Bank holding companies and banks are extensively regulated under both federal and state law. This regulation is intended primarily for the protection of depositors and the deposit insurance fund and not for the benefit of stockholders of the Company. Set forth below is a summary of certain laws which relate to the regulation of the Company and the Banks. The description does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

As a registered bank holding company, the Company is subject to the supervision of, and to regular examination by, the Federal Reserve Board (FRB). Historically the activities of bank holding companies such as the Company have been limited by the Bank Holding Company Act (BHCA) to banking, managing or controlling banks, furnishing services to or performing services for their subsidiaries, and other activities which the FRB deems to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making such determinations, the FRB is required to consider whether the performance of such activities by a bank holding company or its subsidiaries can reasonably be expected to produce benefits to the public such as greater convenience, increased competition, or gains in efficiency that outweigh the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. Generally, bank holding companies are required to give notice to or obtain prior approval from FRB to engage in any new activity or to acquire more than 5% of any class of voting stock of any bank. For discussion of recent expansion of the powers of certain bank holding companies, see Item 1 - "BUSINESS - Supervision and Regulation - Financial Services Modernization Legislation" below. The Company is also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, the Company and its subsidiaries are subject to examination by, and may be required to file reports with, the California Department of Financial Institutions (the "Department").

The Company's common stock is registered with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As such, the Company is subject to the information, proxy solicitation, insider trading, and other requirements and restrictions of the Exchange Act.

Deposit accounts at the Banks are insured by the Federal Deposit Insurance Corporation (FDIC), which currently insures deposits to a maximum of $100,000 per depositor. For this protection, the Banks pay a semi-annual assessment and are subject to the rules and regulations of the FDIC pertaining to deposit insurance and other matters.

HBC, HBEB, HBSV, and BLA are California state-chartered banks and members of the Federal Reserve System. State banks chartered in California that are members of the Federal Reserve System are subject to regulation, supervision and regular examination by the Department and by the FRB. The regulations of the Department and the FRB govern most aspects of the Banks' business, including reporting requirements, activities, investments, loans, borrowings, certain check-clearing activities, branching, mergers and acquisitions, reserves against deposits, and other areas.

The Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act") became effective March 11, 2000. The Financial Services Modernization Act repeals the two 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 restricts officer, director, or employee interlocks between a member bank and any Company or person "primarily engaged" in specified securities activities. In addition, 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 law 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 full range of financial activities through a new entity known as a Financial Holding Company. "Financial activities" is broadly defined to include not only banking, insurance, and securities activities, but also merchant banking and additional activities that the FRB, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

Generally, the Financial Services Modernization Act:

• Repeals historical restrictions on, and eliminates many federal and state law barriers to, affiliations among banks, securities firms, insurance companies, and other financial service providers;
• Provides a uniform framework for the functional regulation of the activities of banks, savings institutions, and their holding companies;
• 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 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 ("CRA"); and
• Addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.

In order for the Company to take advantage of the ability to affiliate with other financial services providers, the Company must become a "Financial Holding Company" as permitted under an amendment to BHCA. To become a Financial Holding Company, the Company would file a declaration with the FRB, electing to engage in activities permissible for Financial Holding Companies and certifying that it is eligible to do so because all of its insured depository institution subsidiaries are well-capitalized and well-managed. In addition, the FRB must also determine that each insured depository institution subsidiary of the Company has at least a "Satisfactory" CRA rating. The Company currently meets the requirements to make an election to become a Financial Holding Company. The Company's management has not determined at this time whether it will seek an election to become a Financial Holding Company. The Company is examining its strategic business plan to determine whether, based on market conditions, the relative financial conditions of the company and its subsidiaries, regulatory capital requirements, general economic conditions, and other factors, the Company desires to utilize any of the expanded powers provided in the Financial Services Modernization Act.

The Financial Services Modernization Act also permits national banks to engage in expanded activities through the formation of financial subsidiaries. A national bank may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development, real estate investment, or merchant banking, which may only be conducted through a subsidiary of a Financial Holding Company. Financial activities include all activities permitted under new sections of the BHCA or permitted by regulation.

A national bank seeking to have a financial subsidiary, and each of its depository institution affiliates, must be "well-capitalized" and "well-managed." The total assets of all financial subsidiaries may not exceed the lesser of 45% of the bank's total assets, or $50 billion. A national bank must exclude from its assets and equity all equity investments, including retained earnings, in a financial subsidiary. The assets of the subsidiary may not be consolidated with the bank's assets. The bank must also have policies and procedures to assess financial subsidiary risk and protect the bank from such risks and potential liabilities.

The Financial Services Modernization Act provides that designated federal regulatory agencies, including the FDIC, the FRB, the OCC and the SEC, are to publish regulations to implement certain provisions of the Act. These agencies have cooperated in the release of rules that establish minimum requirements to be followed by financial institutions for protecting the privacy of financial information provided by consumers. The FRB's rule, which establishes privacy standards to be followed by state member banks such as the Banks, requires a financial institution to (i) provide notice to customers about its privacy policies and practices, (ii) describe the conditions under which the institution may disclose nonpublic personal information about consumers to nonaffiliated third parties, and (iii) provide a method for consumers to prevent the financial institution from disclosing information to nonaffiliated third parties by "opting out" of that disclosure.

The Financial Services Modernization Act also includes a new section of the Federal Deposit Insurance Act governing subsidiaries of state banks that engage in "activities as principal that would only be permissible" for a national bank to conduct in a financial subsidiary. It expressly preserves the ability of a state bank to retain all existing subsidiaries. Because California permits commercial banks chartered by the state to engage in any activity permissible for national banks, HBC, HBEB, HBSV, and BLA will be permitted to form subsidiaries to engage in the activities authorized by the Financial Services Modernization Act, to the same extent as a national bank. In order to form a financial subsidiary, a bank must be well-capitalized, and the bank would be subject to the same capital deduction, risk management and affiliate transaction rules as are applicable to national banks.

The Company and the Banks do not believe that the Financial Services Modernization Act has had or will have a material adverse effect on our operations 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 the Company and the Banks face from larger institutions and other types of companies offering financial products, many of which may have substantially more financial resources than the Company and the Banks.

The Company's ability to pay cash dividends is dependent on dividends paid to it by the Banks. Under California law the holders of common stock of the Company are entitled to receive dividends when and as declared by the Board of Directors, out of funds legally available therefor, subject to certain restrictions. A California corporation such as the Company may make a distribution to its shareholders if its retained earnings will equal at least the amount of the proposed distribution. California law further provides that in the event sufficient retained earnings are not available for the proposed distribution a corporation may nevertheless make a distribution to its shareholders if, after giving effect to the distribution, it meets two conditions, which generally stated are as follows: (i) the corporation's assets must equal at least 125% of its liabilities; and (ii) the corporation's current assets must equal at least its current liabilities or, if the average of the corporation's earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of the corporation's interest expense for such fiscal years, then the corporation's current assets must equal at least 125% of its current liabilities. Most bank holding companies are unable to meet this test.

The payment of cash dividends by the Company depends on various factors, including the earnings and capital requirements of itself and its subsidiaries, and other financial conditions. The primary source of funds for payment of dividends by the Company to its shareholders will be the receipt of dividends and management fees from the Banks. The Company has no present intention of paying cash dividends in the foreseeable future. The legal ability of the Banks to pay dividends is subject to restrictions set forth in the California banking law and regulations of the FDIC. No assurance can be given that the Banks will pay dividends at any time. For restrictions applicable to the Banks, see Item 5 - "MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - Dividends."

The federal banking agencies have adopted guidelines establishing standards for safety and soundness. The guidelines are designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, earnings, asset quality, asset growth, and compensation, fees and benefits. The guidelines establish the safety and soundness standards that the agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If an institution fails to comply with a safety and soundness standard, the appropriate federal banking agency may require the institution to submit a compliance plan. Failure to submit a compliance plan or to implement an accepted plan may result in enforcement action.

According to FRB policy, bank holding companies are expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each such subsidiary.

Federal banking agencies have adopted risk-based capital guidelines for insured banks and bank holding companies. These guidelines require a minimum risk-based capital ratio of 8%, with at least 4% in the form of "Tier 1" capital. Tier 1 capital consists of common equity, non-cumulative perpetual preferred stock, trust preferred securities, and minority interests in the equity accounts of consolidated subsidiaries and excludes most intangible assets. "Tier 2" capital consists of cumulative perpetual preferred stock, limited-life preferred stock, mandatory convertible securities, subordinated debt and (subject to a limit of 1.25% of risk-weighted assets) loan loss reserves.

The guidelines make regulatory capital requirements more sensitive to the differences in risk profiles among banking institutions, take off-balance sheet items into account when assessing capital adequacy and minimize disincentives to holding liquid low-risk assets. In addition, the regulations may require some banking institutions to increase the level of their common shareholders' equity. Banking regulators have also instituted minimum leverage ratio guidelines for financial institutions. The leverage ratio guidelines require maintenance of a minimum ratio of 3% Tier 1 capital to total assets for the most highly rated bank holding company organizations. Institutions that are less highly rated, anticipating significant growth, or subject to other significant risks will be required to maintain capital levels ranging from 1% to 2% above the 3% minimum.

The following table presents the capital ratios of the Company computed in accordance with applicable regulatory guidelines and compared to the standards for minimum capital adequacy requirements under the FDIC's prompt corrective action authority as of December 31, 2001:

Federal banking agencies, including the FRB and the FDIC, have adopted regulations implementing a system of prompt corrective action pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The regulations establish five capital categories based on the capital measures indicated below:

(1) Tangible equity to total assets less than 2.0%

The regulations establish procedures for classification of financial institutions within the capital categories, filing and reviewing capital restoration plans required under the regulations, and procedures for issuance of directives by the appropriate regulatory agency, among other matters. See Item 1 - "BUSINESS - Supervision and Regulation - Prompt Corrective Action."

The appropriate federal banking agency, after notice and an opportunity for a hearing, is authorized to treat a well capitalized, adequately capitalized or undercapitalized insured depository institution as if it had a lower capital-based classification if it is in an unsafe or unsound condition or engaging in an unsafe or unsound practice. Thus, an adequately capitalized institution can be subject to the restrictions on undercapitalized institutions (provided that a capital restoration plan cannot be required of the institution) described below and an undercapitalized institution can be subject to the restrictions applicable to significantly undercapitalized institutions described below. See Item 1 - "BUSINESS - Supervision And Regulation - Prompt Corrective Action."

An insured depository institution cannot make a capital distribution (as broadly defined to include, among other items, dividends, redemptions and other repurchases of stock), or pay management fees to any person who controls the institution, if thereafter it would be undercapitalized. The appropriate federal banking agency, however, may (after consultation with the FDIC) permit an insured depository institution to repurchase, redeem, retire or otherwise acquire its shares if such action (i) is taken in connection with the issuance of additional shares or obligations in at least an equivalent amount and (ii) will reduce the institution's financial obligations or otherwise improve its financial condition. An undercapitalized institution is also generally prohibited from increasing its average total assets. An undercapitalized institution is also generally prohibited from making any acquisitions, establishing any branches or engaging in any new line of business except in accordance with an accepted capital restoration plan or with the approval of the FDIC. In addition, the appropriate federal banking agency is given authority with respect to any undercapitalized depository institution to take any of the actions it is required to or may take with respect to a significantly undercapitalized institution as described below if it determines "that those actions are necessary to carry out the purpose" of FDICIA.

The federal banking agencies have adopted a joint agency policy statement to provide guidance on managing interest rate risk. The statement indicates that the adequacy and effectiveness of a bank's interest rate risk management process and the level of its interest rate exposures are critical factors in the agencies' evaluation of the bank's capital adequacy. If a bank has material weaknesses in its risk management process or high levels of exposure relative to its capital, the agencies will direct it to take corrective action. Such directives may include recommendations or directions to raise additional capital, strengthen management expertise, improve management information and measurement systems, reduce levels of exposure or some combination of these actions.

The federal banking agencies have issued an interagency policy statement that, among other things, establishes certain benchmark ratios of loan loss reserves to certain classified assets. The benchmark set forth by such policy statement is the sum of (i) 100% of assets classified loss; (ii) 50% of assets classified doubtful; (iii) 15% of assets classified substandard; and (iv) estimated credit losses on other assets over the upcoming 12 months. This amount is neither a "floor" nor a "safe harbor" level for an institution's allowance for loan losses.

Pursuant to FDICIA, the FDIC has developed a risk-based assessment system, under which the assessment rate for an insured depository institution will vary according to the level of risk incurred on its activities. An institution's risk category is based upon whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. Each insured depository institution is also to be assigned to one of the following "supervisory subgroups": group A, B or C. Group A institutions are financially sound institutions with few minor weaknesses; Group B institutions are institutions that demonstrate weaknesses which, if not corrected, could result in significant deterioration; and Group C institutions are institutions for which there is a substantial probability that the FDIC will suffer a loss in connection with the institution unless effective action is taken to correct the areas of weakness.

The FDIC assigns each Bank Insurance Fund (BIF) member institution an annual FDIC assessment rate, summarized below (assessment figures are expressed in terms of cents per $100 in deposits):

At December 31, 2001, HBC's, HBEB's, HBSV's, and BLA's assessment rates were all equivalent to that of a well capitalized, group A institution.

Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 (the "Paperwork Reduction Act"), at January 1, 1997, the Banks began paying, in addition to their normal deposit insurance premium as a member of the BIF, an assessment that is used toward the retirement of the Financing Corporation bonds ("FICO Bonds") issued in the 1980s to assist in the recovery of the savings and loan industry. Members of the Savings Association Insurance Fund ("SAIF"), also pay an assessment, which generally has been calculated at a higher rate than the assessment paid by banks. Under the Paperwork Reduction Act, the FDIC is not permitted to establish SAIF assessment rates that are lower than comparable BIF assessment rates. Effective January 1, 2000, the rate paid to retire the FICO Bonds became equal for members of the BIF and the SAIF. The Paperwork Reduction Act also provided for the merging of the BIF and the SAIF by January 1, 1999 provided there were no financial institutions still chartered as savings associations at that time. However, as of January 1, 1999, there were still financial institutions chartered as savings associations.

In February 2000 the FDIC announced that it was refining the system by which it assesses the risks that are presented to the deposit insurance fund by certain financial institutions. The refinements are intended to identify institutions with a typically high-risk profiles from among those institutions in the best-rated premium category, and to determine whether there are unresolved supervisory concerns regarding the risk-management practices of those institutions. The FDIC is concerned about institutions that exhibit characteristics such as rapid asset growth (especially when concentrated in potentially risky, high-yielding lending areas), significant concentrations in high-risk assets, and recent changes in business mix. The FDIC has noted that although such institutions may be well-capitalized and exhibit good earnings when the economy is strong, they often experience deteriorating financial conditions when economic conditions are less favorable. As a result, institutions whose practices are determined to exhibit risky traits under the refined risk assessment system will be assessed higher insurance premiums. These rules are not expected to have a significant impact on the Banks.

The FDIC has authority: (1) to request that an institution's primary regulatory agency take enforcement action against it based upon an examination by the FDIC or the agency, (2) if no action is taken within 60 days and the FDIC determines that the institution is in an unsafe or unsound condition or that failure to take the action will result in continuance of unsafe or unsound practices, to order the action against the institution, and (3) to exercise this enforcement authority under "exigent circumstances" merely upon notification to the institution's primary regulatory agency. This authority gives the FDIC the same enforcement powers with respect to any institution and its subsidiaries and affiliates as such institution's primary regulatory agency has with respect to those entities.

An undercapitalized institution is required to submit an acceptable capital restoration plan to its primary federal banking agency. The plan must specify (i) the steps the institution will take to become adequately capitalized, (ii) the capital levels to be attained each year, (iii) how the institution will comply with any regulatory sanctions then in effect against the institution, and (iv) the types and levels of activities in which the institution will engage. The banking agency may not accept a capital restoration plan unless the agency determines, among other things, that the plan "is based on realistic assumptions, and is likely to succeed in restoring the institution's capital" and "would not appreciably increase the risk . . . to which the institution is exposed." A requisite element of an acceptable capital restoration plan for an undercapitalized institution is a guaranty by its parent holding company that the institution will comply with such capital restoration plan. Liability with respect to this guaranty is limited to the lesser of (i) five percent of the institution's assets at the time when it became undercapitalized and (ii) the amount necessary to bring the institution into capital compliance with "all capital standards applicable to [it]" as of the time when the institution fails to comply with the plan. The guaranty liability is limited to companies controlling the undercapitalized institution and does not affect other affiliates. In the event of a bank holding Company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment over the claims of other creditors, including the holders of the company's long-term debt.

FDICIA provides that the appropriate federal regulatory agency must require an insured depository institution that (i) is significantly undercapitalized or (ii) is undercapitalized and either fails to submit an acceptable capital restoration plan within the time period allowed by regulation or fails in any material respect to implement a capital restoration plan accepted by the appropriate federal banking agency to take one or more of the following actions: (i) sell enough shares, including voting shares, to become adequately capitalized; (ii) merge with (or be sold to) another institution (or holding company), but only if grounds exist for appointing a conservator or receiver; (iii) restrict certain transactions with banking affiliates as if the "sister bank" exception to the requirements of Section 23A of the Federal Reserve Act did not exist; (iv) otherwise restrict transactions with bank or non-bank affiliates; (v) restrict interest rates that the institution pays on deposits to "prevailing rates" in the institution's "region"; (vi) restrict asset growth or reduce total assets; (vii) alter, reduce or terminate activities; (viii) hold a new election of directors; (ix) dismiss any director or senior executive officer who held office for more than 180 days immediately before the institution became undercapitalized, provided that in requiring dismissal of a director or senior executive officer, the agency must comply with certain procedural requirements, including the opportunity for an appeal in which the director or officer will have the burden of proving his or her value to the institution; (x) employ "qualified" senior executive officers; (xi) cease accepting deposits from correspondent depository institutions; (xii) divest certain non-depository affiliates which pose a danger to the institution; (xiii) be divested by a parent holding company; and (xiv) take any other action which the agency determines would better carry out the purposes of the prompt corrective action provisions.

In addition to the foregoing sanctions, without the prior approval of the appropriate federal banking agency, a significantly undercapitalized institution may not pay any bonus to any senior executive officer or increase the rate of compensation for such an officer without regulatory approval. Furthermore, in the case of an undercapitalized institution that has failed to submit or implement an acceptable capital restoration plan, the appropriate federal banking agency cannot approve any such bonus.

Not later than 90 days after an institution becomes critically undercapitalized, the appropriate federal banking agency for the institution must appoint a receiver or a conservator, unless the agency, with the concurrence of the FDIC, determines that the purposes of the prompt corrective action provisions would be better served by another course of action. Any alternative determination must be documented by the agency and reassessed on a periodic basis. Notwithstanding the foregoing, a receiver must be appointed after 270 days unless the FDIC determines that the institution has a positive net worth, is in compliance with a capital plan, is profitable or has a sustainable upward trend in earnings, and is reducing its ratio of non- performing loans to total loans, and the head of the appropriate federal banking agency and the chairperson of the FDIC certify that the institution is viable and not expected to fail.

The FDIC is required, by regulation or order, to restrict the activities of such critically undercapitalized institutions. The restrictions must include prohibitions on the institution's doing any of the following without prior FDIC approval: entering into any material transactions not in the usual course of business; extending credit for any highly leveraged transaction; engaging in any "covered transaction" (as defined in Section 23A of the Federal Reserve Act) with an affiliate; paying "excessive compensation or bonuses"; and paying interest on "new or renewed liabilities" that would increase the institution's average cost of funds to a level significantly exceeding prevailing rates in the market.

A bank cannot accept brokered deposits (defined to include payment of an interest rate more than 75 basis points above prevailing rates) unless (i) it is well capitalized or (ii) it is adequately capitalized and receives a waiver from the FDIC. A bank that cannot receive brokered deposits also cannot offer "pass-through" insurance on certain employee benefit accounts unless certain specified procedures are followed. In addition, a bank that is "adequately capitalized" may not pay an interest rate on any deposits in excess of 75 basis points over certain prevailing market rates. There are no such restrictions on a bank that is "well capitalized."

The FRB may not make advances to an undercapitalized institution for more than 60 days in any 120-day period without a viability certification by a federal banking agency or by the Chairman of the FRB after an examination by the FRB. If an institution is deemed critically undercapitalized, an extension of FRB credit cannot continue for more than five days without demand for payment unless the FRB is willing to accept responsibility for any resulting loss to the FDIC. As a practical matter, this provision is likely to mean that FRB credit will not be extended beyond the limitations in this provision.

Banks and their institution-affiliated parties may be subject to potential enforcement actions by the FRB, the FDIC or the Office of the Comptroller of the Currency (OCC) for unsafe or unsound practices in conducting their businesses, or for violations of any law, rule or regulation or provision, any consent order with any agency, any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance of deposits, the imposition of civil money penalties, and removal and prohibition orders against institution- affiliated parties.

Interstate Banking and Branching. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Riegle-Neal Act) authorizes interstate banking and interstate branching, subject to certain state options.

• Interstate acquisition of banks became permissible in all states on and after September 29, 1995; state law cannot vary this rule. However, states may continue to prohibit acquisition of banks that have been in existence less than five years and interstate chartering of new banks.
• Interstate mergers of affiliated or unaffiliated banks became permitted after June 1, 1997, unless a state adopted legislation before June 1, 1997 to "opt out" of interstate merger authority, provided any limitations do not discriminate against out-of-state banks. Only Texas opted out.
• Interstate acquisitions of branches are permitted to a bank only if the law of the state where the branch is located expressly permits interstate acquisition of a branch without acquiring the entire bank.
• Interstate de novo branching is permitted to a bank only if a state has adopted legislation to "opt in" to interstate de novo branching authority.

Limitations on Concentrations. An interstate banking application may not be approved if the applicant and its depository institution affiliates would control more than 10% of insured deposits nationwide or more than 30% of insured deposits in the state in which the bank to be acquired is located. These limits do not apply to mergers solely between affiliates. States may waive the 30% cap on a nondiscriminatory basis. Nondiscriminatory state caps on deposit market share of a depository institution and its affiliates are not affected by the regulation.

Agency Authority. A bank subsidiary of a bank holding company can be authorized to receive deposits, renew time deposits, close loans, service loans and receive payments on loans as an agent for a depository institution affiliate without being deemed a branch of the affiliate. Banks are not permitted to engage, as agent for an affiliate, in any activity as agent that it could not conduct as a principal, or to have an affiliate, as its agent, conduct any activity that it could not conduct directly, under federal or state law.

Host State Regulation. The Riegle-Neal Amendments Act of 1997 amended federal law to provide that branches of state banks that operate in other states will be governed in most cases by the laws of the home state, rather than the laws of the host state. Exceptions are that a host state may apply its own laws of community reinvestment, consumer protection, fair lending and interstate branching. Host states cannot supplement or restrict powers granted by a bank's home state. The amendment will assure state-chartered banks with interstate branches uniform treatment in most areas of their operation.

Community Reinvestment Act. Community Reinvestment Act (CRA) evaluations are required for each state in which an interstate bank has a branch. Interstate banks are prohibited from using out-of-state branches "primarily for the purpose of deposit production." Federal banking agencies have adopted regulations to ensure that interstate branches are being operated with a view to the needs of the host communities.

Foreign Banks. Foreign banks are able to branch to the same extent as U.S. domestic banks. Interstate branches acquired by foreign banks are subject to the CRA to the extent the acquired branch was subject to the CRA before the acquisition.

California Law: California has enacted state legislation in accordance with authority under the Riegle-Neal Act. This state law permits banks headquartered outside California to acquire or merge with California banks that have been in existence for at least five years, and thereby establish one or more California branch offices. An out-of-state bank may not enter California by acquiring one or more branches of a California bank or other operations constituting less than the whole bank. The law authorizes waiver of the 30% limit on state-wide market share for deposits as permitted by the Riegle-Neal Act. The law also authorizes California state-licensed banks to conduct certain banking activities (including receipt of deposits and loan payments and conducting loan closings) on an agency basis on behalf of out-of-state banks and to have out-of-state banks conduct similar agency activities on their behalf.

A bank is prohibited from certain tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of services. For example, with certain exceptions, a bank may not condition an extension of credit on a promise by its customer to obtain other services provided by it, its holding company or other subsidiaries (if any), or on a promise by its customer not to obtain other services from a competitor.

Directors, officers and principal shareholders of the Company, and the companies with which they are associated, may conduct banking transactions with the Company in the ordinary course of business. Any loans and commitments to loans included in such transactions must be made in accordance with applicable law, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons of similar creditworthiness, and on terms not involving more than the normal risk of collectibility or presenting other unfavorable features.

Pursuant to the Community Reinvestment Act of 1977, the federal regulatory agencies that oversee the banking industry are required to use their authority to encourage financial institutions to help meet the credit needs of the local communities in which such institutions are chartered, consistent with safe and sound banking practices.

When conducting an examination of financial institutions such as the Banks, the agencies assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods. This record is taken into account in an agency's evaluation of an application for creation or relocation of domestic branches or for merger with another institution. Failure to address the credit needs of a bank's community may also result in the imposition of certain other regulatory sanctions, including a requirement that corrective action be taken.

The federal banking agencies determine a bank's CRA rating by evaluating its performance on lending, service, and investment tests, with the lending test as the most important. The tests are to be applied in an "assessment context" that is developed by the agency for a particular institution. The assessment context takes into account demographic data about the community, the community's characteristics and needs, the institution's capacities and constraints, the institution's product offerings and business strategy, the institution's prior performance, and data on similarly situated lenders. Since the assessment context is developed by the regulatory agencies, a particular bank will not know until it is examined whether its CRA programs and efforts have been sufficient.

Larger institutions are required to compile and report certain data on their lending activities in order to measure performance. Some of this data is also required under other laws, such as the Equal Credit Opportunity Act. Small institutions (those institutions with less than $250 million in assets) are now being examined on a "streamlined assessment method." The streamlined method focuses on the institution's loan to deposit ratio, degree of local lending, record of lending to borrowers and neighborhoods of differing income levels, and record of responding to complaints. Large and small institutions have the option of being evaluated for CRA purposes in relation to their own pre-approved strategic plan. Such a strategic plan must be submitted to the institution's regulator three months before its effective date and be published for public comment.

Federal, state, and local regulations regarding the discharge of materials into the environment may have an impact on the Company. Under federal law, liability for environmental damage and the cost of cleanup may be imposed on any person or entity who is an owner or operator of contaminated property. State law provisions impose substantially similar requirements. Both federal and state laws provide generally that a lender who is not actively involved in contaminating a property will not be liable to clean up the property, even if the lender has a security interest in the property or becomes an owner of the property through foreclosure, provided certain conditions are observed.

The Economic Growth Act includes protection for lenders from liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. The Economic Growth Act specifies the actions a lender may take with respect to lending and foreclosure activities without incurring environmental cleanup liability or responsibility. Typical contractual provisions regarding environmental issues in the loan documentation and due diligence inspections will not lead to lender liability for cleanup, and a lender may foreclose on contaminated property, so long as it merely maintains the property and moves to divest it at the earliest possible time.

Under California law, a lender generally will not be liable to the State for the cost associated with cleaning up contaminated property unless the lender realized some benefit from the property, failed to divest the property promptly, caused or contributed to the release of the hazardous materials, or made the loan primarily for purposes of investing in the property.

The extent of the protection provided by both the federal and state lender protection statutes depend on their interpretation by administrative agencies and courts. The Company cannot predict whether it will be adequately protected for the types of loans made by it. In addition, the Company is still subject to the risks that a borrower's financial position will be impaired by liability under the environmental laws and that property securing a loan made by the Company may be environmentally impaired and not provide adequate security for the Company. The Company attempts to protect its position against environmental risks by performing prudent due diligence. Environmental questionnaires and information on the use of toxic substances are requested as part of its underwriting procedures. The Company lends based on its evaluation of the collateral, net worth of the borrower, and the borrower's capacity for unforeseen business interruptions or risks.

FDICIA prohibits state chartered-banks and their subsidiaries from engaging, as principal, in activities not permissible by national banks and their subsidiaries, unless the bank's primary federal regulator determines the activity poses no significant risk to the BIF and the state bank is and continues to be adequately capitalized. Similarly, state bank subsidiaries may not engage, as principal, in activities impermissible by subsidiaries of national banks. This prohibition extends to acquiring or retaining any investment, including those that would otherwise be permissible under California law.

The State Bank Parity Act eliminates certain disparities between California state chartered banks and federally chartered national banks by authorizing the Commissioner to address such disparities through a streamlined rulemaking process. The Commissioner has taken action pursuant to the Parity Act to authorize, among other matters, previously impermissible share repurchases by state banks, subject to the prior approval of the Commissioner.

In November 1996, the OCC issued final regulations permitting national banks to engage in a wider range of activities through subsidiaries. "Eligible institutions" (those national banks that are well-capitalized, have a high overall rating and a satisfactory CRA rating, and are not subject to an enforcement order) may engage in activities related to banking through operating subsidiaries after going through a new expedited application process. In addition, the new regulations include a provision whereby a national bank may apply to the OCC to engage in an activity through a subsidiary in which the bank itself may not engage. In determining whether to permit the subsidiary to engage in the activity, the OCC will evaluate why the bank itself is not permitted to engage in the activity and whether a Congressional purpose will be frustrated if the OCC permits the subsidiary to engage in the activity. The State Bank Parity Act may permit state-licensed banks to engage in similar new activities, subject to the discretion of the Commissioner.

Securities activities of state banks, as well as the activities of their subsidiaries and affiliates, are governed by guidelines and regulations issued by the securities and financial institution regulatory agencies. These agencies have taken the position that bank sales of alternative investment products, such as mutual funds and annuities, raise substantial bank safety and soundness concerns involving consumer confusion over the nature of the products offered, as well as the potential for mismanagement of sales programs which could expose a bank to liability under the antifraud provisions of federal securities laws.

Accordingly, the agencies have issued guidelines that require, among other things, the establishment of a compliance and audit program to monitor a bank's mutual funds sales activities and its compliance with applicable federal securities laws; the provision of full disclosures to customers about the risks of such investments, including the possible loss of the customer's principal investment; and the conduct of securities activities of bank subsidiaries or affiliates in separate and distinct locations. In addition, the guidelines prohibit bank employees involved in deposit-taking activities from selling investment products or giving investment advice. Banks are also required to establish a qualitative standard for the selection and marketing of the investments offered by the bank, and to maintain appropriate documentation regarding the suitability of investments recommended to bank customers.

California state-licensed banks have authority to engage in the insurance business as an agent or broker, but not as an insurance underwriter.

Certain banks and bank holding companies are required to file a notice with their primary regulator prior to (i) adding or replacing a member of the board of directors, or (ii) the employment of or a change in the responsibilities of a senior executive officer. Notice is required if the bank or holding company is failing to meet its minimum capital standards or is otherwise in a "troubled condition", as defined in FDIC regulations, has undergone a change in control within the past two years, or has received its bank charter within the past two years.

The earnings and growth of the Company will be affected by general economic conditions, both domestic and international, and by the monetary and fiscal policies of the United States Government and its agencies, particularly the FRB. One function of the FRB is to regulate the national supply of bank credit in order to mitigate recessionary and inflationary pressures. In a series of reductions during 2001, the FRB reduced short-term interest rates by an aggregate total of 475 basis points. This decrease in short-term interest rates immediately affected the rates applicable to the majority of the Company's loans. While the decrease in interest rates also lowered the cost of interest bearing deposits, which represent one of the Company's primary funding sources, these deposits tend to reprice more slowly than floating rate loans. The reduction in market rates of interest which took place during 2001, as well as any further reductions that may take place in the future, will continue to have a negative effect on the Company's net interest margin and net interest income. Among the instruments of monetary policy used to implement those objectives are open market transactions in United States Government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements held by depository institutions. The monetary policies of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. However, the effect, if any, of such policies on the future business and earnings of the Company cannot be accurately predicted.

Any insured depository institution owned by the Company can be assessed for losses incurred by the FDIC in connection with assistance provided to, or the failure of, any other depository institution owned by the Company.

Like all California state-chartered commercial banks, the Banks are required to have an annual independent audit and to prepare all financial statements in accordance with generally accepted accounting principles. The Banks are also required to have an independent audit committee comprised entirely of outside directors. Under National Association of Securities Dealers (NASD) on-time certifications, the Company has certified that the audit committee has adopted a formal written charter and meets the requisite number of directors, independence and qualification standards. The Company's stock is listed on Nasdaq.

The bank regulatory agencies closely monitor an institution's compliance with consumer protection laws and regulations. The examination and enforcement activities conducted by these agencies are intense, and banks have been advised to focus on compliance with consumer protection laws and their implementing regulations. The federal Interagency Task Force on Fair Lending has issued a policy statement on discrimination in home mortgage lending which describes three methods that federal agencies will use to prove discrimination: overt evidence of discrimination, evidence of disparate treatment, and evidence of disparate impact. In addition to CRA and fair lending requirements, the Banks are subject to numerous other federal consumer protection statutes and regulations. Due to heightened regulatory concern related to compliance with consumer protection laws and regulations generally, the Banks may incur additional compliance costs or be required to expend additional funds for investments in the local communities they serve.

The terrorist attacks in September, 2001, have impacted the financial services industry and have already led to federal legislation that attempts to address certain issues involving financial institutions. On October 26, 2001, President Bush signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act").

Part of the USA Patriot Act is the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 ("IMLAFATA").

                                                      AT AND FOR YEAR ENDED DECEMBER 31,
(Dollars in thousands, except per share    ---------------------------------------------------------------
amounts and ratios)                           2001         2000         1999         1998         1997
                                           -----------  -----------  -----------  -----------  -----------
INCOME STATEMENT DATA:
  Interest income........................ $    65,370  $    67,921  $    45,418  $    38,193  $    24,533
  Interest expense.......................      24,366       25,101       15,398       12,048        7,071
                                           -----------  -----------  -----------  -----------  -----------
  Net interest income before provision
     for probable loan losses............      41,004       42,820       30,020       26,145       17,462
  Provision for probable loan losses.....       1,910        3,159        2,198        1,806        1,330
                                           -----------  -----------  -----------  -----------  -----------
  Net interest income after provision
     for probable loan losses............      39,094       39,661       27,822       24,339       16,132
  Noninterest income.....................       5,932        2,877        6,051        3,178        2,129
  Noninterest expenses...................      33,348       34,060       26,598       21,744       14,202
                                           -----------  -----------  -----------  -----------  -----------
  Income before income taxes.............      11,678        8,478        7,275        5,773        4,059
  Provision for income taxes.............       4,410        3,049        2,606        2,267        1,224
                                           -----------  -----------  -----------  -----------  -----------
  Net income............................. $     7,268  $     5,429  $     4,669  $     3,506  $     2,835
                                           ===========  ===========  ===========  ===========  ===========
PER SHARE DATA(1):
  Basic net income(2).................... $      0.66  $      0.51  $      0.47  $      0.39  $      0.34
  Diluted net income(3).................. $      0.64  $      0.49  $      0.43  $      0.35  $      0.31
  Book value(4).......................... $      6.71  $      6.01  $      5.81  $      4.45  $      3.74
  Weighted average number of shares
     outstanding - basic.................  11,082,157   10,607,584    9,885,036    8,990,769    8,399,174
  Weighted average number of shares
     outstanding - diluted...............  11,379,721   11,108,329   10,922,977    9,916,907    9,185,147
  Shares outstanding at period end.......  11,114,967   10,939,124    9,737,739    9,433,773    8,406,121

BALANCE SHEET DATA:
  Investment securities.................. $   106,810  $   110,802  $    74,819  $   127,217  $   118,988
  Net loans..............................     621,763      601,130      394,729      332,862      194,076
  Allowance for probable loan losses.....      11,154        9,651        6,511        5,069        3,270
  Total assets...........................     912,730      846,224      677,233      581,404      394,122
  Total deposits.........................     807,908      738,186      601,420      509,916      355,728
  Other borrowed funds...................          --       18,000       12,000       22,500        3,500
  Trust preferred securities.............      19,000       14,000           --           --           --
  Total shareholders' equity.............      74,574       65,733       56,544       41,991       31,474

SELECTED PERFORMANCE RATIOS:
  Return on average assets(5)............        0.84 %       0.70 %       0.79 %       0.74 %       0.91 %
  Return on average equity...............       10.23 %       9.07 %       9.68 %       9.60 %       9.58 %
  Net interest margin....................        5.04 %       5.95 %       5.56 %       6.03 %       6.10 %
  Efficiency.............................       71.05 %      74.53 %      73.74 %      74.15 %      72.49 %
  Average net loans as a percentage
     of average deposits.................       78.21 %      75.44 %      71.88 %      62.35 %      58.28 %
  Average total shareholders' equity as a
     percentage of average total assets..        8.18 %       7.69 %       8.15 %       7.68 %       9.46 %

SELECTED ASSET QUALITY RATIOS(6):
  Net loan charge-offs to average loans..          -- %         -- %       0.20 %         -- %       0.14 %
  Allowance for loan losses to total loan        1.76 %       1.58 %       1.62 %       1.50 %       1.66 %

CAPITAL RATIOS(7):
  Tier 1 risk-based......................        11.8 %       10.5 %       11.3 %        9.4 %       13.4 %
  Total risk-based.......................        13.0 %       11.7 %       12.5 %       10.5 %       14.7 %
  Leverage...............................        10.2 %        9.3 %        8.5 %        7.3 %        8.3 %

                                                                           Year Ended December 31,
                                     -----------------------------------------------------------------------------------------------------
                                                   2001                              2000                               1999
                                     --------------------------------  ---------------------------------  --------------------------------
                                                 Interest    Average               Interest     Average               Interest    Average
                                      Average     Income/    Yield/     Average     Income/     Yield/     Average     Income/    Yield/
(Dollars in thousands)                Balance     Expense     Rate      Balance     Expense      Rate      Balance     Expense     Rate
-----------------------------------  ----------  ---------  ---------  ----------  ---------   ---------  ----------  ---------  ---------
ASSETS:
Loans, gross(1).................... $  645,632  $  57,518       8.91% $  537,317  $  56,709       10.55% $  380,686  $  36,742       9.66%
Investment securities(2)...........     96,340      5,269       5.47%    101,211      6,188        6.12%     93,271      5,305       5.69%
Interest bearing deposits in banks...    5,094        157       3.08%      1,330         66        4.97%         --         --         --
Federal funds sold.................     66,490      2,426       3.65%     80,073      4,958        6.19%     66,937      3,371       5.04%
                                     ----------  ---------             ----------  ---------              ----------  ---------
   Total interest earning assets...    813,556     65,370       8.04%    719,931     67,921        9.43%    540,894     45,418       8.40%
                                                 ---------                         ---------                          ---------
Cash and due from banks............     28,795                            35,429                             25,520
Premises and equipment, net........      6,024                             6,803                              6,723
Other assets.......................     20,249                            17,026                             18,864
                                     ----------                        ----------                         ----------
   Total assets.................... $  868,624                        $  779,189                         $  592,001
                                     ==========                        ==========                         ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Deposits:
Demand, interest bearing........... $   69,634  $   1,099       1.58% $   55,616  $   1,014        1.82% $   39,996  $     717       1.79%
Savings and money-market...........    227,344      7,014       3.09%    228,336      9,496        4.16%    186,112      6,107       3.28%
Time deposits, under $100..........     78,910      4,237       5.37%     73,058      4,273        5.85%     58,423      2,969       5.08%
Time deposits, $100 and over.......    166,268      8,606       5.18%    151,275      8,701        5.75%     86,963      4,201       4.83%
Brokered deposits..................     30,843      1,641       5.32%     10,544        690        6.55%      8,812        508       5.76%
Other borrowings...................     18,545      1,769       9.54%      9,617        927        9.64%     16,893        896       5.30%
                                     ----------  ---------             ----------  ---------              ----------  ---------
   Total interest bearing
     liabilities...................    591,544     24,366       4.12%    528,446     25,101        4.75%    397,199     15,398       3.88%
                                                 ---------                         ---------                          ---------
Demand deposits....................    204,114                           183,422                            141,250
Other liabilities..................      1,910                             7,433                              5,295
                                     ----------                        ----------                         ----------
   Total liabilities...............    797,568                           719,301                            543,744
Shareholders' equity...............     71,056                            59,888                             48,257
                                     ----------                        ----------                         ----------
   Total liabilities and
      shareholders' equity......... $  868,624                        $  779,189                         $  592,001
                                     ==========                        ==========                         ==========
Net interest income / margin.......             $  41,004       5.04%             $  42,820        5.95%             $  30,020       5.56%
                                                 =========                         =========                          =========

                                                          Years Ended December 31,
                                     -------------------------------------------------------------------
                                            2001 versus 2000                  2000 versus 1999
                                     --------------------------------  ---------------------------------
                                           Increase (Decrease) Due           Increase (Decrease) Due
                                                to Change In:                     to Change In:
                                     --------------------------------  ---------------------- ----------
                                      Average     Average      Net      Average     Average       Net
(Dollars in thousands)                 Volume      Rate      Change      Volume      Rate       Change
                                     ----------  ---------  ---------  ----------  ---------   ---------
INTEREST EARNING ASSETS:
  Loans, gross..................... $    9,650  $  (8,841) $     809  $   16,531  $   3,436   $  19,967
  Investment securities............       (266)      (653)      (919)        499        384         883
  Interest bearing deposits in banks       116        (25)        91          66         --          66
  Federal funds sold...............       (496)    (2,036)    (2,532)        813        774       1,587
                                     ----------  ---------  ---------  ----------  ---------   ---------
Total interest earning assets...... $    9,004  $ (11,555) $  (2,551) $   17,909  $   4,594   $  22,503
                                     ----------  ---------  ---------  ----------  ---------   ---------
INTEREST BEARING LIABILITIES:
  Demand, interest bearing......... $      221  $    (136) $      85  $      285  $      12   $     297
  Savings and money-market.........        (31)    (2,451)    (2,482)      1,756      1,633       3,389
  Time deposits, under $100........        314       (350)       (36)        856        447       1,303
  Time deposits, $100 and over.....        776       (871)       (95)      3,699        802       4,501
  Brokered deposits................      1,080       (129)       951         113         69         182
  Other borrowings.................        875        (33)       842        (702)       733          31
                                     ----------  ---------  ---------  ----------  ---------   ---------
Total interest bearing liabilities. $    3,235  $  (3,970) $    (735) $    6,007  $   3,696   $   9,703
                                     ----------  ---------  ---------  ----------  ---------   ---------
Net interest income................ $    5,769  $  (7,585) $  (1,816) $   11,902  $     898   $  12,800
                                     ==========  =========  =========  ==========  =========   =========

                                                                                   Increase (Decrease)
                                                                       ---------------------------------------------
                                          Years Ended December 31,       2001 versus 2000        2000 versus 1999
                                     --------------------------------  ---------------------   ---------------------
(Dollars in thousands)                  2001       2000       1999       Amount     Percent     Amount     Percent
                                     ----------  ---------  ---------  ----------  ---------   ---------  ----------
Gain on sale of loans.............. $    1,758  $      --  $     262  $    1,758         -- % $    (262)       (100)%
Other investments..................      1,029        778        429         251         32 %       349          81 %
Service charges and other fees.....        967        716        560         251         35 %       156          28 %
Gain on sale of securities                                                    --
  available-for-sale...............        732         44        969         688      1,564 %      (925)        (95)%
Servicing income...................        356        236      1,903         120         51 %    (1,667)        (88)%
Gain on sale of Internet credit                                               --
   card portfolio..................         --         60        289         (60)      (100)%      (229)        (79)%
Gain on sale of shares of                                                     --
  demutualized  life assurance                                                --
  company..........................         --         47        530         (47)      (100)%      (483)        (91)%
Gain on sale of deposits...........         --         16        240         (16)      (100)%      (224)        (93)%
Other income.......................      1,090        980        869         110         11 %       111          13 %
                                     ----------  ---------  ---------  ----------              ---------
Total.............................. $    5,932  $   2,877  $   6,051  $    3,055        106 % $  (3,174)        (52)%
                                     ==========  =========  =========  ==========              =========

                                                                                   Increase (Decrease)
                                                                       ---------------------------------------------
                                          Years Ended December 31,       2001 versus 2000        2000 versus 1999
                                     --------------------------------  ---------------------   ---------------------
(Dollars in thousands)                  2001       2000       1999       Amount     Percent     Amount     Percent
                                     ----------  ---------  ---------  ----------  ---------   ---------  ----------
Salaries and benefits.............. $   18,120  $  16,127  $  13,834  $    1,993         12 % $   2,293          17 %
Occupancy..........................      2,847      2,399      2,034         448         19 %       365          18 %
Client services....................      1,889      1,839      1,527          50          3 %       312          20 %
Furniture and equipment............      1,453      1,329      1,350         124          9 %       (21)         (2)%
Professional fees..................      1,447      1,861      1,659        (414)       (22)%       202          12 %
Loan origination costs.............      1,335      1,011        539         324         32 %       472          88 %
Advertising and promotion..........      1,116      1,029      1,113          87          8 %       (84)         (8)%
Stationery & supplies..............        489        388        300         101         26 %        88          29 %
Telephone .........................        358        359        208          (1)        (0)%       151          73 %
Merger-related costs...............         --      3,164         --      (3,164)      (100)%     3,164          -- %
Other..............................      4,294      4,554      4,034        (260)        (6)%       520          13 %
                                     ----------  ---------  ---------  ----------              ---------
Total.............................. $   33,348  $  34,060  $  26,598  $     (712)        (2)% $   7,462          28 %
                                     ==========  =========  =========  ==========              =========

                                                            Years Ended December 31,
                                     -------------------------------------------------------------------
                                               2001                  2000                   1999
                                     ---------------------  ---------------------  ---------------------
                                                   % of                  % of                    % of
                                       Amount      Total     Amount      Total      Amount       Total
                                     ----------  ---------  ---------  ----------  ---------   ---------
Salaries and benefits.............. $   18,120         54% $  16,127          47% $  13,834          52%
Occupancy..........................      2,847          9%     2,399           7%     2,034           8%
Client services....................      1,889          6%     1,839           5%     1,527           6%
Furniture and equipment............      1,453          4%     1,329           4%     1,350           5%
Professional fees..................      1,447          4%     1,861           5%     1,659           6%
Loan origination costs.............      1,335          4%     1,011           3%       539           2%
Advertising and promotion..........      1,116          3%     1,029           3%     1,113           4%
Stationery & supplies..............        489          1%       388           1%       300           1%
Telephone..........................        358          1%       359           1%       208           1%
Merger-related costs...............         --         --      3,164           9%        --          --
Other..............................      4,294         14%     4,554          15%     4,034          15%
                                     ----------  ---------  ---------  ----------  ---------   ---------
Total.............................. $   33,348        100% $  34,060         100% $  26,598         100%
                                     ==========  =========  =========  ==========  =========   =========

                                                       Years Ended December 31,
                                                  -------------------------------
(Dollars in thousands)                              2001       2000       1999
                                                  ---------  ---------  ---------
Securities available-for-sale (at fair value)
U.S. Treasury................................... $   3,593  $   8,524  $  11,501
U.S. Government Agencies........................    53,762     48,202     21,466
Mortgage-backed securities......................    22,839     18,870     10,001
Municipals-tax exempt...........................     9,273     14,297      7,877
Corporate bonds...................................   2,067         --         --
Other debt securities...........................        --      1,001        977
                                                  ---------  ---------  ---------
   Total securities available-for-sale.......... $  91,534  $  90,894  $  51,822
                                                  =========  =========  =========
Securities held-to-maturity (at amortized cost)
Mortgage-backed securities...................... $   4,381  $   5,783  $   6,760
CMOs............................................       893      2,215      2,403
Municipals......................................    10,002     11,910     13,834
                                                  ---------  ---------  ---------
     Total securities held-to-maturity.......... $  15,276  $  19,908  $  22,997
                                                  =========  =========  =========

                                                                December 31, 2001
                             --------------------------------------------------------------------------------------------
                                                                   Maturity
                             --------------------------------------------------------------------------------------------
                                                 After One Year    After Five Years
                                                    and Within         and Within
                             Within One Year        Five Years        Ten Years       After Ten Years          Total
                             ----------------   ----------------   ----------------   ----------------   ----------------
(Dollars in thousands)        Amount   Yield     Amount   Yield     Amount   Yield     Amount   Yield     Amount   Yield
                             -------- -------   -------- -------   -------- -------   -------- -------   -------- -------
Securities available-for-sale:
 U.S. treasury............. $  3,593    3.10 % $     --      -- % $     --      -- % $     --      -- % $  3,593    3.10 %
 U.S. Government Agencies..    4,591    5.87 %   49,171    4.73 %       --      -- %       --      -- %   53,762    4.83 %
 Mortgage-backed securities       --      -- %       --      -- %       --      -- %   22,839    5.83 %   22,839    5.83 %
 Municipals-tax exempt.....    2,194    6.24 %    3,606    6.31 %    3,473    6.95 %       --      -- %    9,273    6.53 %
 Corporate bonds.............     --      -- %    2,067    4.48 %       --      -- %       --      -- %    2,067    4.48 %
                             --------           --------           --------           --------           --------
   Total available-for-sale   10,378    4.99 %   54,844    4.82 %    3,473    6.95 %   22,839    5.83 %   91,534    5.17 %
                             --------           --------           --------           --------           --------
Securities held-to-maturity:
 Mortgage-backed securities       --      -- %    4,381    6.35 %       --      -- %       --      -- %    4,381    6.35 %
 CMOs......................      893    6.14 %       --      -- %       --      -- %       --      -- %      893    6.14 %
 Municipals - taxable......    1,003    6.47 %    1,594    6.60 %       --      -- %       --      -- %    2,597    6.55 %
 Municipals - tax exempt...       --      -- %    3,285    6.72 %    4,120    6.67 %       --      -- %    7,405    6.74 %
                             --------           --------           --------           --------           --------
  Total held-to-maturity...    1,896    6.13 %    9,260    6.52 %    4,120    6.67 %       --      -- %   15,276    6.56 %
                             --------           --------           --------           --------           --------
  Total securities......... $ 12,274    5.19 % $ 64,104    5.07 % $  7,593    6.85 % $ 22,839    5.83 % $106,810    5.37 %
                             ========           ========           ========           ========           ========

                                                                       December 31,
                               ---------------------------------------------------------------------------------------------
                                          % of               % of               % of               % of               % of
(Dollars in thousands)           2001     Total     2000     Total     1999     Total     1998     Total     1997     Total
                               --------- -------  --------- -------  --------- -------  --------- -------  --------- -------
Commercial................... $ 208,713      33% $ 200,846      33% $ 141,101      35% $  95,587      28% $  69,060      35%
Real estate - mortgage.......   246,119      39%   230,468      38%   153,518      38%   100,870      30%    66,363      34%
Real estate - land and
 construction................   174,077      27%   171,325      28%    96,868      24%    86,102      25%    57,019      29%
Consumer.....................     3,833       1%     8,172       1%    10,048       3%    55,656      17%     5,307       2%
                               --------- -------  --------- -------  --------- -------  --------- -------  --------- -------
Total loans..................   632,742     100%   610,811     100%   401,535     100%   338,215     100%   197,749     100%
Deferred loan costs (fees)...       175                (30)              (295)              (284)              (403)
Allowance for loan losses....   (11,154)            (9,651)            (6,511)            (5,069)            (3,270)
                               ---------          ---------          ---------          ---------          ---------
Loans, net................... $ 621,763          $ 601,130          $ 394,729          $ 332,862          $ 194,076
                               =========          =========          =========          =========          =========

                                                          Over One
                                                Due in    Year But
                                               One Year   Less Than    Over
(Dollars in thousands)                          or Less   Five Years Five Years   Total
---------------------------------------------  ---------  ---------  ---------  ---------
Commercial................................... $ 196,442  $  10,337  $   1,934  $ 208,713
Real estate - mortgage.......................   147,209     87,426     11,484    246,119
Real estate - land and construction..........   174,077         --         --    174,077
Consumer.....................................     3,289        544         --      3,833
                                               ---------  ---------  ---------  ---------
     Total loans.............................   521,017     98,307     13,418    632,742
                                               =========  =========  =========  =========

Loans with variable interest rates...........   506,065     60,133      2,351    568,549
Loans with fixed interest rates..............    14,952     38,174     11,067     64,193
                                               ---------  ---------  ---------  ---------
     Total loans............................. $ 521,017  $  98,307  $  13,418  $ 632,742
                                               =========  =========  =========  =========

(Dollars in thousands)                                    2001        2000
                                                       ----------  ----------
Commitments to extend credit......................... $  275,796  $  351,401
Standby letters of credit............................      2,526       6,792
                                                       ----------  ----------
                                                      $  278,322  $  358,193
                                                       ==========  ==========

                                                                     December 31,
                                               -----------------------------------------------------
(Dollars in thousands)                           2001       2000       1999       1998       1997
                                               ---------  ---------  ---------  ---------  ---------
Nonaccrual loans............................. $      --  $      --  $   1,402  $   1,354  $      61
Loans 90 days past due and still accruing....        --         --         --         --         --
Restructured loans...........................                   --         --         --         --
                                               ---------  ---------  ---------  ---------  ---------
   Total nonperforming loans.................        --         --      1,402      1,354         61
Foreclosed assets............................        --         --         --         --         --
                                               ---------  ---------  ---------  ---------  ---------
   Total nonperforming assets................ $      --  $      --  $   1,402  $   1,354  $      61
                                               =========  =========  =========  =========  =========
Nonperforming assets as a percentage of
    period end loans plus foreclosed assets..        --         --       0.35%      0.40%      0.03%

(Dollars in thousands)                           2001       2000       1999       1998       1997
                                               ---------  ---------  ---------  ---------  ---------
Balance, beginning of period................. $   9,651  $   6,511  $   5,069  $   3,270  $   2,180
Charge-offs:
         Commercial..........................      (708)       (52)      (203)      (108)      (223)
         Real estate - mortgage..............        --         --         --         --         --
         Real estate - land and construction.        --         --         --         --         --
         Consumer............................        (1)        --       (629)       (71)      (115)
                                               ---------  ---------  ---------  ---------  ---------
Total charge-offs............................      (709)       (52)      (832)      (179)      (338)
Recoveries:
         Commercial..........................       301         33         67        137         98
         Real estate - mortgage..............        --         --         --         --         --
         Real estate - land and construction.        --         --         --         --         --
         Consumer............................         1         --          9         35         --
                                               ---------  ---------  ---------  ---------  ---------
Total recoveries.............................       302         33         76        172         98
                                               ---------  ---------  ---------  ---------  ---------
Net charge-offs..............................      (407)       (19)      (756)        (7)      (240)
Provision for loan losses....................     1,910      3,159      2,198      1,806      1,330
                                               ---------  ---------  ---------  ---------  ---------
Balance, end of period....................... $  11,154  $   9,651  $   6,511  $   5,069  $   3,270
                                               =========  =========  =========  =========  =========

RATIOS:
  Net charge-offs to average loans
  outstanding................................        -- %       -- %     0.20 %       -- %     0.14 %
  Allowance for loan losses to average loans.      1.84 %     1.80 %     1.71 %     1.87 %     1.97 %
  Allowance for loan losses to total
  loans at end of period.....................      1.76 %     1.58 %     1.62 %     1.50 %     1.66 %
  Allowance for loan losses to
  non-performing loans.......................        -- %       -- %      464 %      374 %    5,360 %

                                                                          December 31,
                            ------------------------------------------------------------------------------------------------------
                                   2001                 2000                1999                 1998                 1997
                            ------------------   ------------------   ------------------   ------------------   ------------------
                                      Percent              Percent              Percent              Percent              Percent
                                       of ALL               of ALL               of ALL               of ALL               of ALL
                                      in each              in each              in each              in each              in each
                                      category             category             category             category             category
                                      to total             to total             to total             to total             to total
(Dollars in thousands)      Allowance  loans     Allowance  loans     Allowance  loans     Allowance  loans     Allowance  loans
                            --------- --------   --------- --------   --------- --------   --------- --------   --------- --------
Commercial................ $   5,489     2.63 % $   4,244     2.11 % $   3,069     2.18 % $   1,961     2.05 % $   1,171     1.70 %
Real estate - mortgage....     1,420     0.58 %     1,509     0.65 %     1,025     0.67 %       617     0.61 %       444     0.67 %
Real estate - land and
 construction.............     3,066     1.76 %     2,084     1.22 %     1,343     1.39 %     1,173     1.36 %       676     1.19 %
Consumer..................       102     2.66 %       158     1.93 %       170     1.69 %     1,245     2.24 %       106     2.00 %
Unallocated...............     1,077       -- %     1,656       -- %       904       -- %        73       -- %       873       -- %
                            ---------            ---------            ---------            ---------            ---------
Total..................... $  11,154     1.76 % $   9,651     1.58 % $   6,511     1.62 % $   5,069     1.50 % $   3,270     1.66 %
                            =========            =========            =========            =========            =========

                                                         Years ended December 31,
                                        -----------------------------------------------------------
                                               2001               2000                 1999
                                        -----------------   ------------------   ------------------
                                                  Average             Average              Average
                                         Average   Rate      Average    Rate      Average    Rate
(Dollars in thousands)                   Balance   Paid      Balance    Paid      Balance    Paid
                                        --------- -------   --------- --------   --------- --------
Demand, noninterest bearing........... $ 204,114      -- % $ 183,422       -- % $ 141,250       -- %
Demand, interest bearing..............    69,634    1.58 %    55,616     1.82 %    39,996     1.79 %
Savings and money market..............   227,344    3.09 %   228,336     4.16 %   186,112     3.28 %
Time deposits, under $100.............    78,910    5.37 %    73,058     5.85 %    58,423     5.08 %
Time deposits, $100 and over..........   166,268    5.18 %   151,275     5.75 %    86,963     4.83 %
Time deposits - Brokered Deposits.....    30,843    5.32 %    10,544     6.55 %     8,812     5.76 %
                                        ---------           ---------            ---------
Total average deposits................ $ 777,113    2.91 % $ 702,251     3.44 % $ 521,556     2.78 %
                                        =========           =========            =========

                                                   % of
(Dollars in thousands)                   Balance   Total
                                        --------- -------
Three months or less.................. $  92,438      42 %
Over three months through six months..    69,889      32 %
Over six months through twelve months.    16,630       8 %
Over twelve months....................    39,183      18 %
                                        --------- -------
          Total....................... $ 218,140     100 %
                                        ========= =======

                                                 2001          2000          1999
                                             ------------  ------------  ------------
Average balance during the year............ $  2,436,000  $  2,020,000  $ 16,887,000
Average interest rate during the year......         5.80%         5.17%         5.30%
Maximum month-end balance during the year.. $         --  $ 18,000,000  $ 14,000,000
Average rate at December 31................           --          5.13%         7.44%

                                           December 31,
                                ----------------------------------
(Dollars in thousands)             2001        2000        1999
                                ----------  ----------  ----------
Capital components:
   Tier 1 Capital............. $   91,598  $   78,982  $   57,610
   Tier 2 Capital.............      9,664       9,427       6,154
                                ----------  ----------  ----------
   Total risk-based capital... $  101,262  $   88,409  $   63,764
                                ==========  ==========  ==========

Risk-weighted assets.......... $  779,060  $  753,947  $  509,748
Quarterly average assets...... $  898,020  $  850,072  $  674,088


                                                                      MINIMUM
                                                                    REGULATORY
                                                                    REQUIREMENTS
                                                                    -----------
Capital ratios:
Total risk-based capital......       13.0%       11.7%       12.5%         8.0%
Tier 1 risk-based capital.....       11.8%       10.5%       11.3%         4.0%
Leverage ratio(1).............       10.2%        9.3%        8.5%         4.0%

                                            Due        Due in       Due
                                           Within      Three     After One
                                           Three     to Twelve    to Five    Due After   Not Rate-
(Dollars in  thousands)                    Months      Months      Years     Five Years  Sensitive     Total
                                         ----------  ----------  ----------  ----------  ----------  ----------
INTEREST EARNING ASSETS:
 Federal funds sold.................... $   71,600  $       --  $       --  $       --  $       --  $   71,600
 Interest bearing deposits in banks......    7,704          --          --          --          --       7,704
 Securities............................      2,509       9,765      74,065      20,471          --     106,810
 Total loans, including loans
    held-for-sale, net of deferred fees    512,970      40,682      98,307      13,419          --     665,378
                                         ----------  ----------  ----------  ----------  ----------  ----------
Total interest earning assets..........    594,783      50,447     172,372      33,890          --     851,492

Cash and due from banks................         --          --          --          --      27,015      27,015
Other assets...........................         --          --          --          --      34,223      34,223
                                         ----------  ----------  ----------  ----------  ----------  ----------
Total assets........................... $  594,783  $   50,447  $  172,372  $   33,890  $   61,238  $  912,730
                                         ==========  ==========  ==========  ==========  ==========  ==========

INTEREST BEARING LIABILITIES:
 Demand, interest bearing.............. $   80,529  $       --  $       --  $       --  $       --  $   80,529
 Savings and money market..............    229,994          --          --          --          --     229,994
 Time deposits.........................    124,813     122,063      43,772         100          --     290,748
 Mandatorily redeemable cumulative
   trust preferred securities..........         --          --          --      19,000          --      19,000
                                         ----------  ----------  ----------  ----------  ----------  ----------
Total interest bearing liabilities.....    435,336     122,063      43,772      19,100          --     620,271

Demand noninterest bearing.............     66,328          --          --          --     140,309     206,637
Accrual interest payable
  and other liabilities................         --          --          --          --      11,248      11,248
Shareholders' equity...................         --          --          --          --      74,574      74,574
                                         ----------  ----------  ----------  ----------  ----------  ----------
Total liabilities and shareholders'
  equity............................... $  501,664  $  122,063  $   43,772  $   19,100  $  226,131  $  912,730
                                         ==========  ==========  ==========  ==========  ==========  ==========

Interest rate sensitivity GAP.......... $   93,119  $  (71,616) $  128,600  $   14,790  $ (164,893) $       --
                                         ==========  ==========  ==========  ==========  ==========  ==========
Cumulative interest rate
  sensitivity GAP...................... $   93,119  $   21,503  $  150,103  $  164,893  $       --  $       --
Cumulative interest rate
  sensitivity GAP ratio................      10.20 %      2.36 %     16.45 %     18.07 %        -- %        -- %

                                            2001                                           2000
                       ---------------------------------------------  ---------------------------------------------
                                              Market Value as a % of                         Market Value as a % of
                        $ Change   % Change   Present Value of Assets  $ Change   % Change   Present Value of Assets
(Dollars in thousands) in Market  in Market   ----------------------  in Market  in Market   ----------------------
Change in rates          Value      Value     MV Ratio   Change (bp)    Value      Value     MV Ratio   Change (bp)
---------------------  ---------- ----------  ---------  -----------  ---------- ----------  ---------  -----------
 + 200 bp............ $   12,254       9.63 %     15.3 %        134  $    8,617       8.04 %     13.7 %        102
     0 bp............         --         -- %     14.0 %         --          --         -- %     12.7 %         --
 - 200 bp............ $  (14,344)    (11.27)%     12.4 %       (157) $   (9,532)     (8.89)%     11.5 %       (113)

                                                                For the Quarter Ended
                          ------------------------------------------------------------------------------------------------
                          December 31, September 30, June 30,   March 31,  December 31, September 30, June 30,   March 31,
                             2001          2001        2001       2001        2000          2000        2000       2000
                          -----------  ------------  ---------  ---------  -----------  ------------  ---------  ---------
Interest income......... $    14,414  $     15,943  $  16,851  $  18,162  $    19,089  $     18,553  $  16,301  $  13,978
Interest expense........       5,250         5,803      6,231      7,082        7,108         7,213      5,921      4,859
                          -----------  ------------  ---------  ---------  -----------  ------------  ---------  ---------
Net interest income.....       9,164        10,140     10,620     11,080       11,981        11,340     10,380      9,119
Provision for loan
  losses................         576           279        528        527        1,290           655        534        680
                          -----------  ------------  ---------  ---------  -----------  ------------  ---------  ---------
Net interest income
 after provision........       8,588         9,861     10,092     10,553       10,691        10,685      9,846      8,439
Noninterest income......       1,327         1,737      1,647      1,221          743           785        614        735
Noninterest expense.....       7,725         8,687      8,669      8,267       11,002         8,043      8,225      6,790
                          -----------  ------------  ---------  ---------  -----------  ------------  ---------  ---------
Net income before taxes.       2,190         2,911      3,070      3,507          432         3,427      2,235      2,384
Provision for income
  taxes.................         816         1,088      1,180      1,326          183         1,253        746        867
                          -----------  ------------  ---------  ---------  -----------  ------------  ---------  ---------
Net income.............. $     1,374  $      1,823  $   1,890  $   2,181  $       249  $      2,174  $   1,489  $   1,517
                          ===========  ============  =========  =========  ===========  ============  =========  =========
Net income per share
  basic................. $      0.12  $       0.17  $    0.17  $    0.20  $      0.02  $       0.20  $    0.14  $    0.15
Net income per share
  diluted............... $      0.12  $       0.16  $    0.17  $    0.19  $      0.02  $       0.20  $    0.13  $    0.14

                                                                              December 31,
                                                                          ----------------------
                                                                             2001        2000
(Dollars in thousands)                                                    ----------  ----------
                                 ASSETS
Cash and due from banks................................................. $   34,719  $   40,769
Federal funds sold......................................................     71,600      19,300
                                                                          ----------  ----------
                 Total cash and cash equivalents........................    106,319      60,069
Securities available-for-sale, at fair value............................     91,534      90,894
Securities held-to-maturity, at amortized cost..........................     15,276      19,908
  (fair value of $15,708 for 2001 and $20,075 for 2000)
Loans held for sale, at lower of cost or market.........................     32,461      35,931
Loans, net of deferred costs of $175 for 2001
  and deferred fees of $30 for 2000.....................................    632,917     610,781
Allowance for probable loan losses......................................    (11,154)     (9,651)
                                                                          ----------  ----------
                 Loans, net.............................................    621,763     601,130
Premises and equipment, net.............................................      5,470       6,089
Accrued interest receivable and other assets............................     15,128      13,246
Other investments.......................................................     24,779      18,957
                                                                          ----------  ----------
                TOTAL................................................... $  912,730  $  846,224
                                                                          ==========  ==========
                  LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Deposits
       Demand, noninterest bearing...................................... $  206,637  $  207,885
       Demand, interest bearing.........................................     80,529      68,587
       Savings and money market.........................................    229,994     219,299
       Time deposits, under $100........................................     72,608      70,552
       Time deposits, $100 and over.....................................    218,140     171,863
                                                                          ----------  ----------
  Total deposits........................................................    807,908     738,186
  Federal Home Loan Bank borrowings.....................................         --      18,000
  Accrued interest payable and other liabilities........................     11,248      10,305
  Mandatorily redeemable cumulative trust preferred
       securities of subsidiary grantor trust...........................     19,000      14,000
                                                                          ----------  ----------
                 Total liabilities......................................    838,156     780,491
                                                                          ----------  ----------
Commitments and contingencies
Shareholders' equity:
  Preferred stock, no par value; 10,000,000 shares authorized: none
     outstanding........................................................         --          --
  Common stock, no par value; 30,000,000 shares authorized; shares
     outstanding: 11,114,967 in 2001 and 10,939,124 in 2000.............     63,536      62,469
  Accumulated other comprehensive income,  net of taxes.................      1,021         515
  Retained earnings.....................................................     10,017       2,749
                                                                          ----------  ----------
                 Total shareholders' equity.............................     74,574      65,733
                                                                          ----------  ----------
                 TOTAL.................................................. $  912,730  $  846,224
                                                                          ==========  ==========

                                                                           Years ended December 31,
                                                                     ----------------------------------
(Amounts in thousands, except per share data)                           2001        2000        1999
                                                                     ----------  ----------  ----------
Interest income:
  Loans, including fees............................................ $   57,518  $   56,709  $   36,742
  Securities, taxable..............................................      4,399       5,571       4,699
  Securities, non-taxable..........................................        870         617         606
  Interest bearing deposits in banks.................................      157          66          --
  Federal funds sold...............................................      2,426       4,958       3,371
                                                                     ----------  ----------  ----------
Total interest income..............................................     65,370      67,921      45,418
                                                                     ----------  ----------  ----------
Interest expense:
  Deposits.........................................................     22,597      24,174      14,502
  Mandatorily redeemable trust preferred securities................      1,644         823          --
  Other............................................................        125         104         896
                                                                     ----------  ----------  ----------
Total interest expense.............................................     24,366      25,101      15,398
                                                                     ----------  ----------  ----------
Net interest income before provision for probable loan losses......     41,004      42,820      30,020
Provision for probable loan losses.................................      1,910       3,159       2,198
                                                                     ----------  ----------  ----------
Net interest income after provision for probable loan losses.......     39,094      39,661      27,822
                                                                     ----------  ----------  ----------
Noninterest income:
  Gain on sale of loans............................................      1,758          --         262
  Other investments................................................      1,029         778         429
  Service charges and other fees on deposit accounts...............        967         716         560
  Gain on sales of securities available-for-sale...................        732          44         969
  Servicing income.................................................        356         236       1,903
  Gain on sale of Internet credit card portfolio...................         --          60         289
  Gain on sale of shares of demutualized life insurance company....         --          47         530
  Gain on sale of deposits.........................................         --          16         240
  Other............................................................      1,090         980         869
                                                                     ----------  ----------  ----------
Total noninterest income...........................................      5,932       2,877       6,051
                                                                     ----------  ----------  ----------
Noninterest expenses:
  Salaries and employee benefits...................................     18,120      16,127      13,834
  Occupancy........................................................      2,847       2,399       2,034
  Client services..................................................      1,889       1,839       1,527
  Furniture and equipment..........................................      1,453       1,329       1,350
  Professional fees................................................      1,447       1,861       1,659
  Loan origination costs.............................................     1335        1011         539
  Advertising and promotion........................................      1,116       1,029       1,113
  Stationery & supplies............................................        489         388         300
  Telephone........................................................        358         359         208
  Merger-related costs.............................................         --       3,164          --
  Other............................................................      4,294       4,554       4,034
                                                                     ----------  ----------  ----------
Total noninterest expenses.........................................     33,348      34,060      26,598
                                                                     ----------  ----------  ----------
Income before provision for income taxes...........................     11,678       8,478       7,275
Provision for income taxes.........................................      4,410       3,049       2,606
                                                                     ----------  ----------  ----------
Net income......................................................... $    7,268  $    5,429  $    4,669
                                                                     ==========  ==========  ==========
Earnings per share:
   Basic........................................................... $     0.66  $     0.51  $     0.47
   Diluted......................................................... $     0.64  $     0.49  $     0.43

                                                          Accumulated
                                                             Other
                                    Common Stock         Comprehensive                 Total         Other
                                 ----------------------     Income       Retained   Shareholders' Comprehensive
(Dollars in thousands)             Shares      Amount    (Net of Taxes)  Earnings      Equity        Income
                                 -----------  ---------  -------------  ----------  ------------  ------------
BALANCES, JANUARY  1, 1999......  8,576,147  $  36,815  $         542  $    4,633  $     41,990
Net income......................         --         --             --       4,669         4,669  $      4,669
Net change in unrealized
gain (loss) on securities
available-for-sale, net of
reclassification adjustment
and taxes.......................         --         --         (1,796)         --        (1,796)       (1,796)
                                                                                                  ------------
   Total comprehensive income...                                                                 $      2,873
                                                                                                  ============
Common stock issued
pursuant to June 1999
offering (net of issuance
costs of $172,000)..............    758,138     11,200             --          --        11,200
Stock dividend..................    302,171      2,710             --      (2,710)           --
Cash paid for factional shares..       (199)        (4)            --          --            (4)
Stock options exercised.........    101,482        485             --          --           485
                                 -----------  ---------  -------------  ----------  ------------
BALANCES, DECEMBER 31, 1999.....  9,737,739     51,206         (1,254)      6,592        56,544
Net income......................         --         --             --       5,429         5,429  $      5,429
Net change in unrealized
gain (loss) on securities
available-for-sale, net of
reclassification adjustment
and taxes.......................         --         --          1,769          --         1,769         1,769
                                                                                                  ------------
   Total comprehensive income...                                                                 $      7,198
                                                                                                  ============
Stock dividend..................    639,444      9,272             --      (9,272)           --
Cash paid for fractional shares.       (325)        (3)            --          --            (3)
Stock options exercised.........    562,266      1,994             --          --         1,994
                                 -----------  ---------  -------------  ----------  ------------
BALANCES, DECEMBER 31, 2000..... 10,939,124     62,469            515       2,749        65,733
Net income......................         --         --             --       7,268         7,268  $      7,268
Net change in unrealized
gain (loss) on securities
available-for-sale, net of
reclassification adjustment
and taxes.......................         --         --            506          --           506           506
                                                                                                  ------------
   Total comprehensive income...                                                                 $      7,774
                                                                                                  ============
Stock options exercised.........    175,843      1,067             --          --         1,067
                                 -----------  ---------  -------------  ----------  ------------
BALANCES, DECEMBER 31, 2001..... 11,114,967  $  63,536  $       1,021  $   10,017  $     74,574
                                 ===========  =========  =============  ==========  ============

                                                                           Years ended December 31,
                                                                       -------------------------------
(Dollars in thousands)                                                   2001       2000       1999
                                                                       ---------  ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $   7,268  $   5,429  $   4,669
Adjustments to reconcile net income to net cash provided by
  operating activities:
   Loss on disposals of property and equipment.......................        --         --       (283)
   Depreciation and amortization.....................................     1,527        777        706
   Provision for probable loan losses................................     1,910      3,159      2,198
   Gain on sales of securities available-for-sale....................      (732)       (44)      (969)
   Provision for deferred income taxes...............................     2,451        391       (709)
   Amortization / accretion of discounts and premiums on
   securities........................................................      (668)        92       (239)
   Proceeds from sales of loans held for sale........................    42,613         --      4,317
   Originations of loans held for sale...............................   (52,411)   (13,845)   (17,941)
   Maturities of loans held for sale.................................    13,268        157      7,839
   Effect of changes in:
      Accrued interest receivable and other assets...................    (4,260)    (3,772)    (1,488)
      Accrued interest payable and other liabilities.................       671      2,606     10,133
                                                                       ---------  ---------  ---------
Net cash provided by (used in) operating activities..................    11,637     (5,050)     8,233
                                                                       ---------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans................................................   (22,543)  (209,563)   (47,203)
Purchases of securities available-for-sale...........................   (82,098)   (52,042)   (39,550)
Maturities/Paydowns/Calls of securities available-for-sale...........    24,484      5,230     30,652
Proceeds from sales of securities available-for-sale.................    59,080      9,937     53,475
Maturities/Paydowns/Calls of securities held-to-maturity.............     4,631      3,040      3,949
Purchase of corporate-owned life insurance...........................    (5,989)    (3,763)    (4,214)
Purchase of property and equipment...................................      (908)    (1,180)      (862)
Redemption (purchase) of other investment............................       167       (521)     1,858
                                                                       ---------  ---------  ---------
Net cash used in investing activities................................   (23,176)  (248,862)    (1,895)
                                                                       ---------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits.............................................    69,722    136,766     91,504
Proceeds from issuance of mandatorily
 redeemable cumulative trust preferred
 securities of Subsidiary Grantor Trust..............................     5,000     14,000         --
Net proceeds from issuance of common stock...........................     1,067      1,991     11,681
Net change in FHLB borrowings........................................   (18,000)     6,000    (17,000)
                                                                       ---------  ---------  ---------
Net cash provided by financing activities............................    57,789    158,757     86,185
                                                                       ---------  ---------  ---------
Net increase (decrease) in cash and cash equivalents.................    46,250    (95,155)    92,523
Cash and cash equivalents, beginning of year.........................    60,069    155,224     62,701
                                                                       ---------  ---------  ---------
Cash and cash equivalents, end of year............................... $ 106,319  $  60,069  $ 155,224
                                                                       =========  =========  =========

Supplemental disclosures of cash flow information:
  Cash paid during the year for:
    Interest......................................................... $  24,287  $  17,324  $  14,383
    Income taxes..................................................... $   6,600  $   5,974  $   3,443
Supplemental schedule of non-cash investing and financing activity:
Transfer from retained earnings to common stock for stock dividend... $      --  $   9,272  $   2,710
Transfer of investment securities from HTM to AFS.................... $      --  $      --  $  11,669

                                                             Years ended December 31,
                                                       -------------------------------------
(Amounts in thousands)                                    2001         2000         1999
                                                       -----------  -----------  -----------
Net income........................................... $     7,268  $     5,429  $     4,669

Other comprehensive income, net of tax:
  Net unrealized holding gain (loss) on
  available-for-sale securities during the year......         961        1,797       (1,174)
  Less: reclassification adjustment for realized
  gains on available for sale securities included
  in net income during the year......................         455           28          622
                                                       -----------  -----------  -----------
Other comprehensive income (loss)....................         506        1,769       (1,796)
                                                       -----------  -----------  -----------
Comprehensive income................................. $     7,774  $     7,198  $     2,873
                                                       ===========  ===========  ===========

                                                             Years ended December 31,
                                                       -------------------------------------
                                                          2001         2000         1999
                                                       -----------  -----------  -----------
Weighted average common shares outstanding - used
in computing basic earnings per share................  11,082,157   10,607,584    9,885,036
Dilutive effect of stock options outstanding,
using the treasury stock method......................     297,564      500,745    1,037,941
                                                       -----------  -----------  -----------
Shares used in computing diluted earnings per share..  11,379,721   11,108,329   10,922,977
                                                       ===========  ===========  ===========

                                                                  Gross        Gross      Estimated
                                                   Amortized   Unrealized   Unrealized      Fair
(Dollars in thousands)                               Cost         Gains       Losses        Value
                                                  -----------  -----------  -----------  -----------
Securities available-for-sale:
    U.S. Treasury............................... $     3,568  $        25  $        --  $     3,593
    U.S. Government Agencies....................      52,656        1,106           --       53,762
    Municipals..................................       8,938          335           --        9,273
    FHLMC and FNMA mortgage-backed securities...       9,997          102           --       10,099
    GNMA mortgage-backed securities.............      12,768           --           28       12,740
    Corporate bonds...............................     2,046           21           --        2,067
                                                  -----------  -----------  -----------  -----------
Total securities available-for-sale............. $    89,973  $     1,589  $        28  $    91,534
                                                  ===========  ===========  ===========  ===========
Securities held-to-maturity:
    Municipals.................................. $    10,002  $       375  $        --  $    10,377
    FHLMC and FNMA mortgage-backed securities...       2,475           22           --        2,497
    GNMA mortgage-backed securities.............       1,906           18                     1,924
    CMOs........................................         893           17                       910
                                                  -----------  -----------  -----------  -----------
Total securities held-to-maturity............... $    15,276  $       432  $        --  $    15,708
                                                  ===========  ===========  ===========  ===========

                                                                  Gross        Gross      Estimated
                                                   Amortized   Unrealized   Unrealized      Fair
(Dollars in thousands)                               Cost         Gains       Losses        Value
                                                  -----------  -----------  -----------  -----------
Securities available-for-sale:
    U.S. Treasury............................... $     8,527  $        --  $         3  $     8,524
    U.S. Government Agencies....................      47,694          508           --       48,202
    Municipals..................................      14,055          242           --       14,297
    FHLMC mortgage-backed securities............      10,551          179           --       10,730
    GNMA mortgage-backed securities.............       8,212           --           72        8,140
    Other debt Securities.......................       1,000            1           --        1,001
                                                  -----------  -----------  -----------  -----------
Total securities available-for-sale............. $    90,039  $       930  $        75  $    90,894
                                                  ===========  ===========  ===========  ===========
Securities held-to-maturity:
    Municipals.................................. $    11,910  $       211  $        --  $    12,121
    FHLMC mortgage-backed securities............       3,573           --           12        3,561
    GNMA mortgage-backed securities.............       2,210           --            7        2,203
    CMOs........................................       2,215           --           25        2,190
                                                  -----------  -----------  -----------  -----------
Total securities held-to-maturity............... $    19,908  $       211  $        44  $    20,075
                                                  ===========  ===========  ===========  ===========

                                                     Held-to-maturity          Available-for-sale
                                                  ------------------------  ------------------------
                                                                Estimated                 Estimated
                                                   Amortized      Fair       Amortized      Fair
(Dollars in thousands)                               Cost         Value        Cost         Value
                                                  -----------  -----------  -----------  -----------
Due within one year............................. $     1,896  $     1,928  $    10,258  $    10,378
Due after one through five years................       9,260        9,523       63,592       64,805
Due after five through ten years................       4,120        4,257       14,304       14,536
Due after ten years.............................          --           --        1,819        1,815
                                                  -----------  -----------  -----------  -----------
Total........................................... $    15,276  $    15,708  $    89,973  $    91,534
                                                  ===========  ===========  ===========  ===========

(Dollars in thousands)                               2001         2000
                                                  -----------  -----------
Loans held for sale............................. $    32,461  $    35,931
                                                  ===========  ===========
Loans held for investment
  Commercial.................................... $   208,713  $   200,846
  Real estate - mortgage........................     246,119      230,468
  Real estate - land and construction...........     174,077      171,325
  Consumer......................................       3,833        8,172
                                                  -----------  -----------
Total loans.....................................     632,742      610,811
Deferred loan costs (fees)......................         175          (30)
Allowance for probable loan losses..............     (11,154)      (9,651)
                                                  -----------  -----------
Loans, net...................................... $   621,763  $   601,130
                                                  ===========  ===========

                                                        Years ended December 31,
                                                  -------------------------------------
(Dollars in thousands)                               2001         2000         1999
                                                  -----------  -----------  -----------
Balance, beginning of year...................... $     9,651  $     6,511  $     5,069

Loans charged-off...............................        (709)         (52)        (832)
Recoveries......................................         302           33           76
                                                  -----------  -----------  -----------
Net loans charged-off...........................        (407)         (19)        (756)
Provision for probable loan losses..............       1,910        3,159        2,198
                                                  -----------  -----------  -----------
Balance, end of year............................ $    11,154  $     9,651  $     6,511
                                                  ===========  ===========  ===========

(Dollars in thousands)                               2001         2000
                                                  -----------  -----------
Beginning balance............................... $     2,075  $     1,456
Advances on loans during the year...............       3,214        1,517
Repayment on loans during the year..............      (1,212)        (898)
                                                  -----------  -----------
Ending balance.................................. $     4,077  $     2,075
                                                  ===========  ===========

(Dollars in thousands)                               2001         2000
                                                  -----------  -----------
Furniture and equipment......................... $     6,882  $     6,064
Leasehold improvements..........................       3,949        3,859
                                                  -----------  -----------
                                                      10,831        9,923
Accumulated depreciation and amortization.......      (5,361)      (3,834)
                                                  -----------  -----------
Premises and equipment, net..................... $     5,470  $     6,089
                                                  ===========  ===========

(Dollars in thousands)

Year
------------------------------------------------
2002............................................ $   246,575
2003............................................      34,691
2004..............................................     8,961
2005..............................................       521
                                                  -----------
Total time deposits............................. $   290,748
                                                  ===========

                                                               December 31,
                                                  -------------------------------------
(Dollars in thousands)                               2001         2000         1999
                                                  -----------  -----------  -----------
Long-term borrowings:
   FHLB loan, fixed rate of 5.84%............... $        --  $        --  $     2,000
   FHLB loan, fixed rate of 6.29%...............          --           --        3,000
                                                  -----------  -----------  -----------
     Total long-term borrowings.................          --           --        5,000
Short-term borrowings...........................          --       18,000        7,000
                                                  -----------  -----------  -----------
     Total FHLB borrowings...................... $        --  $    18,000  $    12,000
                                                  ===========  ===========  ===========

                                                               December 31,
                                                  -------------------------------------
(Dollars in thousands)                               2001         2000         1999
                                                  -----------  -----------  -----------
Average balance during the year................. $     2,436  $     2,020  $    16,887
Average interest rate during the year...........        5.80%        5.17%        5.30%
Maximum month-end balance during the year ...... $        --  $    18,000  $    14,000
Average rate at December 31.....................          --         5.13%        7.44%

                                                               December 31,
                                                  -------------------------------------
(Dollars in thousands)                               2001         2000         1999
                                                  -----------  -----------  -----------
Current:
  Federal....................................... $       534  $     2,052  $     2,512
  State.........................................       1,425          606          803
                                                  -----------  -----------  -----------
Total current...................................       1,959        2,658        3,315
                                                  -----------  -----------  -----------
Deferred:
  Federal.......................................       1,911          184         (640)
  State.........................................         540          207          (69)
                                                  -----------  -----------  -----------
Total deferred..................................       2,451          391         (709)
                                                  -----------  -----------  -----------
Provision for income taxes...................... $     4,410  $     3,049  $     2,606
                                                  ===========  ===========  ===========

                                                               December 31,
                                                  -------------------------------------
                                                     2001         2000         1999
                                                  -----------  -----------  -----------
Statutory federal income tax rate...............        35.0 %       35.0 %       35.0 %
State income taxes, net of federal tax benefit..         4.9          3.1          6.6
Merger cost.....................................          --          6.9           --
Non-taxable interest income.....................        (2.2)        (3.2)        (3.2)
Officers' life insurance........................        (3.0)        (3.1)        (1.9)
Other...........................................         3.1         (2.7)        (0.7)
                                                  -----------  -----------  -----------
Effective tax rate..............................        37.8 %       36.0 %       35.8 %
                                                  ===========  ===========  ===========

                                                       December 31,
                                                  ------------------------
(Dollars in thousands)                               2001         2000
                                                  -----------  -----------
Deferred tax assets:
    Allowance for loan losses................... $     4,546  $     3,491
    Accrued expenses............................       1,142            8
    State income taxes..........................         484           91
    Securities available-for-sale...............          --           --
    Net operating loss carryforward.............         396          519
    Other.......................................         511          106
                                                  -----------  -----------
Total deferred tax assets.......................       7,079        4,215
                                                  -----------  -----------
Deferred tax liabilities:
    Securities available-for-sale...............        (609)        (332)
    Loan fees...................................        (143)        (172)
    State income taxes..........................          --           --
    Other.......................................        (596)        (154)
                                                  -----------  -----------
Total deferred tax liabilities..................      (1,348)        (658)
                                                  -----------  -----------
Net deferred tax assets......................... $     5,731  $     3,557
                                                  ===========  ===========

                                                                                     Weighted
                                                                          Number      Average
                                                                            of       Exercise
                                                                          Shares       Price
                                                                        -----------  ---------
Options Outstanding at January 1, 1999
(1,195,274 exercisable at a weighted average exercise price of $4.58)..  1,834,528  $    5.23
Granted (weighted average fair value of $6.46).........................    255,634  $   12.68
Exercised..............................................................   (109,467) $    4.07
Cancelled..............................................................    (24,461) $    7.96
                                                                        -----------  ---------
Options Outstanding at December 31, 1999
(1,475,340 exercisable at a weighted average exercise price of $5.22)..  1,956,234  $    6.26
Granted (weighted average fair value of $5.14).........................    246,144  $    8.17
Exercised..............................................................   (562,475) $    3.27
Cancelled..............................................................    (66,070) $    9.14
                                                                        -----------  ---------
Options Outstanding at December 31, 2000
(1,086,985 exercisable at weighted average exercise price of $6.54)....  1,573,833  $    7.79
Granted (weighted average fair value of $3.14).........................    181,500  $    8.22
Exercised..............................................................   (175,842) $    3.70
Cancelled..............................................................    (32,840) $   10.78
                                                                        -----------  ---------
Options Outstanding at December 31, 2001
(1,148,381 exercisable at weighted average exercise price of $7.69)....  1,546,651  $    8.25
                                                                        ===========

                                   Weighted
                                    Average    Weighted                Weighted
                                   Remaining    Average                 Average
Range of               Number     Contractual  Exercise     Number     Exercise
Exercise Prices      Outstanding  Life (Yrs.)    Price   Exercisable     Price
------------------- ------------- -----------  --------- ------------  ---------
$ 1.42 - $4.41....       408,439        3.08  $    2.86      408,439  $    2.86
$ 4.42 - $5.32....        62,128        5.46  $    5.23       62,128  $    5.23
$ 5.33 - $9.70....       532,164        7.85  $    8.84      303,109  $    9.08
$ 9.71 - $16.37...       543,920        7.53  $   12.05      374,705  $   12.23
                    -------------                        ------------
$ 1.42 - $16.37...     1,546,651        6.38  $    8.25    1,148,381  $    7.69
                    =============                        ============

                                                             Years ended December 31,
                                                       ---------------------------------
(Amounts in thousands, except per share data)             2001        2000       1999
                                                       ----------  ----------  ---------
Net income
    As reported...................................... $    7,268  $    5,429  $   4,669
    Pro forma........................................ $    6,643  $    4,835  $   4,171

Net income per common share - basic
    As reported...................................... $     0.66  $     0.51  $    0.47
    Pro forma........................................ $     0.60  $     0.46  $    0.42

Net income per common share - diluted
    As reported...................................... $     0.64  $     0.49  $    0.43
    Pro forma........................................ $     0.58  $     0.44  $    0.38

(Amounts in thousands)
Year ending December 31,
-----------------------------------------------------
   2002.............................................. $    2,091
   2003..............................................      2,039
   2004..............................................      2,023
   2005..............................................      1,905
   2006..............................................      1,819
 Thereafter..........................................      5,073
                                                       ----------
 Total............................................... $   14,950
                                                       ==========

(Amounts in thousands)                                    2001        2000
Change in projected benefit obligation                ----------  ----------
  Projected benefit obligation at beginning of year.. $    2,150  $      253
  Service cost.......................................        378       1,879
  Interest cost......................................        113          18
  Actuarial gain.....................................       (242)         --
                                                       ----------  ----------
  Projected benefit obligation at end of year........ $    2,399  $    2,150
                                                       ==========  ==========

(Amounts in thousands)                                    2001        2000
Change in Plan assets                                 ----------  ----------
   Fair value of Plan assets at beginning of year.... $       --  $       --
   Fair value of Plan assets at end of year.......... $       --  $       --

Funding
   Unfunded Status................................... $   (2,399) $   (2,150)
   Unrecognized net actuarial (gain)/loss............       (192)         25
                                                       ----------  ----------
   Accrued pension cost.............................. $   (2,591) $   (2,125)
                                                       ==========  ==========

Weighted-average assumptions as of December 31
   Discount rate.....................................       7.00%       7.00%
   Rate of compensation increase.....................         N/A         N/A
   Expected return on Plan assets....................         N/A         N/A

(Amounts in thousands)                                    2001        2000
Components of net periodic benefits cost              ----------  ----------
   Service cost...................................... $      378  $    1,879
   Interest cost.....................................        113          18
   Amortization of gains.............................        (25)         --
                                                       ----------  ----------
   Net periodic benefit cost......................... $      466  $    1,897
                                                       ==========  ==========

                                                          2001        2000
                                                       ----------   ----------
Discount rate........................................       7.00%       7.00%
Rate of compensation increase........................         N/A         N/A
Expected return on Plan assets.......................         N/A         N/A

                                                                2001                    2000
                                                                   Estimated              Estimated
                                                        Carrying      Fair     Carrying     Fair
(Amounts in thousands)                                  Amounts      Value      Amounts     Value
                                                       ----------  ----------  ---------  ---------
Assets
  Cash and cash equivalents.......................... $  106,319  $  106,319  $  60,069  $  60,069
  Securities.........................................    106,810     107,242    110,802    110,969
  Loans, including loans held for sale, net..........    654,224     657,336    637,061    639,365
  Other investments..................................     24,779      24,779     18,957     18,957


Liabilities
  Time deposits...................................... $  290,748  $  295,732  $ 242,415  $ 243,184
  Other deposits.....................................    517,160     517,160    495,771    495,771
  Federal Home Loan Bank borrowings..................         --          --     18,000     18,000
  Mandatorily redeemable cumulative
    trusts preferred securities......................     19,000      19,727     14,000     14,000

(Dollars in thousands)                                    2001        2000
                                                       ----------  ----------
Commitments to extend credit......................... $  275,796  $  351,401
Standby letters of credit............................      2,526       6,792
                                                       ----------  ----------
                                                      $  278,322  $  358,193
                                                       ==========  ==========

                                      Actual                For Capital Adequacy Purposes
                                --------------------  ------------------------------------------
(Dollars in thousands)           Amount      Ratio     Amount                 Ratio
                                ---------  ---------  ---------  -------------------------------
 As of December 31, 2001
 Total Capital................ $ 101,262       13.0% $  62,315   (greater than or equal to) 8.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  91,598       11.8% $  31,162   (greater than or equal to) 4.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  91,598       10.2% $  35,921   (greater than or equal to) 4.0%
  (to average assets)

 As of December 31, 2000
 Total Capital................ $  88,409       11.7% $  60,451   (greater than or equal to) 8.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  78,982       10.5% $  30,088   (greater than or equal to) 4.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  78,982        9.3% $  33,971   (greater than or equal to) 4.0%
  (to average assets)

                                                                                                     To Be Well-Capitalized Under Prompt
                                      Actual                For Capital Adequacy Purposes                Corrective Action Provisions
                                --------------------  ------------------------------------------  ------------------------------------------
(Dollars in thousands)           Amount      Ratio     Amount                 Ratio                Amount                 Ratio
                                ---------  ---------  ---------  -------------------------------  ---------  -------------------------------
 As of December 31, 2001
 Total Capital................ $  50,441       12.7% $  31,749   (greater than or equal to) 8.0%    39,686   (greater than or equal to) 10.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  45,460       11.5% $  15,881   (greater than or equal to) 4.0%    23,822   (greater than or equal to) 6.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  45,460        9.7% $  18,746   (greater than or equal to) 4.0%    23,433   (greater than or equal to) 5.0%
  (to average assets)

 As of December 31, 2000
 Total Capital................ $  44,148       10.3% $  34,290   (greater than or equal to) 8.0%    42,862   (greater than or equal to) 10.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  38,800        9.1% $  17,055   (greater than or equal to) 4.0%    25,582   (greater than or equal to) 6.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  38,800        8.3% $  18,699   (greater than or equal to) 4.0%    23,374   (greater than or equal to) 5.0%
  (to average assets)

                                                                                                     To Be Well-Capitalized Under Prompt
                                      Actual                For Capital Adequacy Purposes                Corrective Action Provisions
                                --------------------  ------------------------------------------  ------------------------------------------
(Dollars in thousands)           Amount      Ratio     Amount                 Ratio                Amount                 Ratio
                                ---------  ---------  ---------  -------------------------------  ---------  -------------------------------
 As of December 31, 2001
 Total Capital................ $  12,105       11.6% $   8,377   (greater than or equal to) 8.0%    10,471   (greater than or equal to) 10.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  10,847       10.4% $   4,188   (greater than or equal to) 4.0%     6,282   (greater than or equal to) 6.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  10,847        8.4% $   5,171   (greater than or equal to) 4.0%     6,464   (greater than or equal to) 5.0%
  (to average assets)

 As of December 31, 2000
 Total Capital................ $   8,704       10.9% $   6,388   (greater than or equal to) 8.0%     7,985   (greater than or equal to) 10.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $   7,734        9.7% $   3,189   (greater than or equal to) 4.0%     4,784   (greater than or equal to) 6.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $   7,734        8.6% $   3,597   (greater than or equal to) 4.0%     4,497   (greater than or equal to) 5.0%
  (to average assets)

                                                                                                     To Be Well-Capitalized Under Prompt
                                      Actual                For Capital Adequacy Purposes                Corrective Action Provisions
                                --------------------  ------------------------------------------  ------------------------------------------
(Dollars in thousands)           Amount      Ratio     Amount                 Ratio                Amount                 Ratio
                                ---------  ---------  ---------  -------------------------------  ---------  -------------------------------
 As of December 31, 2001
 Total Capital.................$   7,462       13.0% $   4,585   (greater than or equal to) 8.0%     5,731   (greater than or equal to) 10.0%
  (to risk-weighted assets)
 Tier 1 Capital................$   6,745       11.8% $   2,292   (greater than or equal to) 4.0%     3,438   (greater than or equal to) 6.0%
  (to risk-weighted assets)
 Tier 1 Capital................$   6,745        9.9% $   2,731   (greater than or equal to) 4.0%     3,413   (greater than or equal to) 5.0%
  (to average assets)


 As of December 31, 2000
 Total Capital................ $   7,335       15.5% $   3,786   (greater than or equal to) 8.0%     4,732   (greater than or equal to) 10.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $   6,777       14.4% $   1,883   (greater than or equal to) 4.0%     2,824   (greater than or equal to) 6.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $   6,777       13.7% $   1,979   (greater than or equal to) 4.0%     2,473   (greater than or equal to) 5.0%
  (to average assets)

                                                                                                     To Be Well-Capitalized Under Prompt
                                      Actual                For Capital Adequacy Purposes                Corrective Action Provisions
                                --------------------  ------------------------------------------  ------------------------------------------
(Dollars in thousands)           Amount      Ratio     Amount                 Ratio                Amount                 Ratio
                                ---------  ---------  ---------  -------------------------------  ---------  -------------------------------
 As of December 31, 2001
 Total Capital................ $  25,068       11.0% $  18,231   (greater than or equal to) 8.0%    22,789   (greater than or equal to) 10.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  22,359        9.8% $   9,117   (greater than or equal to) 4.0%    13,675   (greater than or equal to) 6.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  22,359        8.5% $  10,485   (greater than or equal to) 4.0%    13,106   (greater than or equal to) 5.0%
  (to average assets)

 As of December 31, 2000
 Total Capital................ $  21,476       10.9% $  15,762   (greater than or equal to) 8.0%    19,703   (greater than or equal to) 10.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  19,218        9.8% $   7,844   (greater than or equal to) 4.0%    11,766   (greater than or equal to) 6.0%
  (to risk-weighted assets)
 Tier 1 Capital............... $  19,218        7.6% $  10,115   (greater than or equal to) 4.0%    12,643   (greater than or equal to) 5.0%
  (to average assets)

                                                                   December 31,  December 31,
                                                                       2001          2000
                                                                   ------------  ------------
Cash and cash equivalents........................................ $      5,747  $      5,746
Investment in and advancements to subsidiaries...................       87,106        73,476
Other assets.....................................................        2,963         2,540
                                                                   ------------  ------------
        Total.................................................... $     95,816  $     81,762
                                                                   ============  ============

Liabilities...................................................... $      1,664  $      1,606
Amounts due to nonbank subsidiaries..............................       19,578        14,423
Shareholders' equity.............................................       74,574        65,733
                                                                   ------------  ------------
        Total.................................................... $     95,816  $     81,762
                                                                   ============  ============

                                                                               For the Years Ended,
                                                                   ----------------------------------------
                                                                   December 31,  December 31,  December 31,
                                                                       2001          2000          1999
                                                                   ------------  ------------  ------------
Dividends from Bank subsidiaries................................. $         --  $        250  $         --
Interest income..................................................          141           243           204
Management and service fees......................................        8,573         6,995            --
Other income.....................................................           --           100            --
Interest expense.................................................           --            (2)          (16)
Other expenses...................................................      (12,923)      (10,552)          (61)
                                                                   ------------  ------------  ------------
Income (loss) before equity in net income of subsidiary banks....       (4,209)       (2,966)          127
Equity in undistributed net income of subsidiaries...............        9,897         7,218         4,582
Income tax benefit (expense).....................................        1,580         1,177           (40)
                                                                   ------------  ------------  ------------
Net income.......................................................        7,268         5,429         4,669
Other comprehensive income.......................................          506         1,769        (1,796)
                                                                   ------------  ------------  ------------
Comprehensive income............................................. $      7,774  $      7,198  $      2,873
                                                                   ============  ============  ============

                                                                               For the Years Ended,
                                                                   ----------------------------------------
                                                                   December 31,  December 31,  December 31,
                                                                       2001          2000          1999
                                                                   ------------  ------------  ------------
Cash flows from operating activities:
Net Income....................................................... $      7,268  $      5,429  $      4,669
Adjustments to reconcile net income to net cash provided by
  (used in) operations:
   Provision for deferred income taxes...........................       (1,580)       (1,177)           40
   Equity in undistributed losses of subsidiaries................       (9,897)       (7,218)       (4,582)
   Net change in other assets....................................           84        (1,177)          (21)
   Net change in other liabilities...............................          809         1,653           (31)
                                                                   ------------  ------------  ------------
Net cash provided by (used in) by operating activities                  (3,316)       (2,490)           75

Cash flows from investing activities:
   Other (dividends received from Bank subsidiaries).............           --       (17,079)         (250)
   Cash distributed to Bank  subsidiaries........................       (2,750)           --        (2,985)
Net cash used in investing activities                              ------------  ------------  ------------
                                                                        (2,750)      (17,079)       (3,235)

Cash flows from financing activities:
   Proceeds from issuance of common stock........................        1,067         1,991        11,681
   Proceeds from issuance of long-term debt......................        5,000        14,000            --
   Proceeds from other short-term borrowings.....................           --            --         4,000
   Repayments of other short-term borrowings.....................           --        (2,000)       (2,000)
                                                                   ------------  ------------  ------------
Net cash provided by financing activities........................        6,067        13,991        13,681
                                                                   ------------  ------------  ------------
Net increase (decrease) in cash and cash equivalents.............            1        (5,578)       10,521
Cash and cash equivalents, beginning of year.....................        5,746        11,324           803
                                                                   ------------  ------------  ------------
Cash and cash equivalents, end of year........................... $      5,747  $      5,746  $     11,324
                                                                   ============  ============  ============