and Leases (net)                                       |            |   | 404,200                                     |       |      |   | 364,782   |       |      |   | 339,533   |       |  |   | 289,007   |       |  |   | 291,393   |      
|Assets                                                       |            |   | 550,141                                     |       |      |   | 505,825   |       |      |   | 458,676   |       |  |   | 469,077   |       |  |   | 435,708   |      
|Deposits                                                     |            |   | 475,390                                     |       |      |   | 454,041   |       |      |   | 397,264   |       |  |   | 416,665   |       |  |   | 390,146   |      
|Other Debt(4)                                                |            |   | 19,000                                      |       |      |   |          |       |      |   | 8,819     |       |  |   | 74        |       |  |   | 123       |      
|Shareholders Equity                                         |            | $ | 51,852                                      |       |      | $ | 48,263    |       |      | $ | 48,439    |       |  | $ | 48,379    |       |  | $ | 42,041    |      



---

|(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 debt, see Note 9 to the Companys
Consolidated Financial Statements.                                                              

18



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

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

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

RESULTS OF OPERATIONS

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

During 2001 the Federal Reserve Board adopted and implemented a monetary
policy that was designed to reduce market rates of interest in an effort to
stimulate the U.S. economy which was heading into recession. As a result, the
prime rate of interest charged by most banks declined from 9.50% to 4.75%
during 2001. That monetary policy, combined with the economic recession in
the United States, caused the average rate of interest earned on our interest
earning assets to decline to 7.8% in fiscal 2001 from 8.9% in fiscal 2000.
While the average rate of interest paid on our deposits also declined, that
decline was not sufficient to offset fully the decline in interest income. As
a result, our net interest income in fiscal 2001 declined by $174,000 or 0.6%
as compared to fiscal 2000.

Despite that decline, we still generated net earnings in 2001 of
$6,850,000, an increase of $150,000, or 2%, over net earnings for 2000. The
increase in net earnings was due primarily to a $810,000 increase in
non-interest income and a $572,000 reduction in the amount of the provision
made for loan losses, which more than offset the decline in net interest
income and an increase in non-interest expense.

As indicated in the following table, net earnings for 2001 represented a
return on average assets of 1.32% and a return on average equity of 13.81%,
compared to 1.38% and 14.23%, respectively, for 2000, as increases in average
equity and average assets outpaced the increase in net earnings for 2001.

|                      |  |      |       |      |  |      |       |   |  |  |       |  
|--------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                      |  | 2001 |       | 2000 |  | 1999
|                      |  |      |       |      |  |     
|Return on Assets      |  |      | 1.32  | %    |  |      | 1.38  | % |  |  | 1.34  | %
|Return on Equity      |  |      | 13.81 | %    |  |      | 14.23 | % |  |  | 12.94 | %
|Dividend Payout Ratio |  |      | 32.26 | %    |  |      | 27.42 | % |  |  | 31.13 | %
|Equity to Asset Ratio |  |      | 9.55  | %    |  |      | 9.69  | % |  |  | 10.34 | %

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##### Table of Contents



Net Interest Income. Net interest income declined by $174,000, or 0.6%,
in 2001 as compared to 2000, due to a decline in interest income of
$2,247,000, which was substantially, but not fully offset, by a $2,073,000
decline in interest expense in 2001. The decline in interest income was
primarily due to declining market rates of interest during 2001 which led to
reductions in the interest rates we were able to charge on new loans and in
the interest rates on variable rate loans that repriced downward as market
rates of interest declined. Although the declines in market rates of interest
also enabled us to reduce the interest rates that we paid on interest-bearing
deposits, those interest rate reductions could not be implemented as quickly
as the declines in interest rates on loans and other interest earning assets,
primarily because reductions in interest rates paid on time deposits could not
be implemented until those deposits matured.

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

|                                      |                                    |                             |         |         |        |          |        |       |       |         |     |          |     |      |         |         |        |          |        |         |       |  |     |     |     |         |         |         |        |   |        |       |       |  |     |      |     | 
|------------------------------------- | ---------------------------------- | --------------------------- | ------- | ------- | ------ | -------- | ------ | ----- | ----- | ------- | --- | -------- | --- | ---- | ------- | ------- | ------ | -------- | ------ | ------- | ----- |  | --- | --- | --- | ------- | ------- | ------- | ------ | - | ------ | ----- | ----- |  | --- | ---- | --- | 
|                                      |                                    |                             |         | 2001    |        | 2000     |        | 1999 
|                                      |                                    |                             |         |         |        |          |        |      
|                                      |                                    |                             |         | Average |        |          |        |       |       | Average |     | Average  |     |      |         |         |        | Average  |        | Average |       |  |     |     |     | Average
|                                      |                                    |                             |         | Balance |        | Interest |        | Rate  |       | Balance |     | Interest |     | Rate |         | Balance |        | Interest |        | Rate   
|                                      |                                    |                             |         |         |        |          |        |       |       |         |     |          |     |      |         |         |        |          |        |        
|Earning Assets:                       |                                    |                             |         |         |        |          |        |       |       |         |     |          |     |      |         |         |        |          |        |         |       |  |     |     |     |         |         |         |        |   |        |       |       |  |     |     
|Investment Securities                 |                                    |                             |         |         |        |          |        |       |       |         |     |          |     |      |         |         |        |          |        |         |       |  |     |     |     |         |         |         |        |   |        |       |       |  |     |     
|                                      | U.S. Treasury                      |                             | $       | 565     |        |          | $      | 28    |       |         |     | 5.0      | %   |      | $       | 1,405   |        |          | $      | 74      |       |  |     | 5.3 | %   |         | $       | 7,308   |        |   | $      | 421   |       |  |     | 5.8  | %  
|                                      | U.S. Government Agencies           |                             |         | 45,453  |        |          |        | 2,505 |       |         |     | 5.5      |     |      |         | 43,419  |        |          |        | 2,712   |       |  |     | 6.2 |     |         |         | 45,485  |        |   |        | 2,701 |       |  |     | 5.9  |    
|                                      | Municipal Leases(1)                |                             |         | 5,060   |        |          |        | 432   |       |         |     | 8.5      |     |      |         | 5,636   |        |          |        | 502     |       |  |     | 8.9 |     |         |         | 6,454   |        |   |        | 550   |       |  |     | 8.5  |    
|                                      | Other Securities                   |                             |         | 17,742  |        |          |        | 780   |       |         |     | 4.4      |     |      |         | 14,502  |        |          |        | 947     |       |  |     | 6.5 |     |         |         | 3,290   |        |   |        | 195   |       |  |     | 5.9  |    
|                                      |                                    |                             |         |         |        |          |        |       |       |         |     |          |     |      |         |         |        |          |        |         |       |  |     |     |     |         |         |         |        |   |        |       |       |  |     |     
|                                      |                                    | Total Investment Securities |         |         | 68,820 |          |        |       | 3,745 |         |     |          | 5.4 |      |         |         | 64,962 |          |        |         | 4,235 |  |     |     | 6.5 |         |         |         | 62,537 |   |        |       | 3,867 |  |     |      | 6.2 | 
|Federal Funds Sold                    |                                    |                             | 21,043  |         |        |          | 808    |       |       |         | 3.8 |          |     |      | 10,440  |         |        |          | 652    |         |       |  | 6.2 |     |     |         | 18,071  |         |        |   | 901    |       |       |  | 5.0 |     
|Due form Banks  Time                 |                                    |                             | 12,119  |         |        |          | 564    |       |       |         | 4.7 |          |     |      | 4,175   |         |        |          | 273    |         |       |  | 6.5 |     |     |         | 16,306  |         |        |   | 849    |       |       |  | 5.2 |     
|Loans(2)                              |                                    |                             | 370,882 |         |        |          | 31,849 |       |       |         | 8.6 |          |     |      | 359,867 |         |        |          | 34,079 |         |       |  | 9.5 |     |     |         | 324,553 |         |        |   | 30,072 |       |       |  | 9.3 |     
|Lease Financing(1)                    |                                    |                             | 951     |         |        |          | 82     |       |       |         | 8.6 |          |     |      | 1,443   |         |        |          | 125    |         |       |  | 8.7 |     |     |         | 2,835   |         |        |   | 272    |       |       |  | 9.6 |     
|                                      |                                    |                             |         |         |        |          |        |       |       |         |     |          |     |      |         |         |        |          |        |         |       |  |     |     |     |         |         |         |        |   |        |       |       |  |     |     
|Total Interest-Earning Assets(1)      |                                    | $                           | 473,815 |         |        | $        | 37,048 |       |       |         | 7.8 | %        |     | $    | 440,887 |         |        | $        | 39,364 |         |       |  | 8.9 | %   |     | $       | 424,302 |         |        | $ | 35,961 |       |       |  | 8.5 | %   
|                                      |                                    |                             |         |         |        |          |        |       |       |         |     |          |     |      |         |         |        |          |        |         |       |  |     |     |     |         |         |         |        |   |        |       |       |  |     |     
|Interest Bearing Liabilities:         |                                    |                             |         |         |        |          |        |       |       |         |     |          |     |      |         |         |        |          |        |         |       |  |     |     |     |         |         |         |        |   |        |       |       |  |     |     
|Domestic Deposits and
Borrowed Funds: |                                    |                             |         |         |        |          |        |       |       |         |     |          |     |      |         |         |        |          |        |         |       |  |     |     |     |         |         |         |        |   |        |       |       |  |     |     
|                                      | Savings Deposits(3)                |                             | $       | 201,183 |        |          | $      | 3,743 |       |         |     | 1.9      | %   |      | $       | 179,465 |        |          | $      | 4,646   |       |  |     | 2.6 | %   |         | $       | 184,122 |        |   | $      | 4,325 |       |  |     | 2.3  | %  
|                                      | Time Deposits                      |                             |         | 108,989 |        |          |        | 5,282 |       |         |     | 4.8      |     |      |         | 111,405 |        |          |        | 6,360   |       |  |     | 5.7 |     |         |         | 88,848  |        |   |        | 3,982 |       |  |     | 4.5  |    
|                                      | Short-Term borrowings              |                             |         | 260     |        |          |        | 5     |       |         |     | 1.9      |     |      |         | 1,508   |        |          |        | 97      |       |  |     | 6.4 |     |         |         | 351     |        |   |        | 21    |       |  |     |     |    
|                                      | Long-Term borrowings               |                             |         | 0       |        |          |        |      |       |         |     | 0.0      |     |      |         | 4       |        |          |        |        |       |  |     | 0.0 |     |         |         | 49      |        |   |        | 5     |       |  |     | 10.2 |    
|                                      |                                    |                             |         |         |        |          |        |       |       |         |     |          |     |      |         |         |        |          |        |         |       |  |     |     |     |         |         |         |        |   |        |       |       |  |     |     
|                                      | Total Interest-Bearing Liabilities |                             | $       | 310,432 |        |          | $      | 9,030 |       |         |     | 2.9      | %   |      | $       | 292,382 |        |          | $      | 11,103  |       |  |     | 3.8 | %   |         | $       | 273,370 |        |   | $      | 8,333 |       |  |     | 3.0  | %  
|                                      |                                    |                             |         |         |        |          |        |       |       |         |     |          |     |      |         |         |        |          |        |         |       |  |     |     |     |         |         |         |        |   |        |       |       |  |     |     

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

|                                                                |  |      |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                |  | 2001 |         | 2000 |  | 1999
|                                                                |  |      |         |      |  |     
|Total Interest Income(1)(2)                                     |  | $    | 37,048  |      |  | $    | 39,364  |   |  | $ | 35,961  |  
|Total Interest Expense(3)                                       |  | $    | 9,030   |      |  | $    | 11,103  |   |  | $ | 8,333   |  
|Net Interest Earnings(1)(2)                                     |  | $    | 28,018  |      |  | $    | 28,261  |   |  | $ | 27,628  |  
|Net Average Earning Assets(2)                                   |  | $    | 473,815 |      |  | $    | 440,887 |   |  | $ | 424,302 |  
|Net Yield on Average Earning Assets(1)(2)                       |  |      | 5.9     | %    |  |      | 6.4     | % |  |   | 6.5     | %
|Net Yield on Average Earning Assets
(excluding Loan Fees)(1)(2) |  |      | 5.6     | %    |  |      | 6.2     | % |  |   | 6.1     | %



---

|(1) |  | Interest income includes the effects of tax equivalent
adjustments on tax exempt securities and leases using tax rates that
approximate 36.4 percent for 2001, 36.9 percent for 2000 and 36.9
percent for 1999.                                                                                                                                                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Loans, net of unearned discount, do not reflect average
reserves for possible loan losses of $3,890,000 in 2001, $4,798,000
in 2000 and $5,865,000 in 1999. Loan fees of $1,364,000 in 2001,
$1,064,000 in 2000 and $1,846,000 in 1999 are included in loan
interest income. Average loan balances include loans placed on
non-accrual status during the periods presented, but interest on
such loans is excluded. There were 6 non-accruing loans at December
31, 2001, 6 at December 31, 2000 and 14 at December 31, 1999.
|   
|   
|   
|   
|(3) |  | Includes NOW, Super NOW, and Money Market Deposit Accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

20



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##### Table of Contents



Rate Sensitivity, Net Interest Margins and Market Risk.

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



| |  |  | our assets, between loans, on the one hand, on
which we are able to obtain higher rates of interest, and
investment securities, federal funds sold and funds held in
interest-bearing deposits with other financial institutions,
on the other hand, on which yields generally are lower;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | variable and fixed rate loans in the loan
portfolio; and                                                                                                                                                                                                                                 
|
| |  |  | demand and savings deposits, on the one hand, and
time deposits (on which we pay higher rates of interest) on
the other hand.                                                                                                                                                            

As a general rule, a bank with a relatively high percentage of fixed-rate
loans will experience a decline in net interest margins during a period of
increasing market rates of interest, because it will be unable to reprice
its fixed rate loans to fully offset the increase in the rates of interest it
must offer to retain maturing time deposits and attract new deposits.
Similarly, a bank with a high percentage of time deposits generally will
experience greater increases in interest expense and, therefore, a decrease in
net interest margins, during periods of increasing market rates of interest
than a bank with a greater percentage of demand and savings deposits which are
less sensitive to changes in market rates of interest. By contrast, during a
period of declining market rates of interest, a bank with a higher percentage
of variable loans, as a general rule, will experience a decline in net
interest margins because such loans often contain automatic repricing
provisions that are triggered by declines in market rates of interest;
whereas offsetting reductions in the rates of interest paid on time
certificates of deposit cannot be implemented until they mature, at which time
a bank can seek their renewal at lower rates of interest or allow such
deposits to terminate or run-off in order to reduce interest expense.
However, the impact of changes in interest rates on net interest income is not
linear in that the extent of the impact of such changes can be lessened or
increased by changes in the volume of loans or interest bearing deposits.

The following table sets forth changes in interest earned, including loan
fees, and interest paid in each of the years ended December 31, 2001 and 2000
and the extent to which those changes were attributable to changes in the
volume and mix of interest earning assets and in the volume and mix of
interest bearing liabilities. Changes in interest earned and interest paid
due to both rate and volume have been allocated to the change due to volume
and the change due to rate in proportion to the relationship of the absolute
dollar amounts of the changes in each. All amounts are stated in thousands.

|                        |                             |                |      |                       |      |            |     |          |     |           |      |          |      |       |        |              |        |      |      |   |      |   |      |   |      |   |        |   |        |  
|----------------------- | --------------------------- | -------------- | ---- | --------------------- | ---- | ---------- | --- | -------- | --- | --------- | ---- | -------- | ---- | ----- | ------ | ------------ | ------ | ---- | ---- | - | ---- | - | ---- | - | ---- | - | ------ | - | ------ | -
|                        |                             |                |      | Investment Securities |      |            |     |          |     |           |      |          |      |       |        |              |        |      |      |   |      |   |      |  
|                        |                             |                |      |                       |      |            |     |          |     |           |      |          |      |       |        |              |        |      |      |   |      |   |      |  
|                        |                             |                |      |                       |      |            |     | Non-     |     | Federal   |      |          |      |       |        | Direct Lease |        | Time |      |   |      |  
|Interest Earned On      |                             | Taxable        |      | Taxable(1)            |      | Funds Sold |     | Loans(2) |     | Financing |      | Deposits |      | Total
|                        |                             |                |      |                       |      |            |     |          |     |           |      |          |      |      
|2001 compared to 2000:  |                             |                |      |                       |      |            |     |          |     |           |      |          |      |       |        |              |        |      |      |   |      |   |      |   |      |   |        |  
|                        | Increase (decrease) due to: |                |      |                       |      |            |     |          |     |           |      |          |      |       |        |              |        |      |      |   |      |   |      |   |      |   |        |   |       
|                        |                             | Volume Changes |      | $                     | (65  | )          |     | $        | (79 | )         |      | $        | 477  |       |        | $            | 1,019  |      |      | $ | (42  | ) |      | $ | 390  |   |        | $ | 1,700  |  
|                        |                             | Rate Changes   |      |                       | (355 | )          |     |          | 9   |           |      |          | (321 | )     |        |              | (3,249 | )    |      |   | (1   | ) |      |   | (99  | ) |        |   | (4,016 | )
|                        |                             |                |      |                       |      |            |     |          |     |           |      |          |      |       |        |              |        |      |      |   |      |   |      |   |      |   |        |  
|Net Increase (Decrease) |                             | $              | (420 | )                     |      | $          | (70 | )        |     | $         | 156  |          |      | $     | (2,230 | )            |        | $    | (43  | ) |      | $ | 291  |   |      | $ | (2,316 | )
|                        |                             |                |      |                       |      |            |     |          |     |           |      |          |      |       |        |              |        |      |      |   |      |   |      |   |      |   |        |  
|2000 compared to 1999:  |                             |                |      |                       |      |            |     |          |     |           |      |          |      |       |        |              |        |      |      |   |      |   |      |   |      |   |        |  
|                        | Increase (decrease) due to: |                |      |                       |      |            |     |          |     |           |      |          |      |       |        |              |        |      |      |   |      |   |      |   |      |   |        |   |       
|                        |                             | Volume Changes |      | $                     | 193  |            |     | $        | (91 | )         |      | $        | (441 | )     |        | $            | 3,332  |      |      | $ | (123 | ) |      | $ | (752 | ) |        | $ | 2,118  |  
|                        |                             | Rate Changes   |      |                       | 223  |            |     |          | 43  |           |      |          | 192  |       |        |              | 675    |      |      |   | (24  | ) |      |   | 176  |   |        |   | 1,285  |  
|                        |                             |                |      |                       |      |            |     |          |     |           |      |          |      |       |        |              |        |      |      |   |      |   |      |   |      |   |        |  
|Net Increase (Decrease) |                             | $              | 416  |                       |      | $          | (48 | )        |     | $         | (249 | )        |      | $     | 4,007  |              |        | $    | (147 | ) |      | $ | (576 | ) |      | $ | 3,403  |  
|                        |                             |                |      |                       |      |            |     |          |     |           |      |          |      |       |        |              |        |      |      |   |      |   |      |   |      |   |        |  

|                        |                             |                |      |          |        |               |        |               |       |            |   |    |    |   |     |    |     |   |        |       |        |  
|----------------------- | --------------------------- | -------------- | ---- | -------- | ------ | ------------- | ------ | ------------- | ----- | ---------- | - | -- | -- | - | --- | -- | --- | - | ------ | ----- | ------ | -
|                        |                             |                |      | Savings  |        | Other Time    |        | Long Term     |       | Short Term |   |    |    |  
|Interest Paid On:       |                             | Deposits       |      | Deposits |        | Borrowings(3) |        | Borrowings(4) |       | Total     
|                        |                             |                |      |          |        |               |        |               |       |           
|2001 compared to 2000   |                             |                |      |          |        |               |        |               |       |            |   |    |    |   |     |    |     |   |        |      
|                        | Increase (decrease) due to: |                |      |          |        |               |        |               |       |            |   |    |    |   |     |    |     |   |        |       |       
|                        |                             | Volume Changes |      | $        | 514    |               |        | $             | (135  | )          |   | $  |   |   |     | $  | (50 | ) |        | $     | 329    |  
|                        |                             | Rate Changes   |      |          | (1,417 | )             |        |               | (943  | )          |   |    |   |   |     |    | (42 | ) |        |       | (2,402 | )
|                        |                             |                |      |          |        |               |        |               |       |            |   |    |    |   |     |    |     |   |        |      
|Net Increase (Decrease) |                             | $              | (903 | )        |        | $             | (1,078 | )             |       | $          |  |    |    | $ | (92 | )  |     | $ | (2,073 | )    
|                        |                             |                |      |          |        |               |        |               |       |            |   |    |    |   |     |    |     |   |        |      
|2000 compared to 1999   |                             |                |      |          |        |               |        |               |       |            |   |    |    |   |     |    |     |   |        |      
|                        | Increase (decrease) due to: |                |      |          |        |               |        |               |       |            |   |    |    |   |     |    |     |   |        |       |       
|                        |                             | Volume Changes |      | $        | (111   | )             |        | $             | 1,144 |            |   | $  | (5 | ) |     | $  | 74  |   |        | $     | 1,102  |  
|                        |                             | Rate Changes   |      |          | 432    |               |        |               | 1,234 |            |   |    |   |   |     |    | 2   |   |        |       | 1,668  |  
|                        |                             |                |      |          |        |               |        |               |       |            |   |    |    |   |     |    |     |   |        |      
|                        | Net Increase (Decrease)     |                | $    | 321      |        |               | $      | 2,378         |       |            | $ | (5 | )  |   | $   | 76 |     |   | $      | 2,770 |       
|                        |                             |                |      |          |        |               |        |               |       |            |   |    |    |   |     |    |     |   |        |      

21



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---

|(1) |  | Interest income includes the effects of tax equivalent adjustments on
tax exempt securities and leases using tax rates which approximate 36.4%
for 2001 and 36.9% in 2000.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes an increase in loan fees of $300,000 for 2001 and a decrease
of $782,000 for 2000.                                                                               
|   
|   
|   
|   
|(3) |  | Long term borrowings in 2000 consist of an obligation secured by a
deed of trust that bears interest at 10%.                                                              
|   
|   
|   
|   
|(4) |  | Short term borrowings in 2001 consist of an obligation secured by a
lien on certain real estate loans that bears interest at 1.92%.                                       

Net Interest Margin in 2001 and 2000. We attempt to reduce our exposure
to interest rate fluctuations, which can adversely affect net interest margin,
by seeking (i) to attract and maintain a significant volume of demand and
savings deposits that are not as sensitive to interest rate fluctuations as
are time certificates of deposit (TCDs) and other time deposits, and (ii) to
match opportunities to reprice earning assets, particularly loans, in
response to changes in market rates of interest which require or cause
repricing of deposits. In 2000, we initiated new loan programs to increase
loan volume and, at the same time, we increased the volume of TCDs and other
time deposits, by offering higher rates of interest on such deposits,
primarily to fund the increase in loan volume. We were somewhat able to
mitigate the effect on our net interest margin of the increase in TCDs and
other time deposits by also continuing to actively seek and obtain additional
demand and savings (including money market) deposits. During 2001 we decided
to allow higher priced time deposits to run off as they matured, rather than
to seek their renewal. By December 31, 2001, the volume of TCDs and other
time deposits had declined to $36,749,000 and $59,222,000, respectively, from
$58,801,000 and $67,330,000, respectively, at December 31, 2000. As a result,
as a percentage of average total deposits, the average volume of demand,
savings and money market deposits increased to 77% and the average volume time
deposits, including TCDs, declined to 23%, in 2001, compared to 74% and 26%,
respectively for 2000. Those percentages were 79% and 21%, respectively, for
1999.

Our net interest margin (i.e., tax-adjusted net interest income stated as
a percentage of average interest-earning assets) was 5.91% for the year ended
December 31, 2001, compared to 6.41% for the year ended December 31, 2000.
That decline reflects the effect of declining rates of interest resulting from
the Federal Reserve Boards monetary policies and the economic downturn in
2001. However, we believe our net interest margin continues to exceed the
average net interest margin for California based, publicly traded banks and
bank holding companies with assets ranging from $250-to-$750 million (the
Peer Group Banks), because we have been able to maintain the ratio of demand
and savings deposits to total deposits at a higher level than that of our Peer
Group Banks and we were able to increase the volume of our loans which
generate higher yields than do our other interest earning assets.

We have again instituted new sales and marketing programs for 2002 that
are designed to increase our loan volume and also the volume of our demand and
savings deposits. However, we may find it necessary or prudent to increase
time deposits to fund any resulting increases in loan volume. We currently
believe that our net interest margin in 2002 will remain at approximately the
same level as in 2001, because we currently expect that any resulting
increases in interest income we are able to generate in 2002 from increased
loan volume will be largely offset by a combination of (i)  the increase in interest expense that will result from the increase
in the volume of our deposits, and (ii) rates of interest that we are able to
charge on loans, which are largely determined by the Federal Reserve Boards
monetary policies and affected by the economic conditions in the United
States. However, there are a number of uncertainties and risks that could
adversely affect our net interest margin in 2002, including (i) increased
competition in our market areas, both from banks and other types of financial
institutions as well as from securities brokerage firms and mutual funds that
offer competing investment products, and (ii) the possibility that the
economic slowdown will continue longer than is currently anticipated, which
could result in reduced loan activity and in a greater decline in market rates
of interest.

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

Provision for Loan and Lease Losses. Like virtually all banks and other
financial institutions, we follow the practice of maintaining a reserve (the
Loan Loss Reserve) for possible losses on loans and leases that occur from
time to

22



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time as an incidental part of the banking business. Charge-offs of loans
(essentially reductions in the carrying values of non-performing loans due to
possible losses on their ultimate recovery) are charged against the Loan Loss
Reserve. The amount of that Reserve is increased periodically in response to
(i) increases in the volume of outstanding loans, and (ii) the risk of
potential losses due to a deterioration in the financial condition of
borrowers or in the value of property securing non-performing loans
and (iii) changes
in economic conditions. Those increases are made through a charge against
income referred to as the provision for loan and lease losses. Although we
employ economic models that are based on bank regulatory guidelines and
industry standards to evaluate and determine the sufficiency of the Loan Loss
Reserve and, thereby, also the amount of the provision required to be made for
potential loan losses, those determinations involve judgments or forecasts
about future economic conditions and other events that are subject to a number
of uncertainties, some of which are outside of our ability to control. See
the discussion below under the caption Forward Looking Information and
Uncertainties Regarding Future Performance. In the event those judgments or
forecasts are proven, by subsequent events or circumstances, to have been
incorrect, it could become necessary in the future to incur additional charges
to income in order to increase the Loan Loss Reserve that would adversely
affect our operating results.

During 2001 we made provisions for potential loan losses of $498,000, as
compared to $1,070,000 during 2000 and, at December 31, 2001 the Loan Loss
Reserve was approximately $4,206,000 or 1.03% of total loans and leases
outstanding, compared to approximately $3,692,000 or 1.00% of total loans and
leases outstanding at December 31, 2000. The higher provision in 2000 was
made to maintain the Loan Loss Reserve at approximately 1% of outstanding
loans, following loan charge offs in that year totaling approximately
$3,750,000 due to the bankruptcy of a large corporate borrower that had
encountered financial difficulties in the prior year. The possibility of
potential charge offs of those loans had been identified and reserved against
in years prior to 2000. Those charge-offs resulted in an improvement in the
overall quality of our loan portfolio and enabled us to reduce the provision
made for potential loan losses in 2001.

The following table sets forth an analysis of the Banks loan and lease
loss experience, by category, for the past three years (with dollar amounts
stated in thousands). The amount of the loan charge-offs, and the ratios of
net loan charge offs to the loan loss reserve and to the provision for loan
losses, in 2000 were substantially greater than in 2001 or in 1999. That was
attributable to the charge-off, described above, in 2000, following the
bankruptcy of a corporate borrower.

|                                                                                        |                          |                                        |                   |    |      |     |         |     |        |        |         |     |      |      |  
|--------------------------------------------------------------------------------------- | ------------------------ | -------------------------------------- | ----------------- | -- | ---- | --- | ------- | --- | ------ | ------ | ------- | --- | ---- | ---- | -
|                                                                                        |                          |                                        |                   |    | 2001 |     | 2000    |     | 1999  
|                                                                                        |                          |                                        |                   |    |      |     |         |     |       
|Average amount of loans and leases outstanding(1)                                       |                          | $                                      | 371,831           |    |      | $   | 361,309 |     |        | $      | 327,388 |    
|                                                                                        |                          |                                        |                   |    |      |     |         |     |        |        |         |    
|Loan and lease loss reserve at beginning of year                                        |                          |                                        | 3,692             |    |      |     | 6,102   |     |        |        | 5,165   |    
|                                                                                        |                          |                                        |                   |    |      |     |         |     |        |        |         |    
|Charge-Offs  Domestic Loans(2):                                                        |                          |                                        |                   |    |      |     |         |     |        |        |         |    
|                                                                                        |                          | Commercial, financial and agricultural |                   |    | (46  | )   |         |     | (3,762 | )      |         |     | (112 | )   
|                                                                                        |                          | Real Estate-construction               |                   |    |     |     |         |     |       |        |         |     |     |     
|                                                                                        |                          | Real Estate-mortgage                   |                   |    |     |     |         |     |       |        |         |     | (45  | )   
|                                                                                        |                          | Consumer                               |                   |    | (40  | )   |         |     | (30    | )      |         |     | (39  | )   
|                                                                                        |                          | Other                                  |                   |    |     |     |         |     |       |        |         |     |     |     
|                                                                                        |                          |                                        |                   |    |      |     |         |     |        |        |         |    
|                                                                                        |                          |                                        | Total Charge-Offs |    |      | (86 | )       |     |        | (3,792 | )       |     |      | (196 | )
|Recoveries  Domestic Loans(2):                                                         |                          |                                        |                   |    |      |     |         |     |        |        |         |    
|Commercial, financial and agricultural                                                  |                          |                                        | 46                |    |      |     | 134     |     |        |        | 44      |    
|                                                                                        | Real Estate-construction |                                        |                   | 20 |      |     |         |    |        |        |         |    |     
|                                                                                        | Real Estate-mortgage     |                                        |                   | 16 |      |     |         | 170 |        |        |         | 188 |     
|                                                                                        | Consumer                 |                                        |                   | 20 |      |     |         | 8   |        |        |         | 5   |     
|                                                                                        |                          |                                        |                   |    |      |     |         |     |        |        |         |    
|                                                                                        |                          |                                        | Total Recoveries  |    |      | 102 |         |     |        | 312    |         |     |      | 237  |  
|                                                                                        |                          |                                        |                   |    |      |     |         |     |        |        |         |    
|Net Recoveries (Net Charge-Offs)                                                        |                          |                                        | 16                |    |      |     | (3,480  | )   |        |        | 41      |    
|Additions charged to operations                                                         |                          |                                        | 498               |    |      |     | 1,070   |     |        |        | 485     |    
|                                                                                        |                          |                                        |                   |    |      |     |         |     |        |        |         |    
|Loan and lease loss reserve  balance at end of year                                    |                          | $                                      | 4,206             |    |      | $   | 3,692   |     |        | $      | 6,102   |    
|                                                                                        |                          |                                        |                   |    |      |     |         |     |        |        |         |    
|Ratios:                                                                                 |                          |                                        |                   |    |      |     |         |     |        |        |         |    
|Net charge-offs during the year to average
loans and leases outstanding during the year |                          |                                        | -0.004            | %  |      |     | 0.96    | %   |        |        | -0.01   | %  
|Loan loss reserve to total gross loans                                                  |                          |                                        | 1.03              | %  |      |     | 1.00    | %   |        |        | 1.76    | %  
|Net loan charge-offs to loan loss reserve                                               |                          |                                        | -0.38             | %  |      |     | 94.26   | %   |        |        | -0.67   | %  
|Net loan charge-offs to provision for loan losses                                       |                          |                                        | -3.21             | %  |      |     | 325.23  | %   |        |        | -8.45   | %  
|Loan loss reserve to non-performing loans                                               |                          |                                        | 154.80            | %  |      |     | 159.21  | %   |        |        | 100.56  | %  



---

|(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.

23



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##### Table of Contents



The amount of non-performing loans (which consist primarily of loans for
which there have been no payments of principal or interest for more than 90
days) at December 31, 2001 was $2,717,000, or 0.7% of total loans then
outstanding, compared to $2,319,000, or 0.6%, of total loans outstanding at
December 31, 2000 and $6,068,000 or 1.8% of total loans outstanding at
December 31, 1999. The ratio of the Loan Loss Reserve to non-performing loans
was 107.05% at December 31, 2001, as compared to 115.6% and 97.32% at December
31, 2000 and 1999, respectively.

Recoveries of previously charged off loans exceeded loan charge-offs by
$16,000 in 2001. In 2000, loan charge-offs totaled $3,480,000, which
represented ninety-six hundredths of one percent (0.96%) of average loans and
leases outstanding during the year. However, but for the charge-off of the
loans to the corporate borrower mentioned above, recoveries of previously
charged-off loans would have exceeded loan charge-offs by $270,000 in 2000.
In 1999 recoveries of previously charged off loans exceeded loan charge-offs
by $41,000.

Other Income. In 2001, other income increased by $810,000 or 17.6% as
compared to 2000. The increase was primarily attributable to increases in
transaction fees and service charges on deposit accounts and other banking
transactions. Also contributing to the increase in other income was a
one-time $72,000 gain in 2001 realized on the sale of a parcel of real
property that the Bank had been using as a parking lot, but which it no longer
needed. In 2000, other income increased by $83,000 or 1.8% as compared to
1999, primarily attributable to increases in transaction fees and service
charges on deposit accounts and other banking transactions.

Other Expense. Other expense (also often referred to as non-interest
expense), consists primarily of (i) salaries and other employee expenses,
(ii) occupancy and furniture and equipment expenses, and (iii) other operating
and miscellaneous expenses that include insurance premiums, marketing
expenses, data processing costs, professional expenses, and charges that are
periodically made to establish reserves for possible losses on the disposition
or declines in market values of real properties acquired on or in lieu of
foreclosure of defaulted loans (commonly referred to as other real estate
owned or OREO).

It has been our policy to provide a higher level of personal service to
our customers than the level of services that are provided by many of our
competitors, as a means of attempting to attract and retain lower cost demand
and savings deposits and, thereby, to achieve a higher net interest margin
than many of our competitors. For this reason our non-interest expense, as a
percentage of our income, has generally been higher than that of our Peer
Group of Banks.

Non-interest expense increased by approximately $1,052,000, or 5.1%, in
2001 as compared to 2000 primarily due to increases in salaries and other
employee related expenses and, to a lesser extent, higher occupancy and other
expenses, that resulted from the opening of 12th branch office in late
December of 2000. Also contributing to that increase was a $125,000 charge,
taken during the fourth quarter of 2001, to establish a reserve for a possible
loss on an anticipated sale (completed in March 2002) of an a parcel of real
property acquired on foreclosure of a loan. As a result of the increase in
non-interest expense, our efficiency ratio (that is, basically, the ratio of
non-interest expense to the sum of our net interest income and other income,
as adjusted to eliminate non-recurring expenses and income) increased to 66.4%
from 62.7% in 2000. In 2000 we reduced our operating expenses by $548,000
compared to 1999, and our efficiency ratio declined to 62.7% from 67.24% in
1999.

Income Taxes. Income taxes increased by approximately $6,000 or 0.2% in
2001 and $258,000 or 7.0% in 2000, in each case as compared to the prior year,
primarily as a result of the increases in pre-tax income in those two years
over each of the prior years.

The provision that we make for income taxes is based on, among other
things, the ability to use certain income tax benefits available under state
and federal income tax laws to reduce our income tax liability. As of
December 31, 2001, 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 $1,975,000. Such tax benefits
expire over time unless used and use of those benefits is dependent on
generating taxable income in the future in amounts sufficient to utilize those
tax benefits prior to their expiration. We have made a judgment that it is
more likely than not that we will generate taxable income in future years
sufficient to fully utilize those benefits. In the event that our income were
to decline in future periods making it less likely that those benefits could
be fully utilized, we would be required to establish a valuation reserve to
cover the potential loss of those tax benefits, by increasing the provision we
make for income taxes, which would have the effect of reducing our net income.

24



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##### Table of Contents



FINANCIAL CONDITION

Total Assets. Our average total assets increased during 2001 by
approximately $33,990,000, or 7.0%, compared to average total assets for 2000.
The increase in average total assets was primarily due to and increase of
$10,524,000, or 2.9%, in the average loans and leases outstanding, together
with increases in the average volume of other earning assets, including a
$3,607,000, or 20.7%, increase in the average volume of federal funds sold and
overnight repurchase agreements, a $7,944,000, or 190.3%, increase in the
average volume of time deposits held at other banks, and a $10,854,000, or
18.7%, increase in the average volume of investment securities.

We currently anticipate that there will be modest growth in the Banks
total assets in the year ending December 31, 2002, which is expected to result
from increased lending and deposit activity generated by new marketing
programs being implemented by the Bank.

Loans.Set forth below is information regarding the average volume of
our loans, by type or category of loan, for each of the years in the five year
period ended December 31, 2001:

|                                       |                                   |       |         |                |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |         |         | 
|-------------------------------------- | --------------------------------- | ----- | ------- | -------------- | ------- | ---- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                       |                                   |       |         | December 31,  
|                                       |                                   |       |         |               
|Types of Loans                         |                                   | 2001  |         | 2000           |         | 1999 |         | 1998    |         | 1997
|                                       |                                   |       |         |                |         |      |         |         |         |     
|                                       |                                   |       |         | (In Thousands)
|Commercial, financial and agricultural |                                   | $     | 35,305  |                |         | $    | 33,011  |         |         | $    | 47,620  |         |         | $ | 47,719  |         |         | $ | 22,224  |        
|Real Estate construction               |                                   |       | 11,977  |                |         |      | 14,135  |         |         |      | 15,702  |         |         |   | 18,719  |         |         |   | 9,478   |        
|Real Estate mortgage(1)                |                                   |       | 317,399 |                |         |      | 305,093 |         |         |      | 252,925 |         |         |   | 231,056 |         |         |   | 242,521 |        
|Consumer                               |                                   |       | 5,641   |                |         |      | 6,177   |         |         |      | 6,422   |         |         |   | 6,898   |         |         |   | 6,190   |        
|Lease Financing(2)                     |                                   |       | 951     |                |         |      | 1,443   |         |         |      | 2,835   |         |         |   | 4,086   |         |         |   | 4,395   |        
|All other (including overdrafts)       |                                   |       | 676     |                |         |      | 1,667   |         |         |      | 2,280   |         |         |   | 2,604   |         |         |   | 2,004   |        
|                                       |                                   |       |         |                |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                       | Subtotal:                         |       | $       | 371,949        |         |      | $       | 361,526 |         |      | $       | 327,784 |         |   | $       | 311,082 |         |   | $       | 286,812 |        
|Less:                                  |                                   |       |         |                |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                       | Unearned Discount                 |       |         | (116           | )       |      |         | (217    | )       |      |         | (396    | )       |   |         | (616    | )       |   |         | (746    | )      
|                                       | Reserve for loan and lease losses |       |         | (3,890         | )       |      |         | (4,798  | )       |      |         | (5,865  | )       |   |         | (5,252  | )       |   |         | (4,246  | )      
|                                       |                                   |       |         |                |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                       |                                   | Total |         | $              | 367,943 |      |         | $       | 356,511 |      |         | $       | 321,523 |   |         | $       | 305,214 |   |         | $       | 281,820 | 
|                                       |                                   |       |         |                |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        

The maturities of our loans, as of December 31, 2001, presented by type or
category of loan, is set forth below (in thousands):

|                                       |       |   |          |        |             |   |            |        |       |   |         |         |  |   |         |         | 
|-------------------------------------- | ----- | - | -------- | ------ | ----------- | - | ---------- | ------ | ----- | - | ------- | ------- |  | - | ------- | ------- | 
|                                       |       |   | MATURING
|                                       |       |   |         
|                                       |       |   | Within   |        | One to Five |   | After Five |        |       |   |        
|                                       |       |   | One Year |        | Years       |   | Years      |        | Total
|                                       |       |   |          |        |             |   |            |        |      
|Commercial, financial
and agricultural |       | $ | 23,678   |        |             | $ | 11,381     |        |       | $ | 11,877  |         |  | $ | 46,936  |        
|Real Estate construction               |       |   | 8,511    |        |             |   | 319        |        |       |   | 7,261   |         |  |   | 16,091  |        
|Real Estate mortgage                   |       |   | 28,909   |        |             |   | 55,891     |        |       |   | 253,969 |         |  |   | 338,769 |        
|Consumer                               |       |   | 1,210    |        |             |   | 2,761      |        |       |   | 747     |         |  |   | 4,718   |        
|Lease Financing                        |       |   | 23       |        |             |   | 1,305      |        |       |   |        |         |  |   | 1,320   |        
|All other                              |       |   | 642      |        |             |   | 5          |        |       |   | 9       |         |  |   | 656     |        
|                                       |       |   |          |        |             |   |            |        |       |   |         |         |  |   |         |        
|                                       | Total |   | $        | 62,973 |             |   | $          | 71,662 |       |   | $       | 273,863 |  |   | $       | 408,498 | 
|                                       |       |   |          |        |             |   |            |        |       |   |         |         |  |   |         |        
|Total fixed rate loans                 |       |   | 21,742   |        |             |   | 57,708     |        |       |   | 223,746 |         |  |   | 303,196 |        
|Total variable rate loans              |       |   | 41,231   |        |             |   | 13,954     |        |       |   | 50,117  |         |  |   | 105,302 |        
|                                       |       |   |          |        |             |   |            |        |       |   |         |         |  |   |         |        
|                                       | Total |   | $        | 62,973 |             |   | $          | 71,662 |       |   | $       | 273,863 |  |   | $       | 408,498 | 
|                                       |       |   |          |        |             |   |            |        |       |   |         |         |  |   |         |        

Deposits.During 2001 we conducted programs by which we were able to
increase deposits to provide an additional source of funds that were used to
increase loan volume as well as the volume of other earning assets. Overall,
in 2001 the average volume of deposits increased by $32,998,000, or 7.6%, as
compared to the average volume of deposits during 2000. Contributing to that
increase was a $35,413,000, or 10.7%, increase in the volume of our core
deposits, made up of demand deposits, which do not bear interest, and savings
and money market deposits, on which we pay lower rates of interests than on
time deposits. At the same time, during 2001, the average volume of time
deposits (including those in denominations of $100,000 or more) decreased by
$2,416,000, or 2.2%. As a result, our core demand, savings and money market
deposits represented 76.6% of average total deposits in 2001 as compared to
74.3% in 2000, with time deposits (including those in denominations of
$100,000 or more) representing 23.4% of average total deposits in 2001 as
compared to 25.7% in 2000. The decreases in the volume of time deposits,
together with decreases in interest rates that we paid,

25



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##### Table of Contents



primarily in response to decreases in market rates of interest, resulted
in an decrease in interest expense in 2001 as compared to 2000. See the
discussion above under the captions Results of Operations  Net Interest
Income and Results of Operations  Rate Sensitivity, Net Interest Margins
and Market Risk.

The average amounts (in thousands) of and the average rates paid on
deposits in each of 2001, 2000 and 1999 are summarized below:

|                                    |                |   |         |         |         |  |         |      |         |   |         |         |         |  |      |      |   |   |         |         |  |  |      |      |  
|----------------------------------- | -------------- | - | ------- | ------- | ------- |  | ------- | ---- | ------- | - | ------- | ------- | ------- |  | ---- | ---- | - | - | ------- | ------- |  |  | ---- | ---- | -
|                                    |                |   | 2001    |         | 2000    |  | 1999   
|                                    |                |   |         |         |         |  |        
|                                    |                |   | Average |         | Average |  | Average |      | Average |   | Average |         | Average
|                                    |                |   | Balance |         | Rate    |  | Balance |      | Rate    |   | Balance |         | Rate   
|                                    |                |   |         |         |         |  |         |      |         |   |         |         |        
|Noninterest bearing demand deposits |                | $ | 155,828 |         |         |  |        |      |         | $ | 142,132 |         |         |  |     |      |   | $ | 141,554 |         |  |  |     |     
|Savings Deposits(1)                 |                |   | 201,183 |         |         |  | 1.86    | %    |         |   | 179,465 |         |         |  | 2.59 | %    |   |   | 184,122 |         |  |  | 2.35 | %   
|Time Deposits(2)                    |                |   | 108,989 |         |         |  | 4.85    | %    |         |   | 111,405 |         |         |  | 5.71 | %    |   |   | 88,848  |         |  |  | 4.48 | %   
|                                    |                |   |         |         |         |  |         |      |         |   |         |         |         |  |      |      |   |   |         |         |  |  |      |     
|                                    | Total Deposits |   | $       | 466,000 |         |  |         | 1.94 | %       |   | $       | 433,002 |         |  |      | 2.54 | % |   | $       | 414,524 |  |  |      | 2.00 | %
|                                    |                |   |         |         |         |  |         |      |         |   |         |         |         |  |      |      |   |   |         |         |  |  |      |     



---

|(1) |  | Includes NOW, Super NOW, and Money Market Deposit Accounts.                                
|--- |  | -------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes time certificates of deposit in denominations greater than and
less than $100,000.

Set forth below is a maturity schedule of domestic time
certificates of deposits of $100,000 or more (with amounts stated in
thousands) as of December 31, 2001:

|                               |  |   |        | 
|------------------------------ |  | - | ------ | 
|Three Months or Less           |  | $ | 18,470 | 
|Over Three through Six Months  |  |   | 8,105  | 
|Over Six through Twelve Months |  |   | 9,140  | 
|Over Twelve Months             |  |   | 1,034  | 
|                               |  |   |        | 
|                               |  | $ | 36,749 | 
|                               |  |   |        | 

Liquidity Management. Liquidity management policies attempt 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 conformity
with those policies, we maintain a number of short-term sources of funds to
meet periodic increases in loan demand and deposit withdrawals and maturities.
At December 31, 2001, the principal sources of liquidity consisted of
$21,772,000 in cash and demand balances due from other banks and $8,475,000 of
Federal funds sold, which together totaled $30,247,000. Other sources of
liquidity include $59,959,000 in securities available for sale, of which
approximately $2,007,000 mature within one year; $3,775,000 in securities held
to maturity which mature within one year; and $13,258,000 in interest-bearing
deposits at other financial institutions, which mature in 6 months or less.
In addition, substantially all of the Banks installment loans and leases, the
amount of which aggregated $5,587,000 at December 31, 2001, require regular
installment payments from customers, providing us with a steady flow of cash
funds.

We also maintain a line of credit from the Federal Home Loan Bank, the
amount of which was $21,000,000 as of December 31, 2001, but which we
increased to $30,000,0000 during the first quarter of the current year.
Borrowings under that credit line are secured by a pledge of some of our
outstanding loans. We also have established loan facilities that would enable
us to borrow up to $13,000,000 of Federal funds from other banks and we have
an account with the Federal Reserve Bank of San Francisco that will also allow
us to borrow at its discount window should the need arise. Finally, if
necessary, we could obtain additional cash by means of sales of time
certificates of deposits 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 deposits.

In late December of 2001 we borrowed $19,000,000 under the Federal Home
Loan Bank credit line to fund increases in loans and seasonal withdrawals of
demand and savings deposits which typically occur during the holiday season.
We repaid those borrowings in their entirety at the end of January 2002. We
expect that we will make use of that credit line and other loan facilities in
future periods primarily to fund to short term cash requirements during
periods of either significant loan growth or increased deposit withdrawals.

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

26



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##### Table of Contents



Capital Resources. In 1998 the Board of Directors authorized an open
market stock repurchase program to be funded out of earnings. Between the
commencement of that program in late 1998 and its completion in May of 2001,
we purchased a total of 976,588 shares of our common stock, in open market and
private transactions, for an aggregate price of approximately $11,970,000. In
addition, in September of 1999 our Board adopted a cash dividend policy which
provides for the Company to pay quarterly cash dividends, currently $.10 per
share. We declared our tenth consecutive quarterly cash dividend, pursuant to
that policy, in January of 2002, which will be paid on February 28, 2002 to
shareholders of record as of February 13, 2002.

It has been and continues to be the objective of our Board of Directors
to retain earnings that are needed to meet capital requirements under
applicable government regulations and to support our growth. As a result, the
Board may change the amount or frequency of cash dividends to the extent that
it deems necessary or appropriate to achieve these objectives. For example
the retention of earnings in previous years enabled us to fund the opening of
four new banking offices and extend the Banks market areas, all of which have
contributed to our increased profitability and the maintenance of our capital
adequacy ratios well above regulatory requirements.

We continue to evaluate and explore opportunities to expand 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. We believe that mergers and consolidations of
independent banks that have occurred have created opportunities for us to
increase our market share in those areas. We have taken advantage of those
opportunities within our existing market areas and have established a
substantial number of new customer relationships and increased the volume of
our demand, savings and money market deposit balances obtained largely from
customers of the merged banks who were disaffected by the quality of services
they were receiving. We also opened a branch banking office in the city of
Temecula, California, in late December of 2000, which is our 12th banking
office, and we believe that there are still additional expansion and growth
opportunities that we will seek to take advantage of in 2002.

Federal banking agencies require 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 assets, referred to as the
leverage ratio. For a banking organization rated in the highest of the five
categories used by regulators to rate banking organizations, the minimum
leverage ratio of Tier 1 capital to total assets must be 3%. In addition to
these uniform risk-based capital guidelines and leverage ratios that apply
across the industry, federal bank regulatory agencies have the discretion to
set individual minimum capital requirements for specific institutions at rates
significantly above the minimum guidelines and ratios.

The risk-based capital ratio is determined by weighting our assets in
accordance with certain risk factors and, the higher the risk profile the
assets, the greater is the amount of capital that is required to maintain an
adequate risk-based capital ratio, which generally is at least 8%. The Tier 1
capital and Tier 1 risk-based capital ratios of the Bank compare favorably with
those of the Peer Group Banks and exceed minimum regulatory requirements.

Additionally, the level of supervision to which a bank will be subject by
federal bank regulatory authorities will depend largely on extent to which a
bank meets or exceeds federally mandated leverage capital ratios. A bank that
maintains a leverage capital ratio of 5% or more will generally be categorized
by federal bank regulatory agencies as well capitalized and, therefore, as a
general matter will be subject to less extensive regulatory supervision than
banks with lower leverage capital ratios

The following table compares, as of December 31, 2001, the actual capital
ratios of the Bank to the capital ratios that the Bank is required to meet
under applicable banking regulations:

|                                       |  |        |      |                   |  |                     |     |                   |  |  |      |  
|-------------------------------------- |  | ------ | ---- | ----------------- |  | ------------------- | --- | ----------------- |  |  | ---- | -
|                                       |  |        |      |                   |  | For Capital         |     | To Be Categorized
|                                       |  | Actual |      | Adequacy Purposes |  | as Well Capitalized
|                                       |  |        |      |                   |  |                    
|Total Capital to Risk Based Assets     |  |        | 12.3 | %                 |  |                     | 8.0 | %                 |  |  | 10.0 | %
|
|Tier 1 Capital to Risk Weighted Assets |  |        | 11.3 | %                 |  |                     | 4.0 | %                 |  |  | 6.0  | %
|Tier 1 Capital to Average Assets       |  |        | 9.3  | %                 |  |                     | 4.0 | %                 |  |  | 5.0  | %

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##### Table of Contents



Under accounting principles that address the financial reporting
requirements for investments in certain equity and debt securities held by
financial institutions, any unrealized gain on such securities is required to
be credited to, and any unrealized losses are required to be charged against,
stockholders equity. At December 31, 2001, we recorded valuation reserve for
unrealized gains on such securities aggregating approximately $77,000.

Forward Looking Information and Uncertainties Regarding Future Performance

Statements contained in this Annual Report that are not historical facts
or that discuss our expectations or beliefs about our future financial
performance (including statements concerning business or financial trends) are
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Our actual financial results in future periods may
differ, possibly materially, from those forecast, or identified as expected or
anticipated, in this Annual Report due to a number of risks and uncertainties.
In addition to the risks and uncertainties discussed above in this Section of
the Report entitled Managements Discussion and Analysis of Financial
Condition and Results of Operation, such risks and uncertainties include,
although they are not limited to, 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 the
Bank to reduce interest rates and loan fees to attract new loans or to
increase interest rates that it offers on time deposits, either or both of
which could, in turn, reduce interest income and net interest margins.

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

Possible Adverse Changes in National Economic Conditions and Federal
Reserve Monetary Policies. Changes in national economic conditions, such as
increases in inflation or declines in economic output often prompt changes in
Federal Reserve Board monetary policies that could increase the cost of funds
to us or reduce yields on interest earning assets and, thereby, reduce net
interest margins. As discussed above, in 2001 the Federal Reserve Board
lowered market rates of interest to stimulate the national economy. Those
reductions caused a decline in our net interest margins and could continue to
do so in the future.

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

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

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

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

The table below sets forth information concerning the interest rate
sensitivity of our consolidated assets and liabilities as of December 31,
2001. Assets and liabilities are classified by the earliest possible
repricing date or maturity, whichever comes first.

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

|                                          |              |   |                        |         |         |   |            |        |          |   |          |         |       |   |         |         |  |   |          |        |  |   |         |         | 
|----------------------------------------- | ------------ | - | ---------------------- | ------- | ------- | - | ---------- | ------ | -------- | - | -------- | ------- | ----- | - | ------- | ------- |  | - | -------- | ------ |  | - | ------- | ------- | 
|                                          |              |   |                        |         |         |   | Over Three |        | Over One |   |          |         |       |   |         |         |  |   |          |        | 
|                                          |              |   | Three                  |         | Through |   | Year       |        | Over     |   | Non-     |         |       |   |        
|                                          |              |   | Months                 |         | Twelve  |   | Through    |        | Five     |   | Interest |         |       |   |        
|                                          |              |   | or Less                |         | Months  |   | Five Years |        | Years    |   | Bearing  |         | Total
|                                          |              |   |                        |         |         |   |            |        |          |   |          |         |      
|                                          |              |   | (Dollars in Thousands) |         |         |   |            |        |          |   |         
|Assets                                    |              |   |                        |         |         |   |            |        |          |   |          |         |       |   |         |         |  |   |          |        |  |   |         |        
|Interest-bearing deposits in banks        |              | $ | 9,994                  |         |         | $ | 3,264      |        |          | $ |         |         |       | $ |        |         |  | $ |         |        |  | $ | 13,258  |        
|Investment securities                     |              |   | 7,863                  |         |         |   | 1,329      |        |          |   | 54,315   |         |       |   | 16,236  |         |  |   | 1,179    |        |  |   | 80,922  |        
|Federal Funds Sold                        |              |   | 8,475                  |         |         |   |           |        |          |   |         |         |       |   |        |         |  |   |         |        |  |   | 8,475   |        
|Net loans                                 |              |   | 84,967                 |         |         |   | 18,892     |        |          |   | 86,053   |         |       |   | 214,288 |         |  |   |         |        |  |   | 404,200 |        
|Noninterest-earning assets                |              |   |                       |         |         |   |           |        |          |   |         |         |       |   |        |         |  |   | 43,286   |        |  |   | 43,286  |        
|                                          |              |   |                        |         |         |   |            |        |          |   |          |         |       |   |         |         |  |   |          |        |  |   |         |        
|                                          | Total assets |   | $                      | 111,299 |         |   | $          | 23,485 |          |   | $        | 140,368 |       |   | $       | 230,524 |  |   | $        | 44,465 |  |   | $       | 550,141 | 
|                                          |              |   |                        |         |         |   |            |        |          |   |          |         |       |   |         |         |  |   |          |        |  |   |         |        
|Liabilities and Stockholders Equity:     |              |   |                        |         |         |   |            |        |          |   |          |         |       |   |         |         |  |   |          |        |  |   |         |        
|Noninterest-bearing deposits              |              | $ |                       |         |         | $ |           |        |          | $ |         |         |       | $ |        |         |  | $ | 161,837  |        |  | $ | 161,837 |        
|Interest-bearing deposits                 |              |   | 264,719                |         |         |   | 45,273     |        |          |   | 3,546    |         |       |   | 15      |         |  |   |         |        |  |   | 313,553 |        
|Short-term borrowings                     |              |   | 19,000                 |         |         |   |           |        |          |   |         |         |       |   |        |         |  |   |         |        |  |   | 19,000  |        
|Long-term borrowings                      |              |   |                       |         |         |   |           |        |          |   |         |         |       |   |        |         |  |   |         |        |  |   |        |        
|Other liabilities                         |              |   |                       |         |         |   |           |        |          |   |         |         |       |   |        |         |  |   | 3,899    |        |  |   | 3,899   |        
|Stockholders equity                      |              |   |                       |         |         |   |           |        |          |   |         |         |       |   |        |         |  |   | 51,852   |        |  |   | 51,852  |        
|                                          |              |   |                        |         |         |   |            |        |          |   |          |         |       |   |         |         |  |   |          |        |  |   |         |        
|Total liabilities and
stockholders equity |              | $ | 283,719                |         |         | $ | 45,273     |        |          | $ | 3,546    |         |       | $ | 15      |         |  | $ | 217,588  |        |  | $ | 550,141 |        
|                                          |              |   |                        |         |         |   |            |        |          |   |          |         |       |   |         |         |  |   |          |        |  |   |         |        
|Interest rate sensitivity gap             |              | $ | (172,420               | )       |         | $ | (21,788    | )      |          | $ | 136,822  |         |       | $ | 230,509 |         |  | $ | (173,123 | )      |  | $ |        |        
|                                          |              |   |                        |         |         |   |            |        |          |   |          |         |       |   |         |         |  |   |          |        |  |   |         |        
|Cumulative interest rate
sensitivity gap  |              | $ | (172,420               | )       |         | $ | (194,208   | )      |          | $ | (57,386  | )       |       | $ | 173,123 |         |  | $ |         |        |  |   |         |        
|                                          |              |   |                        |         |         |   |            |        |          |   |          |         |       |   |         |         |  |   |          |        |  |   |         |        

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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.

|                  |  |                 |       |              |  |                        |         |  |  |   |         | 
|----------------- |  | --------------- | ----- | ------------ |  | ---------------------- | ------- |  |  | - | ------- | 
|                  |  | ESTIMATED NET   |       | MARKET VALUE
|SIMULATED         |  | INTEREST INCOME |       |             
|RATE CHANGES      |  | SENSITIVITY     |       | ASSETS       |  | LIABILITIES           
|                  |  |                 |       |              |  |                       
|                  |  |                 |       |              |  | (Dollars in Thousands)
|+100
basis points |  |                 | -5.90 | %            |  | $                      | 530,875 |  |  | $ | 476,539 | 
|+300
basis points |  |                 | 13.80 | %            |  | $                      | 513,429 |  |  | $ | 475,516 | 
|-100
basis points |  |                 | 4.99  | %            |  | $                      | 550,681 |  |  | $ | 477,586 | 
|-300
basis points |  |                 | 2.55  | %            |  | $                      | 573,414 |  |  | $ | 475,420 | 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

| |                                                |                                                                                                                  |  |     
| | ---------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- |  | ----
| |                                                |                                                                                                                  |  | Page
| |                                                |                                                                                                                  |  |     
| | Foothill Independent Bancorp and Subsidiaries: |                                                                                                                  | 
| |                                                | Independent Auditors Report.                                                                                    |  | 32  
| |                                                | Consolidated Balance Sheets at December 31, 2001 and 2000.                                                       |  | 33  
| |                                                | Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999.                          |  | 34  
| |                                                | Consolidated Statements of Changes in Stockholders Equity for
the Years Ended December 31, 2001, 2000 and 1999. |  | 35  
| |                                                | Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999.                      |  | 36  
| |                                                | Notes to Consolidated Financial Statements.                                                                      |  | 38  

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Independent Auditors Report

Board of Directors and Stockholders
Foothill Independent Bancorp and Subsidiaries
Glendora, California

We have audited the accompanying consolidated balance sheets of Foothill
Independent Bancorp and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income and changes in stockholders equity
and statements of cash flows for the three years ended December 31, 2001.
These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Foothill
Independent Bancorp and Subsidiaries as of December 31, 2001 and 2000, and the
results of its operations and cash flows for the three years ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States of America.

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

Vavrinek, Trine, Day & Co., LLP
Rancho Cucamonga, California
January 25, 2002

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000

|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |        |         |   |         | 
|--------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ------------------------------------ | ------------------------------------------ | ------- | ---------------------- | ------- | ------ | ------- | - | ------- | 
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         | 2001                   |         | 2000  
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         | (Dollars in thousands)
|                                                          |                                                                                                                                                       |                                          |                                      | ASSETS                                     |         |                        |         |        |         |   |         | 
|Cash and due from banks                                   |                                                                                                                                                       | $                                        | 21,772                               |                                            |         | $                      | 26,186  |       
|Federal funds sold                                        |                                                                                                                                                       |                                          | 8,475                                |                                            |         |                        | 12,000  |       
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          |                                                                                                                                                       | Total Cash and Cash Equivalents          |                                      |                                            | 30,247  |                        |         |        | 38,186  |  
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|Interest-bearing deposits in other financial institutions |                                                                                                                                                       |                                          | 13,258                               |                                            |         |                        | 8,005   |       
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|Investment securities held-to-maturity                    |                                                                                                                                                       |                                          | 13,055                               |                                            |         |                        | 20,742  |       
|Investment securities available-for-sale                  |                                                                                                                                                       |                                          | 66,688                               |                                            |         |                        | 50,074  |       
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          |                                                                                                                                                       | Total Investments                        |                                      |                                            | 79,743  |                        |         |        | 70,816  |  
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|Federal Home Loan Bank stock, at cost                     |                                                                                                                                                       |                                          | 950                                  |                                            |         |                        | 415     |       
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|Loans, net of unearned income                             |                                                                                                                                                       |                                          | 407,078                              |                                            |         |                        | 367,310 |       
|Direct lease financing                                    |                                                                                                                                                       |                                          | 1,328                                |                                            |         |                        | 1,164   |       
|Allowance for Loan Losses                                 |                                                                                                                                                       |                                          | (4,206                               | )                                          |         |                        | (3,692) |       
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          |                                                                                                                                                       | Total Loans                              |                                      |                                            | 404,200 |                        |         |        | 364,782 |  
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|Premises and equipment                                    |                                                                                                                                                       |                                          | 6,322                                |                                            |         |                        | 7,013   |       
|Other real estate owned                                   |                                                                                                                                                       |                                          | 2,182                                |                                            |         |                        | 2,164   |       
|Cash surrender value of life insurance                    |                                                                                                                                                       |                                          | 6,167                                |                                            |         |                        | 5,639   |       
|Deferred tax assets                                       |                                                                                                                                                       |                                          | 1,975                                |                                            |         |                        | 1,801   |       
|Federal Reserve Bank stock, at cost                       |                                                                                                                                                       |                                          | 229                                  |                                            |         |                        | 229     |       
|Accrued interest and other assets                         |                                                                                                                                                       |                                          | 4,868                                |                                            |         |                        | 6,775   |       
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          |                                                                                                                                                       |                                          |                                      | TOTAL ASSETS                               |         | $                      | 550,141 |        |         | $ | 505,825 | 
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          |                                                                                                                                                       |                                          | LIABILITIES AND STOCKHOLDERS EQUITY |                                            |         |                        |         |        |         |   |        
|Liabilities                                               |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          |                                                                                                                                                       | Demand deposits                          |                                      | $                                          | 161,837 |                        |         | $      | 146,868 |  
|                                                          |                                                                                                                                                       | Savings and NOW deposits                 |                                      |                                            | 117,100 |                        |         |        | 106,618 |  
|                                                          |                                                                                                                                                       | Money market deposits                    |                                      |                                            | 100,482 |                        |         |        | 74,424  |  
|                                                          |                                                                                                                                                       | Time deposits $100,000 or over           |                                      |                                            | 36,749  |                        |         |        | 58,801  |  
|                                                          |                                                                                                                                                       | Time deposits under $100,000             |                                      |                                            | 59,222  |                        |         |        | 67,330  |  
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          |                                                                                                                                                       |                                          |                                      | Total Deposits                             |         |                        | 475,390 |        |         |   | 454,041 | 
|                                                          |                                                                                                                                                       | Accrued employee benefits                |                                      |                                            | 2,516   |                        |         |        | 2,197   |  
|                                                          |                                                                                                                                                       | Accrued interest and other liabilities   |                                      |                                            | 20,383  |                        |         |        | 1,324   |  
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          |                                                                                                                                                       |                                          |                                      | Total Liabilities                          |         |                        | 498,289 |        |         |   | 457,562 | 
|                                                          |                                                                                                                                                       | Commitments and Contingencies  Note #18 |                                      |                                            |         |                        |         |        |         |  
|Stockholders Equity                                      |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          | Common Stock  authorized, 25,000,000 shares $.001
par value; issued and outstanding, 5,514,363 shares
in 2001 and 5,243,863 shares in 2000           |                                          |                                      | 6                                          |         |                        |         | 5      |        
|                                                          | Additional paid-in capital                                                                                                                            |                                          |                                      | 42,892                                     |         |                        |         | 37,754 |        
|                                                          | Retained earnings                                                                                                                                     |                                          |                                      | 8,877                                      |         |                        |         | 10,746 |        
|                                                          | Accumulated other comprehensive income  Net
unrealized gains (losses) on available for sale
securities, net of taxes of $37 in 2001 and $168 in
2000 |                                          |                                      | 77                                         |         |                        |         | (242   | )      
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          |                                                                                                                                                       |                                          |                                      | Total Stockholders Equity                 |         |                        | 51,852  |        |         |   | 48,263  | 
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       
|                                                          |                                                                                                                                                       |                                          |                                      | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |         | $                      | 550,141 |        |         | $ | 505,825 | 
|                                                          |                                                                                                                                                       |                                          |                                      |                                            |         |                        |         |       

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

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |        |       | 
|------------------------- | -------------------------------------------------- | --------------------------------------------------- | ---------- | ------ | ------------------------------------------------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | 
|                          |                                                    |                                                     |            |        | 2001                                             |       | 2000   |        | 1999  
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |       
|                          |                                                    |                                                     |            |        | (dollars in thousands, except per share amounts)
|Interest Income           |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |       
|                          | Interest and fees on loans                         |                                                     | $          | 31,720 |                                                  |       | $      | 33,928 |        |       | $      | 29,209 |       
|                          | Interest on Investment Securities                  |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|                          |                                                    | Taxable                                             |            |        | 3,313                                            |       |        |        | 3,733  |       |        |        | 4,454  |      
|                          |                                                    | Exempt from federal taxes                           |            |        | 275                                              |       |        |        | 317    |       |        |        | 347    |      
|                          | Interest on deposits                               |                                                     |            | 564    |                                                  |       |        | 273    |        |       |        | 849    |       
|                          | Interest on federal funds sold                     |                                                     |            | 808    |                                                  |       |        | 652    |        |       |        | 520    |       
|                          | Lease financing income exempt from federal taxes   |                                                     |            | 56     |                                                  |       |        | 80     |        |       |        | 172    |       
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|                          |                                                    | Total Interest Income                               |            |        | 36,736                                           |       |        |        | 38,983 |       |        |        | 35,551 |      
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|Interest Expense          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |       
|                          | Interest on savings, NOW and money market deposits |                                                     |            | 3,743  |                                                  |       |        | 4,646  |        |       |        | 4,325  |       
|                          | Interest on time deposits over $100,000            |                                                     |            | 2,225  |                                                  |       |        | 2,695  |        |       |        | 1,530  |       
|                          | Interest on time deposits under $100,000           |                                                     |            | 3,057  |                                                  |       |        | 3,665  |        |       |        | 2,452  |       
|                          | Interest on borrowings                             |                                                     |            | 5      |                                                  |       |        | 97     |        |       |        | 26     |       
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|                          | Total Interest Expense                             |                                                     |            | 9,030  |                                                  |       |        | 11,103 |        |       |        | 8,333  |       
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|                          |                                                    | Net Interest Income                                 |            |        | 27,706                                           |       |        |        | 27,880 |       |        |        | 27,218 |      
|Provision for Loan Losses |                                                    |                                                     | (498       | )      |                                                  |       | (1,070 | )      |        |       | (485   | )     
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|                          |                                                    | Net Interest Income after Provision for Loan Losses |            |        | 27,208                                           |       |        |        | 26,810 |       |        |        | 26,733 |      
|Non Interest Income       |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |       
|                          |                                                    | Services fees                                       |            |        | 5,231                                            |       |        |        | 4,487  |       |        |        | 4,346  |      
|                          |                                                    | Gain on sale of SBA loans                           |            |        | 24                                               |       |        |        | 31     |       |        |        | 115    |      
|                          |                                                    | Other                                               |            |        | 159                                              |       |        |        | 86     |       |        |        | 60     |      
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|                          |                                                    |                                                     | 5,414      |        |                                                  |       | 4,604  |        |        |       | 4,521  |       
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|Non Interest Expense      |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |       
|                          |                                                    | Salaries and employee benefits                      |            |        | 10,454                                           |       |        |        | 9,579  |       |        |        | 9,984  |      
|                          |                                                    | Net occupancy expense of premises                   |            |        | 2,488                                            |       |        |        | 2,229  |       |        |        | 2,131  |      
|                          |                                                    | Furniture and equipment expenses                    |            |        | 1,550                                            |       |        |        | 1,544  |       |        |        | 1,647  |      
|                          |                                                    | Other expenses                                      |            |        | 7,354                                            |       |        |        | 7,442  |       |        |        | 7,580  |      
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|                          |                                                    |                                                     | 21,846     |        |                                                  |       | 20,794 |        |        |       | 21,342 |       
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|                          |                                                    | Income Before Income Taxes                          |            |        | 10,776                                           |       |        |        | 10,620 |       |        |        | 9,912  |      
|Income Taxes              |                                                    |                                                     | 3,926      |        |                                                  |       | 3,920  |        |        |       | 3,662  |       
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|                          |                                                    |                                                     | NET INCOME |        | $                                                | 6,850 |        |        | $      | 6,700 |        |        | $      | 6,250 | 
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|Earnings Per Share        |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |       
|                          |                                                    | Basic                                               |            | $      | 1.24                                             |       |        | $      | 1.15   |       |        | $      | 0.99   |      
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       
|                          |                                                    | Diluted                                             |            | $      | 1.18                                             |       |        | $      | 1.10   |       |        | $      | 0.93   |      
|                          |                                                    |                                                     |            |        |                                                  |       |        |        |        |       |        |        |       

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

34



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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, 2001, 2000 AND 1999

|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        |        |   | 
|-------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------- | --------- | ---------------- | - | ------ | - | ------- |  | ------------- | ------ | ---------------------- |  | ------------- |  | ----- | ----- | - | ------ | ------ | - | ----- | ---- | ----------- | - | - | ------ | ------ | - | 
|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      | Accumulated |   |   |        |       
|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        | Additional             |  |               |  |       |       |   |        |        |   | Other |      |             |   |  
|                           |                                                                                                    |                            |           | Number of Shares |   | Common |   | Paid-in |  | Comprehensive |        | Retained               |  | Comprehensive |  |       |       |  
|                           |                                                                                                    |                            |           | Outstanding      |   | Stock  |   | Capital |  | Income        |        | Earnings               |  | Income        |  | Total
|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |      
|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        | (dollars in thousands) |  |               |  |       |       |   |        |        |   |       |      |            
|Balance, January 1, 1999   |                                                                                                    |                            | 5,985,242 |                  |   | $      | 5 |         |  | $             | 37,015 |                        |  |               |  |       |       | $ | 11,516 |        |   | $     | (157 | )           |   | $ | 48,379 |       
|                           | Cash dividend                                                                                      |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        | (2,408 | ) |       |      |             |   |   |        | (2,408 | )
|                           | Exercise of stock options                                                                          |                            |           | 17,579           |   |        |   |         |  |               |        | 124                    |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        | 124    |  
|                           | Common stock issued under employee
benefit and dividend reinvestment and
optional investment plans |                            |           | 17,035           |   |        |   |         |  |               |        | 234                    |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        | 234    |  
|                           | Common stock repurchased, cancelled
and retired                                                    |                            |           | (247,242         | ) |        |   |         |  |               |        |                        |  |               |  |       |       |   |        | (3,460 | ) |       |      |             |   |   |        | (3,460 | )
|Comprehensive income:      |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        |       
|                           | Net income                                                                                         |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  | 6,250 |       |   |        | 6,250  |   |       |      |             |   |   |        | 6,250  |  
|                           | Net unrealized holding losses on
available-for-sale securities (Net of
taxes of $305)              |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  | (680  | )     |   |        |        |   |       |      | (680        | ) |   |        | (680   | )
|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        |       
|                           |                                                                                                    | Total Comprehensive Income |           |                  |   |        |   |         |  |               |        |                        |  |               |  | $     | 5,570 |   |        |        |   |       |      |             |   |   |        |        |   | 
|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        |       
|Balance, December 31, 1999 |                                                                                                    |                            | 5,772,614 |                  |   |        | 5 |         |  |               | 37,373 |                        |  |               |  |       |       |   | 11,898 |        |   |       | (837 | )           |   |   | 48,439 |       
|                           | Cash dividend                                                                                      |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        | (1,383 | ) |       |      |             |   |   |        | (1,383 | )
|                           | Exercise of stock options                                                                          |                            |           | 4,048            |   |        |   |         |  |               |        | 24                     |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        | 24     |  
|                           | Common stock issued under employee
benefit and dividend reinvestment and
optional investment plans |                            |           | 36,079           |   |        |   |         |  |               |        | 357                    |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        | 357    |  
|                           | Common stock repurchased, cancelled
and retired                                                    |                            |           | (568,878         | ) |        |   |         |  |               |        |                        |  |               |  |       |       |   |        | (6,469 | ) |       |      |             |   |   |        | (6,469 | )
|Comprehensive income:      |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        |       
|                           | Net income                                                                                         |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  | 6,700 |       |   |        | 6,700  |   |       |      |             |   |   |        | 6,700  |  
|                           | Net unrealized holding gains on
available-for-sale securities (Net of
taxes of $240)               |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  | 595   |       |   |        |        |   |       |      | 595         |   |   |        | 595    |  
|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        |       
|                           |                                                                                                    | Total Comprehensive Income |           |                  |   |        |   |         |  |               |        |                        |  |               |  | $     | 7,295 |   |        |        |   |       |      |             |   |   |        |        |   | 
|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        |       
|Balance, December 31, 2000 |                                                                                                    |                            | 5,243,863 |                  |   |        | 5 |         |  |               | 37,754 |                        |  |               |  |       |       |   | 10,746 |        |   |       | (242 | )           |   |   | 48,263 |       
|                           | 7% stock dividend                                                                                  |                            |           | 361,421          |   |        |   | 1       |  |               |        | 4,626                  |  |               |  |       |       |   |        | (4,627 | ) |       |      |             |   |   |        |       |  
|                           | Cash paid in lieu of fractional shares                                                             |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        | (7     | ) |       |      |             |   |   |        | (7     | )
|                           | Cash dividend                                                                                      |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        | (2,177 | ) |       |      |             |   |   |        | (2,177 | )
|                           | Exercise of stock options                                                                          |                            |           | 38,417           |   |        |   |         |  |               |        | 224                    |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        | 22     |  
|                           | Common stock issued under employee
benefit and dividend reinvestment and
optional investment plans |                            |           | 22,130           |   |        |   |         |  |               |        | 288                    |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        | 288    |  
|                           | Common stock repurchased, cancelled
and retired                                                    |                            |           | (151,468         | ) |        |   |         |  |               |        |                        |  |               |  |       |       |   |        | (1,908 | ) |       |      |             |   |   |        | (1,908 | )
|Comprehensive income:      |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        |       
|                           | Net income                                                                                         |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  | 6,850 |       |   |        | 6,850  |   |       |      |             |   |   |        | 6,850  |  
|                           | Net unrealized holding gains on
available-for-sale securities (Net of
taxes of $43)                |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  | 319   |       |   |        |        |   |       |      | 319         |   |   |        | 319    |  
|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        |       
|                           |                                                                                                    | Total Comprehensive Income |           |                  |   |        |   |         |  |               |        |                        |  |               |  | $     | 7,169 |   |        |        |   |       |      |             |   |   |        |        |   | 
|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        |       
|Balance, December 31, 2001 |                                                                                                    |                            | 5,514,363 |                  |   | $      | 6 |         |  | $             | 42,892 |                        |  |               |  |       |       | $ | 8,877  |        |   | $     | 77   |             |   | $ | 51,852 |       
|                           |                                                                                                    |                            |           |                  |   |        |   |         |  |               |        |                        |  |               |  |       |       |   |        |        |   |       |      |             |   |   |        |       

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

35



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##### Table of Contents






FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

|                                                     |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |            |         |  
|---------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------------ | ------ | ---------------------- | ------- | ---- | ------ | ---------- | ------- | - | ------- | ---------- | ------- | -
|                                                     |                                                                         |                                                  |        | 2001                   |         | 2000 |        | 1999      
|                                                     |                                                                         |                                                  |        |                        |         |      |        |           
|                                                     |                                                                         |                                                  |        | (dollars in thousands)
|Cash Flows From Operating Activities                 |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |           
|                                                     | Interest and fees received                                              |                                                  | $      | 37,238                 |         |      | $      | 38,405     |         |   | $       | 35,326     |        
|                                                     | Service fees and other income received                                  |                                                  |        | 4,814                  |         |      |        | 3,952      |         |   |         | 4,105      |        
|                                                     | Financing revenue received under leases                                 |                                                  |        | 56                     |         |      |        | 80         |         |   |         | 172        |        
|                                                     | Interest paid                                                           |                                                  |        | (9,379                 | )       |      |        | (10,783    | )       |   |         | (8,463     | )      
|                                                     | Cash paid to suppliers and employees                                    |                                                  |        | (18,107                | )       |      |        | (22,478    | )       |   |         | (19,909    | )      
|                                                     | Income taxes paid                                                       |                                                  |        | (4,033                 | )       |      |        | (3,554     | )       |   |         | (3,881     | )      
|                                                     |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |            |        
|                                                     |                                                                         | Net Cash Provided By Operating Activities        |        |                        | 10,589  |      |        |            | 5,622   |   |         |            | 7,350   |  
|                                                     |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |            |        
|Cash Flows From Investing Activities                 |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |           
|                                                     | Proceeds from maturity of held-to-maturity securities                   |                                                  |        | 13,806                 |         |      |        | 2,140      |         |   |         | 11,563     |        
|                                                     | Purchase of held-to-maturity securities                                 |                                                  |        | (6,116                 | )       |      |        | (193       | )       |   |         | (6,041     | )      
|                                                     | Proceeds from maturity of available-for-sale securities                 |                                                  |        | 3,544,927              |         |      |        | 1,815,301  |         |   |         | 2,110,841  |        
|                                                     | Purchase of available-for-sale securities                               |                                                  |        | (3,562,013             | )       |      |        | (1,824,370 | )       |   |         | (2,074,411 | )      
|                                                     | Proceeds from maturity of deposits in other financial institutions      |                                                  |        | 34,701                 |         |      |        | 13,962     |         |   |         | 40,580     |        
|                                                     | Purchase of deposits in other financial institutions                    |                                                  |        | (39,954                | )       |      |        | (14,048    | )       |   |         | (33,456    | )      
|                                                     | Net (increase) decrease in credit card and revolving credit receivables |                                                  |        | (154                   | )       |      |        | (300       | )       |   |         | 356        |        
|                                                     | Recoveries and deferred recoveries on loans previously written off      |                                                  |        | 75                     |         |      |        | 80         |         |   |         | 102        |        
|                                                     | Net increase in loans                                                   |                                                  |        | (39,711                | )       |      |        | (27,557    | )       |   |         | (53,181    | )      
|                                                     | Net (increase) decrease in leases                                       |                                                  |        | (164                   | )       |      |        | 1,177      |         |   |         | 1,363      |        
|                                                     | Capital expenditures                                                    |                                                  |        | (1,838                 | )       |      |        | (1,035     | )       |   |         | (1,130     | )      
|                                                     | Proceeds from sale of other real estate owned                           |                                                  |        |                       |         |      |        | 12         |         |   |         | 1,139      |        
|                                                     | Proceeds from sale of property, plant and equipment                     |                                                  |        | 1,094                  |         |      |        | 21         |         |   |         | 30         |        
|                                                     |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |            |        
|                                                     |                                                                         | Net Cash Used In Investing Activities            |        |                        | (55,347 | )    |        |            | (34,810 | ) |         |            | (2,245  | )
|                                                     |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |            |        
|Cash Flows From Financing Activities                 |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |           
|                                                     | Net increase (decrease) in deposits                                     |                                                  |        | 21,307                 |         |      |        | 56,802     |         |   |         | (18,960    | )      
|                                                     | Net increase (decrease) in short term borrowing                         |                                                  |        | 19,092                 |         |      |        | (8,800     | )       |   |         | 8,800      |        
|                                                     | Proceeds from exercise of stock options                                 |                                                  |        | 224                    |         |      |        | 24         |         |   |         | 124        |        
|                                                     | Proceeds from stock issuance                                            |                                                  |        | 288                    |         |      |        | 357        |         |   |         | 234        |        
|                                                     | Principal payments on long-term debt                                    |                                                  |        |                       |         |      |        | (19        | )       |   |         | (55        | )      
|                                                     | Dividends paid                                                          |                                                  |        | (2,184                 | )       |      |        | (1,383     | )       |   |         | (2,408     | )      
|                                                     | Stock repurchased and retired                                           |                                                  |        | (1,908                 | )       |      |        | (6,469     | )       |   |         | (3,460     | )      
|                                                     |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |            |        
|                                                     |                                                                         | Net Cash Provided (Used) By Financing Activities |        |                        | 36,819  |      |        |            | 40,512  |   |         |            | (15,725 | )
|                                                     |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |            |        
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                         |                                                  | (7,939 | )                      |         |      | 11,324 |            |         |   | (10,620 | )         
|Cash and Cash Equivalents, Beginning of Year         |                                                                         |                                                  | 38,186 |                        |         |      | 26,862 |            |         |   | 37,482  |           
|                                                     |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |            |        
|Cash and Cash Equivalents, End of Year               |                                                                         | $                                                | 30,247 |                        |         | $    | 38,186 |            |         | $ | 26,862  |           
|                                                     |                                                                         |                                                  |        |                        |         |      |        |            |         |   |         |            |        

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

36



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##### Table of Contents



FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, ContinuedFOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

|                                                                          |                                                                                  |                                                               |                                           |       |                        |        |      |       |        |        |   |       |       |       | 
|------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------------------------- | ----------------------------------------- | ----- | ---------------------- | ------ | ---- | ----- | ------ | ------ | - | ----- | ----- | ----- | 
|                                                                          |                                                                                  |                                                               |                                           |       | 2001                   |        | 2000 |       | 1999  
|                                                                          |                                                                                  |                                                               |                                           |       |                        |        |      |       |       
|                                                                          |                                                                                  |                                                               |                                           |       | (dollars in thousands)
|                                                                          |                                                                                  |                                                               |                                           |       |                       
|Reconciliation of Net Income to Net Cash
Provided By Operating Activities |                                                                                  |                                                               |                                           |       |                        |        |      |       |        |        |   |      
|                                                                          | Net Income                                                                       |                                                               | $                                         | 6,850 |                        |        | $    | 6,700 |        |        | $ | 6,250 |      
|                                                                          | Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities |                                                               |                                           |       |                        |        |      |       |        |        |   |       |      
|                                                                          |                                                                                  | Depreciation and amortization                                 |                                           |       | 1,364                  |        |      |       | 370    |        |   |       | 1,288 |      
|                                                                          |                                                                                  | Provision for possible credit losses                          |                                           |       | 498                    |        |      |       | 1,070  |        |   |       | 485   |      
|                                                                          |                                                                                  | Provision for possible OREO losses                            |                                           |       | 125                    |        |      |       | 42     |        |   |       | (23   | )    
|                                                                          |                                                                                  | Provision (credit) for deferred taxes                         |                                           |       | (174                   | )      |      |       | 611    |        |   |       | (26   | )    
|                                                                          |                                                                                  | (Gain) loss on sale of equipment                              |                                           |       | (72                    | )      |      |       | 2      |        |   |       | 3     |      
|                                                                          |                                                                                  | Gain on sale of other real estate owned                       |                                           |       |                       |        |      |       | (12    | )      |   |       |      |      
|                                                                          |                                                                                  | (Increase) decrease in other assets                           |                                           |       | 231                    |        |      |       | (104   | )      |   |       | (59   | )    
|                                                                          |                                                                                  | (Increase) decrease in interest receivable                    |                                           |       | 335                    |        |      |       | (319   | )      |   |       | (37   | )    
|                                                                          |                                                                                  | (Increase) decrease in discounts and premiums                 |                                           |       | 223                    |        |      |       | (179   | )      |   |       | (16   | )    
|                                                                          |                                                                                  | (Increase) decrease in prepaid expenses                       |                                           |       | 1,352                  |        |      |       | (1,167 | )      |   |       | (419  | )    
|                                                                          |                                                                                  | Increase in cash surrender value of life insurance            |                                           |       | (528                   | )      |      |       | (642   | )      |   |       | (419  | )    
|                                                                          |                                                                                  | Increase (decrease) in interest payable                       |                                           |       | (349                   | )      |      |       | 320    |        |   |       | (130  | )    
|                                                                          |                                                                                  | Increase (decrease) in taxes payable                          |                                           |       | 67                     |        |      |       | (245   | )      |   |       | 402   |      
|                                                                          |                                                                                  | Increase (decrease) in accrued expenses and other liabilities |                                           |       | 667                    |        |      |       | (825   | )      |   |       | 51    |      
|                                                                          |                                                                                  |                                                               |                                           |       |                        |        |      |       |        |        |   |       |      
|                                                                          |                                                                                  |                                                               | Total Adjustments                         |       |                        | 3,739  |      |       |        | (1,078 | ) |       |       | 1,100 | 
|                                                                          |                                                                                  |                                                               |                                           |       |                        |        |      |       |        |        |   |       |      
|                                                                          |                                                                                  |                                                               | Net Cash Provided By Operating Activities |       | $                      | 10,589 |      |       | $      | 5,622  |   |       | $     | 7,350 | 
|                                                                          |                                                                                  |                                                               |                                           |       |                        |        |      |       |        |        |   |       |      

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

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

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

Nature of Operations

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

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

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

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 and federal funds sold. Generally, federal funds are sold
for one day periods.

Cash and Due From Banks

Banking regulations require that all banks maintain a percentage of their
deposits as reserves in cash or on deposit with the Federal Reserve Bank. The
Bank complied with the reserve requirements as of December 31, 2001.

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, 2001, 2000 and 1999

Note #1  Summary of Significant Accounting Policies, Continued

Investment Securities, Continued

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

Loans and Interest on Loans

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

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

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

Provision for Loan Losses

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

Direct Lease Financing

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

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

Note #1  Summary of Significant Accounting Policies, Continued

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).

Other Real Estate Owned

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

Loan Sales and Servicing

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

Income Taxes

Deferred income taxes are computed using the asset and liability method, which
recognizes a liability or asset representing the tax effects, based on current
tax law, of future deductible or taxable amounts attributable to events that
have been recognized in the consolidated financial statements. A valuation
allowance is established to the extent necessary to reduce the deferred tax asset
to the level at which it is more likely than not that the tax asset or
benefits will be realized. Realization of tax benefits for deductible
temporary differences and operating loss carryforwards depends on having
sufficient taxable income of an appropriate character within the carryforward
periods. (See Note #16).

Comprehensive Income

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

Earnings Per Share (EPS)

Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Earnings per share and stock option
amounts have been retroactively restated to give effect to all stock dividends.
(See Note #17).

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

Note #1  Summary of Significant Accounting Policies, Continued

Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation,encourages, but does
not require, companies to record compensation costs for stock-based employee
compensation plans at fair value. The Bank has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. Accordingly, compensation
costs for stock options is measured as the excess, if any, of the quoted market
price of the Companys stock at the date of the grant over the amount an
employee must pay to acquire the stock. (See Note #10).

Disclosure About Fair Value of Financial Instruments

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

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

Although management is not aware of any factor that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the balance sheet
date and, therefore, current estimates of fair value may differ significantly
from the amounts presented in the accompanying notes (See Note #20).

Current Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 142, Accounting for
Goodwill and Other Intangible Assets, effective starting with fiscal years
beginning after December 15, 2001. This standard establishes new accounting
standards for goodwill and continues to require the recognition of goodwill as
an asset but does not permit amortization of goodwill as previously required by
the Accounting Principles Board Opinion (APB) Opinion No. 17. The standard
also establishes a new method of testing goodwill for impairment. It requires
goodwill to be separately tested for impairment at a reporting unit level. The
amount of goodwill determined to be impaired would be expensed to current
operations. Management believes that the adoption of the statement will not
have a material effect on the Companys financial statements. Amortization
expense charged to operations for 2001, 2000, and 1999 was $42,000, $42,000,
and $42,000, respectively. As of December 31, 2001, goodwill is fully
amortized.

Reclassifications

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

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

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, 2001
|                                   |                                   |   |                  
|                                   |                                   |   | Amortized         |        | Gross Unrealized |   | Gross Unrealized |     | Fair Value
|                                   |                                   |   | Cost              |        | Gains            |   | Losses           |     | (a)       
|                                   |                                   |   |                   |        |                  |   |                  |     |           
|U.S. Treasury Securities           |                                   | $ | 349               |        |                  | $ | 9                |     |            | $ |  |   |  | $ | 358   |       
|Other Government Agency Securities |                                   |   | 5,542             |        |                  |   | 80               |     |            |   |  |   |  |   | 5,622 |       
|Municipal Agencies                 |                                   |   | 4,853             |        |                  |   | 55               |     |            |   |  |   |  |   | 4,908 |       
|Other Securities                   |                                   |   | 2,311             |        |                  |   |                 |     |            |   |  |   |  |   | 2,311 |       
|                                   |                                   |   |                   |        |                  |   |                  |     |            |   |   |   |  |   |       |       
|                                   | Total Held-to-Maturity Securities |   | $                 | 13,055 |                  |   | $                | 144 |            |   | $ |  |  |   | $     | 13,199 | 
|                                   |                                   |   |                   |        |                  |   |                  |     |            |   |   |   |  |   |       |       

|                                   |                                   |   |                   |        |                  |   |                  |    |            |   |    |    |  |   |        |        | 
|---------------------------------- | --------------------------------- | - | ----------------- | ------ | ---------------- | - | ---------------- | -- | ---------- | - | -- | -- |  | - | ------ | ------ | 
|                                   |                                   |   | December 31, 2000
|                                   |                                   |   |                  
|                                   |                                   |   | Amortized         |        | Gross Unrealized |   | Gross Unrealized |    | Fair Value
|                                   |                                   |   | Cost              |        | Gains            |   | Losses           |    | (a)       
|                                   |                                   |   |                   |        |                  |   |                  |    |           
|U.S. Treasury Securities           |                                   | $ | 999               |        |                  | $ |                 |    |            | $ | 2  |    |  | $ | 997    |       
|Other Government Agency Securities |                                   |   | 16,379            |        |                  |   |                 |    |            |   | 51 |    |  |   | 16,328 |       
|Municipal Agencies                 |                                   |   | 1,053             |        |                  |   | 10               |    |            |   |   |    |  |   | 1,063  |       
|Other Securities                   |                                   |   | 2,311             |        |                  |   |                 |    |            |   |   |    |  |   | 2,311  |       
|                                   |                                   |   |                   |        |                  |   |                  |    |            |   |    |    |  |   |        |       
|                                   | Total Held-to-Maturity Securities |   | $                 | 20,742 |                  |   | $                | 10 |            |   | $  | 53 |  |   | $      | 20,699 | 
|                                   |                                   |   |                   |        |                  |   |                  |    |            |   |    |    |  |   |        |       

Available-For-Sale Securities

|                                  |                          |   |                   |        |                  |   |                  |     |            |   |     |     |  |   |        |        | 
|--------------------------------- | ------------------------ | - | ----------------- | ------ | ---------------- | - | ---------------- | --- | ---------- | - | --- | --- |  | - | ------ | ------ | 
|                                  |                          |   | December 31, 2001
|                                  |                          |   |                  
|                                  |                          |   | Amortized         |        | Gross Unrealized |   | Gross Unrealized |     | Fair Value
|                                  |                          |   | Cost              |        | Gains            |   | Losses           |     | (a)       
|                                  |                          |   |                   |        |                  |   |                  |     |           
|Government Agency Securities      |                          | $ | 59,803            |        |                  | $ | 358              |     |            | $ | 100 |     |  | $ | 60,061 |       
|Certificates of Participation (b) |                          |   | 2,765             |        |                  |   | 134              |     |            |   |    |     |  |   | 2,899  |       
|Municipal Agencies                |                          |   | 1,248             |        |                  |   | 9                |     |            |   |    |     |  |   | 1,257  |       
|Repurchase Agreement              |                          |   |                  |        |                  |   |                 |     |            |   |    |     |  |   |       |       
|Mortgage-Back Securities          |                          |   | 824               |        |                  |   |                 |     |            |   | 4   |     |  |   | 820    |       
|Other Securities                  |                          |   | 2,008             |        |                  |   |                 |     |            |   | 357 |     |  |   | 1,651  |       
|                                  |                          |   |                   |        |                  |   |                  |     |            |   |     |     |  |   |        |       
|                                  | Total Available-for-Sale |   | $                 | 66,648 |                  |   | $                | 501 |            |   | $   | 461 |  |   | $      | 66,688 | 
|                                  |                          |   |                   |        |                  |   |                  |     |            |   |     |     |  |   |        |       

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

Note #2  Investment Securities,Continued

Available-For-Sale Securities, Continued

|                                  |                          |   |                   |        |                  |   |                  |     |            |   |     |     |  |   |        |        | 
|--------------------------------- | ------------------------ | - | ----------------- | ------ | ---------------- | - | ---------------- | --- | ---------- | - | --- | --- |  | - | ------ | ------ | 
|                                  |                          |   | December 31, 2000
|                                  |                          |   |                  
|                                  |                          |   | Amortized         |        | Gross Unrealized |   | Gross Unrealized |     | Fair Value
|                                  |                          |   | Cost              |        | Gains            |   | Losses           |     | (a)       
|                                  |                          |   |                   |        |                  |   |                  |     |           
|Government Agency Securities      |                          | $ | 29,567            |        |                  | $ |                 |     |            | $ | 10  |     |  | $ | 29,557 |       
|Certificates of Participation (b) |                          |   | 3,640             |        |                  |   | 137              |     |            |   |    |     |  |   | 3,777  |       
|Municipal Agencies                |                          |   | 750               |        |                  |   | 3                |     |            |   |    |     |  |   | 753    |       
|Repurchase Agreement              |                          |   | 10,000            |        |                  |   |                 |     |            |   |    |     |  |   | 10,000 |       
|Mortgage-Back Securities          |                          |   | 357               |        |                  |   | 3                |     |            |   |    |     |  |   | 360    |       
|Other Securities                  |                          |   | 6,009             |        |                  |   | 4                |     |            |   | 386 |     |  |   | 5,627  |       
|                                  |                          |   |                   |        |                  |   |                  |     |            |   |     |     |  |   |        |       
|                                  | Total Available-for-Sale |   | $                 | 50,323 |                  |   | $                | 147 |            |   | $   | 396 |  |   | $      | 50,074 | 
|                                  |                          |   |                   |        |                  |   |                  |     |            |   |     |     |  |   |        |       



---

|(a) |  | The Banks portfolio of securities primarily consists of
investment-grade securities. The fair value of actively traded
securities is determined by the secondary market, while the fair value
for non-actively-traded securities is based on independent broker
quotations.                                                    
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | Non-rated certificates of participation evidencing ownership interest
in the California Statewide Communities Development Authority  San
Joaquin County Limited Obligation Bond Trust with book values of
$2,765,000 and $3,640,000 and market values of $2,899,000 and $3,777,000
at December 31, 2001 and 2000, respectively.

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

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

Securities with a book value of $11,025,000 and $13,075,000 and market value of
$11,306,000 and $13,073,000 at December 31, 2001 and 2000, respectively, were
pledged to secure public deposits and for other purposes as required or
permitted by law.

The amortized cost, estimated fair value and average yield of securities at
December 31, 2001, by contractual maturity were as follows (in thousands):

|                                      |                           |           |                             |            |  |          |       |         |  |  |      |      |  
|------------------------------------- | ------------------------- | --------- | --------------------------- | ---------- |  | -------- | ----- | ------- |  |  | ---- | ---- | -
|                                      |                           |           | Held-to-Maturity Securities
|                                      |                           |           |                            
|Maturities Schedule of Securities     |                           | Amortized |                             |            |  |          |       | Average
|December 31, 2001                     |                           | Cost      |                             | Fair Value |  | Yield(a)
|                                      |                           |           |                             |            |  |         
|Due in one year or less               |                           | $         | 6,086                       |            |  | $        | 6,098 |         |  |  | 5.15 | %   
|Due after one year through five years |                           |           | 3,016                       |            |  |          | 3,128 |         |  |  | 5.00 | %   
|Due after five years                  |                           |           | 3,953                       |            |  |          | 3,973 |         |  |  | 5.17 | %   
|                                      |                           |           |                             |            |  |          |       |         |  |  |      |     
|                                      | Carried at Amortized Cost |           | $                           | 13,055     |  |          | $     | 13,199  |  |  |      | 5.11 | %
|                                      |                           |           |                             |            |  |          |       |         |  |  |      |     



---

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

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

Note #2  Investment Securities,Continued

|                                      |                       |           |                               |            |  |          |        |         |  |  |      |      |  
|------------------------------------- | --------------------- | --------- | ----------------------------- | ---------- |  | -------- | ------ | ------- |  |  | ---- | ---- | -
|                                      |                       |           | Available-for-Sale Securities
|                                      |                       |           |                              
|Maturities Schedule of Securities     |                       | Amortized |                               |            |  |          |        | Average
|December 31, 2001                     |                       | Cost      |                               | Fair Value |  | Yield(a)
|                                      |                       |           |                               |            |  |         
|Due in one year or less               |                       | $         | 3,059                         |            |  | $        | 3,106  |         |  |  | 6.57 | %   
|Due after one year through five years |                       |           | 51,014                        |            |  |          | 51,299 |         |  |  | 4.95 | %   
|Due after five through ten years      |                       |           | 9,576                         |            |  |          | 9,644  |         |  |  | 5.68 | %   
|Due after ten years                   |                       |           | 2,999                         |            |  |          | 2,639  |         |  |  | 6.98 | %   
|                                      |                       |           |                               |            |  |          |        |         |  |  |      |     
|                                      | Carried at Fair Value |           | $                             | 66,648     |  |          | $      | 66,688  |  |  |      | 5.21 | %
|                                      |                       |           |                               |            |  |          |        |         |  |  |      |     



---

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

Note #3  Loans

The composition of the loan portfolio at December 31, 2001 and 2000, was as
follows (in thousands):

|                                                                           |             |                               |         |         |         |      |         |         |         | 
|-------------------------------------------------------------------------- | ----------- | ----------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | 
|                                                                           |             |                               |         | 2001    |         | 2000
|                                                                           |             |                               |         |         |         |     
|Commercial, financial and agricultural                                     |             | $                             | 46,936  |         |         | $    | 44,269  |        
|Real Estate  construction                                                 |             |                               | 16,091  |         |         |      | 12,647  |        
|Real Estate  mortgage                                                     |             |                               |         |         |         |      |         |        
|                                                                           | Commercial  |                               |         | 310,737 |         |      |         | 275,557 |        
|                                                                           | Residential |                               |         | 28,032  |         |      |         | 27,899  |        
|Loans to individuals for household, family and
other personal expenditures |             |                               | 4,718   |         |         |      | 6,400   |        
|All other loans (including overdrafts)                                     |             |                               | 656     |         |         |      | 679     |        
|                                                                           |             |                               |         |         |         |      |         |        
|                                                                           |             |                               | 407,170 |         |         |      | 367,451 |        
|Deferred income on loans                                                   |             |                               | (92     | )       |         |      | (141    | )      
|                                                                           |             |                               |         |         |         |      |         |        
|                                                                           |             | Loans, net of deferred income |         | $       | 407,078 |      |         | $       | 367,310 | 
|                                                                           |             |                               |         |         |         |      |         |        

Nonaccruing loans totaled approximately $2,717,000 and $2,319,000 at December
31, 2001 and 2000, 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 $197,000, $644,000, and $819,000 for the
years ended December 31, 2001, 2000, and 1999, respectively.

At December 31, 2001 and 2000, the Bank had approximately $34,000 and $17,000
of loans that were past due 90 days or more in interest or principal but which
were still accruing interest. These loans are collateralized and in the
process of collection.

Note #4  Direct Lease Financing

The Bank leases equipment to parties under agreements which range generally
from three to seven years. Executory costs are paid by the lessee and leases
do not include any contingent rental features. The net investment in direct
lease financing at December 31, 2001 and 2000, consists of the following (in
thousands):

|                          |  |      |       |      |  |   |       |  
|------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                          |  | 2001 |       | 2000
|                          |  |      |       |     
|Lease payments receivable |  | $    | 1,486 |      |  | $ | 1,236 |  
|Unearned income           |  |      | (158  | )    |  |   | (72   | )
|                          |  |      |       |      |  |   |       |  
|                          |  | $    | 1,328 |      |  | $ | 1,164 |  
|                          |  |      |       |      |  |   |       |  

At December 31, 2001, the Bank had no outstanding lease commitments.

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

At December 31, 2001, future minimum lease payments receivable under direct
financing leases are as follows (in thousands):

|                     |      |   |       |     | 
|-------------------- | ---- | - | ----- | --- | 
|Year                 |      |   |       |    
|                     |      |   |       |    
|                     | 2002 |   | $     | 397 | 
|                     | 2003 |   |       | 631 | 
|                     | 2004 |   |       | 291 | 
|                     | 2005 |   |       | 94  | 
|                     | 2006 |   |       | 73  | 
|                     |      |   |       |    
|                     |      |   | 1,486 |    
|Less unearned income |      |   | (158  | )  
|                     |      |   |       |    
|                     |      | $ | 1,328 |    
|                     |      |   |       |    

Note #5  Allowance For Loan and Lease Losses

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

|                                           |  |      |       |      |  |      |        |   |  |   |       |  
|------------------------------------------ |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ----- | -
|                                           |  | 2001 |       | 2000 |  | 1999
|                                           |  |      |       |      |  |     
|Balance, Beginning of Year                 |  | $    | 3,692 |      |  | $    | 6,102  |   |  | $ | 5,576 |  
|Recoveries on loans previously charged off |  |      | 102   |      |  |      | 312    |   |  |   | 237   |  
|Provision charged to operating expense     |  |      | 498   |      |  |      | 1,070  |   |  |   | 485   |  
|Loans charged off                          |  |      | (86   | )    |  |      | (3,792 | ) |  |   | (196  | )
|                                           |  |      |       |      |  |      |        |   |  |   |       |  
|Balance, End of Year                       |  | $    | 4,206 |      |  | $    | 3,692  |   |  | $ | 6,102 |  
|                                           |  |      |       |      |  |      |        |   |  |   |       |  

The Bank treats all nonaccruing loans and troubled debt restructurings as
impaired loans. The allowances for loan losses related to impaired loans
amounted to approximately $305,000 and $268,000 for the years ended December
31, 2001 and 2000, respectively, and those allowances are included in the above
balances. The average balance of these loans amounted to approximately
$2,634,000 and $5,770,000 for the years ended December 31, 2001 and 2000,
respectively. During 2001, cash receipts totaling approximately $981,000 were
applied to reduce the principal balances of, and approximately $366,000 of
interest income was recognized on, impaired loans. During 2000, cash receipts
totaling approximately $52,000 were applied to reduce the principal balances
of, but no interest income was recognized on, impaired loans.

Note #6  Bank Premises and Equipment

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

|                                                |       |   |        |       |      |   |        |       | 
|----------------------------------------------- | ----- | - | ------ | ----- | ---- | - | ------ | ----- | 
|                                                |       |   | 2001   |       | 2000
|                                                |       |   |        |       |     
|Buildings                                       |       | $ | 2,424  |       |      | $ | 2,424  |      
|Furniture and equipment                         |       |   | 9,942  |       |      |   | 8,742  |      
|Leasehold improvements                          |       |   | 3,579  |       |      |   | 3,424  |      
|                                                |       |   |        |       |      |   |        |      
|                                                |       |   | 15,945 |       |      |   | 14,590 |      
|Less: Accumulated depreciation and amortization |       |   | (9,998 | )     |      |   | (8,807 | )    
|                                                |       |   |        |       |      |   |        |      
|                                                |       |   | 5,947  |       |      |   | 5,783  |      
|Land                                            |       |   | 375    |       |      |   | 1,230  |      
|                                                |       |   |        |       |      |   |        |      
|                                                | Total |   | $      | 6,322 |      |   | $      | 7,013 | 
|                                                |       |   |        |       |      |   |        |      

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

Note #6  Bank Premises and Equipment, Continued

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

|           |  |   |       | 
|---------- |  | - | ----- | 
|Year       |  |   |       | 
|           |  |   |       | 
|2002       |  | $ | 1,326 | 
|2003       |  |   | 1,323 | 
|2004       |  |   | 1,319 | 
|2005       |  |   | 1,122 | 
|2006       |  |   | 854   | 
|Thereafter |  |   | 3,101 | 
|           |  |   |       | 
|Total      |  | $ | 9,045 | 
|           |  |   |       | 

Total rental expense for the three years ended December 31, 2001, 2000, and
1999, was $1,329,000, $1,269,000, and $1,246,000, respectively.

Note #7  Other Real Estate Owned

Other Real Estate Owned is carried at the estimated fair value of the real
estate. An analysis of the transactions for December 31, 2001 and 2000, were
as follows (in thousands):

|                                           |  |      |       |      |  |   |       |  
|------------------------------------------ |  | ---- | ----- | ---- |  | - | ----- | -
|                                           |  | 2001 |       | 2000
|                                           |  |      |       |     
|Balance, Beginning of Year                 |  | $    | 2,164 |      |  | $ | 1,714 |  
|Additions                                  |  |      | 143   |      |  |   | 1,038 |  
|Valuation adjustments and other reductions |  |      | (125  | )    |  |   | (588  | )
|                                           |  |      |       |      |  |   |       |  
|Balance, End of Year                       |  | $    | 2,182 |      |  | $ | 2,164 |  
|                                           |  |      |       |      |  |   |       |  

The balances at December 31, 2001 and 2000 are shown net of reserves of
$125,000 and $0, respectively.

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

|                                   |  |      |     |      |  |   |      |  
|---------------------------------- |  | ---- | --- | ---- |  | - | ---- | -
|                                   |  | 2001 |     | 2000
|                                   |  |      |     |     
|Balance, Beginning of Year         |  | $    |    |      |  | $ | 387  |  
|Provision charged to other expense |  |      | 125 |      |  |   | 42   |  
|Charge-offs and other reductions   |  |      |    |      |  |   | (429 | )
|                                   |  |      |     |      |  |   |      |  
|Balance, End of Year               |  | $    | 125 |      |  | $ |     |  
|                                   |  |      |     |      |  |   |      |  

Note #8  Deposits

At December 31, 2001, the scheduled maturities of time deposits are as follows
(in thousands):

|           |  |   |        | 
|---------- |  | - | ------ | 
|Year       |  |   |        | 
|           |  |   |        | 
|2002       |  | $ | 92,414 | 
|2003       |  |   | 2,945  | 
|2004       |  |   | 524    | 
|2005       |  |   | 72     | 
|2006       |  |   | 5      | 
|Thereafter |  |   | 11     | 
|           |  |   |        | 
|Total      |  | $ | 95,971 | 
|           |  |   |        | 

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

Note #9  Short-Term Borrowings

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

Note #10  Stock Option Plan

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

The 1993 Option Plan provides for the issuance of up to an aggregate of
1,147,041 shares of the Company Common Stock (which number gives retroactive
effect to stock dividends issued prior to December 31, 2001). Options to
purchase those shares may be granted to officers, key employees and directors
of the Company and its subsidiaries, including the Bank, at prices not less
than the fair market value of such shares at dates of grant. Options granted
expire within a period of not more than ten years from the dates on which the
options are granted.

The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for 2001,
2000 and 1999, respectively: risk-free rates of 4.37%, 5.08%, and 4.67%,
dividend yields of 3%, 2%, and 2%, expected life of five years; and volatility
of 31%, 33%, and 34%.

Information with respect to the number of shares of Common Stock that were
subject to options that were granted or exercised, and those that expired
without exercise, under the 1993 Option Plan during December 31, 2001, 2000 and
1999, 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:

|                                                               |  |        |         |       |  |          |        |       |  |        |         |          |  |   |       |  |  |          |         |   |  |   |        |  
|-------------------------------------------------------------- |  | ------ | ------- | ----- |  | -------- | ------ | ----- |  | ------ | ------- | -------- |  | - | ----- |  |  | -------- | ------- | - |  | - | ------ | -
|                                                               |  | 2001   |         | 2000  |  | 1999    
|                                                               |  |        |         |       |  |         
|                                                               |  |        |         |       |  | Weighted |        |       |  |        |         | Weighted |  |   |       |  |  | Weighted
|                                                               |  |        |         |       |  | Average  |        |       |  |        |         | Average  |  |   |       |  |  | Average 
|                                                               |  |        |         |       |  | Exercise |        |       |  |        |         | Exercise |  |   |       |  |  | Exercise
|                                                               |  | Shares |         | Price |  | Shares   |        | Price |  | Shares |         | Price   
|                                                               |  |        |         |       |  |          |        |       |  |        |         |         
|Outstanding, Beginning of Year                                 |  |        | 906,179 |       |  | $        | 8.61   |       |  |        | 844,331 |          |  | $ | 8.49  |  |  |          | 811,981 |   |  | $ | 7.93   |  
|Granted                                                        |  |        | 40,125  |       |  |          | 12.02  |       |  |        | 86,670  |          |  |   | 10.17 |  |  |          | 69,229  |   |  |   | 12.26  |  
|Exercised                                                      |  |        | (89,458 | )     |  |          | (7.00  | )     |  |        | (4,331  | )        |  |   | 6.00  |  |  |          | (18,810 | ) |  |   | (6.59  | )
|Forfeited                                                      |  |        | (12,209 | )     |  |          | (12.38 | )     |  |        | (20,491 | )        |  |   | 13.29 |  |  |          | (18,069 | ) |  |   | (13.04 | )
|                                                               |  |        |         |       |  |          |        |       |  |        |         |          |  |   |       |  |  |          |         |   |  |   |        |  
|Outstanding, End of Year                                       |  |        | 844,637 |       |  |          | 8.50   |       |  |        | 906,179 |          |  |   | 9.21  |  |  |          | 844,331 |   |  |   | 8.26   |  
|                                                               |  |        |         |       |  |          |        |       |  |        |         |          |  |   |       |  |  |          |         |   |  |   |        |  
|Options exercisable at year end                                |  |        | 777,835 |       |  | $        | 8.34   |       |  |        | 828,080 |          |  | $ | 8.04  |  |  |          | 768,139 |   |  | $ | 7.73   |  
|Weighted average fair value of
options granted during the
year |  | $      | 3.05    |       |  |          |        |       |  | $      | 3.38    |          |  |   |       |  |  | $        | 4.36    |   |  |   |        |  

The following table summarizes information about fixed stock options
outstanding at December 31, 2001:

|                 |  |             |         |                     |  |                     |      |             |  |          |       |  |  |  |         |          |  |   |       |  |  | 
|---------------- |  | ----------- | ------- | ------------------- |  | ------------------- | ---- | ----------- |  | -------- | ----- |  |  |  | ------- | -------- |  | - | ----- |  |  | 
|                 |  |             |         | Options Outstanding |  | Options Exercisable
|                 |  |             |         |                     |  |                    
|                 |  |             |         |                     |  |                     |      | Weighted    |  |          |       |  |  |  |         |          |  |   |       | 
|                 |  |             |         |                     |  |                     |      | Average     |  | Weighted |       |  |  |  |         | Weighted
|                 |  |             |         |                     |  |                     |      | Remaining   |  | Average  |       |  |  |  |         | Average 
|Exercise         |  | Number      |         | Contractual         |  | Exercise            |      | Number      |  | Exercise
|Price            |  | Outstanding |         | Life                |  | Price               |      | Exercisable |  | Price   
|                 |  |             |         |                     |  |                     |      |             |  |         
|$4.87
to $6.37   |  |             | 341,500 |                     |  |                     | 3.20 |             |  | $        | 5.58  |  |  |  | 336,531 |          |  | $ | 5.58  | 
|$8.50
to $10.98  |  |             | 288,340 |                     |  |                     | 6.06 |             |  |          | 8.84  |  |  |  | 264,631 |          |  |   | 8.80  | 
|$11.13
to $13.09 |  |             | 156,885 |                     |  |                     | 7.35 |             |  |          | 11.87 |  |  |  | 119,297 |          |  |   | 11.83 | 
|$14.18
to $16.36 |  |             | 57,912  |                     |  |                     | 6.50 |             |  |          | 15.08 |  |  |  | 57,376  |          |  |   | 15.08 | 
|                 |  |             |         |                     |  |                     |      |             |  |          |       |  |  |  |         |          |  |   |       | 
|$4.87
to $16.36  |  |             | 844,637 |                     |  |                     |      |             |  |          |       |  |  |  | 777,835 |          |  |   |       | 
|                 |  |             |         |                     |  |                     |      |             |  |          |       |  |  |  |         |          |  |   |       | 

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

Note #10  Stock Option Plan, Continued

Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Banks net income
would have been reduced to the following pro forma amounts (in thousands,
except per share data):

|                     |                    |             |   |       |      |      |   |       |      |  |   |       |      | 
|-------------------- | ------------------ | ----------- | - | ----- | ---- | ---- | - | ----- | ---- |  | - | ----- | ---- | 
|                     |                    |             |   | 2001  |      | 2000 |   | 1999 
|                     |                    |             |   |       |      |      |   |      
|Net income:          |                    |             |   |       |      |      |   |       |      |  |   |      
|                     | As reported        |             | $ | 6,850 |      |      | $ | 6,700 |      |  | $ | 6,250 |     
|                     | Pro forma          |             |   | 6,696 |      |      |   | 6,470 |      |  |   | 6,005 |     
|Per share data:      |                    |             |   |       |      |      |   |       |      |  |   |      
|                     | Net income  Basic |             |   |       |      |      |   |       |      |  |   |       |     
|                     |                    | As reported |   | $     | 1.24 |      |   | $     | 1.15 |  |   | $     | 0.99 | 
|                     |                    | Pro forma   |   | $     | 1.21 |      |   | $     | 1.11 |  |   | $     | 0.95 | 
|Net income  diluted |                    |             |   |       |      |      |   |       |      |  |   |      
|                     | As reported        |             | $ | 1.18  |      |      | $ | 1.10  |      |  | $ | 0.93  |     
|                     | Pro forma          |             | $ | 1.15  |      |      | $ | 1.08  |      |  | $ | 0.90  |     

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, 2001, 2000, and 1999, the amount of the
Company contributions amounted to approximately $248,000, $272,000, and
$259,000, 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 for 2001 was $378,000
($223,020 net of income taxes), 2000 was $324,000 ($190,836 net of income
taxes), and 1999 was $324,000 ($190,836 net of income taxes).

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, 2001, the
maximum combined amount of funds that were available from these two sources was
approximately $14,210,000 or 27% consolidated stockholders equity.

Note #14  Stock Dividend

On April 17, 2001, the Board of Directors declared a 7% stock dividend payable
on May 29, 2001, to stockholders of record on May 4, 2001. As a result, the
Bank distributed 361,421 shares of common stock and the common stock and
additional paid-in capital were increased and retained earnings was decreased
by $4,627,000. 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.

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

Note #15  Other Expenses

The following is a breakdown of other expenses for the years ended December 31,
2001, 2000, and 1999 (amounts in thousands):

|                                       |       |   |       |       |      |   |       |       |  |   |       |       | 
|-------------------------------------- | ----- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                       |       |   | 2001  |       | 2000 |   | 1999 
|                                       |       |   |       |       |      |   |      
|Data processing                        |       | $ | 1,248 |       |      | $ | 1,077 |       |  | $ | 970   |      
|Marketing expenses                     |       |   | 1,086 |       |      |   | 940   |       |  |   | 1,109 |      
|Office supplies, postage and telephone |       |   | 1,086 |       |      |   | 1,071 |       |  |   | 1,136 |      
|Bank insurance                         |       |   | 448   |       |      |   | 492   |       |  |   | 562   |      
|Supervisory assessments                |       |   | 127   |       |      |   | 126   |       |  |   | 94    |      
|Professional fees                      |       |   | 1,287 |       |      |   | 1,334 |       |  |   | 1,742 |      
|Operating losses                       |       |   | 151   |       |      |   | 66    |       |  |   | 71    |      
|OREO expenses                          |       |   | 197   |       |      |   | 39    |       |  |   | 140   |      
|Other                                  |       |   | 1,724 |       |      |   | 2,297 |       |  |   | 1,756 |      
|                                       |       |   |       |       |      |   |       |       |  |   |       |      
|                                       | Total |   | $     | 7,354 |      |   | $     | 7,442 |  |   | $     | 7,580 | 
|                                       |       |   |       |       |      |   |       |       |  |   |       |      

Note #16  Income Taxes

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

|                                                       |          |       |       |       |       |      |       |       |       |   |       |       |       | 
|------------------------------------------------------ | -------- | ----- | ----- | ----- | ----- | ---- | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                       |          |       |       | 2001  |       | 2000 |       | 1999 
|                                                       |          |       |       |       |       |      |       |      
|Tax provision applicable to income
before income taxes |          | $     | 3,926 |       |       | $    | 3,920 |       |       | $ | 3,662 |      
|                                                       |          |       |       |       |       |      |       |       |       |   |       |      
|Federal Income Tax                                     |          |       |       |       |       |      |       |       |       |   |       |      
|                                                       | Current  |       |       | 3,048 |       |      |       | 2,469 |       |   |       | 2,621 |      
|                                                       | Deferred |       |       | (174  | )     |      |       | 282   |       |   |       | (49   | )    
|State Franchise Tax                                    |          |       |       |       |       |      |       |       |       |   |       |      
|                                                       | Current  |       |       | 1,095 |       |      |       | 1,080 |       |   |       | 1,067 |      
|                                                       | Deferred |       |       | (43   | )     |      |       | 89    |       |   |       | 23    |      
|                                                       |          |       |       |       |       |      |       |       |       |   |       |      
|                                                       |          | Total |       | $     | 3,926 |      |       | $     | 3,920 |   |       | $     | 3,662 | 
|                                                       |          |       |       |       |       |      |       |       |       |   |       |      

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

|                         |                                                              |                           |   |       |       |      |   |       |       |  |   |       |       | 
|------------------------ | ------------------------------------------------------------ | ------------------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                         |                                                              |                           |   | 2001  |       | 2000 |   | 1999 
|                         |                                                              |                           |   |       |       |      |   |      
|Deferred Tax Assets      |                                                              |                           |   |       |       |      |   |       |       |  |   |      
|                         | Allowance for loan losses due to tax limitations             |                           | $ | 1,137 |       |      | $ | 909   |       |  | $ | 1,709 |      
|                         | Deferred compensation plan                                   |                           |   | 1,050 |       |      |   | 1,026 |       |  |   | 863   |      
|                         | Allowance for other real estate owned                        |                           |   | 129   |       |      |   | 47    |       |  |   | 38    |      
|                         | Other assets and liabilities                                 |                           |   | 80    |       |      |   | 338   |       |  |   | 184   |      
|                         | Net unrealized loss on available-for-sale securities         |                           |   |      |       |      |   | 6     |       |  |   | 246   |      
|                         |                                                              |                           |   |       |       |      |   |       |       |  |   |       |      
|                         |                                                              | Total Deferred Tax Assets |   |       | 2,396 |      |   |       | 2,326 |  |   |       | 3,040 | 
|Deferred Tax Liabilities |                                                              |                           |   |       |       |      |   |       |       |  |   |      
|                         | Premises and equipment due to depreciation difference        |                           |   | (384  | )     |      |   | (525  | )     |  |   | (628  | )    
|                         | Net unrealized appreciation on available-for-sale securities |                           |   | (37   | )     |      |   |      |       |  |   |      |      
|                         |                                                              |                           |   |       |       |      |   |       |       |  |   |       |      
|                         |                                                              | Net Deferred Tax Assets   |   | $     | 1,975 |      |   | $     | 1,801 |  |   | $     | 2,412 | 
|                         |                                                              |                           |   |       |       |      |   |       |       |  |   |       |      

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

Note #16  Income Taxes, Continued

As a result of the following items, the total tax expenses for 2001, 2000, and
1999, were less than the amount computed by applying the statutory U.S. Federal
income tax rate to income before taxes (dollars in thousands):

|                                                            |  |        |       |        |  |            |      |        |  |        |       |            |  |  |      |   |  |            |       |   |  |  |      |  
|----------------------------------------------------------- |  | ------ | ----- | ------ |  | ---------- | ---- | ------ |  | ------ | ----- | ---------- |  |  | ---- | - |  | ---------- | ----- | - |  |  | ---- | -
|                                                            |  | 2001   |       | 2000   |  | 1999      
|                                                            |  |        |       |        |  |           
|                                                            |  |        |       |        |  | Percent of |      |        |  |        |       | Percent of |  |  |      |   |  | Percent of
|                                                            |  |        |       |        |  | Pretax     |      |        |  |        |       | Pretax     |  |  |      |   |  | Pretax    
|                                                            |  | Amount |       | Income |  | Amount     |      | Income |  | Amount |       | Income    
|                                                            |  |        |       |        |  |            |      |        |  |        |       |           
|Federal rate                                                |  | $      | 3,664 |        |  |            | 34.0 |        |  | $      | 3,611 |            |  |  | 34.0 |   |  | $          | 3,370 |   |  |  | 34.0 |  
|Changes due to
State income tax,
net of Federal tax
benefit |  |        | 765   |        |  |            | 7.1  |        |  |        | 754   |            |  |  | 7.1  |   |  |            | 704   |   |  |  | 7.1  |  
|Exempt income                                               |  |        | (288  | )      |  |            | (2.7 | )      |  |        | (517  | )          |  |  | (4.9 | ) |  |            | (438  | ) |  |  | (4.5 | )
|Other, net                                                  |  |        | (215  | )      |  |            | (2.0 | )      |  |        | 72    |            |  |  | 0.7  |   |  |            | 26    |   |  |  | 0.3  |  
|                                                            |  |        |       |        |  |            |      |        |  |        |       |            |  |  |      |   |  |            |       |   |  |  |      |  
|Total                                                       |  | $      | 3,926 |        |  |            | 36.4 |        |  | $      | 3,920 |            |  |  | 36.9 |   |  | $          | 3,662 |   |  |  | 36.9 |  
|                                                            |  |        |       |        |  |            |      |        |  |        |       |            |  |  |      |   |  |            |       |   |  |  |      |  

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 restated
to give effect to all stock dividends.

|                                                     |                      |   |        |       |        |  |        |       |        |   |        |       |        |  |       |       |  |   |       |       |  |  |       |       | 
|---------------------------------------------------- | -------------------- | - | ------ | ----- | ------ |  | ------ | ----- | ------ | - | ------ | ----- | ------ |  | ----- | ----- |  | - | ----- | ----- |  |  | ----- | ----- | 
|                                                     |                      |   | 2001   |       | 2000   |  | 1999  
|                                                     |                      |   |        |       |        |  |       
|                                                     |                      |   | Income |       | Shares |  | Income |       | Shares |   | Income |       | Shares
|                                                     |                      |   |        |       |        |  |        |       |        |   |        |       |       
|Net income as reported                               |                      | $ | 6,850  |       |        |  |        |       |        | $ | 6,700  |       |        |  |       |       |  | $ | 6,250 |       |  |  |       |      
|Shares outstanding at year end                       |                      |   |       |       |        |  | 5,514  |       |        |   |       |       |        |  | 5,610 |       |  |   |      |       |  |  | 6,177 |      
|Impact of weighting shares
purchased during the year |                      |   |       |       |        |  | 17     |       |        |   |       |       |        |  | 204   |       |  |   |      |       |  |  | 121   |      
|                                                     |                      |   |        |       |        |  |        |       |        |   |        |       |        |  |       |       |  |   |       |       |  |  |       |      
|                                                     | Used in Basic EPS    |   |        | 6,850 |        |  |        | 5,531 |        |   |        | 6,700 |        |  |       | 5,814 |  |   |       | 6,250 |  |  |       | 6,298 | 
|Dilutive effect of outstanding
stock options         |                      |   |       |       |        |  | 291    |       |        |   |       |       |        |  | 202   |       |  |   |      |       |  |  | 389   |      
|                                                     |                      |   |        |       |        |  |        |       |        |   |        |       |        |  |       |       |  |   |       |       |  |  |       |      
|                                                     | Used in Dilutive EPS |   | $      | 6,850 |        |  |        | 5,822 |        |   | $      | 6,700 |        |  |       | 6,016 |  |   | $     | 6,250 |  |  |       | 6,687 | 
|                                                     |                      |   |        |       |        |  |        |       |        |   |        |       |        |  |       |       |  |   |       |       |  |  |       |      

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, 2001 and 2000, the Bank had commitments to extend credit of
$52,368,000 and $48,304,000, respectively, and obligations under standby
letters of credit of $1,373,000 and $924,000, 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.

50



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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

Note #18  Commitments and Contingencies

The Bank has a line of credit with the Federal Home Loan Bank of San Francisco
for $21 million. The Bank has pledged approximately $42 million in loans to
secure the line.

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 and to risk-weighted assets (as defined), and
to average assets (as defined). The following table compares, as of December
31, 2001 and December 31, 2000, 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
|                         |                                        |  |        |        |          |  |            |      |       |  |               
|                         |                                        |  |        |        |          |  |            |      |       |  |                |        |                   |  |  |     |   |  | To Be Well
|                         |                                        |  |        |        |          |  |            |      |       |  | For Capital    |        | Capitalized Under
|                         |                                        |  |        |        |          |  |            |      |       |  | Adequacy       |        | Prompt Corrective
|                         |                                        |  | Actual |        | Purposes |  | Provisions
|                         |                                        |  |        |        |          |  |           
|                         |                                        |  | Amount |        | Ratio    |  | Amount     |      | Ratio |  | Amount         |        | Ratio            
|                         |                                        |  |        |        |          |  |            |      |       |  |                |        |                  
|As of December 31, 2001: |                                        |  |        |        |          |  |            |      |       |  |                |        |                   |  |  |     |   |  |            |     |  |  |  |    
|                         | Total capital to risk-weighted assets  |  | $      | 55,752 |          |  |            | 12.4 | %     |  | $              | 35,971 |                   |  |  | 8.0 | % |  |            | N/A |  |  |  | N/A | 
|                         | Tier 1 capital to risk-weighted assets |  |        | 51,546 |          |  |            | 11.5 | %     |  |                | 17,985 |                   |  |  | 4.0 | % |  |            | N/A |  |  |  | N/A | 
|                         | Tier 1 capital to average assets       |  |        | 51,546 |          |  |            | 9.4  | %     |  |                | 20,786 |                   |  |  | 4.0 | % |  |            | N/A |  |  |  | N/A | 
|As of December 31, 2000: |                                        |  |        |        |          |  |            |      |       |  |                |        |                   |  |  |     |   |  |            |     |  |  |  |    
|                         | Total capital to risk-weighted assets  |  | $      | 51,783 |          |  |            | 12.6 | %     |  | $              | 32,767 |                   |  |  | 8.0 | % |  |            | N/A |  |  |  | N/A | 
|                         | Tier 1 capital to risk-weighted assets |  |        | 48,091 |          |  |            | 11.7 | %     |  |                | 16,383 |                   |  |  | 4.0 | % |  |            | N/A |  |  |  | N/A | 
|                         | Tier 1 capital to average assets       |  |        | 48,091 |          |  |            | 9.5  | %     |  |                | 20,290 |                   |  |  | 4.0 | % |  |            | N/A |  |  |  | N/A | 

FOOTHILL INDEPENDENT BANK

|                         |                                        |  |        |        |          |  |            |      |       |  |                |        |                   |  |  |     |   |  |            |        |  |  |  |      |  
|------------------------ | -------------------------------------- |  | ------ | ------ | -------- |  | ---------- | ---- | ----- |  | -------------- | ------ | ----------------- |  |  | --- | - |  | ---------- | ------ |  |  |  | ---- | -
|                         |                                        |  |        |        |          |  |            |      |       |  | Capital Needed
|                         |                                        |  |        |        |          |  |            |      |       |  |               
|                         |                                        |  |        |        |          |  |            |      |       |  |                |        |                   |  |  |     |   |  | To Be Well
|                         |                                        |  |        |        |          |  |            |      |       |  | For Capital    |        | Capitalized Under
|                         |                                        |  |        |        |          |  |            |      |       |  | Adequacy       |        | Prompt Corrective
|                         |                                        |  | Actual |        | Purposes |  | Provisions
|                         |                                        |  |        |        |          |  |           
|                         |                                        |  | Amount |        | Ratio    |  | Amount     |      | Ratio |  | Amount         |        | Ratio            
|                         |                                        |  |        |        |          |  |            |      |       |  |                |        |                  
|As of December 31, 2001: |                                        |  |        |        |          |  |            |      |       |  |                |        |                   |  |  |     |   |  |            |        |  |  |  |     
|                         | Total capital to risk-weighted assets  |  | $      | 55,051 |          |  |            | 12.3 | %     |  | $              | 35,875 |                   |  |  | 8.0 | % |  | $          | 44,843 |  |  |  | 10.0 | %
|                         | Tier 1 capital to risk-weighted assets |  |        | 50,846 |          |  |            | 11.3 | %     |  |                | 17,937 |                   |  |  | 4.0 | % |  |            | 26,906 |  |  |  | 6.0  | %
|                         | Tier 1 capital to average assets       |  |        | 50,846 |          |  |            | 9.3  | %     |  |                | 21,774 |                   |  |  | 4.0 | % |  |            | 27,217 |  |  |  | 5.0  | %
|As of December 31, 2000: |                                        |  |        |        |          |  |            |      |       |  |                |        |                   |  |  |     |   |  |            |        |  |  |  |     
|                         | Total capital to risk-weighted assets  |  | $      | 51,658 |          |  |            | 12.6 | %     |  | $              | 32,763 |                   |  |  | 8.0 | % |  | $          | 40,954 |  |  |  | 10.0 | %
|                         | Tier 1 capital to risk-weighted assets |  |        | 47,966 |          |  |            | 11.7 | %     |  |                | 16,382 |                   |  |  | 4.0 | % |  |            | 24,572 |  |  |  | 6.0  | %
|                         | Tier 1 capital to average assets       |  |        | 47,966 |          |  |            | 9.5  | %     |  |                | 20,168 |                   |  |  | 4.0 | % |  |            | 25,210 |  |  |  | 5.0  | %

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

Note #20  Fair Value of Financial Instruments

The table below presents the carrying amounts and fair values of financial
instruments at December 31, 2001 and 2000 (with dollars in thousands). FASB
Statement 107, Disclosures about Fair Value of Financial Instruments, defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Fair value estimates are made at a specific
point-in-time based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the entire holding of a
particular financial instrument. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are
based on judgments regarding current economic conditions, risk characteristics
of various financial instruments, future expected loss experience and other
factors. These estimates are subjective in nature, involve uncertainties and
matters of judgment, and therefore can not be determined with precision.
Changes and assumptions could significantly affect the estimates.

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



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

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



| |  |  | Loans
| | - |  | -----

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



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

The fair value of demand deposits, money market deposits, savings accounts
and NOW accounts is defined as the amounts payable on demand at December
31, 2001, and December 31, 2000. The fair value of fixed maturity
certificates of deposit is estimated based on the discounted value of the
future cash flows expected to be paid on the deposits.



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

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

|                                   |                                    |  |                   |         |                   |  |          |         |       |  |   |         |  |  |   |         | 
|---------------------------------- | ---------------------------------- |  | ----------------- | ------- | ----------------- |  | -------- | ------- | ----- |  | - | ------- |  |  | - | ------- | 
|                                   |                                    |  | December 31, 2001 |         | December 31, 2000
|                                   |                                    |  |                   |         |                  
|                                   |                                    |  | Carrying          |         | Fair              |  | Carrying |         | Fair 
|                                   |                                    |  | Amount            |         | Value             |  | Amount   |         | Value
|                                   |                                    |  |                   |         |                   |  |          |         |      
|Financial Assets                   |                                    |  |                   |         |                   |  |          |         |       |  |   |         |  |  |   |        
|                                   | Cash and cash equivalents          |  | $                 | 30,247  |                   |  | $        | 30,247  |       |  | $ | 38,186  |  |  | $ | 38,186  | 
|                                   | Investment securities and deposits |  |                   | 93,001  |                   |  |          | 92,020  |       |  |   | 79,465  |  |  |   | 77,088  | 
|                                   | Loans                              |  |                   | 407,170 |                   |  |          | 412,127 |       |  |   | 367,451 |  |  |   | 357,448 | 
|                                   | Direct lease financing             |  |                   | 1,328   |                   |  |          | 1,328   |       |  |   | 1,164   |  |  |   | 1,158   | 
|                                   | Cash surrender value               |  |                   | 6,167   |                   |  |          | 6,167   |       |  |   | 5,639   |  |  |   | 5,639   | 
|Financial Liabilities              |                                    |  |                   |         |                   |  |          |         |       |  |   |         |  |  |   |        
|                                   | Deposits                           |  |                   | 475,390 |                   |  |          | 475,877 |       |  |   | 454,041 |  |  |   | 454,278 | 
|                                   | Short-Term borrowings              |  |                   | 19,000  |                   |  |          | 19,000  |       |  |   |        |  |  |   |        | 
|Unrecognized Financial Instruments |                                    |  |                   |         |                   |  |          |         |       |  |   |         |  |  |   |        
|                                   | Commitments to extend credit       |  |                   | 52,368  |                   |  |          | 524     |       |  |   | 48,304  |  |  |   | 483     | 
|                                   | Standby letters of credit          |  |                   | 1,373   |                   |  |          | 14      |       |  |   | 924     |  |  |   | 9       | 

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

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

Balance Sheets

|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |        |       |        |  | 
|------------------------------------------ | -------------------------------------------------------- | ---------------------------------------------- | ----------------------------------------- | -------------------- | ----- | ---------------------- | --- | ------ | ----- | ------ | --- | ------ | ----- | ------ |  | 
|                                           |                                                          |                                                |                                           |                      |       | 2001                   |     | 2000   |       | 1999  
|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |       
|                                           |                                                          |                                                |                                           |                      |       | (dollars in thousands)
|Assets                                     |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           | Cash                                                     |                                                | $                                         | 122                  |       |                        | $   | 198    |       |        | $   | 704    |      
|                                           | Investment in subsidiaries                               |                                                |                                           | 51,361               |       |                        |     | 47,975 |       |        |     | 47,785 |      
|                                           | Accounts receivable                                      |                                                |                                           | 213                  |       |                        |     | 174    |       |        |     | 317    |      
|                                           | Other receivables                                        |                                                |                                           | 172                  |       |                        |     |       |       |        |     |       |      
|                                           | Excess of cost over net assets of company acquired (net) |                                                |                                           |                     |       |                        |     | 42     |       |        |     | 85     |      
|                                           | Prepaid expenses                                         |                                                |                                           | 76                   |       |                        |     | 19     |       |        |     | 11     |      
|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           |                                                          |                                                | Total Assets                              |                      | $     | 51,944                 |     |        | $     | 48,408 |     |        | $     | 48,902 | 
|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|Liabilities and Stockholders Equity       |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|Liabilities                                |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           | Accounts payable                                         |                                                | $                                         | 92                   |       |                        | $   | 145    |       |        | $   |       |      
|                                           | Dividends payable                                        |                                                |                                           |                     |       |                        |     |       |       |        |     | 463    |      
|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           |                                                          |                                                | 92                                        |                      |       |                        | 145 |        |       |        | 463 |       
|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|Stockholders Equity                       |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           | Common stock                                             |                                                |                                           | 6                    |       |                        |     | 5      |       |        |     | 5      |      
|                                           | Additional paid-in capital                               |                                                |                                           | 42,892               |       |                        |     | 37,754 |       |        |     | 37,373 |      
|                                           | Retained earnings                                        |                                                |                                           | 8,954                |       |                        |     | 10,504 |       |        |     | 11,061 |      
|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           |                                                          |                                                | Total Stockholders Equity                |                      |       | 51,852                 |     |        |       | 48,263 |     |        |       | 48,439 | 
|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           |                                                          |                                                | Total Liabilities and Stockholders Equity |                      | $     | 51,944                 |     |        | $     | 48,408 |     |        | $     | 48,902 | 
|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           |                                                          |                                                |                                           | Statements of Income |       |                        |     |        |       |        |     |        |       |        |  | 
|Income                                     |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           |                                                          | Equity in undistributed income of subsidiaries |                                           | $                    | 7,197 |                        |     | $      | 6,992 |        |     | $      | 6,739 |       
|Expense                                    |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           |                                                          | Amortization and other expenses                |                                           |                      | 560   |                        |     |        | 467   |        |     |        | 806   |       
|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           |                                                          |                                                | Total Operating Income                    |                      |       | 6,637                  |     |        |       | 6,525  |     |        |       | 5,933  | 
|Tax benefit of parents operating expenses |                                                          |                                                | 213                                       |                      |       |                        | 175 |        |       |        | 317 |       
|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       
|                                           |                                                          |                                                | Net Income                                |                      | $     | 6,850                  |     |        | $     | 6,700  |     |        | $     | 6,250  | 
|                                           |                                                          |                                                |                                           |                      |       |                        |     |        |       |        |     |       

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

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

Statements of Cash Flows
For the Years Ended December 31, 2001, 2000 and 1999

|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |        |        |  
|--------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------------ | ------ | ---------------------- | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | -
|                                                                            |                                                                                  |                                            |                                                  |        | 2001                   |        | 2000  |        | 1999  
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |       
|                                                                            |                                                                                  |                                            |                                                  |        | (dollars in thousands)
|Cash Flows From Operating Activities                                        |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |       
|                                                                            | Cash received for tax benefit from Foothill Independent Bank                     |                                            | $                                                | 175    |                        |        | $     | 317    |        |        | $     | 413    |       
|                                                                            | Cash paid for operating expenses                                                 |                                            |                                                  | (629   | )                      |        |       | (286   | )      |        |       | (770   | )     
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|                                                                            |                                                                                  |                                            | Net Cash Provided (Used) By Operating Activities |        |                        | (454   | )     |        |        | 31     |       |        |        | (357   | )
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|Cash Flows From Investing Activities                                        |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |       
|                                                                            | (Purchase)redemption of deposits in other financial institutions                 |                                            |                                                  |       |                        |        |       |       |        |        |       | 97     |       
|                                                                            | Capital contributed to subsidiary                                                |                                            |                                                  | (150   | )                      |        |       |       |        |        |       |       |       
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|                                                                            |                                                                                  |                                            | Net Cash Provided (Used) By Investing Activities |        |                        | (150   | )     |        |        |       |       |        |        | 97     |  
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|Cash Flows From Financing Activities                                        |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |       
|                                                                            | Dividends paid                                                                   |                                            |                                                  | (2,184 | )                      |        |       | (1,846 | )      |        |       | (1,945 | )     
|                                                                            | Dividends received from Foothill Independent Bank                                |                                            |                                                  | 4,280  |                        |        |       | 7,397  |        |        |       | 5,750  |       
|                                                                            | Proceeds from stock purchased                                                    |                                            |                                                  | 288    |                        |        |       | 357    |        |        |       | 234    |       
|                                                                            | Proceeds from exercise of stock options                                          |                                            |                                                  | 52     |                        |        |       | 24     |        |        |       | 124    |       
|                                                                            | Capital stock repurchased                                                        |                                            |                                                  | (1,908 | )                      |        |       | (6,469 | )      |        |       | (3,460 | )     
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|                                                                            |                                                                                  |                                            | Net Cash Provided (Used) By Financing Activities |        |                        | 528    |       |        |        | (537   | )     |        |        | 703    |  
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|Net Increase(Decrease) in Cash                                              |                                                                                  |                                            | (76                                              | )      |                        |        | (506  | )      |        |        | 443   |       
|Cash,Beginning of Year                                                      |                                                                                  |                                            | 198                                              |        |                        |        | 704   |        |        |        | 261   |       
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|Cash,End of Year                                                            |                                                                                  | $                                          | 122                                              |        |                        | $      | 198   |        |        | $      | 704   |       
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|Reconciliation of Net Increase to Net Cash
Provided by Operating Activities |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |       
|Net Income                                                                  |                                                                                  | $                                          | 6,850                                            |        |                        | $      | 6,700 |        |        | $      | 6,250 |       
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|                                                                            | Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|                                                                            |                                                                                  | Amortization                               |                                                  |        | 42                     |        |       |        | 43     |        |       |        | 42     |       
|                                                                            |                                                                                  | Undistributed earnings of subsidiaries     |                                                  |        | (7,197                 | )      |       |        | (6,992 | )      |       |        | (6,739 | )     
|                                                                            |                                                                                  | (Increase) Decrease in accounts receivable |                                                  |        | (39                    | )      |       |        | 143    |        |       |        | 96     |       
|                                                                            |                                                                                  | Increase in prepaid expenses               |                                                  |        | (57                    | )      |       |        | (8     | )      |       |        | (6     | )     
|                                                                            |                                                                                  | Increase (Decrease) in accounts payable    |                                                  |        | (53                    | )      |       |        | 145    |        |       |        |       |       
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|                                                                            |                                                                                  |                                            | Total Adjustments                                |        |                        | (7,304 | )     |        |        | (6,669 | )     |        |        | (6,607 | )
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       
|                                                                            |                                                                                  |                                            | Net Cash Provided (Used) by Operating Activities |        | $                      | (454   | )     |        | $      | 31     |       |        | $      | (357   | )
|                                                                            |                                                                                  |                                            |                                                  |        |                        |        |       |        |        |        |       |        |       

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FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 and 1999

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, 2001 and 2000, is summarized
below:

|                             |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |       |       | 
|---------------------------- | --------------------------------------------------- | ---------- | ---- | ------------------------------------------------ | ----- | ------ | ---- | ----- | ----- | ------ | ---- | ----- | ----- | - | ---- | ----- | ----- | 
|                             |                                                     |            |      | 2001                                            
|                             |                                                     |            |      |                                                 
|                             |                                                     |            |      | First                                            |       | Second |      | Third |       | Fourth
|                             |                                                     |            |      |                                                  |       |        |      |       |       |       
|                             |                                                     |            |      | (dollars in thousands, except per share amounts)
|Summary of Operations        |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |      
|                             | Interest income                                     |            | $    | 9,575                                            |       |        | $    | 8,946 |       |        | $    | 9,060 |       |   | $    | 9,155 |      
|                             | Interest expense                                    |            |      | 2,929                                            |       |        |      | 2,372 |       |        |      | 2,061 |       |   |      | 1,668 |      
|                             | Net interest income                                 |            |      | 6,646                                            |       |        |      | 6,574 |       |        |      | 6,999 |       |   |      | 7,487 |      
|                             | Provision for loan losses                           |            |      | 125                                              |       |        |      | 100   |       |        |      |      |       |   |      | 273   |      
|                             | Net interest income after provision
for loan losses |            |      | 6,521                                            |       |        |      | 6,474 |       |        |      | 6,999 |       |   |      | 7,214 |      
|                             | Other income                                        |            |      | 1,318                                            |       |        |      | 1,347 |       |        |      | 1,338 |       |   |      | 1,411 |      
|                             | Other expense                                       |            |      | 5,217                                            |       |        |      | 5,228 |       |        |      | 5,470 |       |   |      | 5,931 |      
|                             | Income before taxes                                 |            |      | 2,622                                            |       |        |      | 2,593 |       |        |      | 2,867 |       |   |      | 2,694 |      
|                             | Applicable income taxes                             |            |      | 964                                              |       |        |      | 945   |       |        |      | 1,039 |       |   |      | 978   |      
|                             |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |       |      
|                             |                                                     | Net Income |      | $                                                | 1,658 |        |      | $     | 1,648 |        |      | $     | 1,828 |   |      | $     | 1,716 | 
|                             |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |       |      
|Earnings Per Share  Basic   |                                                     | $          | 0.30 |                                                  |       | $      | 0.30 |       |       | $      | 0.33 |       |       | $ | 0.31 |      
|                             |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |       |      
|Earnings Per Share  Diluted |                                                     | $          | 0.29 |                                                  |       | $      | 0.28 |       |       | $      | 0.32 |       |       | $ | 0.29 |      
|                             |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |       |      

|                             |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |        |       | 
|---------------------------- | --------------------------------------------------- | ---------- | ---- | ------------------------------------------------ | ----- | ------ | ---- | ----- | ----- | ------ | ---- | ----- | ----- | - | ---- | ------ | ----- | 
|                             |                                                     |            |      | 2000                                            
|                             |                                                     |            |      |                                                 
|                             |                                                     |            |      | First                                            |       | Second |      | Third |       | Fourth
|                             |                                                     |            |      |                                                  |       |        |      |       |       |       
|                             |                                                     |            |      | (dollars in thousands, except per share amounts)
|Summary of Operations        |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |       
|                             | Interest income                                     |            | $    | 9,544                                            |       |        | $    | 9,488 |       |        | $    | 9,839 |       |   | $    | 10,112 |      
|                             | Interest expense                                    |            |      | 2,380                                            |       |        |      | 2,716 |       |        |      | 2,920 |       |   |      | 3,087  |      
|                             | Net interest income                                 |            |      | 7,164                                            |       |        |      | 6,772 |       |        |      | 6,919 |       |   |      | 7,025  |      
|                             | Provision for loan losses                           |            |      | 250                                              |       |        |      | 455   |       |        |      | 190   |       |   |      | 175    |      
|                             | Net interest income after provision
for loan losses |            |      | 6,914                                            |       |        |      | 6,317 |       |        |      | 6,729 |       |   |      | 6,850  |      
|                             | Other income                                        |            |      | 1,030                                            |       |        |      | 1,172 |       |        |      | 1,193 |       |   |      | 1,209  |      
|                             | Other expense                                       |            |      | 5,404                                            |       |        |      | 4,910 |       |        |      | 5,152 |       |   |      | 5,328  |      
|                             | Income before taxes                                 |            |      | 2,540                                            |       |        |      | 2,579 |       |        |      | 2,770 |       |   |      | 2,731  |      
|                             | Applicable income taxes                             |            |      | 938                                              |       |        |      | 953   |       |        |      | 1,023 |       |   |      | 1,006  |      
|                             |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |        |      
|                             |                                                     | Net Income |      | $                                                | 1,602 |        |      | $     | 1,626 |        |      | $     | 1,747 |   |      | $      | 1,725 | 
|                             |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |        |      
|Earnings Per Share  Basic   |                                                     | $          | 0.26 |                                                  |       | $      | 0.28 |       |       | $      | 0.31 |       |       | $ | 0.30 |       
|                             |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |        |      
|Earnings Per Share  Diluted |                                                     | $          | 0.24 |                                                  |       | $      | 0.27 |       |       | $      | 0.30 |       |       | $ | 0.29 |       
|                             |                                                     |            |      |                                                  |       |        |      |       |       |        |      |       |       |   |      |        |      

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##### Table of Contents






ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.




PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Except for information regarding our executive officers which is included
in Part I of this Report, the information called for by Item 10 is incorporated
herein by reference from the Companys definitive proxy statement, for the
Companys 2002 annual meeting of shareholders, to be filed with the Commission
on or before April 30, 2002.




ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference
from the Companys definitive proxy statement to be filed with the Commission
on or before April 30, 2002 for the Companys 2002 annual shareholders
meeting.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 is incorporated herein by reference
from the Companys definitive proxy statement to be filed with the Commission
on or before April 30, 2002 for the Companys 2002 annual shareholders
meeting.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated herein by reference
from the Companys definitive proxy statement to be filed with the Commission
on or before April 30, 2002 for the Companys 2002 annual shareholders
meeting.

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##### Table of Contents






PART IV




ITEM 14. 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 31 of this
Report.



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

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



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

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



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

None

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##### Table of Contents



POWER OF ATTORNEY

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




SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 19th day of
March 2002.

| |                                                          |                      
| | -------------------------------------------------------- | ---------------------
| | FOOTHILL INDEPENDENT BANCORP                            
|
| | By:                                                      | /s/ GEORGE E. LANGLEY
| |                                                         
| | George E. Langley, President
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following officers and directors of the
registrant in the capacities indicated on March 19, 2002.

|                                                 |  |                                                                              
|------------------------------------------------ |  | -----------------------------------------------------------------------------
|/s/ GEORGE E. LANGLEY

George E. Langley         |  | President, Chief Executive Officer (Principal
Executive Officer) and Director
|                                                
|/s/ CAROL ANN GRAF

Carol Ann Graf               |  | Chief Financial Officer (Principal Financial and
Accounting Officer)         
|                                                
|/s/ DONNA L. MILTENBERGER

Donna L. Miltenberger |  | Executive Vice President and Director                                        
|                                                
|/s/ WILLIAM V. LANDECENA

William V. Landecena   |  | Chairman of the Board of Directors                                           
|                                                
|/s/ RICHARD GALICH

Richard Galich               |  | Director                                                                     
|                                                
|/s/ O. L. MESTAD

O. L. Mestad                   |  | Director                                                                     
|                                                
|/s/ GEORGE SELLERS

George Sellers               |  | Director                                                                     
|                                                
|/s/ MAX E. WILLIAMS

Max E. Williams             |  | Director                                                                     

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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 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.                                                                                                                                                                                                                            



---

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

E-1