<SUBMISSION>
<ACCESSION-NUMBER>0001137547-02-000034
<TYPE>10-K
<PUBLIC-DOCUMENT-COUNT>1
<PERIOD>20011231
<FILING-DATE>20020327
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>UNITED SECURITY BANCSHARES
<CIK>0001137547
<ASSIGNED-SIC>6021
<IRS-NUMBER>912112732
<STATE-OF-INCORPORATION>CA
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-K
<ACT>34
<FILE-NUMBER>000-32897
<FILM-NUMBER>02587212
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1525 E SHAW AVENUE
<CITY>FRESO
<STATE>CA
<ZIP>93710
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1525 E SHAW AVENUE
<CITY>FRESNO
<STATE>CA
<ZIP>93710
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a10k2001fin.htm
<DESCRIPTION>10K2001_USB
<TEXT>
<HTML>
<head>
<title>United Security Bancshares 10K December 31, 2001
</title>
</head>
<BODY>

<FONT FACE="Times New Roman, Times, Serif" SIZE=3><a href="#toc2001">Click here for Table of Contents</a></font>


<hr size=4 noshade width=100%><BR>

<p align=center><font size=4><b>SECURITIES AND EXCHANGE COMMISSION</b></font><br>
WASHINGTON, D.C. 20549</p>


<p align=center><font size=4><b>FORM 10-K</b></font></p>
<HR noshade width=20%><BR>
<p><font size=3><b>
 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[X]</b>&nbsp;ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</font></p>
<p align=center><font size=2><b>
  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001.</b></font></p><BR>
<p><font size=3>
 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>[&nbsp;&nbsp;]</b>&nbsp;TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FOR THE TRANSITION PERIOD
  FROM _________ TO ________.</font></p><BR>


<p align=center><font size=5><b><u>UNITED SECURITY BANCSHARES</u></b></font><BR>
<font size=2>(Exact name of registrant as specified in its charter)</font></p>

<table width=100% border=0 cellspacing=0 cellpadding=0>
<tr align=center>
<td width=35%><u>CALIFORNIA</u></td>
<td width=30%>&nbsp;</td>
<td width=45%><u>91-2112732</u></td>
</tr>
<tr align=center>
<td>(State or other jurisdiction of</td>
<td>&nbsp;</td>
<td>(I.R.S. Employer</td>
</tr>
<tr align=center>
<td>incorporation or organization)</td>
<td>&nbsp;</td>
<td>Identification No.)</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr align=center>
<td width=35%><u>1525 East Shaw Ave., Fresno, California</u></td>
<td width=30%>&nbsp;</td>
<td width=45%><u>93710</u></td>
</tr>
<tr align=center>
<td>(Address of principal executive offices)</td>
<td>&nbsp;</td>
<td>(Zip Code)</td>
</tr>
</table>
<BR>

<table width=100% border=0 cellspacing=0 cellpadding=0>
<tr>
<td width=10%>&nbsp;</td>
<td width=90%>Registrants telephone number, including area code<u>&nbsp;(559) 248-4943&nbsp;</u></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Securities registered pursuant to Section 12(g) of the Act (Title of Class):<u>&nbsp;Common Stock, no par value&nbsp;</u></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Shares outstanding as of February 29, 2002:<u>&nbsp;&nbsp;5,386,382&nbsp;</u></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td colspan=2>Aggregate market value of the Common Stock held by non-affiliates at February 29, 2002:<u>&nbsp;&nbsp;$60,753,801&nbsp;</u></td>
</tr>
</table>
<BR><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing for the past 90 days.
Yes<u>&nbsp;&nbsp;X&nbsp;&nbsp;</u>       No</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Indicate by check mark if
disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the registrants
knowledge, in the definitive proxy or information statements incorporated by
reference in Part III of this form 10-K or any amendment to this Form 10-K. [&nbsp; ] </FONT></P>

<p align=center><font size=3>DOCUMENTS INCORPORATED BY REFERENCE</font></p><BR>

<table width=100% border=0 cellspacing=0 cellpadding=0>
<tr valign=top>
<td width=50%>Certain portions of the Proxy Statement for the 2002 Meeting of
Shareholders (to be filed with the commission under regulation
14A within 120 days after the end of the registrant's fiscal year and,
upon such filing, to be incorporated by reference into Part III).</td>
<td width=20%>&nbsp;</td>
<td width=30%>Part III, Items 10, 11, 12 and 13</td>
</tr>
</table>
<BR><BR><BR><BR>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<BR>

<a name="toc2001"></a>
<p align=center><font size=3><b>UNITED SECURITY BANCSHARES AND SUBSIDIARIES<BR>
ANNUAL REPORT ON FORM 10K FOR THE YEAR ENDED<BR>DECEMBER 31, 2001<BR><BR>
TABLE OF CONTENTS</B></font></p>
<HR noshade width=100%>
<BR>

<!-- Index table begins here 3 columns -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<tr>
<TD WIDTH=7%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART I</font></TD>
<TD WIDTH=78%>&nbsp;</td>
<td align=center width=15%><u>&nbsp;Page&nbsp;</u></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 1 &nbsp;&nbsp;&nbsp;- <a href="#a001">Business</a></td>
<td align=center>3</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 2&nbsp;&nbsp;&nbsp; - <a href="#a002">Properties</a></td>
<td align=center>10</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 3 &nbsp;&nbsp;&nbsp;- <a href="#a003">Legal Proceedings</a></td>
<td align=center>11</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 4 &nbsp;&nbsp;&nbsp;- <a href="#a004">Submission of Matters to a Vote of Security Holders</a></td>
<td align=center>11</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART II</font></TD>
<TD>&nbsp;</td>
<td><u>&nbsp;</u></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 5 &nbsp;&nbsp;&nbsp;- <a href="#a005">Market for the Registrant's Common Equity and Related Stockholder Matters</a></td>
<td align=center>12</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 6 &nbsp;&nbsp;&nbsp;- <a href="#a006">Selected Financial Data</a></td>
<td align=center>13</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 7 &nbsp;&nbsp;&nbsp;- <a href="#a007">Management's Discussion and Analysis of Financial Condition
    and Results of Operations</a></td>
<td align=center>14</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 7A - <a href="#a071">Quantitative and Qualitative Disclosure About Market Risk</a></td>
<td align=center>33</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 8&nbsp;&nbsp;&nbsp; - <a href="#a008">Financial Statements and Supplementary Data</a></td>
<td align=center>34</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 9&nbsp;&nbsp;&nbsp; - <a href="#a009">Changes in and Disagreements with Accountants on Accounting
    and Financial Disclosure</a></td>
<td align=center>58</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=3>PART III</font></TD>
<TD>&nbsp;</td>
<td><u>&nbsp;</u></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 10 &nbsp;- <a href="#a010">Directors and Executive Officers of the Registrant</a></td>
<td align=center>58</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 11 &nbsp;- <a href="#a011">Executive Compensation</a></td>
<td align=center>58</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 12 &nbsp;- <a href="#a012">Security Ownership of Certain Beneficial Owners and Management</a></td>
<td align=center>58</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 13 &nbsp;- <a href="#a013">Certain Relationships and Related Transactions</a></td>
<td align=center>58</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=3>PART IV</font></TD>
<TD>&nbsp;</td>
<td><u>&nbsp;</u></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>Item 14 &nbsp;- <a href="#a014">Exhibits, Financial Statement Schedules and Reports on Form 8-K</a></td>
<td align=center>59</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#a015">Signatures</a></td>
<td align=center>61</td>
</tr>



</TABLE>
<BR><BR><BR><BR>

<p align=center><font size=3>2</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">


<p align=center><font size=3><b>PART 1</b></font></p><BR>
<a name="a001"></a>
<b>Item 1 - Business</b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3><i>Certain matters discussed
or incorporated by reference in this Annual Report of Form 10-K including, but
not limited to, those described in &quot;Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations&quot;, are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those projected in the
forward-looking statements. Such risks and uncertainties include, among others,
(1) competitive pressure in the banking industry increases significantly; (2)
changes in the interest rate environment reduces margins; (3) general economic
conditions, either nationally or regionally, are less favorable than expected,
resulting in, among other things, a deterioration in credit quality; (4) changes
in the regulatory environment; (5) changes in business conditions and inflation;
and (6) changes in securities markets. Therefore, the information set forth
therein should be carefully considered when evaluating the business prospects of
the Company. </i></FONT></P>

<b><i>General</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>United Security Bancshares
(the &#147;Company&#148;) is a California corporation incorporated during March
of 2001and is registered with the Board of Governors of the Federal Reserve
System as a bank holding company under the Bank Holding Company Act of 1956, as
amended. United Security Bank (the &#147;Bank&#148;) is a wholly-owned bank
subsidiary of the Company and was formed in 1987. United Security Bancshares
Capital Trust I (the &#147;Trust&#148;) is also a wholly-owned subsidiary of the
Company and was formed during June of 2001 as a Delaware business trust for the
sole purpose of issuing Trust Preferred securities. At present, the Company does
not engage in any material business activities other than ownership of the Bank.
References to the Company are references to United Security Bancshares, Inc.
(including the Bank), except for periods prior to June 12, 2001, in which case,
references to the Company are references to the Bank. </FONT></P>

<b><i>United Security Bank</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>On June 12, 2001, the Bank
became the wholly owned subsidiary of United Security Bancshares, through a tax
free holding company reorganization, accounted for on a basis similar to the
pooling of interest method. In the transaction, each share of Bank stock was
exchanged for a share of Company stock on a one-to-one basis. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Bank is a California
state-chartered bank headquartered in Fresno, California. It is also a member of
the Federal Reserve System (&#147;Fed member&#148;). The Bank originally
commenced business on December 21, 1987 as a national bank and, during the
fourth quarter of 1998, filed an application with the California State Banking
Department and other regulatory authorities to become a state-chartered bank.
The shareholders approved the conversion in January of 1999, and the Bank was
granted approval to operate as a state-chartered bank on February 3, 1999. The
Bank&#146;s operations are currently subject to federal and state laws
applicable to state-chartered, Fed member banks and its deposits are insured up
to the applicable limits by the Federal Deposit Insurance Corporation (the
&quot;FDIC&quot;). The Bank is also subject to certain provisions of the Federal
Deposit Insurance Act and regulatory reporting requirements of the FDIC. As a
state-chartered bank and a member of the Federal Reserve System, the Bank is
subject to supervision and regular examinations by the Board of Governors of the
Federal Reserve System (the &#147;FRB&#148;) and the California Department of
Financial Institutions (the &#147;DFI&#148;). In addition, the Bank is required
to file reports with the FRB and provide such additional information as the FRB
may require. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Effective August 25, 1995,
the Bank consummated a merger with Golden Oak Bank, a two branch California
state chartered bank located in Oakhurst, California, with assets of
approximately $45 million at the date of merger. The merger was accounted for as
a pooling of interests. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>During February of 1997,
the Bank completed the purchase of the deposits and certain assets of two
branches of Wells Fargo Bank located in Caruthers and San Joaquin, both located
in Fresno County. This brought the total branches operated at that time by the
Bank to six and the total assets to approximately $190 million. The Bank paid a
premium of approximately $1.2 million to purchase deposit accounts totaling
approximately $33.4 million. The Bank also purchased cash balances as well as
certain fixed assets of the branch operations. </FONT></P>

<p align=center><font size=3>3</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>During October of 1997, the
Bank completed the purchase from Bank of America of two of its branches located
in Firebaugh and Coalinga, both located in Fresno County. The acquisition
brought the total branches operated by the Bank to eight at that time and the
total assets to approximately $238 million. The premium paid by the Bank totaled
approximately $3.0 million which purchased deposits of approximately $44.4
million. The transaction included the receipt of cash balances of approximately
$1.0 million and the purchase of premises and equipment totaling approximately
$0.6 million. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>At December 31, 2001, the
Company operated seven (7) bank branches and one (1) construction lending
office; seven (7) in Fresno County and one (1) in Madera County. The Bank
operates two branches (including its main office) and one construction lending
office in Fresno and one branch each, in Oakhurst, Caruthers, San Joaquin,
Firebaugh, and Coalinga. In addition, the Company and Bank have administrative
headquarters at 1525 East Shaw Avenue, Fresno, California, 93710. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>At December 31, 2001, the
consolidated Company had approximately $450.9 million in total assets, $331.2
million in net loans, $368.7 in deposits, and $36.1 million in shareholders'
equity. </FONT></P>

The following discussion of the Company's services should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."<BR><BR>

<b><i>Bank Services</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>As a state-chartered
commercial bank, United Security Bank offers a full range of commercial banking
services primarily to the business and professional community and individuals
located in Fresno and Madera Counties. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Bank offers a wide
range of deposit instruments including personal and business checking accounts
and savings accounts, interest-bearing negotiable order of withdrawal
(&quot;NOW&quot;) accounts, money market accounts and time certificates of
deposit. Most of the Bank's deposits are attracted from individuals and from
small and medium-sized business-related sources. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Bank also engages in a
full complement of lending activities, including real estate mortgage,
commercial and industrial, real estate construction, as well as agricultural and
consumer loans, with particular emphasis on short and medium-term obligations.
The Bank's loan portfolio is not concentrated in any one industry, although
approximately 69% of the Bank's loans are secured by real estate. A loan may be
secured (in whole or in part) by real estate even though the purpose of the loan
is not to facilitate the purchase or development of real estate. At December 31,
2001, the Bank had loans (net of unearned fees) outstanding of $335.6 million,
which represented approximately 91% of the Bank's total deposits and
approximately 74% of its total assets. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Real estate mortgage loans
are secured by deeds of trust primarily on commercial property. Repayment of
real estate mortgage loans is generally from the cash flow of the borrower.
Commercial and industrial loans have a high degree of industry diversification.
A substantial portion of the commercial and industrial loans are secured by
accounts receivable, inventory, leases or other collateral. The remainder are
unsecured; however extensions of credit are predicated on the financial capacity
of the borrower. Repayment of commercial loans is generally from the cash flow
of the borrower. Real estate construction loans consist of loans to residential
contractors which are secured by single family residential properties. All real
estate loans have established equity requirements. Repayment of real estate
construction loans is generally from long-term mortgages with other lending
institutions. Agricultural loans are generally secured by land, equipment,
inventory and receivables. Repayment of this loan category is from the cash flow
of the borrower. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>In the normal course of
business, the Bank makes various loan commitments and incurs certain contingent
liabilities. At December 31, 2001 and 2000, loan commitments of the Bank
aggregated $108.1 million and $84.3 million, respectively. Of the $108.1 million
in loan commitments outstanding at December 31, 2001, $51.4 million or 48% were
on loans with maturities of one year or less. Due to the nature of the business
of the Bank's customers, there are no seasonal patterns or absolute
predictability to the utilization of unused loan commitments; therefore the Bank
is unable to forecast the extent to which these commitments will be exercised
within the current year. The Bank does not believe that any such utilization
will constitute a material liquidity demand. </FONT></P>

<p align=center><font size=3>4</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>In addition to the loan and
deposit services discussed above, the Bank also offers a wide range of
specialized services designed to attract and service the needs of commercial
customers and account holders. These services include cashier's checks,
traveler's checks, money orders, and foreign drafts. The Bank does not operate a
trust department; however, it makes arrangements with its correspondent bank to
offer trust services to its customers on request. Most of the Bank's business
originates within Fresno and Madera Counties. Neither USB's business or
liquidity is seasonal, and there has been no material effect upon the Bank's
capital expenditures, earnings or competitive position as a result of federal,
state or local environmental regulation. </FONT></P>

<b><i>Competition</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The banking business in
California generally, and in the market area served by the Company specifically,
is highly competitive with respect to both loans and deposits. The Company
competes for loans and deposits with other commercial banks, savings and loan
associations, finance companies, money market funds, credit unions and other
financial institutions, including a number that are substantially larger than
the Company. As of December 31, 2001, there were more than 90 banking offices,
including more than 40 offices of three major chain banks, operating within the
Company's primary market areas in the San Joaquin Valley and Eastern Madera
County. Deregulation of the banking industry, increased competition from
non-bank entities for the cash balances of individuals and businesses, and
continuing developments in the computer and communications industries have had,
and most likely will continue to have, a significant impact on the Company's
competitive position. With the enactment of interstate banking legislation in
California, bank holding companies headquartered outside of California may enter
the California market and provide further competition for the Company.
Additionally, with the Gramm-Leach-Bliley Act of 1999, traditional competitive
barriers between insurance companies, securities underwriters, and commercial
banks have been eased, allowing a greater number of financial intermediaries to
offer a wider assortment of financial services. Many of the major commercial
banks operating in the Company's market areas offer certain services such as
trust and international banking services, which the Company does not offer
directly. In addition, banks with larger capitalization have larger lending
limits and are thereby able to serve larger customers. </FONT></P>

<b><i>Supervision and Regulation</i></b><BR><BR>

<i>The Company</i>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company is a bank
holding company within the meaning of the Bank Holding Company Act of 1956, as
amended (the &#147;BHC Act&#148;), and is registered as such with the FRB. A
bank holding company is required to file with the FRB annual reports and other
information regarding its business operations and those of its subsidiaries and
is also subject to examination by the FRB. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>In 1999 the
Gramm-Leach-Bliley Act (the &#147;GLBA&#148;) was enacted. The GLBA became
effective in March of 2000 and is a financial services modernization law that,
among other things, facilitates broad new affiliations among securities firms,
insurance companies and bank holding companies by repealing the 66-year old
provisions of the Glass-Steagall Act. The GLBA allows the formation of financial
holding companies (&#147;FHC&#146;s&#148;), which are bank holding companies
with substantially expanded powers. A bank holding company must acquire the
approval of the FRB to become a FHC. Under these expanded powers, affiliations
may occur between bank holding companies, securities firms and insurance
companies, subject to a blend of umbrella supervision and regulation of the
newly formed consolidated entity by the Federal Reserve, oversight of the
FHC&#146;s bank and thrift subsidiaries by their primary federal and state
banking regulators and financial regulation of the FHC&#146;s nonbank
subsidiaries by their respective specialized regulators. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The BHC Act requires, among
other things, prior approval before acquiring, directly or indirectly, ownership
or control of any voting shares of any bank, if after such acquisition it would
directly or indirectly own or control more than 5% of the voting stock of that
bank, unless it already owns a majority of the voting stock of that bank. The
BHC Act also provides that the FRB shall not approve any acquisition that would
result in or further the creation of a monopoly, or the effect of which may be
substantially to lessen competition, unless the anticompetitive effects of the
proposed transaction are clearly outweighed by the probable effect in meeting
the convenience and needs of the community served. </FONT></P>

<p align=center><font size=3>5</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Furthermore, under the BHC
Act, a bank holding company is, with limited exceptions, prohibited from (i)
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank or (ii) engaging in any activity other
than managing or controlling banks. With the prior approval of the FRB, however,
a bank holding company may own shares of a company engaged in activities which
the FRB has determined to be so closely related to banking or managing or
controlling banks as to be proper incident thereto. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The BHC Act requires a bank
holding company to serve as a source of financial and managerial strength to its
subsidiary banks. It is the FRB&#146;s policy that a bank holding company should
stand ready to use available resources to provide adequate capital funds to
subsidiary banks during periods of financial stress and should maintain the
financial flexibility and capital raising capacity to obtain additional
resources for assisting a subsidiary bank. Under certain conditions, the FRB may
conclude that certain actions of a bank holding company, such as payment of cash
dividends, would constitute unsafe and unsound banking practices because they
violate the FRB&#146;s &#147;source of strength&#148; doctrine. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A bank holding company and
its subsidiaries are 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 by it,
its holding company or other subsidiaries, or on a promise by its customer not
to obtain services from a competitor. In addition, federal law imposes certain
restrictions between the Company and its subsidiaries, including the Bank. As an
affiliate of the Bank, the Company is subject, with certain exceptions, to
provisions of federal law imposing limitations on, and requiring collateral for,
extensions of credit by the Bank to its affiliates. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company is subject to
the periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, which include but are not limited to the filing of annual, quarterly
and other current reports with the SEC. </FONT></P>

<i>The Bank</i>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Bank as a
state-chartered bank, is subject to regulation, supervision and regular
examination by the California Department of Financial Institutions. In addition,
The Bank is also a member of the Federal Reserve System and, as such, is subject
to applicable provisions of the Federal Reserve Act and regulations issued
thereunder and, is subject to regulation, supervision and regular examination by
the Board of Governors. The Bank is subject to California law, insofar as they
are not preempted by federal banking law. Deposits of the Bank are insured by
the FDIC in an amount up to $100,000 per customer, and, as such, the Bank is
subject to the regulations of the FDIC and the Federal Deposit Insurance Act. As
a consequence of the extensive regulation of commercial banking activities in
California and the United States, the Bank&#146;s business is particularly
susceptible to changes in California and federal legislation and regulation,
which may have the effect of increasing the cost of doing business, limiting
permissible activities or increasing competition. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Various other requirements
and restrictions under the laws of the United States and the State of California
affect the operations of the Bank. Federal and California statutes and
regulations relate to many aspects of the Bank&#146;s operations, including
capital requirements and disclosure requirements to depositors and borrowers,
requirements to maintain reserves against deposits, limitations on interest
rates payable on deposits, loans, investments, and restrictions on borrowings
and on payment of dividends. The DFI regulates the number and location of branch
offices of a state-chartered bank, and may permit a bank to maintain branches
only to the extent allowable under state law for state banks. California law
presently permits a bank to locate a branch in any locality in the state.
Additionally, California law exempts banks from California usury laws. </FONT></P>

<b><i>Effect of Governmental Policies and Recent Legislation</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Banking has traditionally
been a business that depends on rate differentials. In general, the difference
between the interest rate paid by the Company on its deposits and other
borrowings and the interest rate received on loans extended to its customers and
securities held in the Company's portfolio comprise the major portion of the
Company's earnings. These rates are highly sensitive to many factors which are
beyond the control of the Company. Accordingly, the earnings and growth of the
Company are subject to the influence of domestic and foreign economic
conditions, including, but not limited to, inflation, recession and
unemployment. </FONT></P>

<p align=center><font size=3>6</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The monetary and fiscal
policies of the federal government and the policies of regulatory agencies,
particularly the FRB, influence the earnings and growth of the Company. The FRB
implements national monetary policies (with objectives such as to curb inflation
and combat recession) by its open-market operations in United States Government
securities, by adjusting the required level of reserves for financial
institutions subject to its reserve requirements and by varying the discount
rates applicable to borrowing by depository institutions. The actions of the FRB
in these areas influence the growth of bank loans, investments and deposits and
also affect the interest rates charged on loans and paid on deposits. The nature
and impact of any future change in monetary policies cannot be predicted. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>From time to time,
legislation is enacted which has the effect of increasing the cost of doing
business, limiting or expanding permissible activities or affecting the
competitive balance between banks and other financial institutions. Proposals to
change the laws and regulations governing the operations and taxation of banks
and other financial institutions are frequently made in Congress, in the
California legislature and before various bank regulatory agencies. The
likelihood of any major change and the impact such change may have on the
Company is impossible to predict. Certain of the potentially significant changes
which have been enacted recently and other which are currently under
consideration by Congress or various regulatory agencies or professional
agencies are discussed below. </FONT></P>

<b><i>Recent Legislation and Other Changes</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The terrorist attacks in
September 2001 impacted the financial services industry and 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 &#147;USA PATRIOT Act&#148;). </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Part of the USA Patriot Act
is the International Money Laundering Abatement and Financial Anti-Terrorism Act
of 2001 (&#147;IMLAFATA&#148;). IMLAFATA authorizes the Secretary of the
Treasury, in consultation with the heads of other government agencies, to adopt
special measures applicable to banks, bank holding companies, and/or other
financial institutions. These measures may include enhanced recordkeeping and
reporting requirements for certain financial transactions that are of primary
money laundering concern, due diligence requirements concerning the beneficial
ownership of certain types of accounts, and restrictions or prohibitions on
certain types of accounts with foreign financial institutions. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Among its other provisions,
IMLAFATA requires each financial institution to: (i) establish an anti-money
laundering program; (ii) establish due diligence policies, procedures and
controls with respect to its private banking accounts and correspondent banking
accounts involving foreign individuals and certain foreign banks; and (iii)
avoid establishing, maintaining, administering, or managing correspondent
accounts in the United States for, or on behalf of, a foreign bank that does not
have a physical presence in any country. In addition, IMLAFATA contains a
provision encouraging cooperation among financial institutions, regulatory
authorities and law enforcement authorities with respect to individuals,
entities and organizations engaged in, or reasonably suspected of engaging in,
terrorist acts or money laundering activities. IMLAFATA expands the
circumstances under which funds in a bank account may be forfeited and requires
covered financial institutions to respond under certain circumstances to
requests for information from federal banking agencies within 120 hours.
IMLAFATA also amends the Bank Holding Company Act and the Bank Merger Act to
require the federal banking agencies to consider the effectiveness of a
financial institution&#146;s anti-money laundering activities when reviewing an
application under these acts. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Treasury regulations
implementing the due diligence requirements must be issued no later than
April&#160;24, 2002. Whether or not regulations are adopted, IMLAFATA becomes
effective July&#160;23,&#160;2002. Additional regulations are to be adopted
during 2002 to implement minimum standards to verify customer identity, to
encourage cooperation among financial institutions, federal banking agencies,
and law enforcement authorities regarding possible money laundering or terrorist
activities, to prohibit the anonymous use of &#147;concentration accounts,&#148;
and to require all covered financial institutions to have in place a Bank
Secrecy Act compliance program. </FONT></P>

<p align=center><font size=3>7</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Board of Governors of
the Federal Reserve System and the Secretary of the Treasury in January 2001
jointly adopted a final rule governing merchant banking investments made by
financial holding companies. The rule implements provisions of the
Gramm-Leach-Bliley Act discussed below that permit financial holding companies
to make investments as part of a bona fide securities underwriting or merchant
or investment banking activity. The rule provides that a financial holding
company may not, without Federal Reserve Board approval, directly or indirectly
acquire any additional shares, assets or ownership interests or make any
additional capital contribution to any company the shares, assets or ownership
interests of which are held by the financial holding company subject to the rule
if the aggregate carrying value of all merchant banking investments held by the
financial holding company exceeds: (i) 30 percent of the Tier 1 capital of the
financial holding company or (ii) after excluding interests in private equity
funds, 20 percent of the Tier 1 capital of the financial holding company. A
separate final rule will establish the capital charge of merchant banking
investments for the financial holding company. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The American Homeownership
and Economic Opportunity Act of 2000 was enacted in late 2000 and provides for
certain regulatory and financial relief to depository institutions. With respect
to savings and loan associations, the Home Owners&#146; Loan Act was amended to
(i) repeal the savings association liquidity requirements, and (ii) permit a
savings and loan holding company with prior approval to acquire more than 5% of
the voting shares of a nonsubsidiary savings association or nonsubsidiary
savings and loan holding company. With respect to national banks, the Banking
Act of 1933 was amended to allow a national bank to (i) specifically reorganize
into a bank holding company structure or merge with subsidiaries and nonbank
affiliates, (ii) have more than 25 directors as may be allowed by the
Comptroller, (iii) have director terms of up to three years, (iv) have a
classified board, and (iv) allow the repurchase of stock to prevent loss upon a
previously contracted debt without having to dispose of it within a period of
six months. In addition, federal banking law was amended to authorize the
Comptroller to waive the citizenship requirement for a minority of the directors
on national bank board and to repeal the 20% surplus requirement for national
banks. As to depository institutions, in general, the federal banking agencies
are to develop a system for the electronic filing and dissemination of
depository institution call reports. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Gramm-Leach-Bliley Act
(&#147;GLBA&#148;) was enacted in late 1999. GLBA among other things repeals the
Glass-Steagall Act. The Glass-Steagall Act enacted in the Depression era
prohibits banks from affiliating with securities firms. In addition, GLBA will
allow for a new type of bank holding company under the Bank Holding Company Act.
The new bank holding company will be allowed to engage in insurance and
securities underwriting, merchant banking and insurance company portfolio
investment activities. Currently, bank holding companies are strictly limited in
the amount of insurance and securities underwriting activities in which they may
engage. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>GLBA will also allow bank
holding company companies to engage in any activity considered
&#147;financial&#148; in nature or incidental to such financial activities.
Under the existing Bank Holding Company Act, incidental activities are limited
to those that are &#147;banking&#148; in nature or incidental to such banking
activities. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Financial activities
include as well as lending, providing insurance as an agent, broker or as
principal, issuing annuities, underwriting, and dealing in or making a market in
securities. All insurance activities that are to be conducted must be conducted
in compliance with applicable state laws. In connection with insurance sales the
United States Supreme Court case of <I>Barnett Bank of Marion County N.A. v.
Nelson</I>, 116 S. Ct. 1103 (1996) is followed by GLBA, and GLBA further provides
that &#147;no state may, by statute, regulation, order, interpretation, or other
action, prevent or significantly interfere with the ability of an insured
depository institution, or a subsidiary or affiliate thereof, to engage,
directly or indirectly, either by itself or in conjunction with a subsidiary,
affiliate, or any other party, in any insurance sales, solicitation, or
cross-marketing activity.&#148; </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Community Reinvestment
Act provisions in GLBA require that any new bank holding company that is formed
meet the conditions that all of the company&#146;s insured depository
institutions are well capitalized and well managed or received at least a
satisfactory rating in the most recent Community Reinvestment Act examination. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<!-- This is an unordered list -->
Other key aspects of GLBA include the following:</FONT></P>
<ul>
<li>streamlining bank holding company supervision by defining the roles of the Federal Reserve and other federal and state
regulators;<BR><BR>

<li>prohibiting FDIC assistance to affiliates and subsidiaries of banks and thrifts;<BR><BR>
</ul>
<p align=center><font size=3>8</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<ul>
<li>allowing a national bank that is well capitalized and well managed to establish
new operating subsidiaries that may engage in financial activities other than
insurance underwriting, merchant banking, insurance company portfolio
investments, real estate development and real estate investment, so long as the
aggregate assets of all financial subsidiaries do not exceed 45% of the
parent&#146;s assets or $50 billion, whichever is less;<BR><BR>

<li>permitting national banks to underwrite municipal bonds;<BR><BR>

<li>providing that securities activities conducted by a bank subsidiary will be subject to regulation by the Securities and
Exchange Commission;<BR><BR>

<li>providing that insurance activities conducted by a bank subsidiary will be subject to regulation by the applicable state
insurance authority;<BR><BR>

<li>replacing broker-dealer exemptions allowed to banks with limited exemptions;<BR><BR>

<li>providing that de novo unitary thrift holding company applications received by
the Office of Thrift Supervision after May 4, 1999 shall not be approved;<BR><BR>

<li>providing that existing unitary thrift holding companies may only be sold to financial companies;<BR><BR>

<li>adopting new privacy provisions which allow customers to &#147;opt out&#148; of
sharing nonpublic personal information with nonaffiliated third parties subject
to certain exceptions; <BR><BR>

<li>requiring that ATM's which impose a fee on noncustomers to disclose on the ATM screen the amount of the fee prior to a
transaction becoming irrevocable on the ATM;<BR><BR>

<li>providing regulatory relief to smaller banks with less than $250 million in
total assets with respect to the frequency of CRA examinations. The time between
examinations may be as long as five years for small banks and savings and loans;
and <BR><BR>

<li>requiring plain language for federal banking agency regulations.<BR><BR>
</ul>

<!-- this is the end of the unordered list -->


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>On October 1, 1998, the
FDIC adopted two new rules governing minimum capital levels that FDIC-supervised
banks must maintain against the risks to which they are exposed. The first rule
makes risk-based capital standards consistent for two types of credit
enhancements (i.e., recourse arrangements and direct credit substitutes) and
requires different amounts of capital for different risk positions in asset
securitization transactions. The second rule permits limited amounts of
unrealized gains on equity securities to be recognized for risk-based capital
purposes. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>In August 1997, Governor
Wilson of California signed Assembly Bill 1432 (&quot;AB1432&quot;) which
provides for certain changes in the banking laws of California. Effective
January 1, 1998 AB1432 eliminates the provisions regarding impairment of
contributed capital and the assessment of shares when there is impairment of
capital. AB1432 now allows the Commissioner of the California Department of
Financial Institutions (the &quot;Commissioner&quot;) to close a bank, if the
Commissioner finds the bank's tangible shareholders' equity is less than the
greater of 3% of the bank's total assets or $1 million. AB1432 also moved
administration of the Local Agency Program from the California Department of
Financial Institutions to the California State Treasurer's Office. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Economic Growth and
Regulatory Paperwork Reduction Act (the &quot;1996 Act&quot;) as part of the
Omnibus Appropriations Bill was enacted on September 30, 1996 and includes many
banking related provisions. The most important banking provision is the
recapitalization of the Savings Association Insurance Fund (&quot;SAIF&quot;).
The 1996 Act provides for a one-time assessment of approximately 65 basis points
over $100 of deposits of SAIF insured deposits including Oaker deposits payable
on November 30, 1996. For the years 1997 through 1999 the banking industry will
assist in the payment of interest on FICO bonds that were issued to help pay for
the cleanup of the savings and loan industry. Banks will pay approximately 1.3
cents per $100 of deposits for this special assessment, and after the year 2000,
banks will pay approximately 2.4 cents per $100 of deposits until the FICO bonds
mature in 2017. There is a three-year moratorium on conversions of SAIF deposits</font></p>

<p align=center><font size=3>9</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
to Bank Insurance Fund (&quot;BIF&quot;) deposits. The 1996 Act also has certain
regulatory relief provisions for the banking industry. Lender liability under
the Superfund is eliminated for lenders who foreclose on property that is
contaminated, provided that the lenders were not involved with the management of
the entity that contributed to the contamination. There is a five-year sunset
provision for the elimination of civil liability under the Truth in Savings Act.
The FRB and the Department of Housing and Urban Development are to develop a
single format for the Real Estate Settlement Procedures Act and Truth in Lending
Act (&quot;TILA&quot;) disclosures. TILA disclosures for adjustable mortgage
loans are to be simplified. Significant revisions are made to the Fair Credit
Reporting Act (&quot;FCRA&quot;) including requiring that entities which provide
information to credit bureaus conduct an investigation if a consumer claims the
information to be in error. Regulatory agencies may not examine for FCRA
compliance unless there is a consumer complaint investigation that reveals a
violation or where the agency otherwise finds a violation. In the area of the
Equal Credit Opportunity Act, the banks that self-test for compliance with fair
lending laws will be protected from the results of the test provided that the
appropriate corrective action is taken when violations are found. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Community Reinvestment Act
(&quot;CRA&quot;) regulations effective as of July 1, 1995 evaluate bank's
lending to low and moderate income individuals and businesses across a
four-point scale from &quot;outstanding&quot; to &quot;substantial
noncompliance&quot; and are a factor in regulatory review of applications to
merge, establish new branches or form bank holding companies. In addition, any
bank rated in &quot;substantial noncompliance&quot; with the CRA regulations may
be subject to enforcement actions. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company had its most
recent CRA examination in June of 2000, and received a rating of
&quot;outstanding&quot; CRA compliance. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>It is impossible to predict
what effect the enactment of the above-mentioned legislation will have on the
Company and on the financial institutions industry in general. It is likely that
other bills affecting the business of banks may be introduced in the future by
the United States Congress or California legislature. </FONT></P>

<b><i>Employees</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>At December 31, 2001, the
Company employed 83 persons on a full-time equivalent basis. The Company
believes its employee relations are excellent. </FONT></P>
<a name="a002"></a>
<b>Item 2 - Properties</b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's Main bank
branch is located at 2151 West Shaw Avenue, Fresno, California. The Company owns
the building and leases the land under a sublease dated December 1, 1986 between
Central Bank and USB. The current sublessor under the master ground lease is
Bank of the West, which acquired the position through the purchase of Central
Bank. The lessor under the ground lease (Master Lease) is Thomas F. Hinds. The
lease expires on December 31, 2015 and the Company has options to extend the
term for four (4) ten-year periods and one seven (7) year period. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company occupies the
banking premises of approximately 3,600 square feet for its East Shaw branch
under a lease extension expiring August 31, 2002 with additional extensions to
August 31, 2011. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company owns the
Oakhurst bank branch located at the Old Mill Village Shopping Center, 40074
Highway 49, Oakhurst, California, which was completed during April of 1999. The
Company had originally maintained two branches in the Oakhurst area, and at this
time consolidated its two Oakhurst branches into the new facility. The current
facility, which consists of approximately 5,000 square feet, will be leased for
a term of 15 years with two five-year options to extend the lease term. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company leases the
Caruthers bank branch located at 13356 South Henderson, Caruthers, California
which consists of approximately 5,000 square feet of floor space. The branch was
acquired from Wells Fargo Bank in February 1997 under a lease which expires
1/19/2006 with extensions to 1/19/2021. </FONT></P>

<p align=center><font size=3>10</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company previously
leased the San Joaquin bank branch, which was also acquired from Wells Fargo
Bank during February of 1997. During 1999, the Company completed the
construction of new facilities at 21574 Manning Avenue, San Joaquin, California
and the branch operations were moved to that locality during November 1999. The
new bank branch is approximately 2,500 square feet and is owned by the Company. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company owns the
Firebaugh bank branch located at 1067 O Street, Firebaugh, California which was
purchased from Bank of America during October 1997 for a total consideration of
$211,500. The premises are comprised of approximately 4,666 of interior floor
space situated on land totaling approximately one-third of an acre. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company owns the
Coalinga bank branch located at 145 East Durian, Coalinga, California which also
purchased from Bank of America during October 1997. The total price paid for the
premises was $268,000 which purchased 6,184 square feet of interior floor space
situated on approximately 0.45 acres. </FONT></P>

The Company owns its administrative headquarters located at 1525 East Shaw Avenue, Fresno, California. The building consists of
approximately 10,000 square feet of interior floor space and was purchased from Security Mutual Life Insurance Company during
December of 1997.<BR><BR>
<a name="a003"></a>
<b>Item 3 - Legal Proceedings</b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>From time to time, the
Company is party to claims and legal proceedings arising in the ordinary course
of business. At this time, the management of the Company is not aware of any
material pending litigation proceedings to which it is a party or has recently
been party to, which will have a material adverse effect on the financial
condition or results of operations of the Company. </FONT></P>
<a name="a004"></a>
<b>Item 4 - Submission of Matters to a Vote of Security Holders</b><BR><BR>

No matters were submitted to a vote of shareholders during the fourth quarter of 2001.

<p align=center><font size=3>11</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p align=center><font size=3><b>PART II</b></font></p>
<a name="a005"></a>
<b>Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters</b><BR><BR>

<b><I>Trading History</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company became a NASDAQ
listed company on May 31, 2001. It is anticipated that the NASDAQ listing will
provide greater exposure for the Company. The Company's common stock was
previously quoted on the OTCBB (over-the-counter bulletin board), a quotation
service for securities not listed or traded on NASDAQ or a national securities
exchange. Volumes traded are shown below. </FONT></P>

The Company currently has three market makers for its common stock. These include First Security Van Kasper, Sutro &amp; Company, and
Hill Thompson, Magid &amp; Company. The Company is aware of two other securities dealers: Smith Barney and Dean Witter Reynolds Inc.,
which periodically act as brokers in the Company's stock.

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets
forth the high and low bid quotations by quarter for the Company's common stock,
as reported by Sutro &amp; Company for the years ended December 31, 2001 and
2000. These quotations reflect the price that would have been received by the
seller, without retail mark-up, mark-down or commissions and may have
represented actual transactions. </FONT></P>

<PRE>
                                    Bid Prices
                         --------------------------------------------------
        Quarter                High             Low           Volume
    -----------------------------------------------------------------------
    4th Quarter 2001          $17.25          $16.00          170,000
    3rd Quarter 2001          $17.50          $16.00          203,900
    2nd Quarter 2001          $17.75          $16.25          102,000
    1st Quarter 2001          $17.75          $15.75          113,200

    4th Quarter 2000          $17.38          $16.31          107,700
    3rd Quarter 2000          $17.25          $16.50          225,200
    2nd Quarter 2000          $18.00          $15.00          136,000
    1st Quarter 2000          $20.50          $17.50          103,700
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>At February 28, 2002, there
were approximately 627 record holders of common stock of the Company. </FONT></P>

<b><i>Dividends</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's shareholders
are entitled to cash dividends when and as declared by the Company&#146;s Board
of Directors out of funds legally available therefor. Dividends paid to
shareholders by the Company are subject to restrictions set forth in California
General Corporation Law, which provides that a corporation may make a
distribution to its shareholders if retained earnings immediately prior to the
dividend payout are at least equal the amount of the proposed distribution. As a
bank holding company without significant assets other than its equity position
in the Bank, the Company&#146;s ability to pay dividends to its shareholders
depends primarily upon dividends it receives from the Bank. Such dividends paid
by the Bank to the Company are subject to certain limitations. See
&#147;Management&#146;s Discussion and Analysis of Financial and Results of
Operations &#150; Regulatory Matters&#148;. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company paid cash
dividends to shareholders of $ 0.10 per share on January 24, 2001, and paid
$0.115 per share on April 25, 2001, July 25, 2001 and October 24, 2001. During
the previous year, the Company paid cash dividends of $ 0.08 per share on
January 28, 2000 and April 26, 2000, and $0.10 per share on July 26, 2000. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The amount and payment of
dividends by the Company to shareholders are set by the Company's Board of
Directors with numerous factors involved including the Company's earnings,
financial condition and the need for capital for expanded growth and general
economic conditions. No assurance can be given that cash or stock dividends will
be paid in the future. </FONT></P>

<p align=center><font size=3>12</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a006"></a>
<b>Item 6 - Selected Financial Data</b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets
forth certain selected financial data for the Bank for each of the years in the
five-year period ended December 31, 2001 and should be read in conjunction with
the more detailed information and financial statements contained elsewhere
herein (in thousands except per share data and ratios). </FONT></P>

<PRE>
                                                                      December 31,
 ----------------------------------------------------------------------------------------------------------
 <I>(in thousands except per share data)</I>            2001        2000         1999        1998        1997
 ----------------------------------------------------------------------------------------------------------
 Summary of Earnings:
    Interest income and loan fees              $30,063      $28,941     $21,920     $21,519      $17,267
    Interest expense                            13,411       11,544       7,925       8,605        6,331
                                            ---------------------------------------------------------------
       Net interest income                      16,652       17,397      13,995      12,914       10,936
    Provision for credit losses                  1,733        1,580       1,025       1,200        1,200
                                            ---------------------------------------------------------------
       Net interest income after
          provision for credit losses           14,919       15,817      12,970      11,714        9,736
    Noninterest income                           4,277        2,538       2,781       2,797        2,354
    Noninterest expense                          9,818        8,648       7,898       7,591        5,806
                                            ---------------------------------------------------------------
       Income before taxes on income             9,378        9,707       7,853       6,920        6,284
    Taxes on income                              3,185        3,450       2,930       2,704        2,543
                                            ---------------------------------------------------------------
    Net Income                                  $6,193       $6,257      $4,923      $4,216       $3,741
                                            ===============================================================
 Per Share Data:
    Net Income - Basic                           $1.14        $1.16       $0.95       $0.82        $0.74
    Net Income - Diluted                         $1.11        $1.12       $0.89       $0.77        $0.70
   Average shares outstanding - Basic          5,443,734   5,374,734   5,202,324    5,154,748   5,065,100
   Average shares outstanding - Diluted        5,563,855   5,587,292   5,514,544    5,490,891   5,335,675
   Cash dividends paid                           $0.445      $0.36        $0.28       $0.24       $0.213
 Financial Position:
    Total assets                                $450,928     $356,832    $281,531    $279,950     $243,596
    Total net loans and leases                   331,163      256,802     195,233     152,052      140,144
    Total deposits                               368,651      271,862     238,863     252,474      220,016
    Total shareholders' equity                    36,059       33,749      28,316      24,989       21,651
    Book value per share                          $6.68        $6.23       $5.41       $4.83        $4.23
 Selected Financial Ratios:
    Return on average assets                       1.55%        1.95%       1.77%       1.58%        1.93%
    Return on average shareholders' equity        17.25%       20.05%      18.31%      17.85%       18.60%
    Average shareholders' equity
     to average assets                             9.00%        9.71%       9.69%       8.86%       10.38%
    Net charge-offs to average loans               0.35%        0.19%       0.17%       0.96%        0.52%
    Allowance for credit losses as a percentage
       of period-end loans                         1.33%        1.45%       1.34%       1.24%        1.51%
    Dividend payout ratio                         40.09%       32.14%      31.50%      31.30%       30.48%





</PRE>
<p align=center><font size=3>13</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a007"></a>
<b>Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations</b>
<BR><BR>
<b><u>Overview</u></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3><i>Certain matters discussed
or incorporated by reference in this Annual Report on Form 10-K are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those projected in the
forward-looking statements. Such risks and uncertainties include, but are not
limited to, those described in Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations. Therefore, the information set
forth therein should be carefully considered when evaluating the business
prospects of the Company.</i></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>On June 12, 2001, the
United Security Bank (the &#147;Bank&#148;) became the wholly owned subsidiary
of United Security Bancshares, Inc. (the &#147;Company&#148;) through a tax free
holding company reorganization, accounted for on a basis similar to the pooling
of interest method. In the transaction, each share of Bank stock was exchanged
for a share of Company stock on a one-to-one basis. No additional equity was
issued as part of this transaction. In the following discussion, references to
the Bank are references to United Security Bank. References to the Company are
references to United Security Bancshares, Inc. (including the Bank), except for
periods prior to June 12, 2001, in which case, references to the Company are
references to the Bank. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>On June 28, 2001, United
Security Bancshares Capital Trust I (the &#147;Trust&#148;) was formed as a
Delaware business trust for the sole purpose of issuing Trust Preferred
securities. On July 16, 2001, the Trust completed the issuance of $15 million in
Trust Preferred securities, and concurrently, the Trust used the proceeds from
that offering to purchase Junior Subordinated Debentures of the Company. The
Company contributed $13.7 million of the $14.5 million in net proceeds received
from the Trust to the Bank to increase its regulatory capital and will use the
rest for future expansion of the Company&#146;s business. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company currently has
seven banking branches and one construction lending office, which provide
financial services in Fresno and Madera counties. As a community-oriented bank,
the Company continues to seek ways to better meet its customers' needs for
financial services, and to expand its business opportunities in today's
ever-changing financial services environment. The Company's strategy is to be a
better low-cost provider of services to its customer base while enlarging its
market area and corresponding customer base to further its ability to provide
those services. </FONT></P>

<b><u>Results of Operations</u></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>As a result of continued
asset growth, the Company continues to generate strong earnings. This has been
accomplished even in an environment of volatile interest rates such as we have
seen over the past several years. For the year ended December 31, 2001, the
Company reported net income of $6.2 million or $1.14 per share ($1.11 diluted)
as compared to $6.3 million or $1.16 per share ($1.12 diluted) for the year
ended December 31, 2000, and $4.9 million or $0.95 per share ($0.89 diluted) for
the year ended December 31, 1999. The results for 2001 were down slightly from
the previous year as the result of additional costs associated with the
formation of the holding company and its infrastructure, including the issuance
of Trust Preferred Securities. This has strategically positioned the Company for
long-term growth and profitability. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company&#146;s return
on average assets was 1.55% for the year ended December 31, 2001 as compared to
1.95% and 1.77% for the same twelve-month periods of 2000 and 1999,
respectively. The Bank&#146;s return on average equity was 17.25% for the year
ended December 31, 2001 as compared to 20.05% and 18.31% for the same
twelve-month periods of 2000 and 1999, respectively. </FONT></P>

<b><i>Net Interest Income</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Net interest income, the
most significant component of earnings, is the difference between the interest
and fees received on earning assets and the interest paid on interest-bearing
liabilities. Earning assets consist primarily of loans, and to a lesser extent,
investments in securities issued by federal, state and local authorities, and
corporations. These earning assets are funded by a combination of
interest-bearing and noninterest-bearing liabilities, primarily customer
deposits and short-term and long-term borrowings. Net interest income before
provision for credit losses totaled $16.7 million for the year ended December
31, 2001, representing a decrease of $745,000 or 4.3% over the previous year,
but an increase of $2.7 million or 19.0% over the year ended December 31, 1999.
The decrease in net interest income between 2000 and 2001 is primarily the
result of the substantial decline in market rates of interest between those two
twelve-month periods which more than offset the growth in average earning
assets. Net interest income increased between 1999 and 2000 as a result of
significant growth in earning assets and interest-bearing liabilities which was
enhanced by an increase in market rates of interest during the 2000. </FONT></P>

<p align=center><font size=3>14</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<u>Table 1. - Distribution of Average Assets, Liabilities and Shareholders' Equity:</u><BR>
Interest rates and interest differentials<BR>
Years Ended December 31, 2001, 2000, and 1999
<PRE>
                                      --------------------------------------------------------------------------------------
                                                   2001                        2000                        1999
                                      --------------------------------------------------------------------------------------
                                       Average             Yield/   Average            Yield/   Average            Yield/
    <i>(dollars in thousands)</i>             Balance   Interest   Rate    Balance  Interest   Rate    Balance  Interest   Rate
----------------------------------------------------------------------------------------------------------------------------
Assets:
Interest-earning assets:
 Loans (1)                             $297,653  $26,412    8.87%  $230,305  $24,739   10.74%  $175,324  $17,780   10.14%
 Investment Securities - taxable         55,285    3,218    5.82%    54,652    3,798    6.95%    50,959    2,993    5.87%
 Investment Securities - nontaxable(2)    3,357      155    4.62%     3,346      162    4.84%     3,420      165    4.82%
 Federal funds sold and reverse repos     7,766      278    3.58%     4,080      242    5.93%    19,725      982    4.98%
                                      --------------------------------------------------------------------------------------
   Total interest-earning assets        364,061  $30,063    8.26%   292,383  $28,941    9.90%   249,428  $21,920    8.79%
                                                ==================          ==================           ===================
Allowance for possible loan losses       (4,114)                     (3,206)                       (2,349)
Noninterest-bearing assets:
 Cash and due from banks                 14,154                      13,455                        13,339
 Premises and equipment, net              3,265                       3,670                         3,719
 Accrued interest receivable              3,352                       2,792                         1,698
 Other real estate owned                  4,179                         909                           677
 Other assets                            13,863                      11,442                        11,027
                                      -----------                  ----------                    ----------
  Total average assets                 $398,760                    $321,445                      $277,539
                                      ===========                  ==========                    ==========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
 NOW accounts                           $24,382    $360     1.48%   $24,025     $411    1.71%     $25,479   $437    1.72%
 Money market accounts                   47,440   1,604     3.38%    43,665    1,701    3.90%      36,955  1,307    3.54%
 Savings accounts                        18,337     322     1.76%    19,286      416    2.16%      20,465    445    2.17%
 Time deposits                          169,720   8,917     5.25%   121,529    7,166    5.90%     109,102  5,625    5.16%
 Other borrowings                        33,752   1,667     4.94%    27,846    1,850    6.64%       1,957    111    5.67%
 Trust Preferred securities               6,945     541     7.79%         0        0    0.00%           0      0    0.00%
                                      --------------------------------------------------------------------------------------
  Total interest-bearing liabilities    300,576 $13,411     4.46%   236,351  $11,544    4.88%     193,958 $7,925    4.09%
                                                ==================           =================            ==================
Noninterest-bearing liabilities:
   Noninterest-bearing checking          59,389                      51,554                        54,551
   Accrued interest payable               1,388                       1,035                         1,003
   Other liabilities                      1,504                       1,300                         1,145
                                       ----------                 -----------                    -----------
       Total Liabilities                362,857                     290,240                       250,657

Total shareholders' equity               35,903                      31,205                        26,882
                                       -----------                 ----------                    -----------
   Total average liabilites and
       shareholders' equity            $398,760                    $321,445                      $277,539
                                      ===========                 ==========                     ===========
Interest income as a percentage
     of average earning assets                             8.26%                       9.90%                       8.79%
Interest expense as a percentage
     of average earning assets                             3.68%                       3.95%                       3.18%
                                                        ----------                  ----------                   ----------
Net interest margin                                        4.58%                       5.95%                       5.61%
                                                        ==========                  ==========                   ==========
</PRE>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
<td width=5%>&nbsp;</td>
<td width=90%><FONT FACE="times new roman, serif" SIZE=2>
(1)&nbsp;&nbsp;&nbsp;&nbsp;Loan amounts include nonaccrual loans, but the related interest income has been
included only if collected for the period prior to the loan being placed on a
nonaccrual basis. Loan interest income includes loan fees of approximately
$1,468,000, $856,000 and $876,000 for the years ended December 31, 2001, 2000,
and 1999, respectively.</font></td>
<td width=5%>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="times new roman, serif" SIZE=2>
(2)&nbsp;&nbsp;&nbsp;Applicable nontaxable securities yields have not been calculated on a
tax-equivalent basis because they are not material to the Company&#146;s results
of operations.</font></td>
<td>&nbsp;</td>
</tr>
</TABLE>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>As summarized in Table 2,
the increase in net interest income between the two twelve-month periods ended
December 31, 2001 and 2000 is comprised of an increase in total interest income
of approximately $1.1 million, which was more than offset by an increase in
total interest expense of approximately $1.9 million. The Bank's net interest
margin, as shown in Table 1, decreased to 4.58% at December 31, 2001 from 5.95%
at December 31, 2000, a decrease of 137 basis points (100 basis points = 1%)
between the two periods. The net margin reported during 2001 also represents a
decrease of 103 basis points from the 5.61% net margin realized by the Company
during 1999. While assets have grown over the past three years and the balance
sheet mix has changed, interest rate movements over those three years have
played a significant role in net interest income trends. Market rates of
interest increased between the years ended December 31, 1999 and 2000, but then
decreased</font></p>

<p align=center><font size=3>15</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>significantly between the years ended December 31, 2000 and 2001. The
Prime rate, for example (the rate to which most of the Company&#146;s
floating-rate loans are tied), increased by 100 basis point during 2000, but
declined by an unprecedented 475 basis points between December 31, 2000 and
December 31, 2001. As a result of the Federal Reserve&#146;s actions, the prime
rate averaged 6.93% for the year ended December 31, 2001 as compared to 9.24%
and 7.99% for the years ended December 31, 2000 and 1999. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Both the Company's net
interest income and net interest margin are affected by changes in the amount
and mix of interest-earning assets and interest-bearing liabilities, referred to
as &quot;volume change.&quot; Both are also affected by changes in yields on
interest-earning assets and rates paid on interest-bearing liabilities, referred
to as &quot;rate change&quot;. The following table sets forth the changes in
interest income and interest expense for each major category of interest-earning
asset and interest-bearing liability, and the amount of change attributable to
volume and rate changes for the years indicated. </FONT></P>

<u>Table 2.  Rate and Volume Analysis</u>
<pre>

                                                  2001 compared to 2000         2000 compared to 1999
                                             --------------------------------------------------------------
   <i>(In thousands)</i>                             Total      Rate      Volume     Total      Rate     Volume
-----------------------------------------------------------------------------------------------------------
Increase (decrease) in interest income:
  Loans                                      $1,673    $(4,772)    $6,445     $6,959    $1,105    $5,854
  Investment securities                        (587)      (631)        44        802       582       220
  Federal funds sold and securities
    purchased under agreements to resell         36       (122)       158       (740)      159      (899)
                                            ---------------------------------------------------------------
       Total interest income                  1,122     (5,525)     6,647      7,021     1,846     5,175

Increase (decrease) in interest expense:
  Interest-bearing demand accounts             (148)      (272)       124        368       214       154
  Savings accounts                              (94)       (74)       (20)       (29)       (4)      (25)
  Time deposits                               1,751       (848)     2,599      1,541       860       681
  Other borrowings                             (183)      (530)       347      1,739        22     1,717
  Trust Preferred securities                    541          0        541        --         --       --
                                            ---------------------------------------------------------------
       Total interest expense                 1,867     (1,724)     3,591      3,619      1,092    2,527
                                            ---------------------------------------------------------------
Increase in net interest income               $(745)   $(3,801)    $3,056     $3,402       $754   $2,648
                                            ===============================================================
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>For the year ended December
31, 2001, total interest income increased approximately $1.1 million or 3.9% as
compared to the year ended December 31, 2000. The change is attributable
primarily to an increase in the overall volume of earning assets, which was only
partially offset by a decrease in market rates of interest. Earning asset growth
was mainly in loans, which are traditionally the Company&#146;s highest earning
asset and, to a smaller degree, in federal funds sold, repurchase agreements,
and investment securities. On average, loan growth totaled nearly $67.4 million
or 29.2% during 2001. The Company continues to improve its earning asset mix
with loans averaging 81.8% of total earning assets for the year ended December
31, 2001, as compared to 78.8% and 70.3% for the years ended December 31, 2000
and 1999, respectively. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>For the year ended December
31, 2000, total interest income increased $7.0 million or 32.0% as compared to
the year ended December 31, 1999. This increase is attributable primarily to a
substantial increase in loan volume, which was enhanced by an increase in the
average yield on all earning assets during the year. Average loans increased
$55.0 million and average investment securities increased $3.6 million between
December 31, 1999 and December 31, 2000. Average overnight federal funds and
reverse repurchase agreements decreased between the years ended December 31,
1999 and 2000 as a result of high loan demand. This more than outweighed the
increase in yield on these funds and, as a result, interest income on overnight
funds declined between those two years. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>For the year ended December
31, 2001, total interest expense increased approximately $1.9 million or 16.2%
as compared to the year ended December 31, 2000. The increase between these two
periods is primarily the result of an increase in average time deposits of more
than $48.2 million, which more than offset the 65 basis point decrease in the
average cost of those deposits. As a result of the increased volume in time
deposits, interest expense on those deposits increased by almost $1.8 million
for the year. Other borrowings, including federal funds purchased and repurchase
agreements, as well as trust-preferred securities, increased by $12.9 million on
average between the years ended December 31, 2000 and December 31, 2001. Being
short-term in nature, the cost of other borrowings declined by 170 basis points
between those two twelve-month periods as market rates of interest dropped
significantly during 2001. </FONT></P>

<p align=center><font size=3>16</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>For the year ended December
31, 2000, interest expense totaling $11.5 million represents an increase of $3.6
million or 45.7% as compared to the year ended December 31, 1999. The increase
was attributable to both an increase in average volumes of deposits and
borrowings, as well as an increase in the rates paid on those interest-bearing
liabilities. Average time deposits increased $12.4 million and short-term
borrowings increased $25.9 million between December 31, 1999 and December 31,
2000. As interest rates began to rise during 2000, so did the cost of time
deposits, as renewals and new deposits were taken at the higher rates.
Borrowings are short-term and repriced upwards as the year progressed. As a
result of volume increases combined with rate increases, interest expense on
time deposits and short-term borrowings increased $1.5 million and $1.7 million,
respectively, between the years ended December 31, 1999 and December 31, 2000. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Provisions for credit
losses and the amount added to the allowance for credit losses is determined on
the basis of management's continuous credit review of the loan portfolio,
consideration of past loan loss experience, current and future economic
conditions, and other pertinent factors. Such factors consider the allowance for
credit losses to be adequate when it covers estimated losses inherent in the
loan portfolio. Based on the condition of the loan portfolio, management
believes the allowance is sufficient to cover risk elements in the loan
portfolio. For the year ended December 31, 2001 the provision to the allowance
for credit losses amounted to $1.7 million as compared to $1.6 and $1.0 million
for the years ended December 31, 2000 and 1999, respectively. The amount
provided to the allowance for credit losses during 2001 brought the allowance to
1.33% of net outstanding loan balances at December 31, 2001, as compared to
1.45% of net outstanding loan balances at December 31, 2000, and 1.34% at
December 31, 1999. </FONT></P>

<b><i>Noninterest Income</i></b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table summarizes significant
components of noninterest income for the years ended December 31, 2001, 2000 and 1999
and the net changes between those years:</font></p>

<PRE>
                                           Year Ended December 31,          Change during Year
                                   -------------------------------------------------------------
   <i>(In thousands)</i>                     2001          2000        1999         2001         2000
------------------------------------------------------------------------------------------------
Customer service fees                $3,086       $2,234       $2,379        $852        $(145)
Gain on sale of securities              770            6            0         764            6
Gain on sale of OREO                     34           62          158         (28)         (96)
Gain on sale of fixed assets              8            2            3           6           (1)
Other                                   379          234          241         145           (7)
                                   -------------------------------------------------------------
   Total                             $4,277       $2,538       $2,781      $1,739        $(243)
                                   =============================================================
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Noninterest income consists
primarily of fees and commissions earned on services that are provided to the
Company&#146;s banking customers. Noninterest income for the year ended December
31, 2001 increased $1.7 million when compared to the same period last year, and
increased $1.5 million when compared to the year ended December 31, 1999. An
increase in gains from sales of available-for-sale securities accounted for
$764,000 or 43.9% of the increase in total noninterest income between the years
ended December 31, 2000 and December 31, 2001. Increases in customer service
fees accounted for another $852,000 or 50.0% of the total increase in
noninterest income between those two periods. Increases in customer service fees
are attributable to growth in checking service charges, as well as overdraft and
ATM fee income. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Total noninterest income
for the year ended December 31, 2000 decreased $243,000 or 8.7% when compared to
the year ended December 31, 1999. Customer service fees, the primary category of
total noninterest income, decreased $145,000 or 6.1% during 2000, primarily as
the result of a decline in ATM fee income. In addition to the decline in ATM fee
income, gains on the sale of other real estate owned through foreclosure
declined by almost $96,000 during 2000 from the $158,000 realized during 1999. </FONT></P>

<p align=center><font size=3>17</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">


<b><i>Noninterest Expense</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets
forth the components of total noninterest expense in dollars and as a percentage
of average earning assets for the years ended December 31, 2001, 2000 and 1999: </FONT></P>

<PRE>
                                            2001                      2000                      1999
                                   ----------------------------------------------------------------------------
                                                  % of                      % of                      % of
                                                 Average                   Average                   Average
                                                 Earning                   Earning                   Earning
  <i>(In thousands)</i>                     Amount      Assets        Amount      Assets        Amount      Assets
---------------------------------------------------------------------------------------------------------------
Salaries and employee benefits       $4,525       1.24%        $3,954       1.35%        $3,219       1.29%
Occupancy expense                     1,731       0.48%         1,608       0.55%         1,590       0.64%
Data processing                         544       0.15%           540       0.18%           514       0.21%
Professional fees                       591       0.15%           312       0.11%           539       0.22%
Directors fees                          202       0.06%           174       0.06%           167       0.07%
Amortization of intangibles             360       0.10%           360       0.12%           372       0.15%
Correspondent bank service charges      218       0.06%           202       0.07%           184       0.07%
Other                                 1,647       0.46%         1,498       0.51%         1,313       0.53%
                                  -----------------------------------------------------------------------------
   Total                             $9,818       2.70%        $8,648       2.96%        $7,898       3.17%
                                  =============================================================================

</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Noninterest expense,
excluding provision for credit losses and income tax expense, totaled $9.8
million for the year ended December 31, 2001 as compared to $8.6 million and
$7.9 million for the years ended December 31, 2000 and 1999, respectively. These
figures represent an increase of $1.2 million or 13.5% between the years ended
December 31, 2001 and 2000 and an increase of $750,000 or 9.5% between the years
ended December 31, 2000 and 1999. Expense increases between the three years
presented are associated primarily with normal, anticipated growth of the
Company. As a percentage of average earning assets, total noninterest expense
has actually declined over the past three years as the Company has controlled
overhead expenses while experiencing profitable growth. Noninterest expense
declined to 2.70% of average earning assets for the year ended December 31, 2001
from 2.96% at December 31, 2000, and 3.17% at December 31, 1999. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Increases in salaries and
employee benefits over the three years presented were the result of additional
staff to support the Company&#146;s strategic long-term growth objectives, as
well as normal wage and benefit increases combined with increased medical
insurance costs incurred. Professional fees fluctuated between the three years
presented as the result of additional expenses incurred during 2001 related to
the Company&#146;s becoming listed on NASDAQ, the formation of the holding
company, and the issuance of Trust Preferred securities. Additional costs were
incurred during 1999 for legal proceedings between the Company and former its
president, as well as increased legal expenses for the workout of impaired
loans. Increases in other noninterest expense over the three years presented are
associated with normal business growth and, include a number of items such as
telephone, postage, insurance, and armored car expenses. </FONT></P>

<b><u>Financial Condition</u></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Total assets increased by
$94.1 million or 26.4% during the year to $450.9 million at December 31, 2001,
up from $356.8 million at the end of the same period last year, and up from the
balance of $281.5 million at December 31, 1999. Substantial asset growth during
2001 was primarily the result of increased loan demand, which was funded
predominantly by deposit growth during the year. During the year ended December
31, 2001, loan growth totaled $75.0 million, while securities and other
short-term investments increased $16.7 million. Total deposits of $368.7 million
at December 31, 2001 increased $96.8 million or 35.6% from the balance reported
at December 31, 2000, and increased $129.8 million or 54.3% from the balance of
$238.9 million reported at December 31, 1999. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Earning assets averaged
approximately $364.1 million during the year ended December 31, 2001, as
compared to $292.4 million and $249.4 million for the years ended December 31
2000 and 1999, respectively. Average interest-bearing liabilities increased to
$300.6 million for the year ended December 31, 2001, as compared to $236.4
million for the year ended December 31, 2000, and $194.0 million for the year
ended December 31, 1999. </FONT></P>

<b><i>Loans</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's primary
business is that of acquiring deposits and making loans, with the loan portfolio
representing the largest and most important component of its earning assets.
Loans totaled $336.3 million at December 31, 2001, an increase of $74.9 million
or 28.7% when</font></p>

<p align=center><font size=3>18</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>compared to the balance of $261.4 million at December 31, 2000,
and an increase of $138.0 million or 69.6% when compared to the balance of
$198.3 million reported at December 31, 1999. Average loans totaled $297.7
million, $230.3 million, and $175.3 million for the years ended December 31,
2001, 2000 and 1999, respectively. During 2001 average loans increased 29.2%
when compared to the year ended December 31, 2000 and increased 69.8% compared
to the year ended December 31, 1999. </FONT></P>

The following table sets forth the amounts of loans outstanding by category and the category percentages as of the year-end dates
indicated:
<PRE>
                                 2001              2000               1999              1998              1997
                           -------------------------------------------------------------------------------------------
                            Dollar   % of     Dollar    % of    Dollar     % of    Dollar    % of    Dollar    % of
   <i>(In thousands)</i>           Amount   Loans    Amount    Loans   Amount    Loans    Amount    Loans   Amount    Loans
----------------------------------------------------------------------------------------------------------------------
Commercial and industrial  $102,280  30.4%   $66,435    25.4%   $52,275   26.4%   $43,358    28.1%   $33,777   23.6%
Real estate - mortgage      111,425  33.1    113,140    43.3     77,694   39.2     65,833    42.6     70,801   49.5
Real estate - construction   92,764  27.6     61,038    23.4     55,574   28.0     33,913    22.0     28,226   19.8
Agricultural                 12,987   3.9      7,240     2.8      7,003    3.5      6,479     4.2      4,746    3.3
Installment/other             6,647   2.0     10,291     3.9      5,723    2.9      4,837     3.1      5,383    3.8
Lease financing              10,184   3.0      3,225     1.2          0    0.0          0     0.0          0    0.0
                           --------------------------------------------------------------------------------------------
Total Loans                $336,287 100.0%  $261,369   100.0%  $198,269  100.0%  $154,420   100.0%  $142,933  100.0%
                           ============================================================================================
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Loan growth continues to be
greatest in what has historically been the Bank&#146;s primary lending emphasis:
commercial, real estate mortgage, and construction lending. Almost half of the
loan growth experienced during 2001 occurred in commercial and industrial loans,
which increased by $35.8 million or 54.0% during the year as compared to $14.2
million or 27.1% during 2000. Growth also continues in construction loans, which
increased $31.7 million or 52.0% during 2001, and increased $5.5 million or 9.8%
during 1999. Agricultural loans increased $5.7 million or 79.3% between December
31, 2000 and December 31, 2001, while installment loans decreased $3.6 million
or 35.4% during that same period. During 2000, the Company purchased an existing
leasing portfolio and, with growth experienced during 2001, this category grew
by $7.0 million or 215.8% during the year ended December 31, 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The real estate mortgage
loan portfolio totaling $111.4 million at December 31, 2001 consists of
commercial real estate, residential mortgages, and home equity loans. Commercial
real estate is the core of this segment of the portfolio, with balances of $83.3
million, $89.5 million, and $56.2 million at December 31, 2001, 2000, and 1999,
respectively. The Company does not currently offer residential mortgage loans
and, as a result, that portion of the portfolio generally has declined over time
with balances of $13.4 million, $6.1 million, and $7.8 million at December 31,
2001, 2000 and 1999, respectively. The Company purchased a portfolio of jumbo
mortgages during 2001, which accounted for $8.7 million of the outstanding
mortgage loans at December 31, 2001. The Company began offering home equity
loans early in 1997 and since that time balances have remained strong with $14.8
million at December 31, 2001, $17.5 million at December 31, 2000, and $13.8
million at December 31, 1999. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets forth the
maturities of the Bank's loan portfolio at December 31, 2001. Amounts presented are shown by
maturity dates rather than repricing periods:</font></p>

<PRE>
                                                   Due after one
                                     Due in one     Year through      Due after
   <i>(In thousands)</i>                   year or less     Five years       Five years        Total
---------------------------------------------------------------------------------------------------
Commercial and agricultural            $61,199         $30,966          $23,102        $115,267
Real estate - construction              60,781          23,776            8,207          92,764
                                   ----------------------------------------------------------------
                                       121,980          54,742           31,309         208,031
Real estate - mortgage                   9,895          52,954           48,576         111,425
All other loans                          5,058          10,645            1,128          16,831
                                   ----------------------------------------------------------------
Total Loans                           $136,933        $118,341          $81,013        $336,287
                                   ================================================================
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The average yield on loans
was 8.87% for the year ended December 31, 2001, representing a decrease of 187
basis points when compared to the year ended December 31, 2000 and was a result
of a significant decline in market rates of interest between those two periods.
For the year ended December 31, 2000, the overall average yield on the loan
portfolio was 10.74%, representing an increase of 60 basis points when compared
to 10.14% for the same twelve-month period of 1999 and was a result of a general
increase in average market rates of interest during</font></p>

<p align=center><font size=3>19</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>2000. The Bank&#146;s loan portfolio is generally
comprised of short-term or floating rate loans and is
therefore susceptible to fluctuations in market rates of interest. At December
31, 2001, 2000 and 1999, approximately 65.2%, 65.5% and 67.5% of the Bank's loan
portfolio consisted of floating rate instruments, with the majority of those
tied to the prime rate. </FONT></P>

<b><i>Securities</i></b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Following is a comparison of the
amortized cost and approximate fair value of available-for-sale and held-to-maturity securities
for the three years indicated:</font></p>
<PRE>
                                          December 31, 2001                          December 31, 2000
                              ------------------------------------------  -----------------------------------------
                                                                     Fair                                       Fair
                                               Gross     Gross       Value                Gross      Gross      Value
                                  Amortized Unrealized Unrealized (Carrying   Amortized Unrealized Unrealized (Carrying
   <i>(In thousands)</i>                    Cost      Gains    Losses      Amount)      Cost     Gains      Losses    Amount)
-----------------------------------------------------------------------------------------------------------------------
Available-for-sale:
 U.S. Government agencies          $42,341     $360     $(74)      $42,627      $42,523   $489       $(79)     $42,933
 U.S. Government agency
   collateralized mortgage
   obligations                         211        1       (2)          210        1,357      0        (16)       1,341
 Obligations of state and
    political subdivisions           3,464       72       (4)        3,532        3,317     72          0        3,389
 Other debt securities              17,164        0     (168)       16,996        2,000     95          0        2,095
                                  ------------------------------------------  -----------------------------------------
      Total available-for-sale     $63,180     $433    $(248)      $63,365     $49,197    $656       $(95)     $49,758
                                  ==========================================  =========================================
Held-to-maturity:
   U.S. Government agencies             $0       $0      $(0)           $0     $10,248      $0       $(74)     $10,174
                                  ==========================================  =========================================

                                                         December 31, 1999
                                            ---------------------------------------------
                                                          Gross      Gross    Fair Value
                                            Amortized  Unrealized  Unrealized (Carrying
  <i>(In thousands)</i>                               Cost       Gains      Losses    Amount)
-----------------------------------------------------------------------------------------
Available-for-sale:
   U.S. Government agencies                  $32,034       $115      $(489)    $31,660
   U.S. Government agency
      collateralized mortgage obligations      1,845          0        (41)      1,804
   Obligations of state and
      political subdivisions                   3,402          0       (247)      3,155
   Other debt securities                       9,929          0          0       9,929
                                            ---------------------------------------------
      Total available-for-sale               $47,210       $115      $(777)    $46,548
                                            =============================================
Held-to-maturity:
   U.S. Government agencies                  $10,248         $0      $(351)     $9,897
                                            =============================================

</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Realized gains on securities available-for-sale
totaled $769,000 during 2001, and $6,000 during 2000. There were no realized losses on securities
available-for-sale during either of those years. There were no realized gains or losses for such securities
during 1999.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Most of the $14.0 million
increase in available-for-sale securities experienced during 2001 was in the
other debt securities category. Included in other debt securities at December
31, 2001 are a short-term government securities mutual fund totaling $10.0
million, a CRA qualified investment fund totaling $4.0 million, and a Trust
Preferred securities pool totaling $3.1 million. At December 31, 2000, other
debt securities consisted solely of investments in Trust Preferred securities. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Total securities changed
little during the year ended December 31, 2000, although the mix of the
portfolio did change. At December 31, 1999, the Bank had approximately $9.9
million in short-term commercial paper which matured during the first quarter of
2000. Much of this money was reinvested in U.S. Government agencies during 2000. </FONT></P>

<p align=center><font size=3>20</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The amortized cost and fair
value of investment securities as well as yields on those securities at December
31, 2001, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because issuers have the right to call or prepay
obligations with or without call or prepayment penalties. </FONT></P>

<PRE>
                                                         December 31, 2001
                                         ----------------------------------------------
                                             Weighted        Amortized         Fair
   <i>(In thousands)</i>                        Average Yield(1)      Cost            Value
---------------------------------------------------------------------------------------
Available-for-sale:
   Due in one year or less                   4.80%            $10,666         $10,567
   Due after one year through five years     6.40%             28,561          28,748
   Due after five years through ten years    7.60%              7,250           7,302
   Due after ten years                       7.34%             16,492          16,538
   Collateralized mortgage obligations       5.38%                211             210
                                             ------------------------------------------
       Total available-for-sale              6.42%            $63,180         $63,365
                                             ==========================================

      <i>(1) Weighted average yields are not computed on a tax equivalent basis</i>
</pre>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Contractual maturities on collateralized mortgage obligations are difficult to anticipate due to allowed paydowns and therefore
have been disclosed separately for the purpose of the above table. For further discussion on the maturities of collateralized
mortgage obligations, see "Liquidity and Asset/Liability Management" presented later in this text.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>At December 31, 2001, available-for-sale securities with an amortized cost of approximately $43.9 million (fair value of $44.2
million) were pledged as collateral for public funds and treasury tax and loan balances. At December 31, 2000, available-for-sale
securities with an amortized cost of approximately $44.2 million (fair value of $44.6 million) were pledged as collateral for
public funds and treasury tax and loan balances. At December 31, 2000, all held-to-maturity securities with an amortized cost of
approximately $10.2 million (fair value of $10.2 million) were pledged as collateral for public funds (including the State of
California) and the Federal Reserve Discount Window.</font></p>

<b><i>Deposits</i></b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Bank attracts commercial deposits primarily from local businesses and professionals, as well as retail checking accounts,
savings accounts and time deposits. Total deposits increased $96.8 million or 35.6% during the year to a balance of $368.7 million
at December 31, 2001 and increased $33.0 million or 13.8% between December 31, 1999 and December 31, 2000. Core deposits,
consisting of all deposits other than time deposits of $100,000 or more and brokered deposits, continue to provide the foundation
for the Bank's principal sources of funding and liquidity. These core deposits amounted to 65.5%, 71.4% and 79.7% of the total
deposit portfolio at December 31, 2001, 2000 and 1999, respectively.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets forth the amounts of deposits by category
for the years indicated, and the dollar change in each category during the year:</font></p>

<PRE>
                                        Balance as of December 31,              Change during Year
                                    ---------------------------------------------------------------------
   <i>(In thousands)</i>                       2001         2000         1999             2001         2000
---------------------------------------------------------------------------------------------------------
Noninterest bearing deposits          $72,413      $52,898      $50,910          $19,515       $1,988
Interest bearing deposits:
  NOW and money market account         83,316       62,143       62,239           21,173          (96)
  Savings accounts                     19,883       18,347       19,609            1,536       (1,262)
  Time deposits:
    Under $100,000                     68,414       63,567       57,553            4,847        6,014
    $100,000 and over                 124,625       74,908       48,552           49,717       26,356
                                    ---------------------------------------------------------------------
Total interest bearing deposits       296,238      218,965      187,953           77,273       31,012
                                    ---------------------------------------------------------------------
Total deposits                       $368,651     $271,863     $238,863          $96,788      $33,000
                                    =====================================================================

</PRE>

<p align=center><font size=3>21</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>During the year ended
December 31, 2001, increases were experienced in all deposit categories, with
substantial increases in time deposits, as well as interest-bearing and
noninterest-bearing checking accounts. The increase experienced in total
deposits between December 31, 1999 and December 31, 2000 was almost exclusively
in time deposits. Much of the increase in time deposits over the years presented
has been the result of brokered deposits and time deposits from the State of
California. The Company has utilized brokered deposits over the past several
years to enhance its deposit growth, with brokered deposits totaling $51.3
million and $12.5 million at December 31, 2001 and 2000, respectively. The
Company had no brokered deposits at December 31, 1999. In addition, the Company
has been able to obtain time deposits from the State of California, which
totaled $30.0 million, $25.0 million, and $10.0 million at December 31, 2001,
2000 and 1999, respectively. The time deposits of the State of California are
collateralized by pledged securities in the Company&#146;s investment portfolio. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's deposit base
consists of two major components represented by noninterest-bearing (demand)
deposits and interest-bearing deposits. Interest-bearing deposits consist of
time certificates, NOW and money market accounts and savings deposits. Total
interest-bearing deposits increased $77.3 million or 35.3% between December 31,
2000 and December 31, 2001, while noninterest-bearing deposits increased $19.5
million or 36.9% between the same two periods presented. Between December 31,
1999 and December 31, 2000, total interest-bearing deposits increased $31.0
million or 16.5%, while noninterest-bearing deposits increased $2.0 million or
3.9%. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>On a year-to-date average
(refer to Table 1), the Company experienced an increase of $59.2 million or
22.8% in total deposits between the years ended December 31, 2000 and December
31, 2001. Between these two periods, average interest-bearing deposits increased
$51.4 million or 24.6%, while total noninterest-bearing checking increased $7.8
million or 15.2% on a year-to-date average basis. On average, the Company
experienced increases in all other deposit categories, except savings accounts,
between the years ended December 31, 2000 and December 31, 2001, with the most
significant increases being in time deposits and money market accounts. On a
year-to-date average basis, total deposits increased $13.5 million or 5.5%
between the years ended December 31, 1999 and December 31, 2000. Of that total,
interest-bearing deposits increased by $16.5 million or 8.6%, while
noninterest-bearing deposits declined $3.0 million or 5.5% during 2000. As with
2001, the most significant increases experienced in average deposits during 2000
were in time deposits and money market accounts. On average, NOW and savings
accounts showed only slight decreases between the years ended December 31, 1999
and December 31, 2000. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets forth
the average deposits and average rates paid on those deposits for the years ended December 31,
2001, 2000 and 1999:</font></p>
<PRE>
                                          2001                   2000                  1999
                                ------------------------------------------------------------------
                                  Average                Average               Average
  <i>(In thousands)</i>                  Balance     Rate %     Balance    Rate %     Balance     Rate %
--------------------------------------------------------------------------------------------------
Interest bearing deposits:
   Checking accounts              $71,822     2.73%      $67,690    3.12%      $62,434     2.80%
   Savings                         18,337     1.76%       19,286    2.16%       20,465     2.17%
   Time deposits(1)               169,720     5.25%      121,529    5.90%      109,102     5.16%
Noninterest-bearing deposits       59,389                 51,554                54,551
</pre>
    <p><font size=2>(1) Included at December 31, 2001, are $124.6 million in time certificates of deposit of  $100,000
        or more, of which $67.5 million matures in three months or less, $26.7
        million matures in 3 to 6 months, $18.7 million matures in 6 to 12 months,
        and $11.7 million matures in more than 12 months.</font></p>

<BR>
<b><i>Short-term Borrowings</i></b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company has the ability to obtain borrowed funds consisting of federal funds purchased, securities sold under agreements to
repurchase ("repurchase agreements") and Federal Home Loan Bank ("FHLB") advances as alternatives to retail deposit funds. The
Company has established collateralized and uncollateralized lines of credit with several correspondent banks, as well as a
securities dealer, for the purpose of obtaining borrowed funds as needed. The Company may continue to borrow funds in the future
as part of its asset/liability strategy, and may use these funds to acquire certain other assets as deemed appropriate by
management for investment purposes and to better utilize the capital resources of the Bank. Federal funds purchased represent
temporary overnight borrowings from correspondent banks and are generally unsecured. Repurchase agreements are collateralized by
mortgage backed securities and securities of U.S. Government agencies, and generally have maturities of one to six months, but may
have longer maturities if deemed appropriate as part of the Company's asset/liability management</font></p>

<p align=center><font size=3>22</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>strategy. FHLB advances are collateralized by all of the Company's stock in the FHLB and certain qualifying mortgage loans. In addition, the Company has the
ability to obtain borrowings from the Federal Reserve Bank of San Francisco, which would be collateralized by certain pledged
loans in the Company's loan portfolio. The lines of credit are subject to periodic review of the Company's financial statements by
the grantors of the credit lines. Lines of credit may be modified or revoked at any time if the grantors feel there are adverse
trends in the Company's financial position.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company had collateralized and uncollateralized lines of credit aggregating $119.6 million and $107.9 million, as well as
repurchase agreement lines of credit totaling $5.3 million and $11.7 million, and FHLB lines of credit totaling $35.6 million and
$13.2 million at December 31, 2001 and 2000, respectively. These lines of credit generally have interest rates tied to the Federal
Funds rate or are indexed to short-term U.S. Treasury rates or LIBOR.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The table below provides further detail of the Company's federal funds purchased, repurchase agreements and FHLB advances for the
years ended December 31, 2001 and 2000:</font></p>
<PRE>
                                                    December 31,
                                           -------------------------------
 <i>(In thousands)</i>                                 2001             2000
--------------------------------------------------------------------------
 At period end:
   Federal funds purchased                        $0           $22,630
   Repurchase agreements                       5,300            11,694
   FHLB advances                              22,200            13,200
                                           --------------------------------
     Total                                   $27,500           $47,524
                                           ================================
   Average ending interest rate - total        4.13%             6.35%
                                           ================================
 Average for the year:
   Federal funds purchased                    $1,480            $2,793
   Repurchase agreements                      12,048            17,077
   FHLB advances                              19,255             7,800
                                           --------------------------------
      Total                                  $32,783           $27,669
                                           ================================
    Average interest rate - total              4.82%             6.61%
                                           ================================
 Maximum total borrowings outstanding
  at any month-end during the year:
    Federal funds purchased                  $19,870           $22,630
    Repurchase agreements/FHLB advances       24,350            24,894
                                           --------------------------------
         Total                               $44,220           $47,524
                                           ================================

</PRE>
<b><i>Asset Quality and Allowance for Credit Losses</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Lending money is the
Company's principal business activity, and ensuring appropriate evaluation,
diversification, and control of credit risks is a primary management
responsibility. Implicit in lending activities is the fact that losses will be
experienced and that the amount of such losses will vary from time to time,
depending on the risk characteristics of the loan portfolio as affected by local
economic conditions and the financial experience of borrowers. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The allowance for credit
losses is maintained at a level deemed appropriate by management to provide for
known and inherent risks in existing loans and commitments to extend credit. The
adequacy of the allowance for credit losses is based upon management's
continuing assessment of various factors affecting the collectibility of loans
and commitments to extend credit; including current economic conditions, past
credit experience, collateral, and concentrations of credit. There is no precise
method of predicting specific losses or amounts which may ultimately be charged
off on particular segments of the loan portfolio. The conclusion that a loan may
become uncollectible, either in part or in whole, is judgmental and subject to
economic, environmental, and other conditions which cannot be predicted with
certainty. When determining the adequacy of the allowance for credit losses, the
Company follows the guidelines set forth in the Interagency Policy Statement on
the Allowance for Loan and Lease Losses (&#147;Statement&#148;) issued jointly
by banking regulators during December 1993. The Statement outlines
characteristics that should be used in segmentation of the loan portfolio for
purposes of the analysis including risk classification, past due status, type of
loan, industry or collateral. It also outlines factors to consider when
adjusting the loss factors for various segments of the loan portfolio.
Securities and Exchange Commission Staff Accounting Bulletin No. 102 was also
released at this time which represents the SEC staff&#146;s view relating to
methodologies and supporting documentation for the Allowance for Loan and Lease
Losses that should be observed by all public companies in complying with the
federal securities laws and the Commission&#146;s interpretations. It is also
generally consistent with the guidance published by the banking regulators. </FONT></P>

<p align=center><font size=3>23</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's methodology for assessing
the adequacy of the allowance for credit losses consists of several key elements, which
include:</font></p>
<ul>

 <li>- the formula allowance,<BR>
 <li>- specific allowances for problem graded loans ("classified loans")<BR>
 <li>- and the unallocated allowance<BR>
</ul>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>In addition, the allowance
analysis also incorporates the results of measuring impaired loans as provided
in: </FONT></P>

<ul>
 <li>- Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors
       for Impairment of a Loan"  and<BR>
 <li>- SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures."<BR>
</ul>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The formula allowance is
calculated by applying loss factors to outstanding loans and certain unfunded
loan commitments. Loss factors are based on the Company&#146;s historical loss
experience and on the internal risk grade of those loans and, may be adjusted
for significant factors that, in management's judgment, affect the
collectibility of the portfolio as of the evaluation date. Management determines
the loss factors for problem graded loans (substandard, doubtful, and loss),
special mention loans, and pass graded loans, based on a loss migration model.
The migration analysis incorporates loan losses over the past twelve quarters
(three years) and loss factors are adjusted to recognize and quantify the loss
exposure from changes in market conditions and trends in the Company&#146;s loan
portfolio. For purposes of this analysis, loans are grouped by internal risk
classifications which are &#147;pass&#148;, &#147;special mention&#148;,
&#147;substandard&#148;, &#147;doubtful&#148;, and &#147;loss&#148;. Certain
loans are homogenous in nature and are therefore pooled by risk grade. These
homogenous loans include consumer installment and home equity loans. Special
mention loans are currently performing but are potentially weak, as the borrower
has begun to exhibit deteriorating trends, which if not corrected, could
jeopardize repayment of the loan and result in further downgrade. Substandard
loans have well-defined weaknesses which, if not corrected, could jeopardize the
full satisfaction of the debt. A loan classified as &#147;doubtful&#148; has
critical weaknesses that make full collection of the obligation improbable.
Classified loans, as defined by the Company, include loans categorized as
substandard, doubtful, and loss. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Specific allowances are
established based on management&#146;s periodic evaluation of loss exposure
inherent in classified loans, impaired loans, and other loans in which
management believes there is a probability that a loss has been incurred in
excess of the amount determined by the application of the formula allowance. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The unallocated portion of
the allowance is based upon management&#146;s evaluation of various conditions
that are not directly measured in the determination of the formula and specific
allowances. The conditions may include, but are not limited to, general economic
and business conditions affecting the key lending areas of the Company, credit
quality trends, collateral values, loan volumes and concentrations, and other
business conditions. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company&#146;s
methodology includes features that are intended to reduce the difference between
estimated and actual losses. The specific allowance portion of the analysis is
designed to be self-correcting by taking into account the current loan loss
experience based on that portion of the portfolio. By analyzing the probable
estimated losses inherent in the loan portfolio on a quarterly basis, management
is able to adjust specific and inherent loss estimates using the most recent
information available. In performing the periodic migration analysis, management
believes that historical loss factors used in the computation of the formula
allowance need to be adjusted to reflect current changes in market conditions
and trends in the Company&#146;s loan portfolio. There are a number of other
factors which are reviewed when determining adjustments in the historical loss
factors. They include 1) trends in delinquent and nonaccrual loans, 2) trends in
loan volume and terms, 3) effects of changes in lending policies, 4)
concentrations of credit, 5) competition, 6) national and local economic trends
and conditions, 7) experience of lending staff, 8) loan review and Board of
Directors oversight, and 9) other business conditions. During the fourth quarter
of 2001, there were no changes in estimation methods or assumptions that
affected the methodology for assessing the adequacy of the allowance for credit
losses. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Management and the
Company&#146;s lending officers evaluate the loss exposure of classified and
impaired loans on a weekly/monthly basis and through discussions and officer
meetings as conditions change. The Company&#146;s Loan Committee meets weekly
and serves as a forum to discuss specific problem assets that pose significant
concerns to the Company, and to keep the Board of Directors informed through
committee minutes. All special mention and classified loans are reported
quarterly on Criticized Asset Reports which are reviewed by senior management.
With this information, the migration analysis and the impaired loan analysis are
performed on a quarterly basis and adjustments are made to the allowance as
deemed necessary. </FONT></P>

<p align=center><font size=3>24</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Impaired loans are measured
based on the present value of the expected future cash flows discounted at the
loan's effective interest rate or the fair value of the collateral if the loan
is collateral dependent. The amount of impaired loans is not directly comparable
to the amount of nonperforming loans disclosed later in this section. The
primary differences between impaired loans and nonperforming loans are: i) all
loan categories are considered in determining nonperforming loans while impaired
loan recognition is limited to commercial and industrial loans, commercial and
residential real estate loans, construction loans, and agricultural loans, and
ii) impaired loan recognition considers not only loans 90 days or more past due,
restructured loans and nonaccrual loans but also may include problem loans other
than delinquent loans. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company considers a
loan to be impaired when, based upon current information and events, it believes
it is probable the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Impaired loans include
nonaccrual loans, restructured debt, and performing loans in which full payment
of principal or interest is not expected. Management bases the measurement of
these impaired loans on the fair value of the loan's collateral or the expected
cash flows on the loans discounted at the loan's stated interest rates. Cash
receipts on impaired loans not performing to contractual terms and that are on
nonaccrual status are used to reduce principal balances. Impairment losses are
included in the allowance for credit losses through a charge to the provision,
if applicable. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>At December 31, 2001 and
2000, the Company's recorded investment in loans for which impairment has been
recognized totaled $13.1 million and $3.4 million, respectively. Included in
total impaired loans at December 31, 2001, is $1.3 million of impaired loans for
which the related specific allowance is $115,000, as well as $11.8 million of
impaired loans that as a result of write-downs or the fair value of the
collateral, did not have a specific allowance. Total impaired loans at December
31, 2000 included $138,000 of impaired loans for which the related specific
allowance is $84,000, as well as $3.3 million of impaired loans that as a result
of write-downs or the fair value of the collateral, did not have a specific
allowance. The average recorded investment in impaired loans was $5.7 million
and $5.4 million during the years ended December 31, 2001 and 2000,
respectively. In most cases, the Company uses the cash basis method of income
recognition for impaired loans. In the case of certain troubled debt
restructuring for which the loan is performing under the current contractual
terms, income is recognized under the accrual method. For the years ended
December 31, 2001, 2000, and 1999, the Company recognized $23,000, $270,000, and
$290,000, respectively, of income on such loans. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Other factors that continue
to gain management&#146;s attention are competition in the Company&#146;s market
area and economic conditions, which may ultimately affect the risk assessment of
the portfolio. The Company has experienced increased competition from major
banks, local independents and non-bank institutions creating pressure on loan
pricing. After the Federal Reserve raised interest rates 75 basis points during
1999 and an additional 100 basis points by mid-2000, the domestic economy began
to slow in the third quarter, and stall during the fourth quarter of 2000. As a
result, the Federal Reserve began to cut interest rates in the first week of
January 2001, and by December 31, 2001, had reduced interest rates by an
unprecedented 475 basis points. We have gone from what was possibly considered
the longest economic expansion in recent U.S. history, to what many refer to as
a recession in just a few short months, with increasing energy costs, declining
consumer confidence, and job layoffs at major corporations across the country.
With recent events at the World Trade Center, and expanding conflict in the
Middle East, it is difficult to determine what continued impact these changes
will have on consumer confidence and the domestic economy or whether the Federal
Reserve will continue to adjust interest rates in an effort to control the
economy. It is likely that the business environment in California will continue
to be influenced by these domestic as well as global events, although the
overall economy of California has generally improved over the past several
years. San Francisco, the Silicon Valley, and adjacent areas continue to feel
the effect of the high-tech decline as occupancy rates drop, along with rental
rates of available commercial office space. Occupancy rates for commercial real
estate in other parts of the state may also suffer as a result of the drag on
the economy. The local economy has been impacted to some degree over the past
several years by such things as decreased exports and adverse weather patterns,
which has increased worries about the future economic trends in the state. Local
unemployment rates, as well as foreclosures in Fresno and Madera counties have
increased during the past several years and persist to the current time. Despite
the Central Valley's traditionally high unemployment, it is anticipated that the
Central San Joaquin Valley will continue to grow and diversify as property and
housing costs remain reasonable relative to other areas of the state, although
this growth may begin to slow as the Federal Reserve seeks to control what it
perceives as a potential recession in the economy. Management recognizes
increased risk of loss due to the Company's exposure from local and worldwide
economic conditions, as well as soft real estate markets, and takes these
factors into consideration when analyzing the adequacy of the allowance for
credit losses. </FONT></P>

<p align=center><font size=3>25</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table
provides a summary of the Company's allowance for possible credit losses,
provisions made to that allowance, and charge-off and recovery activity
affecting the allowance for the periods indicated. </FONT></P>

<PRE>
                                                                December 31,
  <i>(In thousands)</i>                             2001       2000        1999       1998        1997
----------------------------------------------------------------------------------------------------
Total loans outstanding at end
  of period before deducting
   allowances for credit losses           $335,620  $260,575     $197,876   $153,960    $142,288
                                         ===========================================================
Average net loans outstanding
  during period                            $297,653  $230,305     $175,324   $149,100    $137,834
                                         ===========================================================

Balance of allowance at
  beginning of period                        $3,773    $2,642       $1,907     $2,144      $1,663

Loans charged off:
   Real estate                                    0         0            0         (9)        (47)
   Commercial and industrial                 (1,036)     (430)        (285)    (1,497)       (779)
   Installment and other                        (40)      (44)         (27)       (80)        (10)
                                         ----------------------------------------------------------
      Total loans charged off                (1,076)     (474)        (312)    (1,586)       (836)
Recoveries of loans previously
  charged off:
   Real estate                                    0         0            0        150          20
   Commercial and industrial                     27        11           19         33          94
   Installment and other                          0        14            3         11           3
                                         ----------------------------------------------------------
          Total loan recoveries                  27        25           22        149         117
                                         ----------------------------------------------------------
Net loans charged off                        (1,049)     (449)        (290)    (1,437)       (719)

Provision charged to operating expense        1,733     1,580        1,025      1,200       1,200
Balance of allowance for credit losses
     at end of period                        $4,457    $3,773       $2,642     $1,907      $2,144
                                         ==========================================================

Net loan charge-offs to
  total average loans                         0.35%     0.19%        0.17%      0.96%       0.52%
Net loan charge-offs to
  loans at end of period                      0.31%     0.17%        0.15%      0.93%       0.51%
Allowance for credit losses to
  total loans at end of period                1.33%     1.45%        1.34%      1.24 %      1.51%
Net loan charge-offs to
  allowance for credit losses                23.54%    11.90%       10.98%     75.35%      33.54%
Net loan charge-offs to
  provision for credit losses                60.53%    28.42%       28.29%    119.75%      59.92%

</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Management believes that
the 1.33% credit loss allowance at December 31, 2001 is adequate to absorb known
and inherent risks in the loan portfolio. No assurance can be given, however,
that the economic conditions which may adversely affect the Company's service
areas or other circumstances will not be reflected in increased losses in the
loan portfolio. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Although the Company does
not normally allocate the allowance for credit losses to specific loan
categories, an allocation to the major categories has been made for the purposes
of this report as set forth in the following table (dollars in thousands). The
allocations are estimates based on the same factors as considered by management
in determining the amount of additional provisions to the credit loss allowance
and the overall adequacy of the allowance for credit losses. </FONT></P>

<PRE>
                                 2001              2000               1999              1998               1997
                           ---------------------------------------------------------------------------------------
                           Allowance         Allowance        Allowance         Allowance         Allowance
                           for Loan   % of   for Loan   % of  For Loan   % of   for Loan   % of   for Loan  % of
  <i>(In thousands)</i>            Losses    Loans   Losses   Loans   Losses    Loans   Losses    Loans   Losses   Loans
------------------------------------------------------------------------------------------------------------------
Commercial and industrial    $1,951   30.5%   $1,328   25.4%   $1,028   26.4%     $570    28.1%    $1,226   23.6%
Real estate - mortgage          899   33.0%    1,141   43.3%    1,061   39.2%      520    42.6%       421   49.5%
Real estate - construction      893   27.6%      606   23.4%      436   28.0%      289    22.0%       169   19.8%
Agricultural                    123    3.9%       65    2.8%       54    3.5%       48     4.2%        24    3.3%
Installment/other               102    2.0%       72    3.9%       63    2.9%       28     3.1%        26    3.8%
Lease financing                 120    3.0%       82    1.2%        0      --        0      --          0      --
Not allocated                   369      --      479     --         0      --      452      --        278      --
                          ----------------------------------------------------------------------------------------
                             $4,457  100.0%   $3,773  100.0%   $2,642  100.0%   $1,907   100.0%    $2,144  100.0%
                          ========================================================================================

</PRE>
<p align=center><font size=3>26</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>At December 31, 2001, the
Company&#146;s allowance for credit losses was $4.5 million, consisting of $4.1
million in formula allowance and $369,000 in unallocated allowance. No specific
allowance was allocated in excess of the formula allowance at December 31, 2001.
At December 31, 2000, the Company&#146;s allowance for credit losses was $3.8
million, consisting of $3.2 million in formula allowance, $50,000 in specific
allowance, and $479,000 in unallocated allowance. At December 31, 2000, the
specific allowance was allocated almost evenly between commercial and industrial
loans, and lease financing. The formula allowance increased in all loan
categories except mortgage loans during 2001 as the result of increases in loan
balances during the year, as well as the level of special mention and classified
loans. The formula allowance increased by approximately $794,000 between
December 31, 2000 and December 31, 2001 with about $623,000 or 78% of that
increase being allocated to commercial and industrial loans. The increase in the
formula allowance during 2001 was the result of several factors including, an
increase of $16.4 million in substandard loans, and an increase of approximately
$59.2 million in &#147;pass&#148; loans during 2001. Special mention loans
decreased by about $7.3 million between December 31, 2000 and December 31, 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Although in some instances,
the downgrading of a loan resulting from the factors used by the Company in its
allowance analysis has been reflected in the formula allowance, management
believes that in some instances, the impact of material events and trends has
not yet been reflected in the level of nonperforming loans or the internal risk
grading process regarding these loans. Accordingly, the Company&#146;s
evaluation of probable losses related to these factors may be reflected in the
unallocated allowance. The evaluation of the inherent losses concerning these
factors involve a higher degree of uncertainty because they are not identified
with specific problem credits, and therefore the Company does not spread the
unallocated allowance among segments of the portfolio. At December 31, 2001 the
Company had an unallocated allowance of $369,000, reflecting a decrease from the
balance of $479,000 at December 31, 2000. Management&#146;s estimates of the
unallocated allowance are based upon a number of underlying factors including 1)
the effect of deteriorating national and local economic trends, 2) the effects
of export market conditions on certain agricultural and manufacturing borrowers,
3) the effects of abnormal weather patterns on agricultural borrowers, as well
as other borrowers that may be impacted by such conditions, 4) the effect of
increased competition in the Company&#146;s market area and the resultant
potential impact of more relaxed underwriting standards to borrowers with
multi-bank relationships, 5) the effect of soft real estate markets, and 6) the
effects of having a larger number of borrowing relationships which are close to
the Company&#146;s lending limit, any one if which were not to perform to
contractual terms, would have a material impact on the allowance. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's loan
portfolio has concentrations in commercial real estate, commercial, and
construction loans, however these portfolio percentages fall within the
Company's loan policy guidelines. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>It is the Company's policy
to discontinue the accrual of interest income on loans for which reasonable
doubt exists with respect to the timely collectibility of interest or principal
due to the inability of the borrower to comply with the terms of the loan
agreement. Such loans are placed on nonaccrual status whenever the payment of
principal or interest is 90 days past due or earlier when the conditions
warrant, and interest collected is thereafter credited to principal to the
extent necessary to eliminate doubt as to the collectibility of the net carrying
amount of the loan. Management may grant exceptions to this policy if the loans
are well secured and in the process of collection. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets
forth the Company's nonperformong assets as of the dates indicated:</font></p>
<pre>

                                                             December 31,
   <i>(In thousands)</i>                       2001         2000         1999         1998         1997
----------------------------------------------------------------------------------------------------
Nonaccrual loans (1)                  $13,019       $2,810       $4,373       $1,485       $3,595
Restructured loans                          0            0        2,401        2,443        2,755
                                    ----------------------------------------------------------------
   Total nonperforming loans           13,019        2,810        6,774        3,928        6,350
Other real estate owned                 5,390        2,959          663          697          863
                                    ----------------------------------------------------------------
   Total nonperforming assets         $18,409       $5,769       $7,437       $4,625       $7,213
                                    ================================================================
Loans, past due 90 days or more,
  still accruing                           $0         $595           $0         $210          $99
                                   =================================================================
Nonperforming loans to
  total gross loans                     3.87%         1.08%        3.42%        2.54%        4.44%
                                   =================================================================
Nonperforming assets to
  total gross loans                     5.47%         2.21%        3.75%        3.00%        5.01%
                                   =================================================================

</pre>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)
Included in nonaccrual loans at December 31, 2001, 2000 and 1999 are
restructured loans totaling $37,600, $57,800 and $112,400, respectively. </FONT></P>

<p align=center><font size=3>27</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The overall level of
nonperforming assets, particularly nonaccrual loans, has increased between
December 31, 2000 and December 31, 2001 as commercial real estate and
construction delinquencies have increased. A substantial portion of the
nonaccural loans at December 31, 2001 are collateralized by real estate. Loans
past due more than 30 days are receiving increased management attention and are
monitored for increased risk. The Company continues to move past due loans to
nonaccrual status in its ongoing effort to recognize loan problems at an earlier
point in time when they may be dealt with more effectively. As impaired loans,
nonaccrual and restructured loans are reviewed for specific reserve allocations
and the allowance for credit losses is adjusted accordingly. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Except for the loans
included in the above table, there were no loans at December 31, 2001 where the
known credit problems of a borrower caused the Company to have serious doubts as
to the ability of such borrower to comply with the present loan repayment terms
and which would result in such loan being included as a nonaccrual, past due or
restructured loan at some future date. </FONT></P>

<b><u>Liquidity and Asset/Liability Management</u></b><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The primary function of
asset/liability management is to provide adequate liquidity and maintain an
appropriate balance between interest-sensitive assets and interest-sensitive
liabilities. </FONT></P>

<b><i>Liquidity</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Liquidity management may be
described as the ability to maintain sufficient cash flows to fulfill financial
obligations, including loan funding commitments and customer deposit
withdrawals, without straining the Company&#146;s equity structure. To maintain
an adequate liquidity position, the Company relies on, in addition to cash and
cash equivalents, cash inflows from deposits and short-term borrowings,
repayments of principal on loans and investments, and interest income received.
The Company's principal cash outflows are for loan origination, purchases of
investment securities, depositor withdrawals and payment of operating expenses. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company continues to
emphasize liability management as part of its overall asset/liability management
strategy. Through the discretionary acquisition of short term borrowings, the
Company has been able to provide liquidity to fund asset growth while, at the
same time, better utilizing its capital resources, and better controlling
interest rate risk. The borrowings are generally short-term and more closely
match the repricing characteristics of floating rate loans, which comprise
approximately 65.2% of the Company&#146;s loan portfolio at December 31, 2001.
This does not preclude the Company from selling assets such as investment
securities to fund liquidity needs but, with favorable borrowing rates, the
Company has maintained a positive yield spread between borrowed liabilities and
the assets which those liabilities fund. If, at some time, rate spreads become
unfavorable, the Company has the ability to utilize an asset management approach
and, either control asset growth or, fund further growth with maturities or
sales of investment securities. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's liquid asset
base which generally consists of cash and due from banks, federal funds sold,
securities purchased under agreements to resell (&#147;reverse repos&#148;) and
investment securities, is maintained at a level deemed sufficient to provide the
cash outlay necessary to fund loan growth as well as any customer deposit runoff
that may occur. Within this framework is the objective of maximizing the yield
on earning assets. This is generally achieved by maintaining a high percentage
of earning assets in loans, which historically have represented the Company's
highest yielding asset. At December 31, 2001, the Bank had 73.4% of total assets
in the loan portfolio and a loan to deposit ratio of 91.0%. Liquid assets at
December 31, 2001 include cash and cash equivalents totaling $29.3 million as
compared to $19.2 million at December 31, 2000. Other sources of liquidity
include collateralized and uncollateralized lines of credit from other banks,
the Federal Home Loan Bank, and from the Federal Reserve Bank totaling $163.7
million at December 31, 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The liquidity of the parent
company, United Security Bancshares, is primarily dependent on the payment of
cash dividends by its subsidiary, United Security Bank, subject to limitations
imposed by the Financial Code of the State of California. During 2001, total
dividends paid by the Bank to the parent company totaled $4.3 million dollars.
As a bank holding company newly formed under the Bank Holding Act of 1956,
United Security Bancshares is to provide a source of financial strength for its
subsidiary bank(s). To help provide financial strength, United Security
Bancshares&#146; trust subsidiary, United Security Bancshares Capital Trust I,
recently completed a $15 million offering in Trust Preferred Securities, the
proceeds of which were used to purchase Junior Subordinated Debentures of the
Company. Of the $14.5 million in net proceeds received by the Company, $13.7
million was used to enhance the liquidity and capital positions of the Bank, and
the remainder will provide liquidity to the holding company. </FONT></P>

<p align=center><font size=3>28</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a071"></a>
<b><i>Interest Rate Sensitivity and Market Risk</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>An interest rate-sensitive
asset or liability is one that, within a defined time period, either matures or
is subject to interest rate adjustments as market rates of interest change.
Interest rate sensitivity is the measure of the volatility of earnings from
movements in market rates of interest, which is generally reflected in interest
rate spread. As interest rates change in the market place, yields earned on
assets do not necessarily move in tandem with interest rates paid on
liabilities. Interest rate sensitivity is related to liquidity in that each is
affected by maturing assets and sources of funds. Interest rate sensitivity is
also affected by assets and liabilities with interest rates that are subject to
change prior to maturity. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The object of interest rate
sensitivity management is to minimize the impact on earnings from interest rate
changes in the marketplace. In recent years, deregulation, causing liabilities
to become more interest rate sensitive, combined with interest rate volatility
in the capital markets, has placed additional emphasis on this principal. When
management decides to maintain repricing imbalances, it usually does so on the
basis of a well- conceived strategy designed to ensure that the risk is not
excessive and that liquidity is properly maintained. The Company's interest rate
risk management is the responsibility of the Asset/Liability Management
Committee (ALCO) which reports to the Board of Directors on a periodic basis,
pursuant to established operating policies and procedures. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's
asset/liability profile is not complex. The Company does not currently engage in
trading activities or use derivatives to control interest rate risk, although it
has the ability to do so if deemed necessary by ALCO and approved by the Board
of Directors. From the &#147;gap&#148; report below, the Company is apparently
subject to interest rate risk to the extent that its liabilities have the
potential to reprice more quickly than its assets within the next year. At
December 31, 2001, the Company had a cumulative 12 month gap of $-42.6 million
or -10.6% of total earning assets. Management believes the gap analysis shown
below is not entirely indicative of the Company&#146;s actual interest rate
sensitivity, because certain interest-sensitive liabilities would not reprice to
the same degree as interest-sensitive assets. For example, if the prime rate
were to change by 50 basis points, the floating rate loans included in the
$201.4 million immediately adjustable category would change by the full 50 basis
points. Interest bearing checking and savings accounts which are also included
in the immediately adjustable column probably would move only a portion of the
50 basis point rate change and, in fact, might not even move at all. In
addition, many of the floating rate time deposits are at their floors, or have
repricing rates below their current floors, which means that they might act as
fixed-rate instruments in either a rising or a declining rate environment (see
below for a discussion of the Bank&#146;s floating rate time deposits). The
effects of market value risk have been mitigated to some degree by the makeup of
the Bank's balance sheet. Loans are generally short-term or are floating-rate
instruments. At December 31, 2001, $250.2 million or 77.4% of the loan portfolio
matures or reprices within one year, and only 4.0% of the portfolio matures or
reprices in more than 5 years. Total investment securities including call
options and prepayment assumptions, have a duration of approximately 3.0 years.
Nearly $316.7 million or 93.3% of interest-bearing deposit liabilities mature or
can be repriced within the next 12 months, even though the rate elasticity of
deposits with no defined maturities may not necessarily be the same as
interest-earning assets. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Since May of 1994, the Bank
has offered a two-year floating rate certificate of deposit product to its
customers which adjusts with changes in the Prime Rate, but which has an
interest rate floor below which the rate paid cannot drop. The current rates
below which the rates on this product cannot drop range from 1.75% to 6.50%,
with approximately $14.5 million or 62.8% of those at a 6.50% floor. With the
significant decrease in market rates of interest during the current year, all
$23.2 million of the floating-rate CD&#146;s are priced at their floors making
them fixed-rate instruments in a declining rate environment. In addition,
because all of the CD&#146;s repricing rates are below their current floors,
they behave as fixed rate instruments even in a rising rate environment. In
fact, $22.7 million or 98.0% of them would remain fixed rate instruments even if
the prime rate were to increase 200 BP or less, $21.3 million or 91.8% would
remain fixed rate instruments even if the prime rate were to increase 300 BP or
less, and $18.1 million or 78.4% of them would remain fixed rate instruments
even if the prime rate were to increase 400 BP or less. Of the $21.3 million in
the two-year floating rate certificates of deposit which would behave as fixed
rate instruments if rates were to increase or decrease 300 basis points,
approximately $10.3 million matures in between six and twelve months and,
approximately $4.6 million mature in longer than one year. This $21.3 million in
two-year floating rate certificates of deposit has been treated as fixed-rate
instruments for the purpose of the following gap report. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Interest rate risk can be
measured through various methods including gap, duration and market value
analysis as well as income simulation models. The Company employs each of these
methods and refines these processes to make the most accurate measurements
possible. The information provided by these calculations is the basis for
management decisions in managing interest rate risk. </FONT></P>

<p align=center><font size=3>29</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets
forth the Company's gap, or estimated interest rate sensitivity profile based on
ending balances as of December 31, 2001, representing the interval of time
before earning assets and interest-bearing liabilities may respond to changes in
market rates of interest. Assets and liabilities are categorized by remaining
interest rate maturities rather than by principal maturities of obligations.
$21.3 million in two-year, floating rate time deposits which would behave as
fixed rate instruments if rates were to increase or decrease 300 basis points,
and have therefore been treated as fixed rate instruments for purposes of this
gap report. </FONT></P>

<u>Maturities and Interest Rate Sensitivity</u>

<PRE>
                                                            December 31, 2001
                                 ----------------------------------------------------------------------------
                                                          After Three   After One
                                              Next Day Bu    Months      Year But      After
                                              Within Three  Within 12   Within Five    Five
  <i>(In thousands)</i>                  Immediately    Months       Months       Years       Years       Total
-------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap:
Loans (1)                          $201,403     $24,056      $24,730      $60,041     $13,037     $323,267
Investment securities                            10,600           68       28,777      23,920       63,365
Federal funds sold
   and reverse repos                 13,310                                                         13.310
                                 ----------------------------------------------------------------------------
     Total Earning Assets          $214,713     $34,656      $24,798      $88,818     $36,957     $399,942
                                 ============================================================================
Interest-bearing
  transaction accounts               83,316                                                         83,316
Savings accounts                     19,883                                                         19,883
Time deposits(2)                      2,752      86,233       81,130       22,895          29      193,039
Federal funds purchased/other
  borrowings                            916      18,500                     9,000                   28,416
Trust Preferred securities                       15,000                                             15,000
                                 ----------------------------------------------------------------------------
     Total interest-bearing        $106,867    $119,733      $81,130      $31,895         $29     $339,654
Liabilities                      ============================================================================

Interest rate sensitivity gap      $107,846    ($85,077)    ($56,332)     $56,923     $36,928      $60,288
Cumulative gap                     $107,846     $22,769     ($33,563)     $23,360     $60,288
Cumulative gap percentage to
  total earning assets               27.0%        5.7%        -8.4%         5.8%       15.1%
</pre>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
(1) Loan balance does not include nonaccrual loans of $13.019 million.<BR>
(2) See above for discussion of the impact of floating rate CD's.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company utilizes a
vendor-purchased simulation model to analyze net interest income sensitivity to
movements in interest rates. The simulation model projects net interest income
based on both a 100 and 200 basis point rise and a 100 and 200 basis point fall
in interest rates ramped over a twelve month period, with net interest impacts
projected out as far as twenty four months. The model is based on the actual
maturity and repricing characteristics of the Company's interest-sensitive
assets and liabilities. The model incorporates assumptions regarding the impact
of changing interest rates on the prepayment of certain assets and liabilities.
Projected net interest income is calculated assuming customers will reinvest
maturing deposit accounts and the Company will originate a certain amount of new
loans. The balance sheet growth assumptions utilized correspond closely to the
Company's strategic growth plans and annual budget. Excess cash is invested in
overnight funds or other short-term investments such as U.S. Treasuries. Cash
shortfalls are covered through additional borrowing of overnight or short-term
funds. The Board of Directors has adopted an interest rate risk policy which
establishes maximum decreases in net interest income of 12% and 15% in the event
of a 100 BP and 200 BP increase or decrease in market interest rates over a
twelve month period. Based on the information and assumptions utilized in the
simulation model at December 31, 2001, the resultant projected impact on net
interest income falls within policy limits set by the Board of Directors for all
rate scenarios run. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company also utilizes
the same vendor-purchased simulation model to project the impact of changes in
interest rates on the underlying market value of all the Company's assets,
liabilities, and off-balance sheet accounts under alternative interest rate
scenarios. The resultant net value, as impacted under each projected interest
rate scenario, is referred to as the market value of equity (&quot;MV of
Equity&quot;). This technique captures the interest rate risk of the Company's
business mix across all maturities. The market analysis is performed using an
immediate rate shock of 200 basis points up and down calculating the present
value of expected cash flows under each rate environment at applicable discount
rates. The market value of loans is calculated by discounting the expected
future cash flows over either the term to maturity for fixed rate loans or
scheduled repricing for floating rate loans using the current rate at which
similar loans would be made to borrowers with similar credit ratings. The market
value of investment securities is based on quoted market prices obtained from
reliable independent brokers.</font></p>

<p align=center><font size=3>30</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The market value of time deposits is calculated by
discounting the expected cash flows using current rates for similar instruments
of comparable maturities. The market value of deposits with no defined
maturites, including interest-bearing checking, money market and savings
accounts is calculated by discounting the expected cash flows at a rate equal to
the difference between the cost of these deposits and the alternate use of the
funds, federal funds in this case. Assumed maturities for these deposits are
estimated using decay analysis and are generally assumed to have implied
maturities of less than five years. For noninterest sensitive assets and
liabilities, the market value is equal to their carrying value amounts at the
reporting date. The Company's interest rate risk policy establishes maximum
decreases in the Company's market value of equity of 12% and 15% in the event of
an immediate and sustained 100 BP and 200 BP increase or decrease in market
interest rates. As shown in the table below, the percentage changes in the net
market value of the Company's equity are within policy limits for both rising
and falling rate scenarios. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following sets forth
the analysis of the Company's market value risk inherent in its
interest-sensitive financial instruments as they relate to the entire balance
sheet at December 31, 2001 and December 31, 2000 ($ in thousands). Fair value
estimates are subjective in nature and involve uncertainties and significant
judgment and, therefore, cannot be determined with absolute precision.
Assumptions have been made as to the appropriate discount rates, prepayment
speeds, expected cash flows and other variables. Changes in these assumptions
significantly affect the estimates and as such, the obtained fair value may not
be indicative of the value negotiated in the actual sale or liquidation of such
financial instruments, nor comparable to that reported by other financial
institutions. In addition, fair value estimates are based on existing financial
instruments without attempting to estimate future business. </FONT></P>

<PRE>
                               December 31, 2001                     December 31, 2000
                  ---------------------------------------  ----------------------------------------
                    Estimated     Change in    Change in     Estimated   Change in    Change in
    Change in           MV            MV           MV            MV          MV           MV
      Rates         of Equity    of Equity $  of Equity %    of Equity   of Equity $  of Equity %
 --------------------------------------------------------  ----------------------------------------
    + 200 BP         $33,884      ($1,768)      -4.96%         $42,193    ($1,587)      -3.62%
    + 100 BP          35,206         (446)      -1.25%          43,129       (650)      -1.49%
        0 BP          35,652            0        0.00%          43,780          0        0.00%
    - 100 BP          35,478         (174)      -0.49%          43,397       (382)      -0.87%
    - 200 BP          34,717         (935)      -2.62%          42,969       (811)      -1.85%



</PRE>
<B><U>Regulatory Matters</U></B><BR><BR>

<B><I>Capital Adequacy</I></B>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Capital adequacy for bank
holding companies and their subsidiary banks has become increasingly important
in recent years. Continued deregulation of the banking industry since the 1980's
has resulted in, among other things, a broadening of business activities beyond
that of traditional banking products and services. Because of this volatility
within the banking and financial services industry, regulatory agencies have
increased their focus upon ensuring that banking institutions meet certain
capital requirements as a means of protecting depositors and investors against
such volatility. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>During July 2001, the
Company completed an offering of Trust Preferred Securities in an aggregate
amount of $15.0 million to enhance its regulatory base, while providing
additional liquidity. Subsequent to the completion of the offering, the Company
contributed $13.7 million of that offering to the Bank to enhance its capital
position. Under applicable regulatory guidelines, the Trust Preferred Securities
qualify as Tier I capital up to a maximum of 25% of Tier I capital. Any
additional portion will qualify as Tier 2 capital. As shareholders&#146; equity
increases, the amount of Tier I capital that can be comprised of Trust Preferred
Securities will increase. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Board of Governors of
the Federal Reserve System (&#147;Board of Governors&#148;) has adopted
regulations requiring insured institutions to maintain a minimum leverage ratio
of Tier 1 capital (the sum of common stockholders' equity, noncumulative
perpetual preferred stock and minority interests in consolidated subsidiaries,
minus intangible assets, identified losses and investments in certain
subsidiaries, plus unrealized losses or minus unrealized gains on available for
sale securities) to total assets. Institutions which have received the highest
composite regulatory rating and which are not experiencing or anticipating
significant growth are required to maintain a minimum leverage capital ratio of
3% Tier 1 capital to total assets. All other institutions are required to
maintain a minimum leverage capital ratio of at least 100 to 200 basis points
above the 3% minimum requirement. </FONT></P>

<p align=center><font size=3>31</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Board of Governors has
also adopted a statement of policy, supplementing its leverage capital ratio
requirements, which provides definitions of qualifying total capital (consisting
of Tier 1 capital and Tier 2 supplementary capital, including the allowance for
loan losses up to a maximum of 1.25% of risk-weighted assets) and sets forth
minimum risk-based capital ratios of capital to risk-weighted assets. Insured
institutions are required to maintain a ratio of qualifying total capital to
risk weighted assets of 8%, at least one-half (4%) of which must be in the form
of Tier 1 capital. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets
forth the Company&#146;s and the Bank's actual capital positions at December 31,
2001 and the minimum capital requirements for both under the regulatory
guidelines discussed above: </FONT></P>

<PRE>
                                              Company            Bank
                                        ------------------------------------
                                              Actual            Actual           Minimum
                                          Capital Ratios    Capital Ratios    Capital Ratios
                                        -------------------------------------------------------
Total risk-based capital ratio                12.89%            12.48%             8.00%
Tier 1 capital to risk-weighted assets        10.82%            11.38%             4.00%
Leverage ratio                                10.20%            10.67%             3.00%

</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>As is indicated by the
above table, the Company and the Bank exceeded all applicable regulatory capital
guidelines at December 31, 2001. Management believes that, under the current
regulations, both will continue to meet their minimum capital requirements in
the foreseeable future. </FONT></P>

<b><i>Dividends</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Dividends paid to
shareholders by the Company are subject to restrictions set forth in the
California General Corporation Law. The California General Corporation Law
provides that a corporation may make a distribution to its shareholders if
retained earnings immediately prior to the dividend payout are at least equal
the amount of the proposed distribution. The primary source of funds with which
dividends will be paid to shareholders will come from cash dividends received by
the Company from the Bank. Since its formation in June 2001, the Company has
received $4.3 million in cash dividends from the Bank, from which the Company
declared or paid $1.9 million in dividends to shareholders. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Bank as a
state-chartered bank is subject to dividend restrictions set forth in California
state banking law, and administered by the California Commissioner of Financial
Institutions (&#147;Commissioner&#148;). Under such restrictions, the Bank may
not pay cash dividends in an amount which exceeds the lesser of the retained
earnings of the Bank or the Bank&#146;s net income for the last three fiscal
years (less the amount of distributions to shareholders during that period of
time). If the above test is not met, cash dividends may only be paid with the
prior approval of the Commissioner, in an amount not exceeding the Bank&#146;s
net income for its last fiscal year or the amount of its net income for the
current fiscal year. Such restrictions do not apply to stock dividends which
generally require neither the satisfaction of any tests nor the approval of the
Commissioner. Notwithstanding the foregoing, if the Commissioner finds that the
shareholders&#146; equity is not adequate or that the declarations of a dividend
would be unsafe or unsound, the Commissioner may order the state bank not to pay
any dividend. This is not the case with the Bank. Year-to-date dividends of $1.2
million and $4.3 million paid to shareholders and the Company, respectively,
through December 31, 2001 were well within the maximum allowed under those
regulatory guidelines, without approval of the Commissioner. </FONT></P>

<b><i>Reserve Balances</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Bank is required to
maintain average reserve balances with the Federal Reserve Bank. At December 31,
2001 the Bank's qualifying balance with the Federal Reserve was approximately
$5.6 million, consisting of vault cash and balances. </FONT></P>

<p align=center><font size=3>32</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<b>Item 7A - Quantitative and Qualitative Disclosure about Market Risk</b><BR><BR>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Information regarding market risk is
included in Item 7 - Management's Discussion and Analysis underthe caption "Interest Rate
Sensitivity and Market Risk" and is incorporated herein by reference.</font></p>
<BR><BR><BR>
<p align=center><font size=3>33</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">


<a name="a008"></a>
<b>Item 8 - Financial Statements and Supplementary Data</b><BR><BR>

<b>Index to Consolidated Financial Statements:</b>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
<td width=50%>&nbsp;</td>
<td width=40%>&nbsp;</td>
<td align=center valign=bottom width=10%><u>&nbsp;Page&nbsp;</u></td>
</tr>
<TR>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td align=center>&nbsp;</td>
</tr>
<TR>
<td><a href="#a035">Independent Auditor's Report - Moss Adams LLP,</a></td>
<td>&nbsp;</td>
<td align=center valign=bottom>35</td>
</tr>
<TR>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td align=center>&nbsp;</td>
</tr>
<TR>
<td><a href="#a036">Consolidated Balance Sheets - December 31, 2001 and 2000</a></td>
<td>&nbsp;</td>
<td align=center valign=bottom>36</td>
</tr>
<TR>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td align=center>&nbsp;</td>
</tr>
<TR>
<td><a href="#a037">Consolidated Statements of Income and Comprehensive Income -
Years Ended December 31, 2001, 2000 and 1999</a></td>
<td>&nbsp;</td>
<td align=center valign=bottom>37</td>
</tr>
<TR>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td align=center>&nbsp;</td>
</tr>
<TR>
<td><a href="#a038">Consolidated Statements of Shareholders' Equity - Years Ended December 31, 2001, 2000 and 1999</a></td>
<td>&nbsp;</td>
<td align=center valign=bottom>38</td>
</tr>
<TR>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td align=center>&nbsp;</td>
</tr>
<TR>
<td><a href="#a039">Consolidated Statements of Cash Flows - Years Ended December 31, 2001, 2000 and 1999</a></td>
<td>&nbsp;</td>
<td align=center valign=bottom>39</td>
</tr>
<TR>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td align=center>&nbsp;</td>
</tr>
<TR>
<td><a href="#a040">Notes to Consolidated Financial Statements</a></td>
<td>&nbsp;</td>
<td align=center valign=bottom>40</td>
</tr>
<TR>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td align=center>&nbsp;</td>
</tr>
</table>
<BR><BR><BR>
<p align=center><font size=3>34</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">


<a name="a035"></a>
<hr size=2 noshade width=100%><BR><BR>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=4><b>Moss Adams LLP</b></font><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>Certified Public Accountants</b></font></p>
<BR><BR>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Independent Auditor's Report</b></font></p>
<BR><BR>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
To The Board of Directors and Shareholders<BR>
United Security Bancshares</FONT></P>
<BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>We have audited the
accompanying consolidated balance sheets of United Security Bancshares and
Subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of income and comprehensive income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company&#146;s management.
Our responsibility is to express an opinion on these financial statements based
on our audits. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>We conducted our audits in
accordance with auditing standards generally accepted in the United State of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>In our opinion, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of United Security Bancshares and
Subsidiaries at December&#160;31, 2001 and 2000, and the consolidated results of
its operations and its consolidated cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. </FONT></P>

<b>/s/ Moss Adams LLP</B><BR><BR>

Stockton, California<BR>
January 9, 2002
<BR><BR><BR><BR>


<p align=center><font size=3>35</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">












<a name="a036"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>United Security Bancshares and Subsidiaries<BR>
Consolidated Statements of Condition - Balance Sheets<BR>
December 31, 2001 and 2000</b></font></p>

<PRE>
                                                                         December 31,         December 31,
   <i>(In thousands except shares)</i>                                              2001                 2000
---------------------------------------------------------------------------------------------------------------
<b>Assets</b>
   Cash and due from banks (Note 14)                                        $15,945              $19,176
   Federal funds sold and securities purchased
      under agreements to resell                                             13,310                    0
                                                                     ------------------------------------------
        Cash and cash equivalents                                            29,255               19,176

  Securities available for sale (Note 2)                                     63,365               49,758
  Securities held to maturity (Note 2)                                            0               10,248
                                                                     ------------------------------------------
     Total investment securities                                             63,365               60,006

   Loans and leases (Note 3)                                                336,287              261,369
     Unearned fees                                                             (667)                (794)
     Allowance for credit losses                                             (4,457)              (3,773)
                                                                     ------------------------------------------
       Net loans                                                            331,163              256,802

   Accrued interest receivable                                                3,751                3,545
   Premises and equipment - net (Note 4)                                      3,057                3,402
   Other real estate owned                                                    5,390                2,959
   Intangible assets                                                          2,660                3,019
   Cash surrender value of life insurance (Note 11)                           2,411                2,302
   Investment in limited partnership (Note 5)                                 2,772                2,080
   Deferred income taxes (Note 9)                                             1,730                1,240
   Other assets                                                               5,374                2,301
                                                                     ------------------------------------------
<b>Total Assets</b>                                                               $450,928             $356,832
                                                                     ==========================================
<b>Liabilities &amp; Shareholders' Equity</b>
Liabilities:
   Deposits (Note 6)
     Noninterest bearing                                                    $72,413              $52,898
     Interest bearing                                                       296,238              218,965
                                                                     ------------------------------------------
        Total deposits                                                      368,651              271,863

   Federal funds purchased and securities sold
      under agreements to repurchase (Note 7)                                27,500               47,524
   Other borrowings (Notes 7 and 11)                                            916                  693
   Accrued interest payable                                                   1,270                1,244
   Accounts payable and other liabilities                                     1,532                1,759
                                                                     ------------------------------------------
     Total liabilities                                                      399,869              323,083

Company obligated manditorily redeemable cumulative trust
  preferred securities of subsidiary trust holding solely junior
   subordinated debentures (Trust Preferred securities) (Note 8)             15,000                    0

Commitments and Contingent Liabilities (Notes 3 and 14)

Shareholders' Equity (Notes 10, 14 and 18):
   Common  stock, no par value
       10,000,000 shares authorized, 5,397,298 and 5,419,487
         issued and outstanding, in 2001 and 2000, respectively              18,239               19,178
   Retained earnings                                                         18,582               14,916
   Unearned ESOP shares (Note 11)                                              (873)                (682)
   Accumulated other comprehensive income                                       111                  337
                                                                     ------------------------------------------
          Total shareholders' equity                                         36,059               33,749
                                                                     ------------------------------------------
<b>Total liabilities and shareholders' equity</b>                                 $450,928             $356,832
                                                                     ==========================================
      See notes to financial statements
</pre>
<BR><BR>

<p align=center><font size=3>36</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a037"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>United Security Bancshares and Subsidiaries<BR>
Consolidated Statements of Income and Comprehensive Income<BR>
Years Ended December 31, 2001, 2000 and 1999</b></font></p>
<pre>

   <i>(In thousands except shares and EPS)</i>                              2001            2000             1999
-----------------------------------------------------------------------------------------------------------------
<b>Interest Income:</b>
   Loans, including fees                                           $26,412          $24,739         $17,780
   Investment securities - AFS - taxable                             3,016            3,196           2,360
   Investment securities - HTM - taxable                               202              602             633
   Investment securities - AFS - nontaxable                            155              162             165
   Federal funds sold and securities purchased
     under agreements to resell                                        278              242             982
                                                               --------------------------------------------------
        Total interest income                                       30,063           28,941          21,920

<b>Interest Expense:</b>
   Interest on deposits                                             11,203            9,694           7,814
   Interest on other borrowings                                      2,208            1,850             111
                                                               --------------------------------------------------
         Total interest expense                                     13,411           11,544           7,925
                                                               --------------------------------------------------
<b>Net Interest Income Before
   Provision for Credit Losses</b>                                      16,652           17,397          13,995
Provision for Credit Losses (Note 3)                                 1,733            1,580           1,025
                                                               --------------------------------------------------
<b>Net Interest Income</b>                                                 14,919           15,817          12,970

<b>Noninterest Income:</b>
   Customer service fees                                             3,086           2,234            2,379
   Gain on sale of securities                                          770               6                0
   Gain on sale of other real estate owned                              34              62              158
   Gain on sale of fixed assets                                          8               2                3
   Other                                                               379             234              241
                                                               --------------------------------------------------
        Total noninterest income                                     4,277           2,538            2,781

<b>Noninterest Expense (Notes 11 and 12):</b>
   Salaries and employee benefits                                    4,525           3,954            3,219
   Occupancy expense                                                 1,731           1,608            1,590
   Data processing                                                     544             540              514
   Professional fees                                                   591             312              539
   Director fees                                                       202             174              167
   Amortization of intangibles                                         360             360              372
   Correspondent bank service char                                     218             202              184
   Other                                                             1,647           1,498            1,313
                                                               --------------------------------------------------
        Total noninterest expense                                    9,818           8,648            7,898
                                                               --------------------------------------------------
<b>Income Before Taxes on Income</b>                                        9,378           9,707            7,853

Taxes on Income (Note 9)                                             3,185           3,450            2,930
                                                               --------------------------------------------------
<b>Net Income</b>                                                          $6,193          $6,257           $4,923
                                                               ==================================================
Other comprehensive income, net of tax (Note 17):
 Unrealized (loss) gain on available for sale securities
  - net income tax (benefit) of $(150), $489, and $(348)              (226)            734             (522)
                                                               --------------------------------------------------
<b>Comprehensive Income</b>                                                $5,967          $6,991           $4,401
                                                               ==================================================
<b>Net Income per common share (Note 16):</b>
  Basic                                                              $1.14           $1.16            $0.95
                                                               ==================================================
  Diluted                                                            $1.11           $1.12            $0.89
                                                               ==================================================
<b>Shares on which net income per common share
  were based (Note 16):</b>
  Basic                                                            5,443,734        5,374,734       5,202,324
                                                               ==================================================
  Diluted                                                          5,563,855        5,587,292       5,514,544
                                                               ==================================================
     See notes to financial statements

</PRE>
<BR><BR>

<p align=center><font size=3>37</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a038"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>United Security Bancshares and Subsidiaries<BR>
Consolidated Statements of Shareholders' Equity<BR>
Years Ended December 31, 2001</b></font></p>
<pre>
                                                  Common stock Common stock
                                                 -----------------------------                             Other
                                                     Number                  Retained     Unearned     Comprehensive
   <i>(In thousands except shares)</i>                    of Shares      Amount     Earnings    ESOP Shares   Income (Loss)    Total
--------------------------------------------------------------------------------------------------------------------------------
<b>Balance January 1, 1999</b>                            5,169,987     $17,530       $7,333        $0            $125        $24,988

   Director/Employee stock options exercised          60,962         322                                                   322
   Tax benefit of stock options exercised                            135                                                   135
   Net changes in unrealized gain
     (loss) on available for sale securities
       (net of income tax benefit of $348 )                                                                (522)          (522)
  Dividends on common stock ($0.28 per share)                                  (1,530)                                  (1,530)
  Net Income                                                                    4,923                                    4,923
                                                 -------------------------------------------------------------------------------
<b>Balance December 31, 1999</b>                          5,230,949      17,987       10,726         0            (397)        28,316

  Director/Employee stock options exercised          227,657       1,050                                                 1,050
  Tax benefit of stock options exercised                             141                                                   141
  Net changes in unrealized gain
     (loss) on available for sale securities
     (net of income tax of $489 )                                                                           734            734
  Dividends on common stock ($0.36 per share)                                  (2,067)                                  (2,067)
  Unearned ESOP shares purchased                    (46,861)                               (817)                          (817)
  Release of unearned ESOP shares                     7,742                                 135                            135
  Net Income                                                                    6,257                                    6,257
                                                 -------------------------------------------------------------------------------
<b>Balance December 31, 2000</b>                         5,419,487       19,178       14,916      (682)            337         33,749

  Director/Employee stock options exercised         104,830          806                                                   806
  Tax benefit of stock options exercised                             145                                                   145
  Net changes in unrealized gain
     (loss) on available for sale securities
     (net of income tax benefit of $150)                                                                   (226)          (226)
  Dividends on common stock ($0.46 per share)                                  (2,527)                                  (2,527)
  Repurchase and cancellation of common shares     (115,786)      (1,884)                                               (1,884)
  Unearned ESOP shares purchased                    (23,185)                               (399)                          (399)
  Release of unearned ESOP shares                    11,952           (6)                   208                            202
  Net Income                                                                    6,193                                    6,193
                                                 --------------------------------------------------------------------------------
<b>Balance December 31, 2001</b>                         5,397,298      $18,239      $18,582     $(873)           $111        $36,059
                                                 ================================================================================
  See notes to financial statements

</PRE>
<BR><BR>

<p align=center><font size=3>38</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a039"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>United Security Bancshares and Subsidiaries<BR>
Consolidated Statements of Cash Flows<BR>
Years Ended December 31, 2001, 2000 and 1999</b></font></p>
<pre>

   <i>(In thousands)</i>                                                              2001          2000          1999
--------------------------------------------------------------------------------------------------------------------
<b>Cash Flows From Operating Activities:</b>
Net income                                                                   $6,193         $6,257        $4,923
Adjustments to reconcile net earnings to cash
  provided by operating activities:
     Provision for credit losses                                              1,733          1,580         1,025
     Depreciation and amortization                                            1,207          1,163         1,134
     Amortization (accretion) of investment securities                          394            (25)           (2)
     Gain on sale of securities                                                (770)            (6)            0
     Increase in accrued interest receivable                                   (206)        (1,497)         (186)
     Increase in accrued interest payable                                        26            165           117
     (Decrease) increase in unearned fees                                      (127)           401           (68)
     (Decrease) increase in income taxes payable                               (564)            80          (237)
     Deferred income taxes                                                     (339)          (698)         (193)
     (Decrease) increase in accounts payable and accrued liabilities            256            192            (3)
     Write-down of other real estate owned                                       19              6             0
     Gain on sale of other real estate owned                                    (34)           (62)         (158)
     Gain on sale of assets                                                      (8)            (2)           (3)
     Increase in surrender value of life insurance                             (109)           (96)          (96)
     Loss in limited partnership interest                                       247            173           105
     Net decrease (increase) in other assets                                    146           (176)         (158)
                                                                            ---------------------------------------
  Net cash provided by operating activities                                   8,064          7,455         6,200

<b>Cash Flows From Investing Activities:</b>
  Purchases of  available-for-sale securities                               (83,303)       (21,562)      (97,224)
  (Purchase) redemption of FHLB/FRB and other bank stock                     (1,042)           242          (410)
  Maturities and calls of available-for-sale securities                      41,594         12,128       117,117
  Maturities and calls of held-to-maturity securities                        10,250              0        10,000
  Proceeds from sales of available-for-sale securities                       28,099          7,477         2,436
  Investment in limited partnership                                            (903)             0          (783)
  Investment in title company                                                (1,500)             0             0
  Net increase in loans                                                     (78,407)       (66,135)      (45,179)
  Proceeds from sales of other real estate owned                                150            476         1,227
  Capital expenditures for other real estate owned                                0              0           (17)
  Capital expenditures for premises and equipment                              (514)          (311)       (1,077)
  Proceeds from sales of premises and equipment                                  23              2            20
                                                                            ---------------------------------------
  Net cash used in investing activities                                     (85,553)       (67,683)      (13,890)

<b>Cash Flows From Financing Activities:</b>
  Net increase (decrease) in demand and savings accounts                     42,225            630          (131)
  Net increase (decrease) in certificates of deposit                         54,564         32,370       (13,480)
  Net (decrease) increase in federal funds purchased                        (22,630)        20,492         2,138
  Net increase in repurchase agreements                                       2,606         15,119         9,775
  Proceeds from obligated manditorily redeemable preferred securities
    of subsidiary trust holding solely junior subordinated debentures        14,505              0             0
  Director/Employee stock options exercised                                     806          1,050           322
  Repurchase and retirement of common stock                                  (1,884)             0             0
  Proceeds from ESOP borrowings                                                 399            817             0
  Repayment of ESOP borrowings                                                 (176)          (133)            0
  Purchase of unearned ESOP shares                                             (399)          (817)            0
  Payment of dividends                                                       (2,448)        (1,939)       (1,456)
                                                                            ----------------------------------------
  Net cash provided by (used in) financing activities                        87,568         67,589        (2,832)
                                                                            ----------------------------------------
<b>Net increase (decrease) in cash and cash equivalents</b>                         10,079          7,361       (10,522)
<b>Cash and cash equivalents at beginning of period</b>                             19,176         11,815        22,337
                                                                            ----------------------------------------
<b>Cash and cash equivalents at end of period</b>                                  $29,255        $19,176       $11,815
                                                                            ========================================
  See notes to financial statements
</pre>
<BR><BR>

<p align=center><font size=3>39</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a040"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b><u>United Security Bancshares<BR>
Notes to Consolidated Financial Statements - Years Ended December 31, 2001, 2000, and 1999</u></b></font></p>

<P><font size=3><b><i>1. Organization and Summary of Significant Accounting and Reporting Policies</i></b></font></p>

 <P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
   <b><i>Basis of Presentation</i></b> - The consolidated financial statements include the accounts of United Security Bancshares, and its wholly
   owned subsidiaries, United Security Bank and subsidiary (the "Bank"), and United Security Bancshares Capital Trust I (the
   "Trust"), (collectively the "Company" or "USB"). Intercompany accounts and transactions have been eliminated in consolidation.
   In the following notes, references to the Bank are references to United Security Bank. References to the Company are references
   to United Security Bancshares, (including the Bank), except for periods prior to June 12, 2001, in which case, references to the
   Company are references to the Bank. United Security Bancshares operates as one business segment providing banking services to
   commercial establishments and individuals primarily in the San Joaquin Valley of California.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
   <b><i>Nature of Operations</i></b> - United Security Bancshares is a bank holding company, incorporated in the state of California for the
   purpose of acquiring all the capital stock of the Bank through a holding company reorganization (the "Reorganization") of the
   Bank. The reorganization, which was accounted for in a manner similar to a pooling of interests, was completed on June 12, 2001.
   Management believes the reorganization will provide the Company greater operating and financial flexibility and will permit
   expansion into a broader range of financial services and other business activities.
<BR><BR>
   United Security Bancshares Capital Trust I, a subsidiary of United Security Bancshares, is a Delaware statutory business trust
   formed for the exclusive purpose of issuing and selling Trust Preferred Securities. The Trust was formed on June 28, 2001 (See
   Note 8. "Trust Preferred Securities").
<BR><BR>
   USB Investment Trust Inc was incorporated effective December 31, 2001as a special purpose real estate investment trust ("REIT")
   under Maryland law. The REIT is a subsidiary of the Bank and was funded with $133.0 million in real estate-secured loans
   contributed by the Bank. USB Investment Trust will give the Bank flexibility in raising capital, and will reduce the expenses
   associated with holding the assets contributed to USB Investment Trust.
<BR><BR>
   The Bank was founded in 1987 and currently operates seven branches and one construction lending office in an area from eastern
   Madera County to western Fresno County.  The Bank's primary source of revenue is providing loans to customers, who are
   predominantly small and middle-market businesses and individuals.  The Bank engages in a full compliment of lending activities,
   including real estate mortgage, commercial and industrial, real estate construction, agricultural and consumer loans, with
   particular emphasis on short and medium term obligations.
<BR><BR>
   The Bank offers a wide range of deposit instruments. These include personal and business checking accounts and savings accounts,
   interest-bearing negotiable order of withdrawal ("NOW") accounts, money market accounts and time certificates of deposit. Most
   of the Bank's deposits are attracted from individuals and from small and medium-sized business-related sources.
<BR><BR>
   The Bank also offers a wide range of specialized services designed to attract and service the needs of commercial customers and
   account holders. These services include cashiers checks, travelers checks, money orders, and foreign drafts. In addition, the
   Bank recently began to offer Internet banking services to its commercial and retail customers. The Bank does not operate a trust
   department, however it makes arrangements with its correspondent bank to offer trust services to its customers upon request.
<BR><BR>
   Neither the Company's business or liquidity is seasonal, and there has been no material effect upon the Company's capital
   expenditures, earnings or competitive position as a result of federal, state or local environmental regulation.
<BR><BR>
   <b><i>Use of Estimates in the Preparation of Financial Statements</i></b> - The preparation of financial statements in conformity with
   generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
   of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
   reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.
<BR><BR></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
  <b><i>Significant Accounting Policies</i></b> - The accounting and reporting policies of the Company conform to generally accepted accounting
   principles and to prevailing practices within the banking industry.  The following is a summary of significant policies:</font></p>

<p align=center><font size=3>40</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<OL type=a>

       <li><i>Cash and cash equivalents</i> - Cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and
       repurchase agreements. Generally, federal funds sold and repurchase agreements are sold for one-day periods. Repurchase
       agreements are with a registered broker-dealer affiliated with a correspondent bank and work much like federal funds sold,
       except that the transaction is collateralized by various investment securities. The securities collateralizing such
       transactions generally consist of U.S. Treasuries, U.S. Government and U.S. Government-sponsored agencies. The Bank did not
       have any repurchase agreements during 2001, nor at December 31, 2001 or December 2000. Repurchase agreements averaged
       approximately $2.5 million during 2000.<BR><BR>

       <li><i>Securities</i> - Debt and equity securities classified as available for sale are reported at fair value, with unrealized gains
       and losses excluded from net income and reported, net of tax, as a separate component of comprehensive income and
       shareholders' equity. Debt securities classified as held to maturity are carried at amortized cost.  Gains and losses on
       disposition are reported using the identified certificate method for the adjusted basis of the securities sold.<BR><BR>

       The Company classifies its securities as available for sale or held to maturity, and periodically reviews its investment
       portfolio on an individual security basis.  Securities that are to be held for indefinite periods of time (including, but
       not limited to, those that management intends to use as part of its asset/liability management strategy, those which may be
       sold in response to changes in interest rates, changes in prepayments or any such other factors) are classified as
       securities available for sale. Securities which the Company has the ability and intent to hold to maturity are classified as
       held to maturity.<BR><BR>


       <li><i>Loans</i> - Interest income on loans is credited to income as earned and is calculated by using the simple interest method on
       the daily balance of the principal amounts outstanding.  Loans are placed on non-accrual status when principal or interest
       is past due for 90 days and/or when management believes the collection of amounts due is doubtful.  For loans placed on
       nonaccrual status, the accrued and unpaid interest receivable may be reversed at management's discretion based upon
       management's assessment of collectibility, and interest is thereafter credited to principal to the extent necessary to
       eliminate doubt as to the collectibility of the net carrying amount of the loan.<BR><BR>

      Nonrefundable fees and related direct costs associated with the origination or purchase of loans are deferred and netted
       against outstanding loan balances.  The net deferred fees and costs are generally amortized into interest income over the
       loan term using a method which approximates the interest method.  Other credit-related fees, such as standby letter of
       credit fees, loan placement fees and annual credit card fees are recognized as noninterest income during the period the
       related service is performed.<BR><BR>

      Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective
       interest rate or as a practical expedient at the loan's observable market rate or the fair value of the collateral if the
       loan is collateral dependent.<BR><BR>

       <li><i>Allowance for Credit Losses</i> - The allowance for credit losses is maintained to provide for losses that can reasonably be
       anticipated. The allowance is based on ongoing quarterly assessments of the probable losses inherent in the loan portfolio,
       and to a lesser extent, unfunded loan commitments.<BR><BR>

       The allowance for credit losses is increased by provisions charged to operations during the current period and reduced by
       loan charge-offs net of recoveries.  Loans are charged against the allowance when management believes that the collection of
       the principal is unlikely.  The allowance is an amount that management believes will be adequate to absorb losses inherent
       in existing loans and commitments to extend credit, based on evaluations of the probability of collection.  In evaluating
       the probability of collection, management is required to make estimates and assumptions that affect the reported amounts of
       loans, allowance for credit losses and the provision for credit losses charged to operations.  Actual results could differ
       significantly from those estimates.  These evaluations take into consideration such factors as the composition of the
       portfolio, overall portfolio quality, loan concentrations, specific problem loans, and current economic conditions that may
       affect the borrowers' ability to pay. The Company's methodology for assessing the adequacy of the allowance for credit
       losses consists of several key elements, which include the formula allowance, specific allowances, and the unallocated
       allowance.<BR><BR>

<p align=center><font size=3>41</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

       The formula allowance is calculated by applying loss factors to outstanding loans and certain unfunded loan commitments.
       Loss factors are based on the Company's historical loss experience and may be adjusted for significant factors that, in
       management's judgment, affect the collectibility of the portfolio as of the evaluation date. The Company determines the loss
       factors for problem graded loans (substandard, doubtful, and loss), special mention loans, and pass graded loans, based on a
       loss migration model. The migration analysis incorporates the Company's losses over the past twelve quarters (three years)
       and loss factors are adjusted to recognize and quantify the loss exposure from changes in market conditions and trends in
       the loan portfolio. For purposes of this analysis, loans are grouped by internal risk classifications which are "pass",
       "special mention", "substandard", "doubtful", and "loss". Certain loans are homogenous in nature and are therefore pooled by
       risk grade. These homogenous loans include consumer installment and home equity loans. Special mention loans are currently
       performing but are potentially weak, as the borrower has begun to exhibit deteriorating trends, which if not corrected,
       could jeopardize repayment of the loan and result in further downgrade. Substandard loans have well-defined weaknesses
       which, if not corrected, could jeopardize the full satisfaction of the debt. A loan classified as "doubtful" has critical
       weaknesses that make full collection of the obligation improbable. Classified loans, as defined by the Company, include
       loans categorized as substandard, doubtful, and loss.<BR><BR>

       Specific allowances are established based on management's periodic evaluation of loss exposure inherent in classified loans,
       impaired loans, and other loans in which management believes there is a probability that a loss has been incurred in excess
       of the amount determined by the application of the formula allowance.<BR><BR>

       The unallocated portion of the allowance is based upon management's evaluation of various conditions that are not directly
       measured in the determination of the formula and specific allowances. The conditions may include, but are not limited to,
       general economic and business conditions affecting the key lending areas of the Company, credit quality trends, collateral
       values, loan volumes and concentration, and other business conditions.<BR><BR>

       The allowance analysis also incorporates the results of measuring impaired loans as provided in Statement of Financial
       Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS 118, "Accounting by
       Creditors for Impairment of a Loan - Income Recognition and Disclosures". A loan is considered impaired when management
       determines that it is probable that the Company will be unable to collect all amounts due according to the original
       contractual terms of the loan agreement. Impairment is measured by the difference between the original recorded investment
       in the loan and the estimated present value of the total expected cash flows, discounted at the loan's effective rate, or
       the fair value of the collateral, if the loan is collateral dependent. Any differences in the specific allowance amounts
       calculated in the impaired loan analysis and the migration analysis are reconciled by management and changes are made to the
       allowance as deemed necessary.<BR><BR>

       <li><i>Premises and Equipment</i> - Premises and equipment are carried at cost less accumulated
       depreciation. Depreciation expense is computed principally on the straight-line method over
       the estimated useful lives of the assets.  Estimated useful lives are as follows:<BR><BR>

       &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Buildings.....................&nbsp;31 Years<BR>
       &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furniture and equipment....... &nbsp;3-7 Years<BR><BR>

       <li><i>Other Real Estate Owned</i> - Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are
       initially recorded at the lower of the book value of the loan, or fair value of the property, less estimated costs to sell.
       The excess, if any, of the loan amount over the fair value is charged to the allowance for credit losses. Subsequent
       declines in the fair value of other real estate owned, along with related revenue and expenses from operations, are charged
       to noninterest expense.<BR><BR>

       <li><i>Intangible Assets</i> - Intangible assets are comprised of core deposit intangibles and goodwill acquired in business
       combinations. Core deposit intangibles of $1.2 million and $1.4 million (net of accumulated amortization of $958,000 and
       $744,000) at December 31, 2001 and 2000 are amortized over the estimated useful lives of the existing deposit bases (7
       years) using a method which approximates the interest method. Goodwill of $1.5 million and $1.6 million (net accumulated
       amortization of $664,000 and $518,000) at December 31, 2001 and 2000, respectively is amortized on a straight-line basis
       over 15 years.<BR><BR>

       <li><i>Income Taxes</i> - Deferred income taxes are provided for the temporary differences between the financial reporting basis and
       the tax basis of the Company's assets and liabilities.<BR><BR>

       <li><i>Net Income per Share</i> - Basic income per common share is computed based on the weighted average number of common shares
       outstanding. Diluted income per share includes the effect of stock options and other potentially dilutive securities. ESOP
       shares are only considered outstanding for earnings per share calculations when they
       are committed to be released (Note 16).<BR><BR>

<p align=center><font size=3>42</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

       <li><i>Cash Flow Reporting</i> - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due
       from banks, federal funds sold and securities purchased under agreements to resell.  Federal funds and securities purchased
       under agreements to resell are generally sold for one-day periods.<BR><BR>

       <li><i>Stock Based Compensation</i> - The Company accounts for stock-based awards to employees using the intrinsic value method in
       accordance with APB No. 25, "Accounting for Stock Issued to Employees".<BR><BR>

       <li><i>Long-Lived Assets</i> - The Company periodically evaluates the carrying value of long-lived assets to be held and used,
       including goodwill and other intangible assets in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal
       of Long-Lived Assets". It does not apply to financial instruments, long-term customer relationships of a financial
       institution (i.e. core deposit intangibles), mortgage and other servicing rights, or deferred tax assets. Based on such
       evaluation, the Bank determined that there is no impairment loss to be recognized in 2001 or 2000.<BR><BR>

       <li><i>Employee Stock Ownership Plan ("ESOP")</i> - The Bank accounts for shares acquired by its ESOP in accordance with the guidelines
       established by the American Institute of Certified Public Accounts Statement of Position 93-6, "Employers' Accounting for
       Employee Stock Ownership Plans" ("SOP 93-6"). Under SOP 93-6, the Bank recognizes compensation cost equal to the fair value
       of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of
       the Bank's ESOP shares committed to be released differ from the cost of those shares, the differential is charged or
       credited to equity. The ESOP is externally leveraged and, as such, the ESOP debt is recorded as a liability and interest
       expense is recorded on that debt. The ESOP shares not yet committed to be released are accounted for as a reduction of
       shareholders' equity.<BR><BR>

       <li><i>Reclassifications</i> - Certain reclassifications have been made to the 2000 and 1999 financial statements to conform to the
       classifications used in 2001.<BR><BR>
</ol>

<b><i>2. Investment Securities</i></b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Following is a comparison of the amortized cost and approximate fair value
of investment securities for the years ended December 31, 2001 and December 31, 2000:</font></p>
<PRE>
                                         ------------------------------------------------------------
  <i>(In thousands)</i>                                             Gross          Gross       Fair Value
December 31, 2001:                          Amortized      Unrealized     Unrealized    (Carrying
Securities available for sale:                 Cost          Gains          Losses        Amount)
                                         ------------------------------------------------------------
U.S. Government agencies                     $42,341         $360           $(74)        $42,627
U.S. Government agency
   collateralized mortgage obligations           211            1             (2)            210
Obligations of state and
   political subdivisions                      3,464           72             (4)          3,532
Other debt securities                         17,164            0           (168)         16,996
                                         ------------------------------------------------------------
   Total securities available for sale       $63,180         $433          ($248)        $63,365
                                         ============================================================
December 31, 2000:
Securities available for sale:
U.S. Government agencies                     $42,523         $489           $(79)        $42,933
U.S. Government agency
    collateralized mortgage obligations        1,357            0            (16)          1,341
Obligations of state and
    political subdivisions                     3,317           72              0           3,389
Other debt securities                          2,000           95              0           2,095
                                         ------------------------------------------------------------
   Total securities available for sale       $49,197         $656           ($95)        $49,758
                                         ============================================================
Securities held to maturity:
U.S. Government agencies                     $10,248           $0           $(74)        $10,174
                                         ============================================================
</PRE>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Included
in other debt securities at December 31, 2001 are a short-term government
securities mutual fund totaling $10.0 million, a CRA qualified investment fund
totaling $4.0 million, and a Trust Preferred securities pool totaling $3.1
million. The short-term government securities</font></p>

<p align=center><font size=3>43</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>mutual fund invests in debt
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, with a maximum duration equal to that of a 3-year U.S.
Treasury Note. The principal strategy of the CRA qualified investment fund is to
invest in debt securities that will cause the shares of the fund to qualify
under the Community Reinvestment Act of 1977 (&#147;CRA&#148;) as CRA qualified
investments. Such investments may include U.S. Government agencies, taxable
municipal bonds, and certificates of deposit. At December 31, 2000, other debt
securities consisted solely of investments in Trust Preferred securities. </FONT></p>


<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
There were realized gains on sales of available-for-sale securities totaling $769,000
and $6,000 during the years ended December 31, 2001 and December 31, 2000,
respectively. There were no realized losses on available-for-sale securities
during either 2001 or 2000. There were no realized gains or losses on securities
available-for-sale during 1999.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The amortized cost and fair value of securities available for sale at December 31,
2001, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because issuers have the right to call or prepay
obligations with or without call or prepayment penalties.</FONT></p>


<PRE>
                                                               December 31, 2001
                                                    ------------------------------------------
                                                         Amortized            Fair Value
  <i>(In thousands)</i>                                            Cost          (Carrying Amount)
----------------------------------------------------------------------------------------------
Due in one year or less                                  $10,666                $10,567
Due after one year through five years                     28,561                 28,748
Due after five years through ten years                     7,250                  7,302
Due after ten years                                       16,492                 16,538
Collateralized mortgage obligations                          211                    210
                                                       ---------------------------------------
                                                         $63,180                $63,365
                                                       =======================================
</PRE>
   Contractual maturities on collateralized mortgage obligations cannot be anticipated due to allowed
   paydowns.

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
At December 31, 2001 and 2000, available-for-sale securities with an amortized cost
of approximately $43,883,000 and $44,228,000 (fair value of $44,198,000 and
$44,630,000) were pledged as collateral for public funds, treasury tax and loan
balances, and repurchase agreements.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company had no held-to-maturity securities at December 31, 2001. Because of the
declining interest rate environment experienced during the current year, the
issuers of the Company&#146;s held-to-maturity securities exercised the call
provisions associated with the two securities held in this portfolio. Both
securities were redeemed during the second quarter of 2001. There were realized
gains of $1,687 on the calls of held-to-maturity securities during the year
ended December 31, 2001, There were no realized gains or losses on sales of
held-to-maturity securities during the years ended December 31, 2000 and 1999.
At December 31, 2000, held-to-maturity securities with an amortized cost of
approximately $10,248,000 (fair value of $10,174,000) were pledged as collateral
for public funds and the Federal Reserve Discount Window.</FONT></p>


   <b><i>3. Loans</i></b><BR><BR>

   Loans are comprised of the following:<BR>

<PRE>
                                                         December 31,
   <i>(In thousands)</i>                                  2001                2000
------------------------------------------------------------------------------------
Commercial and industrial                        $102,280            $66,435
Real estate - mortgage                            111,425            113,140
Real estate - construction                         92,764             61,038
Agricultural                                       12,987              7,240
Installment/other                                   6,647             10,291
Lease financing                                    10,184              3,225
                                            ----------------------------------------
   Total Loans                                   $336,287           $261,369
                                            ========================================
</pre>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company's loans are predominantly in the San Joaquin Valley, and the greater
Oakhurst/East Madera County area, although the Company does participate in loans
with other financial institutions, primarily in the state of California.</FONT></p>

<p align=center><font size=3>44</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Commercial and industrial loans represent 30.4% of total loans at December 31, 2001 and
have a high degree of industry diversification. A substantial portion of the
commercial and industrial loans are secured by accounts receivable, inventory,
leases or other collateral including real estate. The remainder are unsecured;
however, extensions of credit are predicated upon the financial capacity of the
borrower. Repayment of commercial loans is generally from the cash flow of the
borrower.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Real estate mortgage loans, representing 33.1% of total loans at December 31, 2001,
are secured by trust deeds on primarily commercial property. Repayment of real
estate mortgage loans is generally from the cash flow of the borrower.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Real estate construction loans, representing 27.6% of total loans at December 31,
2001, consist of loans to residential contractors which are secured by single
family residential properties. All real estate loans have established equity
requirements. Repayment on construction loans is generally from long-term
mortgages with other lending institutions.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Agricultural loans represent 3.9% of total loans at December 31, 2001 and are generally
secured by land, equipment, inventory and receivables. Repayment is from the
cash flow of the borrower.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Lease financing loans, representing 3.0% of total loans at December 31, 2001, consist
of loans to small businesses which are secured by commercial equipment.
Repayment of the lease obligation is from the cash flow of the borrower.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
There were no loans over 90 days past due and still accruing at December 31, 2001.
Loans over 90 days past due and still accruing interest totaled $595,000 at
December 31, 2000. Nonaccrual loans totaled $13.0 million and $2.8 million at
December 31, 2001 and 2000, respectively.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company has, and expects to have, lending transactions in the ordinary course of
its business with directors, officers, principal shareholders and their
affiliates. These loans are granted on substantially the same terms, including
interest rates and collateral, as those prevailing on comparable transactions
with unrelated parties, and do not involve more than the normal risk of
collectibility or present unfavorable features. These loans are summarized
below:</FONT></p>


<PRE>
                                                                   December 31,
   <i>(In thousands)</i>                                              2001            2000
------------------------------------------------------------------------------------------
Aggregate amount outstanding, beginning of year                $860           $1,584
New loans or advances during year                               868              419
Repayments during year                                         (526)            (486)
Other(1)(2)                                                   1,959             (657)
                                                         ---------------------------------
Aggregate amount outstanding, end of year                    $3,161             $860
                                                         =================================
Loan commitments                                               $560             $261
                                                         =================================
</PRE>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
<td width=70%><font size=2>
(1)&nbsp;&nbsp;During 2001, two new directors joined the Company&#146;s Board of Directors, and
two resigned. This figure represents the addition of $2,154,000 in loan balances
outstanding at December 31, 2000 for the two new directors, and the removal of
$194,000 in loan balances for the two resigning directors.</FONT></td>
<TD WIDTH=30%>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><font size=2>
(2)&nbsp;&nbsp;During 2000, one of the Company&#146;s directors resigned from the Board of
Directors. This figure represents the removal of their outstanding balances at
December 31, 2000. The outstanding loan commitments of this director had been
$925,000 at December 31, 1999.</FONT></td>
<td>&nbsp;</td>
</tr>
</table>
<BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>An analysis of changes in the allowance
for credit losses is as follows:</font></p>
<pre>
                                                               December 31,
  <i>(In thousands)</i>                                  2001             2000             1999
-----------------------------------------------------------------------------------------------
Balance, beginning of year                       $3,773           $2,642           $1,907
Provision charged to operations                   1,733            1,580            1,025
Losses charged to allowance                      (1,076)            (474)            (312)
Recoveries on loans previously charged off           27               25               22
                                             --------------------------------------------------
Balance at end-of-period                         $4,457           $3,773           $2,642
                                             ==================================================
</pre>
<p align=center><font size=3>45</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The allowance for credit losses represents management's estimate of the risk
inherent in the loan portfolio based on the current economic conditions,
collateral values and economic prospects of the borrowers. Significant changes
in these estimates might be required in the event of a downturn in the economy
and/or the real estate market in the San Joaquin Valley, and the greater
Oakhurst and East Madera County area.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
At December 31, 2001 and 2000, the Company's recorded investment in loans for which
impairment has been recognized totaled $13.1 million and $3.4 million. Included
in total impaired loans at December 31, 2001 is $1.3 million of impaired loans
for which the related specific allowance is $115,000, as well as $11.8 million
of impaired loans that as a result of write-downs or the fair value of the
collateral, did not have a specific allowance. At December 31, 2000, total
impaired loans included $138,000 for which the related specific allowance is
$84,000, as well as $3.3 million of impaired loans that as a result of
write-downs or the fair value of the collateral did not have a specific
allowance. The average recorded investment in impaired loans was $5.7 million
and $5.4 million for the years ended December 31, 2001 and 2000, respectively.
In most cases, the Company uses the cash basis method of income recognition for
impaired loans. In the case of certain troubled debt restructuring for which the
loan is performing under the current contractual terms, income is recognized
under the accrual method. For the years ended December 31, 2001, 2000, and 1999,
the Company recognized $23,000, $270,000 and $290,000 on such loans,
respectively.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
In the normal course of business, the Company is party to financial instruments
with off-balance sheet risk to meet the financing needs of its customers. At
December 31, 2001 and 2000 these financial instruments include commitments to
extend credit of $108.1 million and $84.3 million, respectively, and standby
letters of credit of $6.3 million and $7.2 million, respectively. These
instruments involve elements of credit risk in excess of the amount recognized
on the balance sheet. The contract amounts of these instruments reflect the
extent of the involvement the bank has in off-balance sheet financial
instruments.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company&#146;s exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Company uses the same credit policies as it does for on-balance
sheet instruments.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Commitments to extend credit are agreements to lend to a customer, as long as there is no
violation of any condition established in the contract. Substantially all of
these commitments are at floating interest rates based on the Prime rate.
Commitments generally have fixed expiration dates. The Company evaluates each
customer's creditworthiness on a case by case basis. The amount of collateral
obtained, if deemed necessary, is based on management's credit evaluation.
Collateral held varies but includes accounts receivable, inventory, leases,
property, plant and equipment, residential real estate and income-producing
properties.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Standby letters of credit are generally unsecured and are issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.</FONT></p>

<BR>

<b><i>4. Premises and Equipment</i></b><BR><BR>

The components of premises and equipment are as follows:
<pre>
                                                              December 31,
   <i>(In thousands)</i>                                       2001               2000
---------------------------------------------------------------------------------------
Land                                                    $254               $254
Buildings and improvements                             2,290              2,261
Furniture and equipment                                5,097              4,672
                                                  -------------------------------------
                                                       7,641              7,187

Less accumulated depreciation and amortization        (4,584)            (3,785)
                                                  -------------------------------------
Total premises and equipment                          $3,057             $3,402
                                                  =====================================
</PRE>
<b><I>5. Investment in Limited Partnership</i></b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>During the fourth quarter
of 1997, the Bank purchased a limited interest in a private limited partnership
that acquires affordable housing properties in California that generate Low
Income Housing Tax Credits under Section 42 of the Internal Revenue Code of
1986, as amended. During 2001, the Bank purchased additional limited partnership
interests totaling $939,000. Certain properties
may also be eligible for</font></p>

<p align=center><font size=3>46</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>state tax credits under various sections of the California Revenue and Taxation Code.
The Bank's limited partnership investment is accounted for under the equity
method. Accordingly, the Bank's share of net income or loss from this investment
is recorded in other noninterest expense. The Bank's share of the net loss for
the year ended December 31, 2001, 2000 and 1999 was $247,000, $173,000 and
$105,000, respectively. The limited partnership investment is expected to
generate tax credits over a period of approximately 15 years. Tax credits for
the years ended December 31, 2001 and 2000 totaled $401,000 and $298,000,
respectively </FONT></P>

<b><i>6. Deposits</i></b><BR><BR>

   Deposits include the following:
<pre>
                                                           December 31,
  <i>(In thousands)</i>                                     2001                2000
--------------------------------------------------------------------------------------
Noninterest bearing deposits                       $72,413             $52,898
Interest bearing deposits:
   NOW and money market accounts                    83,316              62,143
   Savings accounts                                 19,883              18,347
   Time deposits:
      Under $100,000                                68,414              63,567
      $100,000 and over                            124,625              74,908
                                              ----------------------------------------
Total interest bearing deposits                    296,238             218,965
                                              ----------------------------------------
Total deposits                                    $368,651            $271,863
                                              ========================================
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>At December 31, 2001, the
scheduled maturities of all certificates of deposit and other time deposits are
as follows: </FONT></P>

<PRE>
    <i>(In thousands)</i>
--------------------------------------------------------------------------------
One year or less                                                     $167,771
More than one year, but less than or equal to two years                21,163
More than two years, but less than or equal to three years              1,698
More than three years, but less than or equal to four years             1,538
More than four years, but less than or equal to five years                840
More than five years                                                       29
                                                               -----------------
                                                                     $193,039
                                                               =================
</PRE>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company may occasionally obtain brokered deposits as an additional source of
funding. At December 31, 2001, the Company held brokered time deposits totaling
$51.3 million with an average rate of 2.90%. Of this balance, $48.9 million is
included in time deposits of $100,000 or more, and the remaining $2.4 million is
included in time deposits of less than $100,000. Included in brokered time
deposits are balances totaling $35.7 million maturing in three months or less,
$8.8 million maturing in three to six months, $3.2 million maturing in six to
twelve months, and $3.6 million maturing in more than one year.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Deposits of directors, officers and other related parties to the Bank totaled $6,434,000
and $5,446,000 at December 31, 2001 and 2000, respectively. The rates paid on
these deposits were those customarily paid to the Bank's customers in the normal
course of business.</FONT></p>

<BR>

<b><i>7. Short-term Borrowings/Other Borrowings</i></b><BR><BR>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company had collateralized and uncollateralized lines of credit with aggregating
$119.6 million, as well as repurchase agreement lines of credit totaling $5.3
million and FHLB lines of credit totaling $ 35.6 million at December 31, 2001.
At December 31, 2001, advances on the repurchase lines of credit totaled $5.3
million and advances on the FHLB lines of credit totaled $22.2 million. These
lines of credit generally have interest rates tied to the Federal Funds rate or
are indexed to short-term U.S. Treasury rates or LIBOR. Repurchase agreements
are generally collateralized by U.S. Government or Agency securities, while FHLB
advance are collateralized by all of the Company&#146;s stock in the FHLB and
certain qualifying mortgage loans. As of December 31, 2001, investment
securities of $5.6 million (including accrued interest) were</font></p>

<p align=center><font size=3>47</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>pledged as
collateral for repurchase agreements and $64.9 million in real estate-secured
loans were pledged as collateral for FHLB advances. All lines of credit are on
an &#147;as available&#148; basis and can be revoked by the grantor at any time.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company had collateralized and uncollateralized lines of credit aggregating
$107.9 million, as well as a repurchase agreement line of credit of $11.7
million and FHLB lines of credit totaling $13.2 million at December 31, 2000.
The Company had outstanding repurchase agreements of $11.7 million, FHLB
advances of $13.2 million, and federal funds purchased of $22.6 million at
December 31, 2000.</FONT></p>

<BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The table below provides further detail
 of the Company's repurchase agreements and FHLB advances for the years ended December
 31, 2001 and 2000:</font></p>
<PRE>
                                                                December 31,
                                                    --------------------------------------
  <i>(In thousands)</i>                                           2001               2000
---------------------------------------------------------------------- -------------------
Outstanding:
    Average for the period - Repos                       $12,048            $17,077
    Average for the period - FHLB advances               $19,255            $ 7,800
    Maximum during the period - total borrowings         $38,250            $34,761
Interest rates:
    Average for the period - Repos                         4.90%              6.64%
    Average for the period - FHLB advances                 4.79%              6.54%
    Average at period end - Repos                          1.93%              6.67%
    Average at period end - FHLB advances                  4.66%              6.67%

</PRE>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
On June 20, 2000, the Company&#146;s ESOP entered into an agreement with a
correspondent bank to establish a $1.0 million unsecured revolving line of
credit with a variable rate of prime plus 100 basis points and maturity of June
20, 2005. The loan is guaranteed by the Company. Advances on the line totaled
$916,000 at December 31, 2001.</FONT></p>

<BR>

<b><i>8. Trust Preferred Securities</i></b><BR><BR>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
On July 16, 2001, the Company&#146;s wholly owned special-purpose trust subsidiary,
United Security Bancshares Capital Trust I (the &#147;Trust&#148;) issued $15
million in cumulative Trust Preferred Securities. The securities bear a floating
rate of interest of 3.75% over the six month LIBOR rate, payable semi-annually.
Concurrent with the issuance of the Trust Preferred Securities, the Trust used
the proceeds from the Trust Preferred Securities offering to purchase a like
amount of Junior Subordinated Debentures of the Company. The Subordinated
Debentures are the sole assets of the Trust and are eliminated, along with the
related income statement effects, in the consolidated financial statements. The
Company will pay interest on the Junior Subordinated Debentures to the Trust,
which represents the sole revenues and sole source of dividend distributions to
the holders of the Trust Preferred Securities. The Company has the right,
assuming no default has occurred, to defer payments of interest on the Junior
Subordinated Debentures at any time for a period not to exceed 20 consecutive
quarters. The Trust Preferred Securities will mature on July 25, 2031, but can
be redeemed after July 25, 2006 at a premium, and can be redeemed after July 25,
2011 at par. The obligations of the Trust are fully and unconditionally
guaranteed, on a subordinated basis, by the Company.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company received $14.5 million from the Trust upon issuance of the Junior
Subordinated Debentures, of which $13.7 million was contributed by the Company
to the Bank to increase its capital. The remainder will be utilized by the
Company for general corporate purposes. Under applicable regulatory guidelines,
the Company expects that a portion of the Trust Preferred Securities will
qualify as Tier I Capital, and the remainder as Tier II Capital. Issuance costs
of $495,000 related to the Trust Preferred Securities have been deferred and
will be amortized over the 30-year life of the securities. Interest expense on
the Trust Preferred Securities totaled $533,000 and amortization expense totaled
8,000 for the year ended December 31, 2001.</FONT></p>

<BR>

<p align=center><font size=3>48</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<b><i>9. Taxes on Income</i></b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The tax effects of
significant items comprising the Company&#146;s net deferred tax assets
(liabilities) are as follows: </FONT></P>

<PRE>
                                                            December 31,
                                                     -----------------------------
  <i>(In thousands)</i>                                       2001            2000
----------------------------------------------------------------------------------
Deferred tax assets:
   Credit losses not currently deductible            $1,320          $1,204
   State franchise tax                                  277             309
   Deferred compensation                                313             246
   Amortization of core deposit intangible              131             101
   Other                                                 82              17
                                                   -------------------------------
Total deferred tax assets                             2,123           1,877
Deferred tax liabilities:
   Depreciation                                         (74)           (153)
   FHLB dividend                                        (88)            (60)
   Unrealized holding gain on AFS securities            (74)           (225)
   Prepaid expenses                                    (157)           (116)
   Other                                                 (0)            (83)
                                                   -------------------------------
Total deferred tax liabilities                         (393)           (637)
                                                   -------------------------------
Net deferred tax assets                              $1,730          $1,240
                                                   ===============================

</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Taxes on income for the years ended
  December 31 consist of the following:</font></p>

<PRE>
   <i>(In thousands)</i>
------------------------------------------------------------------------------------
2001:                                 Federal           State           Total
                                  --------------------------------------------------
Current                               $2,728            $796           $3,524
Deferred                                (266)            (73)            (339)
                                  --------------------------------------------------
                                      $2,462            $723           $3,185
                                  ==================================================
2000:
Current                               $3,112          $1,036           $4,148
Deferred                                (568)           (130)            (698)
                                  --------------------------------------------------
                                      $2,544            $906           $3,450
                                  ==================================================
1999:
Current                               $2,357            $766           $3,123
Deferred                                (126)            (67)            (193)
                                  --------------------------------------------------
                                      $2,231            $699           $2,930
                                  ==================================================
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A reconciliation of the statutory federal
income tax rate to the effective income tax rate is as follows:</font></p>

<PRE>
                                                2001          2000          1999
------------------------------------------------------------------------------------
Statutory federal income tax rate               34.0%         34.0%         34.0%
State franchise tax, net of federal
  income tax benefit                             7.2           7.2           7.2
Tax exempt interest income                      (1.4)         (1.4)         (1.8)
Low Income Housing - federal credits            (4.3)         (3.0)         (2.6)
Other                                           (1.6)         (1.3)          0.5
                                             ---------------------------------------
                                                33.9%         35.5%         37.3%
                                             =======================================
</PRE>
<p align=center><font size=3>49</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<b><i>10. Stock Options</i></b><BR><BR>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Options have been granted to officers and key employees at an exercise price equal to
estimated fair values at the date of grant as determined by the Board of
Directors. During 1995, the Board of Directors and shareholders of the Company
approved the adoption of the 1995 Stock Option Plan. The 1987 Plan was
terminated as to the granting of additional options under that plan. The options
granted under both the 1987 and 1995 Stock Option Plan are exercisable 20% each
year commencing one year after the date of grant and expire ten years after the
date of grant. The maximum number of shares which can be granted under the 1995
Plan is 690,000. A total of 130,000 shares remain reserved under the 1995 Stock
Option Plan.</FONT></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Options outstanding, exercisable,
exercised and forfeited are as follows:</font></p>

<PRE>
                                                              Weighted                        Weighted
                                                 1987          Average          1995           Average
                                                 Plan      Exercise Price       Plan       Exercise Price
-----------------------------------------------------------------------------------------------------------
Options outstanding January 1, 1999            167,970         $4.11          464,079            $8.12
      Exercised during the year                (22,000)        $4.25          (38,962)           $5.28
                                            ---------------                --------------
Options outstanding December 31, 1999          145,970         $4.09          425,117            $8.33
      Granted during the year                        0                          5,000           $17.00
      Exercised during the year               (145,970)        $4.09          (81,687)           $5.54
                                            ---------------                --------------
Options outstanding December 31, 2000                0                        348,430            $9.11
                                            ===============
      Granted during the year                                                  30,000           $17.50
      Exercised during the year                                              (104,830)           $7.69
                                                                           --------------
Options outstanding December 31, 2001                                         273,600           $10.57
                                                                           ==============
</PRE>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Included in total outstanding options at December 31, 2001, are 197,600 exercisable
shares under the 1995 plan, at a weighted average price of $9.23. Included in
total outstanding options at December 31, 2000, are 238,430 exercisable shares
under the 1995 plan, at a weighted average price of $8.43.</FONT></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Additional information regarding options as
of December 31, 2001 is as follows:</font></p>

<PRE>
                         Options Outstanding                                   Options Exercisable
-----------------------------------------------------------------------------------------------------------
                                      Weighted Avg
      Range of           Number        Remaining        Weighted Avg        Number         Weighted Avg
   Exercise Prices    Outstanding  Contract Life(yrs)  Exercise Price     Exercisable     Exercise Price
-----------------------------------------------------------------------------------------------------------
   $5.21 to $5.25        21,700           3.8               $5.23           21,700            $5.23
       $6.08             55,000           4.5               $6.08           55,000            $6.08
      $11.33            161,900           5.6              $11.33          119,900           $11.33
 $17.00 to $17.50        35,000           9.1              $17.43            1,000           $17.00
                     --------------                                     --------------
         Total          273,600                                            197,600
                     ==============                                     ==============
</PRE>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
As discussed in Note 1, the Company continues to account for its stock-based awards
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, &quot;Accounting for Stock Issued to Employees&quot; and its
related interpretations. Accordingly, no compensation expense has been
recognized in the financial statements for employee stock arrangements.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Statement of Financial Accounting Standards (&quot;SFAS&quot;) No. 123, &quot;Accounting
for Stock-based Compensation&quot;, requires the disclosure of pro forma net
income and earnings per share. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and expected
time to exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions for expected life: 60 months following
vesting for 2001, 24 months following vesting for 2000, 77 months following
vesting for 1997, and 64 months following vesting for 1996 and 1995. Assumptions
for stock volatility were 12.41% in 2001 and 2000, 15.88% in 1997, 7.08% in 1996
and 6.59% in 1995.</font></p>

<p align=center><font size=3>50</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Risk free interest rates used were 5.1% in 2001, 6.0% in
2000, 6.2% in 1997, 6.9% in 1996 and 6.4% in 1995. Expected dividends range from
1.7% to 3.8% during the expected term of the options. The Company's calculations
are based on a multiple option valuation approach and forfeitures are recognized
as they occur. If the computed fair values stock option awards had been
amortized to expense over the vesting period of the awards, pro forma net income
would have been $6,140,000 ($1.13 per share basic, $1.10 diluted) in 2001,
$6,195,000 ($1.15 per share basic, $1.11 diluted) in 2000, and $4,817,000 ($0.93
per share basic, $0.87 diluted) in 1999. However, the impact of outstanding
non-vested stock options granted prior to 1995 has been excluded from the pro
forma calculation and, accordingly, the pro forma adjustments for the three
years presented are not indicative of future period pro forma adjustments, when
the calculation will apply to all stock options.</FONT></p>

<b><i>11. Employee Benefit Plans</i></b><BR><BR>

<u>Employee Stock Ownership Plan</u><BR>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company has an Employee Stock Ownership Plan and Trust, (the &#147;ESOP&#148;),
designed to enable eligible employees to acquire shares of common stock. ESOP
eligibility is based upon length of service requirements. The Company contributes
cash to the ESOP in an amount determined at the discretion of the Board of
Directors. The trustee of the ESOP uses such contribution to purchase shares of
common stock currently outstanding, or to repay debt on the leveraged portion of
the ESOP. The shares of stock purchased by the trustee are allocated to the
accounts of the employees participating in the ESOP on the basis of total
relative compensation. Employer contributions vest over a period of six years.</FONT></p>


<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
During June of 2000, the Company&#146;s Employee Stock Ownership Plan
(&#147;ESOP&#148;) established an unsecured five-year variable-rate revolving
line of credit (&#147;the loan&#148;) in the amount of $1.0 million for the
purpose of purchasing common stock of the Company. The loan is with a
correspondent bank and is guaranteed by the plan&#146;s sponsor, United Security
Bancshares.</FONT></p>


<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The ESOP used the proceeds of the loan to acquire shares of the Company&#146;s
common stock which will be held in a suspense account by the ESOP. At the end of
each year, shares will be released for allocation to the accounts of the
individual ESOP participants in proportion to the principal and interest paid on
the loan during the year. The ESOP loan is recorded as a liability of the
Company and the unreleased shares purchased with the loan are reported as
unearned ESOP shares in shareholders&#146; equity. Unreleased shares are not
recognized as outstanding for earnings per share and capital computations.
Dividends on unallocated ESOP shares will be used to pay debt service on the
ESOP loan and, as such, are recorded as a reduction of debt and accrued
interest.</FONT></p>


<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
During the year ended December 31, 2001, the ESOP purchased 23,185 shares of common
stock on the open market under the revolving line of credit for a total cost of
$399,000 (average cost of $17.20 per share). During the year ended December 31,
2000, the leveraged ESOP purchased 46,861 shares of common stock on the open
market for a total cost of $817,000 (average cost of $17.43 per share), and
purchased an additional 8,126 shares prior to June 2000 when the Company
leveraged its ESOP Plan. The ESOP purchased 19,750 shares of common stock in
1999. Compensation expense totaled $246,000, $254,000 and $211,000 for the years
ended December 31, 2001, 2000 and 1999, respectively. Interest expense incurred
on the ESOP loan totaled $88,000 and $21,000 for the years ended December 31,
2001 and 2000, respectively.</FONT></p>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Allocated, committed-to-be-released,
and unallocated ESOP shares as of December 31, 2001, 2000 and 1999 were as follows:</font></p>

<PRE>
                                            2001             2000          1999
-------------------------------------------------------------------------------------
Allocated                                 103,035           95,973        89,308
Committed-to-be-released                   11,952            7,742          --
Unallocated                                50,352           39,119          --
                                      -----------------------------------------------
Total ESOP shares                         165,339          142,834        89,308
                                      ===============================================
Fair value of unreleased shares          $855,984         $679,888          --
                                      ===============================================
</PRE>
<u>401K Plan</u><BR>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company has a Cash or Deferred 401(k) Stock Ownership Plan (the &#147;401(k)
Plan&#148;) organized under Section 401(k) of the Code. All employees of the
Company are initially eligible to participate in the 401(k) Plan upon the first
day of the month after date of hire. Under the terms of the plan, the
participants may elect to make contributions to the 401(k) Plan as determined by
the Board of Directors.</font></p>

<p align=center><font size=3>51</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Participants are automatically vested 100% in all
employee contributions. Participants may direct the investment of their
contributions to the 401(k) Plan in any of several authorized investment
vehicles. The Company contributes funds to the Plan up to 5% of the
employees&#146; eligible annual compensation. Company contributions are subject
to certain vesting requirements over a period of six years. Contributions made
by the Company are invested in Company stock. During 2001, 2000 and 1999, the
Company contributed a total of $139,000, $120,000, and $114,000 to the Deferral
Plan.</FONT></p>

<u>Salary Continuation Plan</u><BR>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company has established a non-qualified Salary Continuation Plan for five of the
Company's key employees which provides additional compensation benefits upon
retirement for a period of 15 years. Future compensation under the Plan is
earned by the employees for services rendered through retirement and vests over
a period of 12 years. The Company accrues for the salary continuation liability
based on anticipated years of service and vesting schedules provided under the
Plan. At December 31, 2001 and 2000, $711,000 and $555,000, respectively, has
been accrued to date and is included in other liabilities. In connection with
the implementation of the Salary Continuation Plans, the Company purchased
single premium universal life insurance policies on the life of each of the key
employees covered under the Plan. The Company is the owner and beneficiary of
these insurance policies. The cash surrender value of the policies was $2.4
million and $2.3 million at December 31, 2001 and 2000, respectively. The assets
of the Plan, under Internal Revenue Service regulations, are the property of the
Company and are available to satisfy the Company's general creditors.</FONT></p>

<b><i>12. Commitment and Contingent Liabilities</i></b><BR><BR>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company leases land and premises for its branch banking offices and
administration facilities. The initial terms of these leases expire at various
dates through 2015. Under the provisions of most of these leases, the Company
has the option to extend the leases beyond their original terms at rental rates
adjusted for changes reported in certain economic indices or as reflected by
market conditions. The total expense on land and premises leased under operating
leases was $247,000, $234,000, and $259,000 during 2001, 2000, and 1999,
respectively.</FONT></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Future minimum rental commitments
under existing leases as of December 31, 2001 are as follows:</font></p>

<PRE>
                  <i>(In thousands):</i>
                -------------------------------------------------------
                    2002                                       $232
                    2003                                        194
                    2004                                        201
                    2005                                        204
                    2006                                        119
                 Thereafter                                     912
                                                      --------------
                                                             $1,862
                                                      ==============
</PRE>
<b><I>13. Financial Instruments Fair Value Disclosure</i></b><BR><BR>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The following summary disclosures are made in accordance with the provisions of
Statement of Financial Accounting Standards No. 107, &#147;Disclosures About
Fair Value of Financial Instruments,&#148; which requires the disclosure of fair
value information about both on- and off- balance sheet financial instruments
where it is practicable to estimate that value. Fair value is defined in SFAS
No. 107 as the amount at which an instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
It is not the Company&#146;s intent to enter into such exchanges.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
In cases where quoted market prices were not available, fair values were estimated
using present value or other valuation methods, as described below. The use of
different assumptions (e.g., discount rates and cash flow estimates) and
estimation methods could have a significant effect on fair value amounts.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market exchange. Because SFAS
No. 107 excludes certain financial instruments and all non-financial instruments
from its disclosure requirements, any aggregation of the fair value amounts
presented would not represent the underlying value of the Company.</FONT></p>


<p align=center><font size=3>52</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<PRE>
                                      December 31, 2001                December 31, 2000
                              -------------------------------------------------------------------
                                                  Estimated                        Estimated
                                  Carrying           Fair          Carrying           Fair
   <i>(In thousands)</i>                  Amount           Value           Amount            Value
-------------------------------------------------------------------------------------------------
Financial Assets:
   Cash and cash equivalents       $29,255         $29,255         $19,176          $19,176
   Investment securities            63,365          63,365          60,006           59,932
   Loans, net                      335,620         334,683         260,575          260,514
Financial Liabilities:
   Deposits                        368,651         367,114         271,863          271,457
   Borrowings                       28,416          28,037          48,217           48,217
   Trust Preferred Securities       15,000          14,988            --                --
Commitments to extend credit          --              --              --                --

</PRE>
The following methods and assumptions were used in estimating the fair values of financial instruments:<BR><BR>

<b><i>Cash and Cash Equivalents</i></b> - The carrying amounts reported in the balance sheets for cash and cash equivalents approximate
their estimated fair values.<BR><BR>

<b><i>Investments</i></b> - Fair values for investment securities, including collateralized mortgage obligations, are based on quoted
market prices.<BR><BR>

<b><i>Loans</i></b> - Fair values of variable rate loans which reprice frequently and with no
significant change in credit risk are based on carrying values. Fair values for
all other loans are estimated using discounted cash flows over their remaining
maturities, using interest rates at which similar loans would currently be
offered to borrowers with similar credit ratings and for the same remaining
maturities.<BR><BR>

<b><i>Deposits</i></b> - Fair values for transaction and savings accounts are equal to the respective
amounts payable on demand at December 31, 2001 and 2000 (i.e., carrying
amounts). Fair values of fixed-maturity certificates of deposit were estimated
using the rates currently offered for deposits with similar remaining
maturities.<BR><BR>

<b><i>Borrowings</i></b> - Borrowings consist of federal funds sold, securities sold under agreements to
repurchase, and other short-term borrowings. Fair values of borrowings were
estimated using the rates currently offered for borrowings with similar
remaining maturities. At December 31, 2000, maturities or repricing terms of
borrowings are less than 90 days. Consequently, the carrying amounts of
borrowings approximate their fair values that date.<BR><BR>

<b><i>Trust Preferred Securities</i></b> &#150; Trust preferred securities reprice semiannually.
Consequently, fair values were estimated using the rates currently offered for
borrowings with similar remaining repricing characteristics.<BR><BR>

<b><i>Commitments to Extend Credit</i></b> - Fair values of commitments to extend credit are estimated
using the interest rate currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
counterparties&#146; credit standing. Fair values of standby letters of credit
are based on fees currently charged for similar agreements. There was no
material difference between the contractual amount and the estimated value of
commitments to extend credit at December 31, 2001 and 2000.<BR><BR>

<b><i>14. Regulatory Matters</i></b><BR><BR>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<u>Capital Guidelines</u> - The Company (on a consolidated basis) and the Bank are subject to
various regulatory capital requirements adopted by the Board of Governors of the
Federal Reserve System (&#147;Board of Governors&#148;). Failure to meet minimum
capital requirements can initiate certain mandates and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company&#146;s consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of their assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding companies.</FONT></p>

<p align=center><font size=3>53</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Quantitative measures established by regulation to ensure capital adequacy require insured
institutions to maintain a minimum leverage ratio of Tier 1 capital (the sum of
common stockholders' equity, noncumulative perpetual preferred stock and
minority interests in consolidated subsidiaries, minus intangible assets,
identified losses and investments in certain subsidiaries, plus unrealized
losses or minus unrealized gains on available for sale securities) to total
assets. Institutions which have received the highest composite regulatory rating
and which are not experiencing or anticipating significant growth are required
to maintain a minimum leverage capital ratio of 3% of Tier 1 capital to total
assets. All other institutions are required to maintain a minimum leverage
capital ratio of at least 100 to 200 basis points above the 3% minimum
requirement.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Board of Governors has also adopted a statement of policy, supplementing its
leverage capital ratio requirements, which provides definitions of qualifying
total capital (consisting of Tier 1 capital and supplementary capital, including
the allowance for loan losses up to a maximum of 1.25% of risk-weighted assets)
and sets forth minimum risk-based capital ratios of capital to risk-weighted
assets. Insured institutions are required to maintain a ratio of qualifying
total capital to risk weighted assets of 8%, at least one-half of which must be
in the form of Tier 1 capital. Management believes, as of December 31, 2001,
that the Company and the Bank meet all capital adequacy requirements to which they are subject.</FONT></p>


<PRE>
                                                                                           To Be Well
                                                                                        Capitalized Under
                                                                    For Capital         Prompt Corrective
                                                  Actual         Adequacy Purposes      Action Provisions
                                    -----------------------------------------------------------------------
  <i>(In thousands)</i>                            Amount     Ratio      Amount     Ratio       Amount    Ratio
-----------------------------------------------------------------------------------------------------------
As of December 31, 2001 (Company):
 Total Capital (to Risk Weighted Assets)   $52,662     12.89%    $32,694     8.00%      $40,868    10.00%
 Tier 1 Capital (to Risk Weighted Assets)   44,205     10.82%     16,347     4.00%       24,521     6.00%
 Tier 1 Capital ( to Average Assets)        44,205     10.20%     13,030     3.00%       21,716     5.00%

As of December 31, 2001 (Bank):
 Total Capital (to Risk Weighted Assets)   $50,729     12.48%    $32,523     8.00%      $40,654    10.00%
 Tier 1 Capital (to Risk Weighted Assets    46,272     11.38%     16,262     4.00%       24,392     6.00%
 Tier 1 Capital ( to Average Assets)        46,272     10.67%     13,005     3.00%       21,674     5.00%

As of December 31, 2000 (Bank):
 Total Capital (to Risk Weighted Assets)   $34,166     10.85%    $25,186     8.00%      $31,482    10.00%
 Tier 1 Capital (to Risk Weighted Assets)   30,393      9.65%     12,593     4.00%       18,889     6.00%
 Tier 1 Capital ( to Average Assets)        30,393      8.81%     10,349     3.00%       17,257     5.00%

</PRE>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
As of December 31, 2001 and 2000, the most recent notifications from the
Bank&#146;s regulators categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the Bank must maintain minimum total capital and Tier 1
capital (as defined) to risk-based assets (as defined), and a minimum leverage
ratio of Tier 1 capital to average assets (as defined) as set forth in the
proceeding discussion. There are no conditions or events since the notification
that management believes have changed the institution&#146;s category.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Under regulatory guidelines, the $15 million in Trust Preferred Securities issued in
July of 2001 qualifies as Tier 1 capital up to 25% of Tier 1 capital. Any
additional portion of Trust Preferred Securities qualifies as Tier 2 capital.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<u>Dividends</u> - Subsequent to the Reorganization on June 12, 2001, dividends paid to
shareholders will be paid by the bank holding company, subject to restrictions
set forth in the California General Corporation Law. The primary source of funds
with which dividends will be paid to shareholders will come from cash dividends
received by the Company from the Bank. Year-to-date as of December 31, 2001, the
Company received $4.3 million in cash dividends from the Bank, from which the
Company has declared or paid $1.9 million in dividends to shareholders.</FONT></p>

<p align=center><font size=3>54</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Under California state banking law, the Bank may not pay cash dividends in an amount
which exceeds the lesser of the retained earnings of the Bank or the Bank&#146;s
net income for the last three fiscal years (less the amount of distributions to
shareholders during that period of time). If the above test is not met, cash
dividends may only be paid with the prior approval of the California State
Department of Financial Institutions, in an amount not exceeding the greater of:
(i) the Bank&#146;s retained earnings; (ii) its net income for the last fiscal
year; or (iii) its net income for the current fiscal year. As of December 31,
2001, approximately $8.9 million was available to the Bank for cash dividend
distributions without prior approval. Year-to-date, the Bank has paid dividends
of $1.2 million to shareholders and dividends of $4.3 million to the Company.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<u>Cash Restrictions</u> - The Bank is required to maintain average reserve balances with
the Federal Reserve Bank. At December 31, 2001, the Bank&#146;s qualifying
balance with the Federal Reserve Bank was $5.6 million consisting of vault cash
and balances.</FONT></p>


<b><i>15. Supplemental Cash Flow Disclosures</i></b><BR><BR>
<pre>
                                                    For the Year Ended December 31,
    <i>(In thousands)</i>                               2001           2000            1999
--------------------------------------------------------------------------------------------------
Cash paid during the period for:
  Interest                                     $13,385        $11,379          $7,808
  Income Taxes                                   3,943          3,927           3,225
Noncash investing activities:
  Loans transferred to foreclosed property       2,980          2,781           1,114
  Dividends declared not paid                      625            546             419
</PRE>

<b><i>16. Net Income Per Share</i></b><BR><BR>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The following table provides a reconciliation of the numerator and the denominator
of the basic EPS computation with the numerator and the denominator of the
diluted EPS computation:</FONT></p>

<PRE>
                                                                For the Year Ended December 31,
   <i>(In thousands, except earnings per share data)</i>           2001             2000            1999
-----------------------------------------------------------------------------------------------------
Net income available to common shareholders                $6,193           $6,257          $4,923
                                                       ==============================================
Weighted average shares issued                              5,499            5,389           5,202
   Less: unearned ESOP shares                                 (55)             (14)             (0)
                                                       ----------------------------------------------
Weighted average shares outstanding                         5,444            5,375           5,202
   Add: dilutive effect of stock options                      120              213             312
                                                       ----------------------------------------------
Weighted average shares outstanding
     adjusted for potential dilution                        5,564            5,588           5,514
                                                       ==============================================
Basic earnings per share                                    $1.14            $1.16           $0.95
                                                       ==============================================
Diluted earnings per share                                  $1.11            $1.12           $0.89
                                                       ==============================================
</PRE>

<b><i>17. Other Comprehensive Income</i></b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table
provides a reconciliation of the amounts included in comprehensive income: </FONT></P>

<PRE>
                                                                               December 31,
                                                                    2001           2000            1999
-----------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax:
  Unrealized gain (loss) on sale  securities - net income tax
  of $157,000, $491,000 and income tax benefit of $348,000       $235,000        $737,000       $(522,000)
Less: Reclassification adjustment for gain on sale of
  available-for-sale securities included in net income -
  net income tax of $307,000 and $2,000                          (461,000)         (3,000)              0
                                                              --------------- -------------- ---------------
Net unrealized (loss) gain on available-for-sale securities     $(226,000)      $(734,000)      $(522,000)
                                                              =============== ============== ===============
</PRE>

<p align=center><font size=3>55</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<b><i>18. Common Stock Repurchase Plan</i></b><BR><BR>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
During August 2001, the Company&#146;s Board of Directors approved a plan to
repurchase, as conditions warrant, up to 280,000 shares of the Company&#146;s
common stock on the open market or in privately negotiated transactions. The
duration of the program is open-ended and the timing of the purchases will
depend on market conditions. During the year ended December 31, 2001, the
Company repurchased 115,786 shares for a total of $1.9 million. The repurchased
shares were subsequently retired.</FONT></p>

<b><i>19. Parent Company Only Financial Statements</i></b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following are the condensed financial statements
of United Security Bancshares and should be read in conjunction with the consolidated financial statements:</font></p>

<PRE>
        <b>United Security Bancshares - (parent only)</b>
        <b>Balance Sheet</b>                                                December 31,
        <i>(In thousands)</i>                                                   2001
       ---------------------------------------------------------------------------
        <b>Assets:</b>
           Cash and equivalents                                          $759
           Investment in bank subsidiary                               49,126
           Investment in nonbank entity                                 1,500
            Other assets                                                  487
                                                                    --------------
        <b>Total assets</b>                                                  $51,872
                                                                    ==============
        <b>Liabilities &amp; Shareholders' Equity</b>
        Liabilities:
            Junior subordinated debt securities                       $15,000
            Accrued interest payable                                      533
            Other liabilities                                             280
                                                                    --------------
        Total liabilities                                              15,813
        Shareholders' Equity:
          Common  stock, no par value
            10,000,000 shares authorized, 5,397,298
              issued and outstanding, in 2001                          18,239
           Retained earnings                                           18,582
           Unearned ESOP shares                                          (873)
           Accumulated other comprehensive income                         111
                                                                    --------------
                  Total shareholders' equity                           36,059
                                                                    --------------
        <b>Total liabilities and shareholders' equity</b>                    $51,872
                                                                    ==============

</PRE>
<BR>
<PRE>
        <b>United Security Bancshares - (parent only)</b>              For the Year Ended
        <b>Income Statement</b>                                            December 31,
         <i>(In thousands)</i>                                                  2001
       ------------------------------------------------------------------------------
        <b>Income:</b>
           Dividends from subsidiaries                                 $4,300
                                                                   ------------------
              Total income                                              4,300
        <b>Expense:</b>
           Interest expense                                               541
           Other expense                                                  122
                                                                    -----------------
             Total  expense                                               663
                                                                    -----------------
         <b>Income before taxes and equity in
           undistributed income of subsidiary</b>                           3,637
         Income tax benefit                                              (273)
         Equity in undistributed income of subsidiary                   2,283
                                                                    -----------------
        <b>Net Income</b>                                                     $6,193
                                                                    =================

</PRE>

<p align=center><font size=3>56</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<PRE>
        <b>United Security Bancshares - (parent only)</b>                   Year Ended
        <b>Statement of Cash Flows</b>                                      December 31,
         <i>(In thousands)</i>                                                  2001
      ----------------------------------------------------------------------------------
        <b>Cash Flows From Operating Activities:</b>
          Net income                                                    $6,193
          Adjustments to reconcile net earnings to cash provided
            by operating activities:
          Equity in undistributed income of subsidiaries                (2,283)
          Amortization of issuance costs                                     8
          Net change in other liabilities                                  259
                                                                    --------------------
             Net cash provided by operating activities                   4,177

        <b>Cash Flows From Investing Activities:</b>
           Capital contribution to subsidiary                          (13,700)
           Investment in nonbank entity                                 (1,500)
                                                                    --------------------
             Net cash used in investing activities                     (15,200)

        <b>Cash Flows From Financing Activities:</b>
           Net proceeds from issuance of junior subordinated debt       14,505
           Proceeds from stock options exercised                           429
           Repurchase and retirement of common stock                    (1,884)
           Payment of dividends on common stock                         (1,268)
                                                                    --------------------
              Net cash provided by financing activities                 11,782

        <b>Net increase  in cash and cash equivalents</b>                         759
        <b>Cash and cash equivalents at beginning of period</b>                     0
                                                                    --------------------
        <b>Cash and cash equivalents at end of period</b>                        $759
                                                                    ====================
        Supplemental cash flow disclosures
        Noncash financing activities:
           Dividends declared not paid                                    $625
                                                                    ====================
</PRE>

<b><i>20. Quarterly Financial Data (unaudited)</i></b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Selected quarterly financial data for the years
ended December 31, 2001 and 2000 are presented below:</font></p>

<PRE>
                                                      2001                                  2000
                                     -----------------------------------------------------------------------------
<i>(In thousands)</i>                          4th      3rd       2nd       1st      4th       3rd       2nd      1st
------------------------------------------------------------------------------------------------------------------
Interest income                       $6,696   $7,848    $7,726    $7,793   $8,008    $7,668    $6,951   $6,314
Interest expense                       3,014    3,603     3,378     3,416    3,423     3,136     2,689    2,296
                                     -----------------------------------------------------------------------------
  Net interest income                  3,682    4,245     4,348     4,377    4,585     4,532     4,262    4,018
Loan loss provision                      465      492       401       375      525       375       380      300
Noninterest income                     1,066    1,449     1,126       636      582       656       627      673
Noninterest expense                    2,589    2,580     2,409     2,240    2,242     2,147     2,075    2,184
                                     -----------------------------------------------------------------------------
  Income before income tax expense     1,694    2,622     2,664     2,398    2,400     2,666     2,434    2,207
Income tax expense                       366      944       990       885      868       955       861      766
                                     -----------------------------------------------------------------------------
  Net income                          $1,328   $1,678    $1,674    $1,513   $1,532    $1,711    $1,573   $1,441
                                     =============================================================================
Net income per share:
  Basic                               $0.24     $0.31    $0.31      $0.28    $0.28     $0.32     $0.29    $0.27
                                     =============================================================================
  Diluted                             $0.24     $0.30    $0.30      $0.27    $0.27     $0.31     $0.28    $0.26
                                     =============================================================================
Dividends declared per share         $0.115    $0.115   $0.115     $0.115    $0.10     $0.10     $0.10    $0.08
                                     =============================================================================
Average shares outstanding
 for net income per share:
   Basic                              5,444    5,451     5,442     5,430     5,375     5,359     5,328    5,283
                                     =============================================================================
   Diluted                            5,564    5,577     5,576     5,577     5,587     5,588     5,582    5,563
                                     =============================================================================

</PRE>

<p align=center><font size=3>57</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a009"></a>
<b>Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</b><BR><BR>

None.<BR><BR>

<P align=center><Font size=3><b>PART III</b></font></p><BR><BR>
<a name="a010"></a>
<b>Item 10 - Directors and Executive Officers of the Registrant</b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Pursuant to Instruction G,
the information required by this item is hereby incorporated herein by reference
from the caption entitled &quot;Information on Directors and Executive
Officers&quot; set forth in the Company's definitive Proxy Statement for its
2002 Annual Meeting of Shareholders (&quot;Proxy Statement&quot;). </FONT></P>
<a name="a011"></a>
<b>Item 11 - Executive Compensation</b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Pursuant to Instruction G,
the information required by this item is hereby incorporated herein by reference
from the caption entitled &quot;Compensation of Directors and Executive
Officers&quot; set forth in the Company's definitive Proxy Statement for its
2002 Annual Meeting of Shareholders (&quot;Proxy Statement&quot;). </FONT></P>
<a name="a012"></a>
<b>Item 12 - Security Ownership of Certain Beneficial Owners and Management</b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Pursuant to Instruction G,
the information required by this item is hereby incorporated herein by reference
from the caption entitled &quot;Shareholdings of Certain Beneficial Owners and
Management&quot; set forth in the Company's definitive Proxy Statement for its
2002 Annual Meeting of Shareholders (&quot;Proxy Statement&quot;). </FONT></P>
<a name="a013"></a>
<b>Item 13 - Certain Relationships and Related Transactions</b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Pursuant to Instruction G,
the information required by this item is hereby incorporated herein by reference
from the caption entitled &quot;Certain Related Parties and Related Party
Transactions&quot; set forth in the Company's definitive Proxy Statement for its
2002 Annual Meeting of Shareholders (&quot;Proxy Statement&quot;). </FONT></P>
<BR><BR><BR><BR>
<p align=center><font size=3>58</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">


<p align=center><font size=3><b>PART IV</b></font><p><BR><BR>
<a name="a014"></a>
<b>Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K</b><BR><BR>

<b>(a)(1)   Financial Statements</b><BR><BR>

See Financial Statements beginning on page 34 of this report.<BR><BR>

<b>(a)(2)   Financial Statement Schedules</b><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>All financial statement
schedules are omitted because they are not applicable or not required or because
the information is included in the financial statements or notes thereto or is
not material. </FONT></P>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
<td valign=top width=6%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>(a)(3)</b></font></td>
<td width=94%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><u>Exhibits</u></b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>3.1</td>
<td>Articles of Incorporation, as amended. Filed as Exhibit 3.1 to the Company's Form 10-K filed March 29, 1999.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>3.2</td>
<td>Bylaws, as amended. Filed as Exhibit 3.2 to the Company's Form 10-K filed March 29, 1999.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>4.1</td>
<td>Specimen common stock certificate. Filed as Exhibit 4.1 to the Company's Form 10-K filed March 29, 1999.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>10.1</td>
<td>Sublease for 2151 W. Shaw Avenue, Fresno, California. Filed as Exhibit 10.1 to the Company's
    Registration Statement on Form S-4 and incorporated herein by reference.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>10.2</td>
<td>Assignment of Lease and Amendment of Lease for 2151 W. Shaw Avenue, Fresno, California. Filed as
Exhibit 10.2 to the Company's Registration Statement on Form S-4 and incorporated herein by reference.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>10.3</td>
<td>Master Lease for 2151 W. Shaw Avenue, Fresno, California. Filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-4 and incorporated herein by reference.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>10.4</td>
<td>Lease for 1041 E. Shaw Avenue, Fresno, California. Filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-4 and incorporated herein by reference.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>10.6</td>
<td>Master Lease for 13356 S. Henderson Avenue, Caruthers, California. Filed as Exhibit 10.6 to the Company's Form 10-K filed
    March 27, 1998 and incorporated herein by reference.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>10.7</td>
<td>Assignment of Lease and Consent of Landlord for 13356 S. Henderson Avenue, Caruthers, California. Filed
    as Exhibit 10.7 to the Company's Form 10-K filed March 27, 1998 and incorporated herein by reference.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>10.8</td>
<td>USB 1987 Stock Option Plan. Filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8 filed December 18, 1995 and incorporated herein by
reference.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>10.9</td>
<td>USB 1995 Stock Option Plan. Filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8 filed October 16, 1995 and incorporated herein by
reference.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>10.10</td>
<td>Purchase and Assumption Agreement between Bank of America and United Security
Bank filed as Exhibit 1 to the Company's Form 8-K filed November 21, 1997 and
incorporated herein by reference.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>10.11</td>
<td>Master Lease for Old Mill Village Shopping Center, Oakhurst, California. Filed as Exhibit 10.11 to the Company's Form
    10-K filed March 29, 1999.</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</table>
<p align=center><font size=3>59</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0>
<tr>
<td width=6% valign=top>10.12</td>
<td width=94%>Amended and Restated Declaration of Trust for USB Capital Trust I&#151;dated
July 16, 2001. Filed as Exhibit 10.1 to the Company&#146;s Form 10-Q filed
August 14, 2001. </td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>10.13</td>
<td>Indenture Agreement between United Security Bancshares and Bank of New York for
Junior Subordinated Securities&#151;dated July 16, 2001. Filed as Exhibit 10.2
to the Company&#146;s Form 10-Q filed August 14, 2001. </td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top>11.1</td>
<td>Computation of earnings per share.</td>
</tr>
</TABLE>
<BR>
See Note 16 to Financial Statements on page 55 of this report<BR><BR>

(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Reports on Form 8-K</b><BR><BR>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
None were filed during the fourth quarter of 2001.<BR><BR>



<p align=center><font size=3>60</font></p>
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<a name="a015"></a>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Signatures</b></font></p><BR>


<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized, in Fresno, California, on the 20th day of March,
2002.</font></p><BR><BR>

<TABLE width=620 CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
<td width=60%>&nbsp;</td>
<td align=center width=40%><b>United Security Bancshares</b></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center><u>/S/  Dennis R.Woods</u></td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>Dennis R.Woods</td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>Chairman of the Board and</td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>President</td>
</tr>

<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center><u>/S/  Kenneth L. Donahue</u></td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>Kenneth L. Donahue</td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>Senior Vice President and</td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>Chief Financial Officer</td>
</tr>
</TABLE><BR><BR>

<p align=center><font size=3>61</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">


<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Signatures</b></font></p><BR>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
on the date indicated: </FONT></P><BR>

<TABLE width=620 CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
<td align=right valign=top width=15%>Date:</td>
<td align=center valign=top width=30%><u>&nbsp;&nbsp;&nbsp;3/20/2002&nbsp;&nbsp;&nbsp;</u></td>
<td align=center width=55%><u>&nbsp;&nbsp;/s/ Robert G. Bitter&nbsp;&nbsp;</u><BR>Robert G. Bitter<BR>Director</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<TR>
<td align=right valign=top width=15%>Date:</td>
<td align=center valign=top width=30%><u>&nbsp;&nbsp;&nbsp;3/20/2002&nbsp;&nbsp;&nbsp;</u></td>
<td align=center width=55%><u>&nbsp;&nbsp;/s/ Tom Ellithorpe&nbsp;&nbsp;</u><BR>Tom Ellithorpe<BR>Director</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<TR>
<td align=right valign=top width=15%>Date:</td>
<td align=center valign=top width=30%><u>&nbsp;&nbsp;&nbsp;3/20/2002&nbsp;&nbsp;&nbsp;</u></td>
<td align=center width=55%><u>&nbsp;&nbsp;/s/ Ronnie D. Miller&nbsp;&nbsp;</u><BR>Ronnie D. Miller<BR>Director</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<TR>
<td align=right valign=top width=15%>Date:</td>
<td align=center valign=top width=30%><u>&nbsp;&nbsp;&nbsp;3/20/2002&nbsp;&nbsp;&nbsp;</u></td>
<td align=center width=55%><u>&nbsp;&nbsp;/s/ Walter Reinhard&nbsp;&nbsp;</u><BR>Walter Reinhard<BR>Director</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<TR>
<td align=right valign=top width=15%>Date:</td>
<td align=center valign=top width=30%><u>&nbsp;&nbsp;&nbsp;3/20/2002&nbsp;&nbsp;&nbsp;</u></td>
<td align=center width=55%><u>&nbsp;&nbsp;/s/ John Terzian&nbsp;&nbsp;</u><BR>John Terzian<BR>Director</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<TR>
<td align=right valign=top width=15%>Date:</td>
<td align=center valign=top width=30%><u>&nbsp;&nbsp;&nbsp;3/20/2002&nbsp;&nbsp;&nbsp;</u></td>
<td align=center width=55%><u>&nbsp;&nbsp;/s/ Bobbi Thomason&nbsp;&nbsp;</u><BR>Bobbi Thomason<BR>Director</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<TR>
<td align=right valign=top width=15%>Date:</td>
<td align=center valign=top width=30%><u>&nbsp;&nbsp;&nbsp;3/20/2002&nbsp;&nbsp;&nbsp;</u></td>
<td align=center width=55%><u>&nbsp;&nbsp;/s/ Stanley J. Cavalla&nbsp;&nbsp;</u><BR>Stanley J. Cavalla<BR>Director</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<TR>
<td align=right valign=top width=15%>Date:</td>
<td align=center valign=top width=30%><u>&nbsp;&nbsp;&nbsp;3/20/2002&nbsp;&nbsp;&nbsp;</u></td>
<td align=center width=55%><u>&nbsp;&nbsp;/s/ Mike Munoz, Jr.&nbsp;&nbsp;</u><BR>Mike Munoz, Jr.<BR>Director</td>
</tr>
</table>

<p align=center><font size=3>62</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">


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