10-K

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

FORM 10-K

/x/
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 2000

/ /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                to                

Commission file number 0-26552

California Independent Bancorp
(Exact name of registrant as specified in its charter)

California	68-0349947
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1227 Bridge Street, Suite "C," Yuba City, California	95991
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code (530) 674-6025

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
None

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

Common Stock, No Par Value
(Title of class)

    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 requirements for the past 90 days. Yes /x/  No / /

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

    The aggregate market value of the voting stock held by non-affiliates of California Independent Bancorp at February 28, 2001 was $37,620,090.

    The number of outstanding shares of common stock as of February 28, 2001 was 2,008,966.

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the Proxy Statement for 2001 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A are incorporated into Part III.

Selected pages of the Company's 2000 Annual Report to Shareholders
are incorporated into Part II and IV.

THIS REPORT INCLUDES A TOTAL OF 27 PAGES
EXHIBIT INDEX IS ON PAGE 25-27

INDEX

	Description	Page No.
ITEM 1.	BUSINESS	3
ITEM 2.	PROPERTIES	18
ITEM 3.	LEGAL PROCEEDINGS.	20
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20
ITEM 5.	MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS	20
ITEM 6.	SELECTED FINANCIAL DATA	21
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	21
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	21
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	21
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	21
ITEM 11.	EXECUTIVE COMPENSATION	21
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.	22
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.	22
ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.	22

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PART I

ITEM 1.  BUSINESS

    Certain statements in this Annual Report on Form 10-K (excluding statements of fact or historical financial information) involve forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry increases significantly; changes in the interest rate environment that reduce margins; other changes in the interest rate environment; general economic conditions, either nationally or regionally, that are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan and lease losses; the loss of key personnel; changes in the regulatory environment; changes in business conditions; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching risks and liquidity risks; and changes in the securities markets. In addition, such risks and uncertainties include mortgage banking activities, merchant card processing, concentration of lending activities and the costs and steps necessary to address the residual effects, if any, of the Year 2000 issues. Therefore, the information set forth herein should be carefully considered when evaluating the business prospects of the Company and Bank.

GENERAL

    California Independent Bancorp ("Company") is a California corporation and the bank holding company for Feather River State Bank ("Bank"), both located in Yuba City, California. The Company was incorporated on October 28, 1994 and became the bank holding company for the Bank on May 2, 1995, pursuant to the Bank Holding Company Act of 1956, as amended ("BHC Act").

    The Bank was incorporated as a California state banking corporation on December 1, 1976 and commenced operations on April 6, 1977. On October 1, 1996, the Bank acquired an equipment leasing company, E.P.I. Leasing Co., Inc. ("EPI"), and operates it as a wholly-owned subsidiary of the Bank. As a part of the Company and Bank's restructuring efforts, it is anticipated that the business affairs of EPI will be dissolved and wound up during the year 2001. On June 25, 1984, the Bank formed Yuba-Sutter Financial Services Corporation ("Yuba-Sutter") as a wholly-owned subsidiary. This subsidiary is inactive.

    At December 31, 2000, the Company had two employees, who both serve as executive officers of the Bank. The Bank at December 31, 2000 employed 138 persons, including 18 part-time employees, 6 executive officers and 42 other officers. None of the Company's or Bank's employees is currently represented by a union or covered under a collective bargaining agreement. Management believes that its employee relations are excellent.

    The Company itself does not engage in any business activities other than ownership of the Bank. The Company's primary asset is its ownership of the Bank's stock, and the dividends paid by the Bank are the Company's primary source of income. At December 31, 2000, the Company had consolidated assets of $301,446,561, deposits of $267,632,227, gross loans and leases of $179,015,255, and shareholders' equity of $25,769,609.

GENERAL BANKING SERVICES

    The Bank engages in a broad range of financial services activities. Its primary market is located in the northern portion of the Sacramento Valley, with a total of seven branches in Yuba City, Marysville, Colusa, Arbuckle, Wheatland, and Woodland, California, serving Sutter, Yuba, Colusa, and Yolo

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Counties. The Bank has received regulatory approval to open a new branch in Lincoln, California, which is located in western Placer County. It is anticipated that the new branch will open during the first half of 2001. All of the Bank's branches are located in areas that are in the periphery of housing for those individuals who work in the growing Sacramento area.

    In addition, the Bank operates one loan production office ("LPO") located in Roseville, California, in Placer County and services customers residing in Placer and Sacramento Counties. This LPO emphasizes commercial real estate, residential construction and commercial lending.

    The total population base, in the six counties served by the Bank, is approximately 1.8 million people, the majority of which are in Sacramento County. The economic base of the Bank's primary operating territory is predominantly agricultural in nature. A wide variety of food crops are produced in the area. The leading agricultural commodities produced in the Bank's trade area include peaches, tomatoes, prunes, rice, and almonds. Plentiful water for irrigation and quality soils result in excellent agricultural diversification. In addition to agriculture, western Placer county is one of California's fastest growing regions. Western Placer county is developing into high-tech, light industry and retail center, and Lincoln, in particular, is becoming a large retirement community with developments by Del Webb and U.S. Homes.

    The Bank currently has no applications pending to open additional branch offices or LPOs. The Bank may increase the number of its banking facilities in its trade areas when such expansion is appropriate. The Bank's expansion program is dependent on obtaining the necessary governmental approvals, governmental monetary policies, and competition. No assurance can be given that all or any part of the Bank's expansion program can be accomplished without the Bank being required to raise additional capital.

    The Bank is engaged in the commercial banking business, including accepting demand, savings and time deposits and making commercial, real estate, agricultural, and consumer loans. The Bank also offers installment note collection, issues cashier's checks and money orders, sells traveler's checks, and provides bank-by-mail, night depository, safe deposit boxes, ATMs, Visa debit cards, and other customary banking services. The Bank offers its customers home banking services, whereby the customers can make transfers between accounts, pay bills, receive balance inquiries and statements via their personal computer or telephone. The Bank does not provide trust or international banking services. Moreover, it does not plan to do so in the near future.

DEPOSITS

    Most of the Bank's deposits are obtained from individuals, small and medium-sized businesses, and professionals. The Bank is able to attract and retain these deposits through advertising in the local media and the reputation the Bank has established in the communities it serves. No single depositor or group of related depositors control a significant amount of the Bank's total deposits. The loss of any one depositor or group of related depositors should not have a materially adverse effect on the business of the Bank. The Bank is a member of the Federal Deposit Insurance Corporation ("FDIC"). As a result, deposit accounts held with the Bank are insured in accordance with the FDIC's rules and regulations.

LENDING ACTIVITIES

    The Bank engages in a full complement of lending activities, including agricultural, real estate, commercial, and consumer loans.

    The Bank makes real estate loans secured by residential, agricultural, and commercial property. Residential loans are made to purchase or refinance one to four family residences or multi-family residential properties and are secured by a first deed of trust on the property, except for loans to

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improve existing properties that are secured by junior liens. The maximum loan-to-value ratio for these loans is 90%. Loans secured by agricultural property include mortgages, loans for farm residences, and other improvement loans. Such agricultural loans are secured by a first lien on real estate. The maximum loan-to-value ratio for farmland is 70%. Commercial real estate loans are made primarily to owner occupied businesses for such purposes as offices, warehouses, professional buildings, retail, and storage facilities. The maximum loan-to-value ratio for commercial properties is 75%. As of December 31, 2000, these types of real estate secured loans totaled $75,626,555, or 42.2% of the Bank's loan portfolio.

    The Bank also makes real estate construction and development loans for acquisition of raw land to be developed into subdivisions for the construction of one to four family and multi-family housing, and for commercial real estate construction. These loans are secured by a first deed of trust and have maximum loan to value ratios ranging from 60% to 90%. As of December 31, 2000, the Bank had construction and development loans of $35,783,474, representing 20.0% of the Bank's loan portfolio.

    The Bank makes a variety of commercial and industrial loans to small-to-medium-sized businesses for working capital, inventory, accounts receivable, equipment, and general improvements. Typically, the Bank obtains a security interest in the collateral being financed or in other available assets of the customer. Loan to value ratios vary but generally do not exceed 75%. As of December 31, 2000, the Bank had loans for these purposes of $21,042,986, representing 11.8% of the Bank's loan portfolio.

    Additionally, the Bank has made Small Business Administration ("SBA") loans since its inception. The Bank offers both SBA 7(a) and SBA 504 real estate guaranteed loans ranging from amounts of $50,000 to $2,000,000. SBA 7(a) loans are for such purposes as working capital, inventory, and other purposes and are guaranteed up to 80%. SBA 504 loans are made to finance commercial real estate.

    Furthermore, the Bank offers Business and Industry guaranteed loans through the Rural Development Agency ("RDA"). These loans are designated for businesses that create jobs in rural areas. RDA loans are in amounts up to $10 million and are 80%-90% guaranteed by the RDA. The Bank generally sells the guaranteed portion of its SBA and RDA loans in the secondary market.

    Agricultural loans are primarily made to finance agricultural production expenses generally as non-revolving lines of credit that are drawn upon when crop expenses are incurred and are repaid as crop sale proceeds are received. These loans are typically secured by crops and crop proceeds. The Bank generally requires a repayment margin of 25% for permanent plantings (i.e., tree and vine crops) and 20% for row crops. The Bank participates in the Farm Service Agency ("FSA" an agency of the U.S. Department of Agriculture) guaranteed loan program. The program allows the Bank to obtain loan note guarantees on agricultural loans of up to 90% of the loan amount for eligible farmers. As of December 31, 2000, the Bank had agricultural loans outstanding of $20,648,335 (of which the FSA guarantees approximately 10%), representing 11.5% of the Bank's total loan and lease portfolio.

    Being located in a prime agricultural area, the Bank participates in the Farmer Mac I loan program, pursuant to which it makes and then sells agricultural real estate loans to the Federal Agricultural Mortgage Corporation ("Farmer Mac"), and other institutional investors. In addition, the Bank participates in the Farmer Mac II loan program, pursuant to which it makes FSA guaranteed farm real estate loans and subsequently sells the 90% guaranteed portion of these loans directly to the secondary market and retains the servicing of these loans. The Bank is one of the largest Farmer Mac loan program lenders in the United States.

    The Bank also originates mortgage loans on residential and farm properties, which it sells into the secondary market in order to divest itself of the interest rate risk associated with these mostly fixed interest rate products. The purchasers of the loans establish the underwriting criteria for residential and agricultural mortgage loans sold in the secondary market. The Company accounts for these loans in accordance with Statement of Financial Accounting Standards No. 125 "Accounting for Transfers of

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Financial Assets and Extinguishment of Liabilities." These loans are sold without recourse. As of December 31, 2000, 1999, and 1998, total loans serviced by the Bank for third parties were $92,741,075, $131,991,682, and $146,025,594, respectively. For the years ended December 31, 2000, 1999, and 1998, total loans sold by the Bank were $760,000, $21,968,279, and $65,795,347, respectively.

    Consumer and installment loans are made for household, family and other personal expenditures. These loans are made on both a secured and unsecured basis. As of December 31, 2000 the Bank had a total of $4,471,652 in consumer and installment loans representing 2.5% of its loan portfolio.

    The Bank maintains commercial and industrial equipment leases which were primarily originated through its subsidiary EPI. Leases were made to a wide variety of businesses including professional, agricultural, industrial, and construction concerns. Total lease financing receivables as of December 31, 2000 were $19,608,845, or 11.0% of the Bank's portfolio. Although the business affairs of EPI will be wound down during the year 2001, it is anticipated that the Bank may continue to originate or purchase equipment leases.

    The Bank also makes other miscellaneous loans that totaled $1,833,408 or 1.0% of the Bank's portfolio.

INVESTMENT POLICY

    The Bank's investment policy is to provide the Bank with the maximum return on its investment securities consistent with safety and liquidity.

    In accordance with this policy and state laws regarding permissible investments, the Bank invests primarily in U. S. Treasury and Agency securities with a maturity of 10 years or less, tax-free municipal bonds rated "A" or better by Standard and Poors or Moody's with a maturity not to exceed 13 years and corporate bonds rated "A" or better by Moody's or Standard and Poors with a maturity not to exceed 7 years. The Bank also invests in federal funds.

    The Bank's investment securities may also be used as collateral for public deposits and for other borrowings.

OTHER SERVICES

    The Bank offers other financial products and services including annuities, mutual funds, mutual fund advisory service, IRAs, brokerage and custodial services, 401(k) plans, estate plans, asset management, asset consulting, charitable remainder trusts, fiduciary services, pension plans, non-qualified deferred compensation, and retirement plans. All these investments and/or financial services are offered by a registered investment representative through the Bank's affiliation with London Pacific Securities, Inc., a registered broker/dealer and a member of the National Association of Securities Dealers ("NASD") and the Securities Investor Protection Corporation ("SIPC").

COMPETITION

    The Bank's primary service area consists of Colusa, Sutter, Yolo, and Yuba Counties. It is estimated that this service area contains 70 competitive banking and savings and loan offices, of which fifteen (15) offices are owned by other independent banks. Based upon total bank deposits as of June 30, 2000 (the last period for which data is available), the Bank is second in market share in Sutter County, second in Colusa County, third in Yuba County, and tenth in Yolo County.

    The banking business in California and, specifically, in the Bank's primary service area is highly competitive with respect to both loans and deposits. The business is dominated by a relatively small number of major banks with many offices operating over a wide geographic area. Among the advantages such major banks have over the Bank are their ability to finance wide-ranging advertising

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campaigns and to allocate their investment assets to regions of highest yield and demand. Such institutions offer certain services such as trust services and international banking which are not offered directly by the Bank, and, by virtue of their greater total capitalization, they have substantially higher lending limits than does the Bank. Other entities, both governmental and in private industry, seeking to raise capital through the issuance and sale of debt or equity securities also provide competition for the Bank in the acquisition of deposits. The Bank also competes with money-market funds for deposits.

    In order to compete with major financial institutions and other competitors, the Bank relies upon the experience of its executive and senior officers in serving businesses and individuals and upon its specialized service, local promotional activities, and the personal contacts made by its officers, directors, and employees. For customers whose loan demands exceed the Bank's legal lending limit (15% of its capital and allowance for loan losses for unsecured loans and 25% of its capital and allowance for loan losses for secured loans), the Bank may arrange to extend such loans on a participation basis with other financial institutions or institutional lenders. In this manner, the Bank is able to close the loan while selling a portion of the credit to a participant.

SUPERVISION AND REGULATION

    Bank holding companies and their subsidiary banks are extensively regulated under applicable federal and/or state laws and regulations. Statutes, regulations, and policies affecting the banking industry are frequently being reviewed, added to, or changed by Congress, the state legislature, or the federal or state supervisory agencies responsible for the industry's oversight. Changes in the laws, regulations, or policies that impact the Company and Bank cannot always be predicted and may have a material impact on earnings and the manner with which they conduct business.

    As a result of the Company's and Bank's 1999 financial performance, the final results of the FDIC and California Department of Financial Institutions' ("DFI") February of 2000 examination of the Bank, and continued concerns regarding the quality of the Bank's loan portfolio, the Bank's Board of Directors passed a resolution to address the concerns. The resolution requires the Bank to: (1) maintain management acceptable to the FDIC and DFI, (2) to seek approval of the agencies prior to appointing any individual as a director or senior officer, (3) continue with the diligent implementation of a previously adopted plan to reduce the level of nonperforming and problem loans and leases, (4) maintain an adequate reserve for loan and lease losses, (5) seek prior approval of the FDIC and DFI before the payment of any cash dividends, and (6) maintain a Tier 1 Leverage ratio of at least 7.5%.

    Given Management's expectation for continuing improvement in the Bank's financial condition in 2001, Management intends to recommend to the Bank's Board of Directors to eliminate the resolution's management approval requirement, dividend approval requirement, and capital limitations. Management does not believe that complying with the resolution's limitations will have a material adverse impact on the Bank's operations.

    Furthermore, the FDIC and Federal Reserve Bank ("FRB") have notified the Bank and Company, respectively, that the condition of the Bank and Company are such that prior approval of the regulatory agency is necessary before adding or replacing any member of the boards of directors, employing any person as a senior executive officer, or changing the responsibilities of any senior executive officer so that the individual would be assuming a different senior executive officer position. Finally, due to the Bank's condition, the FDIC is also restricting the Company's and Bank's ability to enter into any contracts to pay or make any golden parachute and indemnification payments to institution-affiliated parties. Given Managements expectation for continuing improvements in the Company's financial condition in 2001, Management believes that the FDIC and FRB will rescind their limitations on the Bank and the Company.

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    Discussed below are brief summaries of certain laws, regulations, or policies that apply to the operation of bank holding companies and to the banks they own or control. The summaries are qualified in their entirety by reference to the full text of the applicable law, regulation, or policy.

Regulation of the Company

    The Company is a registered bank holding company within the meaning of the BHC Act and is subject to the supervision of the FRB. The FRB requires the Company to file quarterly and annual reports and may conduct examinations of the Company and its subsidiaries.

    The FRB can require the Company to terminate an activity of, control of, liquidation of, or divestiture of certain subsidiaries or affiliates when the FRB believes that the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness, or stability of any of its banking subsidiaries. The FRB also has the authority to regulate provisions of certain bank holding company debt, including authority to impose interest ceilings and reserve requirements on such debt. Under certain circumstances, the Company must file a written notice and obtain approval from the FRB prior to the purchase or redemption of its own common stock.

    Under the BHC Act, a company generally must obtain the prior approval of the FRB before it exercises a controlling influence over, or acquires directly or indirectly, more than 5% of the voting shares or substantially all of the assets of any bank or bank holding company. The Company is required to obtain the FRB's prior approval before it acquires, merges, or consolidates with any bank or bank holding company. Additionally, any company seeking to acquire, merge, or consolidate with the Company would also be required to obtain the FRB's approval.

    The BHC Act generally prohibits the Company from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than banking, managing banks, or providing services to affiliates of the holding company. A bank holding company, with the approval of the FRB, may engage, or acquire the voting shares of companies engaged, in activities that the FRB has determined to be so closely related to banking, managing, or controlling banks as to be a proper incident thereto. A bank holding company must demonstrate that the benefits to the public of the proposed activity will outweigh the possible adverse effects associated with such activity.

    Transactions between the Company, the Bank, and any future subsidiaries of the Company are subject to a number of other restrictions. FRB policies forbid the payment by bank subsidiaries of management fees that are unreasonable in amount or exceed the fair market value of the services rendered (or, if no market exists, actual costs plus a reasonable profit). Additionally, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit, sale or lease of property or furnishing of services. Subject to certain limitations, depository institution subsidiaries of bank holding companies may extend credit to, invest in the securities of, purchase assets from, or issue a guarantee, acceptance, or letter of credit on behalf of, an affiliate, provided that the aggregate of such transactions with affiliates may not exceed 10% of the capital stock and surplus of the institution, and the aggregate of such transactions with all affiliates may not exceed 20% of the capital stock and surplus of such institution. The Company may borrow only from depository institution subsidiaries if the loan is secured by marketable obligations with a value of a designated amount in excess of the loan. Further, the Company may not sell a low-quality asset to a depository institution subsidiary.

    The FRB requires the Company to maintain certain levels of capital. (See "Capital Standards.") The FRB also has the authority to take enforcement action against any bank holding company that commits any unsafe or unsound practice or violates certain laws, regulations, or conditions imposed in writing by the FRB. (See "Prompt Corrective Action and Other Enforcement Mechanisms.")

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

    The Company is also a bank holding company within the meaning of California Financial Code section 3700. As a result, the Company and its subsidiaries are subject to examination by, and may be required to file reports with, the DFI.

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

Regulation of the Bank

    As a California state chartered bank, the Bank is subject to primary supervision, periodic examination, and regulation by the DFI and the FDIC. Additionally, the Bank is subject to certain regulations promulgated by the FRB.

    If the FDIC should determine, as a result of an examination of the Bank, that the Bank's financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank's operations are unsatisfactory or that the Bank or its management is violating, or has violated, any law or regulation, various actions are available to the FDIC to remedy the situation. Such remedies include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to remove officers and directors and ultimately to terminate the Bank's deposit insurance, which would result in a revocation of the Bank's California charter. The DFI also has many of the same remedial powers.

    Various other requirements and restrictions under the laws of California and the United States affect the Bank's operations. State and federal statutes and regulations which relate to many aspects of the Bank's operations include: reserve requirements against deposits, ownership of deposit accounts, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, and capital requirements. Furthermore, the Bank is required to maintain certain levels of capital. (See "Capital Standards.")

Capital Standards

    The FRB, FDIC, and other federal banking agencies have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets, and transactions, such as letters of credit, unused commitments, and recourse arrangements, which are reported as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. government securities, to 100% for assets with relatively higher credit risk, such as business loans.

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    A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off balance sheet items. The regulators measure risk-adjusted assets and off balance sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock, and minority interests in certain subsidiaries, less most other intangible assets. Tier 2 capital may consist of a limited amount of the allowance for possible loan and lease losses and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital are subject to certain other requirements and limitations of the federal banking agencies. Since December 31, 1992, the federal banking agencies have required a minimum ratio of qualifying total capital to risk-adjusted assets and off balance sheet items of 8%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and off balance sheet items of 4%.

    In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total average assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets is 3%. It is improbable, however, that an institution with a 3% leverage ratio would receive the highest rating by the regulators since a strong capital position is a significant part of the regulators' rating. For all banking organizations not rated in the highest category, the minimum leverage ratio is at least 100 to 200 basis points above the 3% minimum. Thus, the effective minimum leverage ratio, for all practical purposes, is at least 4% or 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.

    The following tables present the capital ratios for the Company and the Bank as of December 31, 2000:

		Company				Bank
		Amount		Ratio		Amount		Ratio
		(Dollars in thousands)
Risk Based Capital Ratios As of December 31, 2000
Tier 1 Capital		$	25,683		11.51%	$	25,534	11.45%
Tier 1 Capital Minimum Requirement			8,928		4.00%		8,918	4,00%
	Excess	$	16,755		7.51%	$	16,616	7.45%
Total Capital		$	28,509		12.77%	$	28,357	12.72%
Total Capital Minimum Requirement			17,856		8.00%		17,835	8.00%
	Excess	$	10,653		4.77%	$	10,522	4.72%
Risk-Adjusted Assets		$	223,196	$	222,939
Leverage Capital Ratio
Tier 1 Capital to Quarterly Average Total Assets		$	25,683		8.49%	$	25,534	8.45%
Minimum Leverage Requirement			12,093		4.00%		12,090	4.00%
	Excess	$	13,590		4.49%	$	13,444	4.45%
Total Quarterly Average Assets		$	302,336			$	302,239

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Prompt Corrective Action and Other Enforcement Mechanisms

    Federal banking agencies possess broad powers to take corrective or other supervisory action to resolve an insured depository institution's problems. Problems that may be addressed through such actions include, but are not limited to, institutions that fall below one or more prescribed minimum capital ratios. Each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At December 31, 2000, the Bank and the Company exceeded all the required ratios for classification as "well capitalized."

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

    A bank may fall into the critically undercapitalized category if its "tangible equity" does not exceed 2% of the bank's total assets. Federal guidelines generally define "tangible equity" as a bank's tangible assets less liabilities. Federal regulators may, among other alternatives, require the appointment of a conservator or a receiver for a critically undercapitalized bank. In California, the Commissioner may require the appointment of a conservator or receiver for a state-chartered bank if its tangible equity does not exceed 3% of the bank's total assets, or $1 million.

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

Safety and Soundness Standards

    The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") implemented certain specific restrictions on transactions and required the regulators to adopt overall safety and soundness standards for depository institutions related to internal control, loan underwriting and documentation, and asset growth. Among other things, FDICIA limited the interest rates paid on deposits by undercapitalized institutions, the use of brokered deposits, and the aggregate extension of credit by a depository institution to an executive officer, director, principal stockholder, or related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized institutions for deposits by certain employee benefits accounts.

    The federal financial institution agencies published a final rule effective August 9, 1995, implementing safety and soundness standards. The FDICIA added a new section 39 to the Federal Deposit Insurance Act, which required the agencies to establish safety and soundness standards for insured financial institutions covering: (1) internal controls, information systems, and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset growth; (6) compensation, fees, and benefits; (7) asset quality, earnings, and stock valuation; and (8) excessive compensation for executive officers, directors, or principal shareholders which could lead to material financial loss. The agencies issued the final rules in the form of guidelines that set forth operational and managerial standards relating to: (i) internal controls, information systems, and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) asset growth; (v) earnings; and (vi) compensation, fees, and benefits.

11

    In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, an insured depository institution should: (i) conduct periodic asset quality reviews to identify problem assets; (ii) estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses; (iii) compare problem asset totals to capital; (iv) take appropriate corrective action to resolve problem assets; (v) consider the size and potential risks of material asset concentrations; and (vi) provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk. These guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves.

    If an agency determines that an institution fails to meet any standard established by the guidelines, the agency may require the financial institution to submit to the agency an acceptable plan to achieve compliance with the standard. Should the agency require submission of a compliance plan and the institution fails to timely submit an acceptable plan, within 30 days of a request to do so, or to implement an accepted plan, the agency must require the institution to correct the deficiency. The agencies may elect to initiate enforcement action in certain cases rather than rely on an existing plan, particularly where failure to meet one or more of the standards could threaten the safe and sound operation of the institution.

Restrictions on Dividends and Other Distributions

    The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions that limit the amount available for such distribution depending upon the earnings, financial condition, and cash needs of the institution, as well as general business conditions. FDICIA prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions, including dividends, if, after such transaction, the institution would be undercapitalized.

    The FRB has issued a policy statement that a bank holding company should not declare or pay a cash dividend to its stockholders if the dividend would place undue pressure on the capital of its subsidiary banks or if the dividend could be funded only through additional borrowings or other arrangements that might adversely affect the financial position of the bank holding company. Specifically, a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each consistent with its capital needs, asset quality, and overall financial condition. Further, as previously stated, the Company is expected to act as a source of financial strength for each of its subsidiary banks and to commit resources to support each subsidiary bank in circumstances when it might not do so absent such policy.

    The Company's ability to pay dividends depends in large part on the ability of the Bank to pay management fees and dividends to the Company. The ability of its subsidiary bank to pay dividends will be subject to restrictions set forth in California banking law and the regulations of the FDIC. As previously stated, due to the Bank's 1999 financial performance and continued concerns regarding the quality of the Bank's loan portfolio, the Bank's Board of Directors passed a resolution which requires the Bank to seek the prior approval of the FDIC and DFI before the payment of any cash dividends. Furthermore, as previously discussed, given Management's expectation for continuing improvement in the Bank's financial condition in 2001, Management intends to recommend to the Bank's Board of Directors to eliminate the resolution's dividend approval requirement.

    Under California Financial Code section 642, funds available for cash dividend payments by a bank are restricted to the lesser of: (i) retained earnings; or (ii) the bank's net income for its three fiscal

12

years (less any distributions to stockholders made during such period). However, with the prior approval of the California Superintendent of Banks, California Financial Code section 643 provides that a bank may pay cash dividends in an amount not to exceed the greater of: (1) the retained earnings of the bank; (2) the net income of the bank for its last fiscal year; or (3) the net income of the bank for its current fiscal year. However, if the Superintendent finds that the stockholders' equity of the bank is not adequate or that the payment of a dividend would be unsafe or unsound, the Superintendent may order such bank not to pay a dividend to stockholders.

    Additionally, under FDICIA a bank may not make any capital distribution, including the payment of dividends, if, after making such distribution, the bank would be in any of the "under-capitalized" categories under the FDIC's Prompt Corrective Action regulations.

    Also, under the Financial Institution's Supervisory Act, the FDIC has the authority to prohibit a bank from engaging in business practices that the FDIC considers unsafe or unsound. It is possible, depending upon the financial condition of a bank and other factors, that the FDIC could assert that the payment of dividends or other payments in some circumstances might be such an unsafe or unsound practice and thereby prohibit such payment.

    Finally, the Bank is subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, the Company or other affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of the Company or other affiliates. Such restrictions prevent the Company and such other affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by the Bank to or in the Company or to or in any other affiliate are limited, individually, to 10% of the Bank's capital and surplus (as defined by federal regulations), and such secured loans and investments are limited, in the aggregate, to 20% of the Bank's capital and surplus (as defined by federal regulations). California law also imposes certain restrictions with respect to transactions involving the Company and other controlling persons of the Bank. Additional restrictions on transactions with affiliates may be imposed on the Bank under the prompt corrective action provisions of federal law.

Interstate Banking and Branching

    On September 29, 1994, the Reigle/Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") was signed into law, effectively permitting nationwide banking. The Interstate Act provides that adequately capitalized and adequately managed bank holding companies may acquire banks in any state, even in those jurisdictions that currently bar acquisition by out-of-state institutions, subject to deposit concentration limits. The deposit concentration limits provide that regulatory approval by the FRB may not be granted for a proposed interstate acquisition if, after the acquisition, the acquirer on a consolidated basis would control more than 10% of the total deposits nationwide or would control more than 30% of deposits in the state where the acquiring institution is located. The deposit concentration state limit does not apply for initial acquisitions in a state and, in every case, may be waived by the state regulatory authority. Interstate acquisitions are subject to compliance with the Community Reinvestment Act (the "CRA"). States are permitted to impose age requirements not to exceed five years on target banks for interstate acquisitions.

    Branching between states may be accomplished either by merging separate banks located in different states into one legal entity, or by establishing new branches in another state. Interstate branching is also subject to a 30% statewide deposit concentration limit on a consolidated basis and a 10% nationwide deposit concentration limit. The laws of the host state regarding community reinvestment, fair lending, consumer protection (including usury limits), and establishment of branches shall apply to the interstate branches.

13

    The opening of a new branch by an out-of-state bank is not permitted unless the host state expressly permits such an opening. The establishment of an initial new branch in a state is subject to the same conditions as apply to initial acquisition of a bank in the host state, other than the deposit concentration limits.

    The Interstate Act permits bank subsidiaries of a bank holding company to act as agents for affiliated depository institutions in receiving deposits, renewing time deposits, closing loans, servicing loans, and receiving payments on loans and other obligations. When acting as agent for an affiliate, a bank shall not be considered a branch of the affiliate. Any agency relationship between affiliates must be on terms that are consistent with safe and sound banking practices. The authority for an agency relationship for receiving deposits includes the taking of deposits for an existing account, but is not meant to include the opening or origination of new deposit accounts. Subject to certain conditions, insured savings associations that were affiliated with banks as of June 1, 1994 may act as agents for such banks. An affiliate bank or savings association may not conduct any activity as an agent which it is prohibited from conducting as a principal.

    If an interstate bank decides to close a branch located in a low or moderate income area, it must comply with additional branch closing notice requirements. The appropriate regulatory agency is authorized to consult with community organizations to explore options to maintain banking services in the affected community where the branch is to be closed.

    To ensure that interstate branching does not result in taking deposits without regard to a community's credit needs, the regulatory agencies have implemented regulations prohibiting interstate branches from being used as "deposit production offices." The regulations include a provision to the effect that if loans made by an interstate branch are less than 50% of the average of all depository institutions in the state, then the regulator must review the loan portfolio of the branch. If the regulator determines that the branch is not meeting the credit needs of the community, it has the authority to close the branch and to prohibit the bank from opening new branches in the state.

    The Caldera, Weggeland and Killea California Interstate Banking and Branching Act of 1995 (the "Caldera Act"), effective October 2, 1995, amends the California Financial Code to, among other matters, regulate the operations of state banks to eliminate conflicts with and to implement the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 discussed above. The Caldera Act includes: (1) an election to permit early interstate merger transactions; (2) a prohibition against interstate branching through the acquisition of a branch business unit located in California without acquisition of the whole business unit of the California bank; and (3) a prohibition against interstate branching through de novo establishment of California branch offices. The Caldera Act mandates that initial entry into California by an out-of-state institution be accomplished by acquisition of or merger with an existing whole bank that has been in existence for at least five years.

Community Reinvestment Act

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

    A Bank's compliance with its CRA obligations is based on a performance- based evaluation system, which bases CRA ratings on the institution's lending service and investment performance. When a bank holding company applies for approval to acquire a bank or other bank holding company, the FRB will review the assessment of each subsidiary bank of the applicant bank holding company, and such records

14

may be the basis for denying the application. Based on an examination conducted in the first quarter of 1999, the Bank was rated satisfactory in complying with its CRA obligations.

Deposit Insurance Premiums

    The Bank's deposit accounts are insured by the FDIC's Bank Insurance Fund ("BIF") to the maximum permitted by law. This deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC or the institution's primary regulator.

    The FDIC charges an annual assessment for the insurance of deposits. As of December 31, 2000, the assessment ranged from 0 to 27 basis points per $100 of insured deposits, based on the risk a particular institution poses to its deposit insurance fund. The risk classification is based on an institution's capital group and supervisory subgroup assignment.

    Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 ("EGPRA"), at January 1, 1997, the Bank began paying, in addition to its normal deposit insurance premium as a member of the BIF, an amount equal to approximately 1.2 basis points per $100 of insured deposits toward the retirement of the Financing Corporation Bonds ("FICO Bonds") issued in the 1980s to assist in the recovery of the savings and loan industry. Members of the Savings Association Insurance Fund ("SAIF"), by contrast, pay, in addition to their normal deposit insurance premium, approximately 5.8 basis points. Under the EGPRA, the FDIC is not permitted to establish SAIF assessment rates that are lower than comparable BIF assessment rates. Beginning no later than January 1, 2000, the rate paid to retire the FICO Bonds will be equal for members of the BIF and the SAIF.

Asset Conservation, Lender Liability, and Deposit Insurance Protection Act of 1996

    Environmental Protection Agency regulations excluding financial institutions from liability for the clean up of toxic materials on property held as collateral for loans were overturned by the federal courts. Due to concerns expressed by interested parties (owners, realtors, and lenders), Congress passed amendments to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") to reinstate certain safeguards for fiduciaries and lenders. A bank or other party acting as a fiduciary may hold property in such capacity and shall have no liability for the release or threatened release of a hazardous substance in excess of the value of the property held in a fiduciary capacity. For example, a bank acting as trustee under the terms of a written trust agreement will not have any liability in excess of the actual value of the assets in that particular trust. The assets of the Bank will not be at risk for a release occurring on property belonging to the trust. This amendment does not limit the liability of the fiduciary to private parties that may have a cause of action outside the scope of CERCLA. "Fiduciary," as used in CERCLA, includes trustees, executors, administrators, custodians, guardians, receivers, conservators, and personal representatives.

    The amendments to CERCLA include changes in the definitions contained in 42 U.S.C. section 9601(20), entitled "Definitions." A major change in the definition of "Owner" or "Operator" has the effect of limiting the liability of a financial institution that does not participate in management of an environmentally impaired property. Section 9607 of CERCLA states that owners and operators of a vessel or facility are liable for damages arising out of discharge of a hazardous substance on property. The amendment specifically states that a financial institution holding a deed of trust on real property that does not participate in the management of the operations carried out on the property is not an owner or an operator under the statute. The amendments further state that a financial institution that forecloses on such property does not incur liability simply by the act of foreclosing on the property or through the subsequent sale of the property to a third party.

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Financial Modernization Act

    President Clinton signed into law the Gramm-Leach-Bliley Act of 1999 (the "Financial Modernization Act") on November 12, 1999. The Financial Modernization Act generally accomplishes the following:

(1)

Facilitates the affiliation of commercial banks with security firms, insurance companies and other financial service providers by: repealing restrictions on affiliation contained in the Glass-Steagall Act; expressly preempting any state law restrictions on affiliation; and by eliminating the BHC Act's prohibition on insurance underwriting activities.



(2)

Substantially modifies and expands the BHC Act to permit bank holding companies to engage in a full range of "financial activities" through a new entity known as a "Financial Holding Company". "Financial activities" is broadly defined to include not only banking, insurance, and securities activities, but also merchant banking, real estate development and additional activities that the Federal Reserve, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system.



(3)

Sets forth a systematic structure for the functional regulation of banks, savings institutions, holding companies and their activities.



(4)

Provides enhanced protections for the privacy rights of consumer information.



(5)

Adopts provisions to modernize the Federal Home Loan Bank system including provisions relating to the capitalization, membership and corporate governance.



(6)

Revises the laws that implement CRA.



(7)

Amends the Federal Deposit Insurance Act regarding the governance of subsidiaries of state banks that engage in "activities as principal that would only be permissible" for a national bank to conduct in a financial subsidiary. The amendment expressly preserves a state bank's ability to retain all existing subsidiaries. And;



(8)

Addresses a wide range of other legal and regulatory issues affecting financial institutions operations and activities.

    The Company has not determined whether it will seek an election to become a Financial Holding Company. The Board and Management are evaluating the benefits to determine whether the Company desires to utilize any of the Financial Modernization Act's expanded powers. Since California permits state chartered commercial banks to engage in any activity permissible for national banks, the Bank should be allowed to form subsidiaries to engage in the activities authorized by the Financial Modernization Act, to the same extent as a national bank.

    The Company does not believe that the Financial Modernization Act will have a material adverse effect on its operations in the near future. However, some commentators have projected that in the long term the Financial Modernization Act's enactment may result in further consolidation of and increased competition in the financial services industry.

Proposed Legislation

    Periodically, legislation is enacted and regulations are promulgated which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. It is likely that additional legislation will be introduced in Congress or in state legislatures in the future which may impact the Company's business. It cannot be predicted whether or in what form any of these proposals will be

16

taken or adopted, or the extent to which the present or future business of the Company or the Bank may be affected.

IMPACT OF MONETARY POLICIES

    Banking is a business that depends on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and other borrowings and the interest rate earned by a bank on loans, securities, and other interest-earning assets comprises the major source of a bank's earnings. Thus, the earnings and growth of banks are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the FRB. The FRB implements national monetary policy, such an seeking to curb inflation and combat recession, by its open-market dealings in United States government securities, by adjusting the required level of reserves for financial institutions subject to reserve requirements and through adjustments to the discount rate applicable to borrowings by banks that are members of the FRB. The actions of the FRB in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates. The nature and timing of any future changes in such policies and their impact on the Bank cannot be predicted. In addition, adverse economic conditions could make a higher provision for loan losses a prudent course and could cause higher loan loss charge-offs, thus adversely affecting a bank's net earnings.

ACCOUNTING PRONOUNCEMENTS

SFAS No. 131—"Disclosures About Segments of an Enterprise and Related Information"

    SFAS No. 131 establishes standards for public business enterprises' reporting of information about operating segments in annual financial statements. The Statement requires that the enterprises report selected information concerning operating segments in interim financial reports issued to shareholders. Additionally, the Statement establishes requirements for related disclosures about products, services, geographic areas, and major customers.

    SFAS No. 131 requires public business enterprises to report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. The Statement further requires reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to corresponding amounts in the enterprise's general purpose financial statements. It requires that all public business enterprises report information about the revenues derived from the enterprise's products or services (or groups of similar products and services), about the countries in which the enterprise earns revenues and holds assets, and about major customers regardless of whether that information is used in making operating decisions. However, SFAS No. 131 does not require an enterprise to report information that is not prepared for internal use if reporting it would be impracticable. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997.

    The Company has adopted SFAS No. 131. The adoption of the applicable provisions did not have a material effect on the Company, as Management believes that it operates only in one segment—the commercial banking segment.

SFAS No. 133—"Accounting for Derivative Instruments and Hedging Activities"

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires recognition of all derivatives as either assets or liabilities in the statement of financial condition and the measurement of those instruments at fair value. Recognition of changes in fair value will be recognized into income or as a component of other comprehensive income depending upon the type of the derivative and its related hedge, if any. As issued, SFAS No. 133 was to

17

be effective for the Company beginning January 1, 2000. However, in July 1999, the FASB issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," extending the effective date to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities", to provide guidance in the implementation of certain issues related to SFAS No. 133. The Company does not expect that the implementation of these Statements will have a material impact on its financials statements.

SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities "

    In September of 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125" ("SFAS No. 140"). This statement replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 revises the standard for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS's No. 125's provisions without reconsideration. The Company has adopted the disclosure provisions related to the securitization of financial assets. All transactions entered into after the first quarter of 2001 will be accounted for in accordance with SFAS No. 140. This adoption is not expected to have a material impact on the Company.

End to Pooling-of-Interests Accounting for Business Combinations

    In April 1999, FASB announced its tentative decision to no longer deem the pooling-of-interests method of accounting as an acceptable method to account for business combinations between independent parties. The FASB has published a proposed Statement and expects a final Statement will be issued by the end of June 2001. A portion of the Company's business strategy may involve the pursuit of appropriate acquisition opportunities so as to expand its market presence. A change in the accounting for business combinations could have a negative impact on the Company's ability to realize those business strategies.

YEAR 2000 COMPLIANCE

    The Company's systems responded successfully to the century date change. The Company will continue to monitor its systems and those of its vendors and suppliers over the coming months. (For a further discussion of the Company's and the Bank's efforts regarding "Year 2000" compliance, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS.")

OTHER INFORMATION

    There has been no material effect upon the Bank's capital expenditures, earnings, or competitive position as a result of federal, state, or local provisions regarding the discharge of materials into the environment.

ITEM 2.  PROPERTIES

    The Bank currently conducts its banking operations from an administrative office, seven branch offices, and one loan production office ("LPO"). On July 21, 2000, the Bank received approval from the FDIC to establish a branch in Lincoln, California. Approval was also granted by the DFI on July 3, 2000. It is anticipated that the new branch will open during the first half of 2001. On October 18, 2000, the Bank entered into an agreement to lease a 1,200 square foot office space located at 435 South Highway 65, Suite A in Lincoln, California. The term of this lease is five years with rent payments of $2,340 per month for the first twenty-four (24) months. Thereafter monthly lease payments are subject to annual adjustments pursuant to the lease agreement that is attached as exhibit 10.28.

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    The Bank's principal branch office in Yuba City, California, is located at 777 Colusa Avenue in a modern, single-story, shopping center end building, which has drive-up windows and off-street parking for its customers. This office was opened in 1982 and has a total square footage of 9,122.

    In 1991, the Bank purchased a 3,694 square foot building located at 1005 Stafford Way, Yuba City, California, located directly behind its main branch. This building housed the Bank's note department until March 2000. This vacant building is currently in escrow and scheduled to close at the end of the first quarter of 2001.

    The Bank purchased land for the Bank's office at 1221 Bridge Street, Yuba City, California, in 1978. In 1991, the Bank purchased a combined 14,972 square foot retail and office building with parking located at 1227 Bridge Street, adjacent to the Bank's Bridge Street branch. Currently, the Company's headquarters, the Bank's Data Center, and the Bank's administrative and financial consulting service offices are located in this building.

    The Bank's Marysville office is located at 700 "E" Street in Marysville, California. The Bank purchased this 3,702 square foot building, which was a branch of another bank, in September 1995.

    The Bank's Colusa branch office is located at 655 Fremont Street in a 2,819 square foot office building that was converted to banking quarters. The Bank owns the land and premises for the branch.

    In 1985, the Bank purchased a 5,306 square foot premises for its Arbuckle office located at the corner of Amanda and Sixth Streets. The Bank moved its Arbuckle office to this location in June 1986. The Bank leases 1,800 square feet plus a common area of these premises to an unaffiliated party.

    In 1993, the Bank purchased a 4,427 square foot building that is now the location of its Woodland, California, branch office located at 203 Main Street. This was formerly the site of a branch of another bank.

    The Bank leased the land and a module on the property located at 114 "D" Street, Wheatland, California, from March 1997 until April 1998 for its Wheatland branch office. In April 1998, the Bank entered a new lease for the same site together with a new freestanding building. The 2,831 square foot building was completed on September 21, 1998, at which time the Bank relocated from the previously leased module. The term of the lease is 10 years with the option to extend the original term of this lease for two periods of five years each. The monthly lease payment is $2,797 and is subject to annual adjustments on the anniversary of the lease commencement date.

    The Bank moved its Citrus Heights LPO to a new office in Roseville in December 2000. The Bank entered into an agreement on July 26, 2000, to lease 3,816 square feet of office space at 1552 Eureka Road in Roseville. The term of this lease is sixty-two (62) months. Commencing on October 1, 2000, lease payments of $6,296 per month are required continuing through the twenty sixth (26) month. Between months twenty-six (26) and fifty (50), rent will be $6,678 per month. Thereafter, the monthly payment rises to $7,060 through the end of the lease term.

    On December 2, 1996, the Bank purchased a former bank branch located at 995 Tharp Road in Yuba City, California. The Bank's Note Department and Special Assets Department are located at this facility.

    Rental expense for all premises leased by the Company totaled $53,004 for the year ended December 31, 2000. It is estimated that rental expense for leased premises will be approximately $111,742 for 2001.

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ITEM 3.  LEGAL PROCEEDINGS

    Other than routine litigation incidental to the ordinary course of the Company and Bank's business, neither entity is a party to any material legal proceedings nor is any of their property the subject of any such proceeding. The Company believes that the ultimate disposition of all currently pending matters will not have a material adverse affect on the Company's financial condition or the results of its operations.

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

    Not applicable.

PART II

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

    The Company's common stock is trading on the NASDAQ Stock Market under the trading symbol "CIBN." The Company's common stock began trading on the NASDAQ Stock Market on July 31, 1996. Prior to that time, the Company's common stock was listed on the NASDAQ Bulletin Board and was the subject of limited trading.

    The following table presents the high and low closing sale prices of the Company's common stock for each quarterly period for the last two years as reported by the NASDAQ Stock Market:

RANGE OF STOCK PRICES

2000 Quarters	High		Low
4th	$	21.63	$	19.00
3rd	$	22.02	$	17.86
2nd	$	24.05	$	15.24
1st	$	17.14	$	12.02

1999 Quarters	High		Low
4th	$	17.86	$	15.24
3rd	$	21.32	$	16.07
2nd	$	19.05	$	17.69
1st	$	21.32	$	16.33

    Cash dividends paid on the Company's common stock were $0.44 per share for the year ending December 31, 2000, and $0.42 per share for the year ending December 31, 1999.

    It is currently the intention of the Board of Directors of the Company to pay cash dividends on a quarterly basis. However, there is no assurance that cash dividends will be paid in the future as the Company's ability to pay dividends is dependent upon the earnings, financial condition, and capital requirements of the Company and the Bank, as well as legal and regulatory requirements.

    Federal and State banking and corporate laws could limit the Bank' ability to pay dividends to the Company. The Bank has issued a policy statement that a bank holding company should not declare or pay a cash dividend to its shareholders if the dividend would place undue pressure on the capital of its subsidiary banks or if the dividend could be funded only through additional borrowings or other arrangements that may adversely affect the financial position of the Company. In addition, a bank holding company may not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend, and its prospective rate of earnings retention is

20

sufficient to fully fund each dividend and appears consistent with its capital needs, asset quality, and overall financial condition.

    Due to the Bank's 1999 financial performance and continued concerns regarding the quality of the Bank's loan portfolio, the Bank's Board of Directors passed a resolution which requires the Bank to seek the prior approval of the FDIC and DFI before the payment of any cash dividends. As previously discussed, given Managements expectation for continuing improvement in the Bank's financial condition in 2001, Management intends to recommend to the Bank's Board of Directors to eliminate the resolution's dividend approval requirement.

    As of February 28, 2001, there were 1,683 holders of record of the Company's common stock.

ITEM 6.  SELECTED FINANCIAL DATA

    For the "Selected Financial Data," see page 3 of the Company's 2000 Annual Report to the Shareholders, which is incorporated herein by reference.

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

    For the "Management's Discussion and Analysis of Financial Condition and Results of Operations," see pages 9-28 of the Company's 2000 Annual Report to Shareholders, which is incorporated herein by reference.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    For the discussion of "Quantitative and Qualitative Disclosures About Market Risk," see section titled "Interest Rate Sensitivity" at pages 24-26 of the Company's 2000 Annual Report to the Shareholders, which is incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    For "Financial Statements and Supplemental Data," see pages 29-51 of the Company's 2000 Annual Report to the Shareholders, which is incorporated herein by reference.

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

    Not applicable

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    For information concerning directors and executive officers of the Company, see "ELECTION OF DIRECTORS" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the definitive Proxy Statement for the Company's 2001 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A (the "Proxy Statement"), which is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

    For information concerning executive compensation, see "EXECUTIVE COMPENSATION" in the Proxy Statement, which is incorporated herein by reference.

21

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    For information concerning security ownership of certain beneficial owners and management, see "Security Ownership of Certain Beneficial Owners and Management" and "Election of Directors" in the Proxy Statement, which is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    For information concerning certain relationships and related transactions, see "Indebtedness of Management and Other Transactions" in the Proxy Statement, which is incorporated herein by reference.

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)

1.    FINANCIAL STATEMENTS

    The consolidated financial statements of the Company and subsidiaries, other financial information, and the Independent Auditors' Report on Consolidated Financial Statements are contained herein under Item 8.

2.

FINANCIAL STATEMENT SCHEDULES

    In accordance with Regulation S-X, the financial statement schedules have been omitted because (a) they are not applicable to or required of the Company; or (b) the information required is included in the consolidated financial statements or notes thereto.

3.

EXHIBITS

    See Index to Exhibits of this Form 10-K.

(b)

REPORTS ON FORM 8-K

    The Company filed no reports on Form 8-K during the quarter ending December 31, 2000.

22

SIGNATURES

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

	CALIFORNIA INDEPENDENT BANCORP
Date: March 20, 2001	By:	/s/ LARRY D. HARTWIG Larry D. Hartwig, President and Chief Executive Officer

    Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ ROBERT J. LAMPERT ROBERT J. LAMPERT	Executive Vice President and Chief Operating Officer (Principal Financial and Accounting Officer)	March 20, 2001
/s/ JOHN L. DOWDELL JOHN L. DOWDELL	Director	March 20, 2001
/s/ HAROLD M. EASTRIDGE HAROLD M. EASTRIDGE	Director	March 20, 2001
/s/ WILLIAM H. GILBERT WILLIAM H. GILBERT	Director	March 20, 2001
/s/ LARRY D. HARTWIG LARRY D. HARTWIG	President, Chief Executive Officer and Director	March 20, 2001
/s/ JOHN I. JELAVICH JOHN I. JELAVICH	Director	March 20, 2001
/s/ DONALD H. LIVINGSTONE DONALD H. LIVINGSTONE	Director	March 20, 2001

23

/s/ ALFRED G. MONTNA ALFRED G. MONTNA	Director	March 20, 2001
/s/ DAVID A. OFFUTT DAVID A. OFFUTT	Chairman of the Board of Directors, and Director	March 20, 2001
/s/ WILLIAM K. RETZER WILLIAM K. RETZER	Director	March 20, 2001
/s/ MICHAEL C. WHEELER MICHAEL C. WHEELER	Director	March 20, 2001

24

INDEX TO EXHIBITS

Exhibit No.
2.1	Plan of Reorganization and Merger Agreement dated January 30, 1995 by and between Feather River State Bank, FRSB Merger Company and California Independent Bancorp. Filed as Exhibit 2.1 to the Company's General Form for Registration of Securities on Form 10 (File No. 0-26552).*
3.1	Secretary's Compiled, Amended and Restated Articles of Incorporation for California Independent Bancorp as of April 26, 1999. Filed as Exhibit 3.1 to the Company's Quarterly Report filed on Form 10Q for the period ended March 31, 1999.*
3.2	Secretary's Compiled, Amended and Restated Bylaws of California Independent Bancorp as of September 30,1999. Filed as Exhibit 3.2 to the Company's Quarterly Report filed on Form 10Q for the period ended September 30, 1999.*
10.1	Salary Continuation Agreement dated April 28, 1993 with Annette Dier Bertolini. Filed as Exhibit 10.1 to the Company's General Form for Registration of Securities on Form 10 (File No. 0-26552).*
10.2	Consolidated Agreement dated April 30, 1993 with Unisys Corporation. Filed as Exhibit 10.3 to the Company's General Form for Registration of Securities on Form 10 (File No. 0-26552).*
10.3	Agreements with Information Technologies, Inc. Filed as Exhibit 10.4 to the Company's General Form for Registration of Securities on Form 10 (File No. 0-26552).*
10.4	Deferred Compensation Agreement dated July 19, 1994 with William H. Gilbert. Filed as Exhibit 10.6 to the Company's General Form for Registration of Securities on Form 10 (File No. 0-26552).*
10.5	Feather River State Bank Employee Ownership Plan. Filed as Exhibit 10.7 to the Company's General Form for Registration of Securities on Form 10 (File No. 0-26552).*
10.6	Bank Affiliate Agreement between Feather River State Bank and London Pacific Securities, Inc., formerly know as Select Advisors, Inc. Filed as Exhibit 10.8 to the Company's General Form for Registration of Securities on Form 10 (File No. 0-26552).*
10.7	California Independent Bancorp 1989 Amended and Restated Stock Option Plan including related Incentive and Non Statutory Stock Option Agreements. Filed as Exhibit 4 to Amendment No. 1 to the Company's Registration Statement on Form  S-8/SEC Registration No. 333-09813 dated November 26, 1996.*
10.8	California Independent Bancorp 1996 Stock Option Plan and related Incentive Stock Option and Nonstatutory Stock Option Agreements. Filed as Exhibit to Amendment No. 1 to the Company's Form S-8/SEC Registration No. 333-09823 dated November 26, 1996.*
10.9	Lease by and between Raj J. Sharma and Feather River State Bank for 114 D Street, Wheatland, California. Filed as Exhibit 10.16 to the Company's Form 10-K for December 31, 1998.*
10.10	Severance Agreement between California Independent Bancorp, Feather River State Bank and Robert J. Mulder dated May 25, 1999. Filed as Exhibit 10.19 to the Company's Form 10-Q for June 30, 1999.*

25

10.11	Director Deferred Fee Agreement between Feather River State Bank and David A. Offutt dated April 1, 1999. Filed as Exhibit 10.20 to the Company's Form 10-Q for September 30, 1999.*
10.12	Employment Agreement between California Independent Bancorp, Feather River State Bank and Larry D. Hartwig dated July 19, 1999. Filed as Exhibit 10.21 to the Company's Form 10-Q for September 30, 1999.*
10.13	Nonqualified Stock Option Agreement between California Independent Bancorp and Larry D. Hartwig dated July 19, 1999. Filed as Exhibit 10.22 to the Company's Form 10-Q for September 30, 1999.*
10.14	Executive Salary Continuation Agreement between Feather River State Bank and Blaine C. Lauhon dated May 7, 1999. Filed as Exhibit 10.23 to the Company's Form 10-Q for September 30, 1999.*
10.15	Executive Salary Continuation Agreement between Feather River State Bank and Larry D. Hartwig dated October 27, 1999. Filed as Exhibit 10.19 to the Company's Form 10-K for December 31, 1999.*
10.16	Promissory Note, Loan Agreement and Annual Contribution Agreement dated May 11, 2000, by and between Feather River State Bank Employee Stock Ownership Plan and Trust and United ComServe. Filed as Exhibit 10.21 to the Company's Form  10-Q for June 30, 2000.*
10.17	California Independent Bancorp Revised 2000 Equity Incentive Plan. Filed as Exhibit 10.22 to the Company's Form 10-Q for September 30, 2000.*
10.18	California Independent Bancorp 2000 Equity Incentive Plan Form Nonqualifying Stock Option Agreement. Filed as Exhibit 10.23 to the Company's Form 10-Q for September 30, 2000.*
10.19	California Independent Bancorp 2000 Equity Incentive Plan Form Nonqualifying Stock Option Exercise Agreement. Filed as Exhibit 10.24 to the Company's Form 10-Q for September 30, 2000.*
10.20	California Independent Bancorp 2000 Equity Incentive Plan Form Incentive  Stock Option Agreement. Filed as Exhibit 10.25 to the Company's Form 10-Q for September 30, 2000.*
10.21	California Independent Bancorp 2000 Equity Incentive Plan Form Incentive Stock Option Exercise Agreement. Filed as Exhibit 10.26 to the Company's Form 10-Q for September 30, 2000.*
10.22	Severance Agreement and Release of Claims dated August 11, 2000 between Feather River State Bank and Annette Bertolini. Filed as Exhibit 10.27 to the Company's Form 10-Q for September 30, 2000.*
10.23	Consulting Agreement dated July 5, 2000 between Feather River State Bank and Annette Bertolini. Filed as Exhibit 10.28 to the Company's Form 10-Q for September 30, 2000.*
10.24	Lease by and between Eureka Corporate Plaza, Ltd., L.P. and Feather River State Bank, for the premises at 1552 Eureka Road, Roseville, California. Filed as Exhibit 10.29 to the Company's Form 10-Q for September 30, 2000.*

26

10.25	Pursuant to the 2000 Equity Incentive Plan as referenced in Exhibit 10.22, to the Company's Form 10-Q for September 30, 2000, Nonqualifying Stock Options amounting to 825 shares at $20.75 per share were granted to non-employee directors on September 19, 2000. The options vest 20% after twelve months and 20% each year thereafter. Such options terminate September 19, 2010. The following Directors were granted shares under these terms: John Dowdell, Harold Eastridge, William Gilbert, John Jelavich, Don Livingstone, Alfred Montna, David Offutt, William Retzer, Ross Scott and Michael Wheeler. Each Director has entered into Nonqualifying Stock Option Agreements with the Company in the form attached as Exhibit  10.23 to the Company's Form 10-Q for September 30, 2000.*
10.26	Pursuant to the 2000 Equity Incentive Plan as referenced in Exhibit 10.22, to the Company's Form 10-Q for September 30, 2000, Nonqualifying Stock Options amounting to 10,000 shares were granted at $22.62 per share on July 18, 2000, to Robert Lampert, Executive Vice President/Chief Operating Officer of the Bank. The options vest 20% after twelve months and 20% each year thereafter. Such options terminate July 18, 2010. Mr. Lampert has entered into a Nonqualifying Stock Option Agreement with the Company in the form attached as Exhibit 10.23 to the Company's Form 10-Q for September 30, 2000, to the Company's Form 10-Q for September 30, 2000.*
10.27	Pursuant to the 2000 Equity Incentive Plan as referenced in Exhibit 10.25, to the Company's Form 10-Q for September 30, 2000, Incentive Stock Options were granted to the following executive and senior officers of the Bank. The options were granted on September 19, 2000 at $20.75 per share. The options vest 20% after twelve months and 20% each year thereafter. Such options terminate September 19, 2010. Each officer has entered into an Incentive Stock Option Agreement with the Company in the form attached as Exhibit 10.25 to the Company's Form 10-Q for September 30, 2000.*

Larry Hartwig, President/CEO	15,000 shares
Robert Lampert, Chief Operating Officer	5,000 shares
Blaine Lauhon, Chief Lending Officer	4,000 shares
Kenneth Anderson, Marketing & Branch Services Officer	4,000 shares
Douglas Marr, Chief Credit Officer	5,000 shares
Don McDonel, Senior Loan Officer	5,000 shares

10.28	Lease for a branch office at 435 South Highway 65, Suite A, Lincoln, California, entered into between Lincoln Town Center, LLC and Feather River State Bank on December 1, 2000.
10.29	Lease Servicing Agreement dated May 26, 2000, by and among Bancorp Financial Services, Inc., as the Servicer, and EPI Leasing Company Inc., a subsidiary of Feather River State Bank as the Originator.
13	California Independent Bancorp's 2000 Annual Report to Shareholders. (Deemed filed only with respect to those sections which have been incorporated into this Form 10-K by reference.)
21	Feather River State Bank, a California banking corporation, is the only subsidiary of Registrant.
23	Consent of Arthur Andersen LLP for audited financial statements for the year ended December 31, 2000.

*

Document incorporated herein by reference.

27

QuickLinks

DOCUMENTS INCORPORATED BY REFERENCE
PART I

ITEM 1. BUSINESS

ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

SIGNATURES
INDEX TO EXHIBITS

EX-10.28

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EXHIBIT 10.28

STANDARD SHOPPING CENTER LEASE

SHOPPING CENTER:

LINCOLN HILLS TOWN CENTER


TENANT:

FEATHER RIVER STATE BANK, a California State Chartered Bank

TABLE OF CONTENTS

				Page
ARTICLE I		GRANT AND BASIC TERMS		1
	Section 1.1	Effective Date of Lease		1
	Section 1.2	Landlord		1
	Section 1.3	Tenant		1
	Section 1.4	Premises		1
	Section 1.5	Length of Term		1
	Section 1.6	Commencement of Term		1
	Section 1.7	Acknowledgment of Commencement Date		2
	Section 1.8	Permitted Uses		2
	Section 1.9	Tenant's Guarantor		2
	Section 1.10	Initial Security Deposit		2
	Section 1.11	Minimum Monthly Rent and Other Charges Payable by Tenant		2
		(a)	Minimum Monthly Rent	2
		(b)	Other Periodic Payments	2
	Section 1.12	Excuse of Landlord's Performance		2
	Section 1.13	Riders		3
ARTICLE II		LEASE TERM		3
	Section 2.1	Lease of Premises for Lease Term		3
	Section 2.2	Delay in Completion		3
	Section 2.3	Early Occupancy		3
	Section 2.4	Holding Over		3
	Section 2.5	Surrender of Premises		3
	Section 2.6	Successors		3
ARTICLE III		MINIMUM MONTHLY RENT		4
	Section 3.1	Time and Manner of Payment		4
	Section 3.5	Security Deposit Increases		4
	Section 3.6	Termination; Advance Payments		4
ARTICLE IV		OTHER CHARGES PAYABLE BY TENANT		4
	Section 4.1	Additional Rent		4
	Section 4.2	Real Property Taxes		4
		(a)	Payments of Taxes	4
		(b)	Definition of "Real Property Taxes"	5
	Section 4.3	Personal Property Taxes		5
	Section 4.4	Utilities		5
	Section 4.5	Payment of Operating Costs		7
		(a)	Tenant's Pro Rata Share of Expense	7
		(b)	Operating Cost	7
		(c)	Changes in Square Footage of Premises	7
	Section 4.6	Insurance Premiums		7
		(a)	Liability Insurance	7
		(b)	Hazard and Rental Income Insurance	7
		(c)	Insurance of Improvements	8
		(d)	Payment of Premium; Insurance Policies	8
		(e)	Increase in Fire Insurance Premium	8
		(f)	Plate Glass	8
		(g)	Boiler Insurance	8

i

		(h)	Waiver of Subrogation	9
		(i)	Form of Policies	9
	Section 4.7	Interest on Past Due Obligations		9
	Section 4.8	Collection of Operating Costs		9
ARTICLE V		RECORDS AND BOOKS OF ACCOUNT		10
ARTICLE VI		AUDIT		10
ARTICLE VII		CONSTRUCTION OF PREMISES		10
	Section 7.1	Landlord and Tenant Improvements		10
	Section 7.2	Parking Facilities		11
	Section 7.3	Changes and Additions to Buildings		11
	Section 7.4	Financing		11
	Section 7.5	Right to Adjust		11
	Section 7.6	Relocation of Premises		11
ARTICLE VIII		USE OF PROPERTY		12
	Section 8.1	Permitted Uses		12
	Section 8.2	Manner of Use		12
		(a)	Interference with Use/Nuisance	12
		(b)	Violation of Law/Insurance Provisions	12
		(c)	Permits	12
		(d)	Store Operation	12
		(e)	Change of Name	13
		(f)	Solicitation of Business	13
	Section 8.3	Competitive Business		13
	Section 8.4	Indemnification of Landlord		13
	Section 8.5	Landlord's Access		13
	Section 8.6	Excavation		13
	Section 8.7	Quiet Possession		13
	Section 8.8	Window Coverings		13
ARTICLE IX		HAZARDOUS MATERIALS		14
	Section 9.1	Prohibition of Storage		14
	Section 9.2	Clean-up		14
	Section 9.3	Business		14
	Section 9.4	Termination of Lease		15
	Section 9.5	Assignment and Subletting		15
	Section 9.6	Landlord's Right to Perform Tests		15
	Section 9.7	Tenant's Obligations		16
	Section 9.8	Health and Safety Code Section 25259.7		16
	Section 9.9	Definition of "Hazardous Materials"		16
ARTICLE X		PARKING AND COMMON USE AREAS AND FACILITIES		16
	Section 10.1	Control of Common Areas by Landlord		16
	Section 10.2	License		17
	Section 10.3	Merchants' Association		17
ARTICLE XI		SIGNS, AWNINGS, CANOPIES, FIXTURES, ALTERATIONS, IMPROVEMENTS		17
	Section 11.1	Signs and Auctions		17
	Section 11.2	Installation by Tenant		17

ii

	Section 11.3	Improvements	18
	Section 11.4	Non-Removal by Tenant	18
	Section 11.5	Removal and Restoration	18
	Section 11.6	Liens	18
	Section 11.7	Signs, Awnings and Canopies	19
ARTICLE XII		CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS	19
	Section 12.1	Existing Conditions	19
	Section 12.2	Exemption of Landlord from Liability; Waiver	19
	Section 12.3	Tenant's Obligations	19
	Section 12.4	Landlord's Obligations	20
	Section 12.5	Rules and Regulations	21
	Section 12.6	Condition Upon Termination	22
ARTICLE XIII		DAMAGE OR DESTRUCTION	22
	Section 13.1	Partial Damage to Leased Premises	22
	Section 13.2	Total or Substantial Destruction	22
	Section 13.3	Partial Destruction of Shopping Center	23
	Section 13.4	Landlord's Obligations	23
	Section 13.5	Temporary Reduction of Rent	23
	Section 13.6	Waiver	24
ARTICLE XIV		CONDEMNATION	24
	Section 14.1	Total Condemnation	24
	Section 14.2	Total Condemnation of Parking Area	24
	Section 14.3	Partial Condemnation	24
	Section 14.4	Partial Condemnation of Parking Area	24
	Section 14.5	Condemnation of Less than a Fee	24
	Section 14.6	Distribution of Condemnation Award	25
ARTICLE XV		ASSIGNMENT AND SUBLETTING	25
	Section 15.1	Landlord's Consent Required	25
	Section 15.2	Transfers of Interests in Tenant Requiring Landlord's Consent	26
	Section 15.3	Grant of Concessions; Conditions to Grant	26
	Section 15.4	Transfer Without Consent	26
	Section 15.5	No Release of Tenant	26
	Section 15.6	Landlord's Election	26
	Section 15.7	No Merger	27
	Section 15.8	Assignment Fees and Procedures	27
ARTICLE XVI		DEFAULTS; REMEDIES	27
	Section 16.1	Covenants and Conditions	27
	Section 16.2	Defaults	27
	Section 16.3	Default by Landlord	28
	Section 16.4	Remedies	28
	Section 16.5	The Right to Relet the Premises	29
	Section 16.6	Waiver of Rights of Redemption	29
	Section 16.7	Cumulative Remedies	29
	Section 16.8	Late Charges	29
ARTICLE XVII		PROTECTION OF CREDITORS	29
	Section 17.1	Subordination	29

iii

	Section 17.2	Attornment	30
	Section 17.3	Signing of Documents	30
	Section 17.4	Estoppel Certificates	30
	Section 17.5	Tenant's Financial Condition	30
	Section 17.6	Mortgagee Protection Clause	31
ARTICLE XVIII		LEGAL COSTS	31
	Section 18.1	Legal Proceedings	31
	Section 18.2	Landlord's Consent	31
ARTICLE XIX		MISCELLANEOUS PROVISIONS	31
	Section 19.1	Non-Discrimination	31
	Section 19.2	Landlord's Liability; Certain Duties	31
	Section 19.3	Severability	32
	Section 19.4	Interpretation	32
	Section 19.5	Other Tenancies	32
	Section 19.6	Entire Agreement	32
	Section 19.7	Notices	33
	Section 19.8	Waivers	33
	Section 19.9	No Recordation	33
	Section 19.10	Binding Effect; Choice of Law	33
	Section 19.11	Corporate or Company Authority; Partnership Authority	33
	Section 19.12	No Partnership	33
	Section 19.13	Joint and Several Liability	33
	Section 19.14	Force Majeure	33
	Section 19.15	Construction of Lease and Terms	33
	Section 19.16	Accord and Satisfaction	34
	Section 19.17	Provisions are Covenants and Conditions	34
	Section 19.18	Union Workers	34
	Section 19.19	Remodel	34
	Section 19.20	Waiver of Right to Jury Trial	34
	Section 19.21	Limitation of Actions	35
	Section 19.22	Real Estate Broker	35
	Section 19.23	Exculpation	35

iv

STANDARD SHOPPING CENTER LEASE

ARTICLE I

GRANT AND BASIC TERMS

    This Article One contains the Basic Terms of this Lease between the Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the Lease referred to in this Article I explain and define the Basic Terms and are to be read in conjunction with the Basic Terms.

    Section 1.1  Effective Date of Lease:  December 1, 2000

    Section 1.2  Landlord:  Lincoln Town Center LLC, a California Limited Liability Company

Address of Landlord: 1250 Prospect Street, Suite 200, La Jolla, California 92037
(Post Office Box 2633, La Jolla, California 92038)

    Section 1.3  Tenant:  Feather River State Bank, a California State Chartered Bank

Address of Tenant: 1227 Bridge Street, Suite A
Yuba City, CA 95992-9002

    Section 1.4  Premises.  In consideration of the rents, covenants and agreements on the part of Tenant to be paid and performed, the Landlord leases to the Tenant, and Tenant leases from Landlord, for the Term, at the rental and upon the conditions of this Lease, that certain space (referred to herein as the "Premises"), now or hereafter to be erected in the Lincoln Hills Town Center Shopping Center (herein called the "Shopping Center") in Lincoln (City) Placer (County) California (State). The location of the Premises is outlined in red on the site plan of the Shopping Center, attached hereto as Exhibit "A" and made a part hereof, and otherwise known as 435 South Highway 65 Suite A, Lincoln, California, (address) said Premises being agreed for purposes of this Lease, to have an area of approximately 1,200 square feet. Tenant acknowledges that the site plan shown on Exhibit "A" is tentative and that Landlord may change the shape, size, location, number and extent of the improvements shown thereon and eliminate or add any improvements to any portion of the Shopping Center as provided in Article VII herein. Landlord shall further have the right to relocate the Premises as provided in Section 7.6 herein.

    Section 1.5  Length of Term.  The term of this Lease shall be for five (5) years and zero (0) months following the commencement date, commencing at 8:00 A.M. on such commencement date and terminating at 5:00 P.M. on the last day of the term, unless sooner terminated under any provision hereof.

    Section 1.6  Commencement of Term.  The Term of this Lease, and Tenant's obligation to pay rent, shall commence (hereinafter "Commencement Date") on the first to occur of the following events:

    (a)             , 20  ;

    (b) the date which is sixty (60) days after the Landlord, or the Landlord's supervising architect, or other agent so authorized in writing by Landlord, notifies the Tenant that the Premises are ready for occupancy (hereinafter "Notice of Substantial Completion"); or

    (c) the date on which the Tenant shall open the Premises for business to the public. Tenant shall occupy the Premises within sixty (60) days after the date of the Notice of Substantial Completion, and shall thereafter continuously operate and conduct in the Premises the Permitted Use, subject to the terms and conditions expressly set forth in Rider Two hereof (hereinafter defined).

1

    In the event that the Commencement Date does not occur on the first day of the month, then the Term shall commence on the first day of the month next succeeding the Commencement Date, provided Tenant shall pay Minimum Monthly Rent and Other Periodic Payments as provided in Section 1.11 (b) below, for the fractional month from the Commencement Date through the first day of the next succeeding month on a per diem basis, calculated on the basis of a thirty [30]-day month, in advance. All Lease expirations, renewal dates, notices of options to renew, and any other provision hereof relating to the commencement of the Term of this Lease shall be determined by reference to (i) the Commencement Date where same occurs on the first day of the month, or (ii) on the first day of the next succeeding month where the Commencement Date does not occur on the first day of the month.

    Landlord shall not be liable to Tenant if Landlord does not deliver possession of the Premises to Tenant on the first date specified in Section 1.6.

    Section 1.7  Acknowledgment of Commencement Date.  When the commencement and expiration date of the Lease Term have been ascertained pursuant to Section 1.6 and Article II herein, the parties shall immediately execute a confirmation of said dates and the Term of this Lease in the form and content as set forth in Exhibit "X" attached hereto and made a part hereof.

    Section 1.8  Permitted Uses.  The Premises shall be used and occupied only for a full service Feather River State Bank and for no other use or purpose. Notwithstanding the foregoing, in no event shall the Premises or any portion thereof be used and occupied to sell, rent and/or distribute prerecorded video cassettes, video tapes, video discs, laser discs, video games (including without limitation CD-I), DVD, divx, or other video software (including CD-ROM) and/or substitutes for, or items which are a technological evolution of, the foregoing items. (See Article VIII and Rider Two)

    Section 1.9  Tenant's Guarantor.  (If none, so state.) California Independent Bancorp, a California Corporation.

    Section 1.10  Initial Security Deposit.  (See Section 3.5.) Two thousand three hundred forty and 00/100 Dollars ($2,340.00).

    Section 1.11  Minimum Monthly Rent and Other Charges Payable by Tenant.

    (a)  Minimum Monthly Rent.  Two thousand three hundred forty and 00/100 Dollars ($2,340.00) per month for the first twenty-four (24) months, as provided in Section 3.1, which shall be increased annually on the day and the month on which the Commencement Date occurs in each consecutive year following the Commencement Date (the "Anniversary Date"), either (i) in accordance with the increase in the United States-Department of Labor, Bureau of Labor Statistics, Consumer Price Index for Urban Wage Earners and Clerical Workers (all Items for the San Francisco-Oakland-San Jose Statistical Area on the basis of 1982-84 = 100 [the "Index"]), as provided in Section 3.2, or (ii) by five percent (5%) over the Minimum Monthly Rent then in effect. If (ii) is completed, then (i) and Section 3.2 are inapplicable.

    (b)  Other Periodic Payments.  Monthly Payments of Operating Costs (see Section 4.8) including, without limitation, Taxes, Utilities, Insurance Premiums, or other amounts as provided in this Lease. The initial monthly charge for such Operating Costs is five hundred sixteen and 00/100 Dollars ($516.00).

    Section 1.12  Excuse of Landlord's Performance.  Anything in this Lease to the contrary notwithstanding, providing such cause is not due to the willful act or neglect of Landlord, Landlord shall not be deemed in default with respect to the performance of any of the terms, covenants and conditions of this Lease if same shall be due to any strike, lockout, civil commotion, war-like operation, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or

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controls, inability to obtain any material, service or financing, rain or muddy conditions, through act of God or other cause beyond the control of Landlord.

    Section 1.13  Riders.  The following Riders are attached to and made a part of this Lease: (If none, so state) Rider One, Rider Two and Rider Three.

ARTICLE II

LEASE TERM

    Section 2.1.  Lease of Premises for Lease Term.  Landlord leases the Premises to Tenant and Tenant leases the Premises from Landlord for the Lease Term. The Lease Term is for the period stated in Section 1.5 above and shall begin and end on the dates specified in Section 1.6 above, unless the beginning or end of the Lease Term is changed under any provision of this Lease. The "Commencement Date" shall be the date specified in Section 1.6 above for the beginning of the Lease Term, unless advanced or delayed under any provision of this Lease.

    Section 2.2.  Delay in Completion.  In the event the Premises herein demised are not substantially completed (excluding any work to be performed by Tenant) on or before December 1, 2001, this Lease shall be deemed null and void at the election of either party by notice in writing within ten (10) days from said date, and any security deposit shall be returned to Tenant. The aforementioned date shall be automatically extended for a reasonable period of time provided Landlord is diligently pursuing the completion of the Premises. Should either party elect to declare this Lease null and void as hereinafter provided, Landlord shall, except for the return of the Tenant's security deposit, have no obligations or liabilities to Tenant for damages of any kind relating to the failure to complete construction of the Premises by the date herein specified.

    Section 2.3.  Early Occupancy.  If Tenant occupies the Premises prior to the Commencement Date, Tenant's occupancy of the Premises shall be subject to all of the provisions of this Lease. Early occupancy of the Premises shall not advance the expiration date of this Lease. Tenant shall pay Minimum Monthly Rent and all other charges specified in this Lease for the early occupancy period.

    Section 2.4.  Holding Over.  Tenant shall vacate the Premises upon the expiration or earlier termination of this Lease. Tenant shall reimburse Landlord for and indemnify Landlord against all damages incurred by Landlord caused by any delay in Tenant vacating the Premises. If Tenant remains in possession of all or any part of the Premises after the expiration of the Term hereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only and not a renewal hereof or an extension for any further term, and in such case, Minimum Monthly Rent then in effect shall be increased by fifty percent (50%) and other monetary sums due hereunder shall be payable in the amount and at the time specified in this Lease, and such month-to-month tenancy shall be subject to every other term, covenant and agreement contained herein, except that the month-to-month tenancy will be terminable on thirty (30) days notice given at any time by either party.

    Section 2.5.  Surrender of Premises.  Upon the termination of this Lease, Tenant shall surrender the Premises to Landlord in the condition specified in and according to Section 12.6.

    Section 2.6.  Successors.  All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind the several respective heirs, executors, administrators, successors, and assigns of the said parties; and if there shall be more than one Tenant, they shall all be bound jointly and severally by the terms, covenants and agreements herein. No rights, however, shall inure to the benefit of any assignee or other transferee of Tenant unless the transfer has been approved by Landlord in writing as provided in Section 15.1 hereof.

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ARTICLE III

MINIMUM MONTHLY RENT

    Section 3.1.  Time and Manner of Payment.  Upon execution of this Lease, Tenant shall pay Landlord the Minimum Monthly Rent in the amount stated in Section 1.11(a) above for the first month of the Lease Term. On the first day of the second month of the Lease Term and each month thereafter, Tenant shall pay Landlord the Minimum Monthly Rent and any other charges and sums provided for herein as Additional Rent, in advance, without offset, deduction or prior demand. All such rents and charges shall be payable at Landlord's address or at such other place as Landlord may designate in writing. If Tenant submits a check to Landlord which is returned to Landlord by Tenant's bank due to non-sufficient funds, Landlord may require Tenant to submit all future payments in the form of a cashier's check or money order.

    Section 3.5  Security Deposit Increases.

    (a) Upon the execution of this Lease, Tenant shall deposit with Landlord a cash Security Deposit in the amount set forth in Section 1.10 above. Landlord may, but shall not be obligated to apply all or part of the Security Deposit to any unpaid rent or other charges due from Tenant or to cure any other defaults of Tenant. If Landlord uses any part of the Security Deposit, Tenant shall restore the Security Deposit to its full amount within ten (10) days after Landlord's written request. Tenant's failure to do so shall be a material default under this Lease. No interest shall be paid on the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its other accounts and no trust relationship is created with respect to the Security Deposit.

    (b) Each time the Minimum Monthly Rent is increased, Tenant shall deposit additional funds with Landlord sufficient to increase the Security Deposit to an amount which bears the same relationship to the adjusted Minimum Monthly Rent as the initial Security Deposit bore to the initial Minimum Monthly Rent.

    (c) Landlord may deliver the funds deposited hereunder by Tenant to a purchaser of Landlord's interest in the Premises, in the event that such interest be sold; and thereupon Landlord shall be discharged from any further liability with respect to such Security Deposit, except as may otherwise be agreed upon in writing.

    Section 3.6  Termination; Advance Payments.  Upon termination of this Lease under Article XIII (Damage or Destruction), Article XIV (Condemnation) or any other termination not resulting from Tenant's default, and after Tenant has vacated the Premises in the manner required by this Lease, an equitable adjustment shall be made concerning advance rent, any other advance payments made by Tenant to Landlord, and accrued real property taxes, and Landlord shall refund the unused portion of the Security Deposit to Tenant or Tenant's successor.

ARTICLE IV

OTHER CHARGES PAYABLE BY TENANT

    Section 4.1.  Additional Rent.  All charges payable by Tenant other than Minimum Monthly Rent are called "Additional Rent." Unless this Lease provides otherwise, all Additional Rent shall be paid with the next monthly installment of Minimum Monthly Rent. The term "rent" shall mean Minimum Monthly Rent and Additional Rent.

    Section 4.2.  Real Property Taxes.

    (a)  Payment of Taxes.  Tenant agrees to pay Tenant's pro rata share (as defined in Section 4.5(a))of all Real Property Taxes, as hereinafter defined, and assessments which may be levied or assessed by any lawful authority against the land on which buildings are located and improvements thereon in the Shopping Center (collectively referred to as "Real Property Taxes").

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Tenant shall pay said taxes upon receipt from Landlord of a statement delineating Tenant's share of said taxes and said share shall be paid within five (5) days after receipt of said statement. Landlord shall have the right to collect and impound such real estate taxes from Tenant on a monthly or quarterly basis for Tenant's account based upon Landlord's reasonable estimate of real estate taxes next due, and Tenant shall pay to Landlord such real estate tax impound upon the basis and at the times hereinbefore described. Tenant's pro rata share shall be apportioned according to the floor area of the Premises as it relates to the total floor area of the building or buildings which include the Premises. All taxes for the year in which this Lease commences shall be apportioned and adjusted.

    (b)  Definition of "Real Property Taxes".  "Real Property Taxes" means: (i) any fee, license fee, license tax, business license fee, commercial rental tax, levy, charge, assessment, penalty or tax (other than inheritance or estate taxes) imposed by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agriculture, lighting, drainage or other improvement district thereof, as against any legal or equitable interest of Landlord in the Premises; (ii) any tax on the Landlord's right to receive, or the receipt of, rent or income from the Premises or against Landlord's business of leasing the Premises; (iii) any tax or charge for fire protection, streets, sidewalks, road maintenance, refuse or other services provided to the Premises by any governmental agency; (iv) any tax imposed upon this transaction or based upon a reassessment of the Premises due to a change in ownership or transfer of all or part of Landlord's interest in the Premises; and (v) any charge or fee replacing any tax previously included within the definition of Real Property Taxes. "Real Property Taxes" shall not, however, include Landlord's federal or state income, franchise, inheritance or estate taxes.

    Section 4.3.  Personal Property Taxes.

    (a) Tenant shall pay prior to delinquency all taxes charged against trade fixtures, furnishings, equipment or any other personal property belonging to Tenant. Tenant shall attempt to have such personal property taxed separately from the Premises.

    (b) If any such taxes on Tenant's personal property are levied against Landlord or Landlord's property, or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant, then Landlord, after written notice to Tenant, shall have the right to pay the taxes based upon such increased assessments, regardless of the validity thereof, but only under proper protest if requested by Tenant in writing. If Landlord shall do so, then Tenant shall, upon demand, repay to Landlord the taxes levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment. In any such event, however, Tenant, at Tenant's sole cost and expense, shall have the right, in the name of Landlord and with Landlord's full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes so paid under protest; any amount so recovered to belong to Tenant.

    (c) If any of Tenant's personal property is taxed with the Property, Tenant shall pay Landlord the taxes for the personal property within fifteen (15) days after Tenant receives a written statement from Landlord for such personal property taxes.

    Section 4.4.  Utilities.  Tenant shall pay, directly to the appropriate supplier, the cost of all natural gas, heat, light, power, sewer service, telephone, water, refuse disposal and other utilities and services supplied to the Premises, unless Landlord elects to include the cost of any or all of such utilities and services as a Shopping Center operating cost as defined in Section 4.5(b). Maintenance for any heating or air conditioning equipment and ducts on the Premises shall be furnished by Landlord, and Tenant, upon presentation of a bill therefore, shall pay Landlord, or its agent or assigns, for such maintenance service. If any services or utilities are jointly metered with other properties, Landlord shall determine and the Tenant shall pay, the Tenant's pro rata share of the monthly costs of such utilities and services. The Tenant's pro rata share shall be determined by the ratio of the square footage of the Premises as

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compared to the square footage of all the property subject to the common metering. In the event Tenant shall require such services or utilities in excess of that usually furnished or supplied for use of the Premises as general retail space, Tenant shall pay a reasonable proportion, to be determined by Landlord, of all such jointly metered charges. The Tenant shall pay such charges within five (5) days of notification of the amount by the Landlord. Landlord reserves the right to require Tenant to install and maintain, at Tenant's sole expense, separate meters for any public utility servicing the Premises for which a separate meter is not presently installed.

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    Section 4.5.  Payment of Operating Costs.

    (a)  Tenant to Bear Pro Rata Share of Expense.  In each lease year, as defined in Section 3.3(c) hereof, Tenant will pay to Landlord, in addition to the rentals specified in Article II hereof, as further Additional Rent, subject to the limitation hereinafter set forth, a proportion of the Shopping Center's operating cost, hereinafter defined, based upon the ratio of the square feet of the Premises to the total leasable square feet of all the building space in the Shopping Center or according to any other formula that Landlord may deem fair and equitable.

    (b)  Operating Cost.  For the purpose of this Section 4.5 the "Shopping Center's operating cost" means the total cost and expense incurred in connection with the operation, repair, maintenance or replacement of all common areas and all improvements within the Shopping Center, including without limitation, general maintenance and repair of all improvements, expenses incurred by Landlord under Section 12.3 and Section 12.4 hereof, gardening and landscaping, cost of security services, the cost of liability and property damage and all other insurance carried by Landlord under Section 4.6 with types of coverage and in amounts determined by Landlord, repairs, asphalt resurfacing line painting, painting of improvements, servicing of common grease interceptors, holiday decorations, snow and ice removal, utilities serving the improvements and common areas, sanitary control, pest control, signage costs, removal of trash, rubbish, garbage and other refuse, reasonable reserves for replacements and repairs, a property management fee consistent with prevailing rates charged in the industry (not to exceed five percent (5%) of gross Shopping Center rents), bookkeeping, Real Property Taxes, all personal property taxes assessed for any reason and levied on the personal property used in connection with the Shopping Center, costs of equipment and machinery used to maintain or operate the common areas, any depreciation of the cost thereof (including financing) thereof, and the cost of personnel to implement such services, to direct parking, and to police the common areas. In addition, said operating costs shall include an administrative charge equal to ten percent (10%) of the actual Shopping Center operating costs and this charge shall be included in and billed as a part of the Shopping Center Operating Costs.

    (c) Changes in the square footage of the Premises occurring during any monthly period shall be effective on the first day of the next succeeding monthly period, and the amount of any square footage in effect for the whole of any quarterly period shall be the average of the total amounts in effect on the first day of each calendar month in such quarterly period.

    Section 4.6  Insurance Premiums.

    (a)  Liability Insurance.  During the Lease Term, Tenant shall maintain a policy of comprehensive general liability insurance or commercial general liability insurance at Tenant's expense, insuring Tenant against liability arising out of the ownership, use, occupancy or maintenance of the Premises, the sidewalks in front of the Premises, and the business operated by Tenant and any subtenants of Tenant in the Premises. The initial amount of such insurance shall be at least Two Million Dollars ($2,000,000.00) combined single limit bodily injury, property damage and personal injury, and shall be subject to periodic increase based upon inflation, increased liability awards, recommendations of professional insurance advisers, and other relevant factors. However, the amount of such insurance shall not limit Tenant's liability nor relieve Tenant of any obligation hereunder. The policy shall name Landlord as an additional insured as required under Section 4.6(i) hereof. Tenant shall, at Tenant's expense, maintain such other liability insurance as Tenant deems necessary to protect Tenant.

    (b)  Hazard and Rental Income Insurance.  During the Lease Term, Landlord shall as a Shopping Center operating cost maintain policies of insurance covering loss of or damage to the Shopping Center improvements including the Premises in the full amount of its replacement value exclusive of Tenant's improvements and property. Such policies shall provide protection against all

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perils included within the classification of fire, extended coverage, vandalism, malicious mischief, and may include endorsements or coverage for special extended perils (all risk), sprinkler leakage, inflation guard, and any other perils (including flood and earthquake), which Landlord deems necessary. Landlord may obtain insurance coverage for Tenant's fixtures, equipment or building improvements installed by Tenant in or on the Premises. Tenant shall, at Tenant's expense, maintain such primary or additional insurance on its fixtures, equipment and building improvements as Tenant deems necessary to protect its interest. During the Lease Term, Landlord may also maintain as a Shopping Center operating cost a rental income insurance policy, with loss payable to Landlord in an amount equal to one year's Minimum Monthly Rent (as adjusted periodically), plus estimated Real Property Taxes and insurance premiums. Tenant shall not do or permit to be done anything which invalidates any such insurance policies.

    (c)  Insurance of Improvements.  Tenant shall at all times maintain fire insurance with extended coverage in an amount adequate to cover the cost of replacement of all trade fixtures, alterations, decorations, additions or improvements made to the Premises by Tenant or by Landlord on Tenant's behalf in the event of fire or extended coverage loss. Such insurance policy shall be maintained with an insurance company approved by Landlord. Tenant shall deliver to the Landlord, certificates of such fire insurance policies which shall contain a clause requiring the insurer to give the Landlord thirty (30) written days' notice of cancellation of such policies.

    (d)  Payment of Premiums; Insurance Policies.  Tenant shall pay all premiums for the insurance policies covering the Premises described in Paragraphs 4.6(a) and (c) prior to delinquency. If the insurance policies maintained by Landlord cover improvements or real property other than the Premises, Landlord shall also deliver to Tenant a statement of the amount of the premiums applicable to the Premises showing, in reasonable detail, how such amount was computed. If the Lease Term expires before the expiration of the insurance policy period, Tenant's liability for insurance premiums shall be prorated on an annual basis. Tenant shall be liable for its pro rata share of the payment of any deductible amount under Landlord's insurance policies as a Shopping Center operating cost.

    (e)  Increase in Fire Insurance Premium.  Tenant agrees that it will not keep, use, manufacture, assemble, sell or offer for sale in or upon the Premises any article which may be prohibited by the standard form of fire insurance policy. Tenant agrees to pay any increase in premiums for fire and extended coverage insurance that may be charged during the Term of this Lease on the amount of such insurance which may be carried by Landlord on said Premises or the building of which it is a part, resulting from the acts or omission of the Tenant, its agents, servants or employees, or the use or occupancy of the Premises by the Tenant or from the type of materials or products stored, manufactured, assembled or sold by Tenant in the Premises, whether or not Landlord has consented to the same. In determining whether increased premiums are the result of Tenant's use of the Premises, a schedule, issued by the organization making the insurance rate on the property, showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up the fire insurance rate on the Premises.

    (f)  Plate Glass.  Landlord shall replace, at the expense of Tenant, any and all plate and other glass, frames or glazing damaged or broken from any cause whatsoever in and about the Premises.

    (g)  Boiler Insurance.  Tenant hereby agrees, at Tenant's expense and during the entire Term hereof, to obtain and keep in full force and effect a policy of boiler broad form insurance, if any is applicable, in the amount of One Hundred Fifty Thousand Dollars ($150,000.00). The insurance shall be with an insurance company approved by Landlord and a copy of the policy or certificate of insurance shall be delivered to Landlord no later than the commencement date hereof.

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    (h)  Waiver of Subrogation.  Landlord and Tenant each hereby waive any and all rights of recovery against the other or against the officers, employees, agents and representatives of the other, on account of loss or damage occasioned to such waiving party or its property or the property of others under its control, to the extent that such loss or damage is insured against under any fire and extended coverage insurance policy which either may have in force at the time of such loss or damage. Tenant shall, upon the policies of insurance required under this Lease, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease and such waiver shall only be effective so long as consented to by the insurance carrier or carriers.

    (i)  Form of Policies.  All policies shall be written in a form satisfactory to Landlord and shall be maintained with insurance companies holding a "General Policyholder's Rating" of A, and a financial rating of X, or better, as set forth in the most current issue of "Best's Insurance Guide." Insurance policies carried by Tenant hereunder shall (i) name Landlord and if requested, Landlord's lender(s) as an additional insured and provide certificate(s) of insurance thereof to Landlord's lender(s) if applicable, (ii) be an occurrence policy (or policies), (iii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant's obligations under Section 8.4 hereof, (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and noncontributing with any insurance required of Tenant and (v) contain a cross liability endorsement or severability of interest clause acceptable to Landlord. Tenant shall deliver to Landlord and Landlord's lender(s) if applicable copies of policies or certificates evidencing the existence of the amounts and forms of coverage satisfactory to Landlord. No such policy shall be cancelable or reducible in coverage except after thirty (30) days prior written notice to Landlord. Tenant shall, within ten (10) days prior to the expiration of such policies, furnish Landlord with renewals or "binders" thereof, or Landlord may order such insurance and charge the cost thereof to Tenant as Additional Rent.

    Section 4.7  Interest on Past Due Obligations.  Any amount owed by Tenant to Landlord which is not paid when due shall bear interest from the due date of such amount at the lower of (i) fifteen percent (15%) per annum or (ii) the maximum legal interest rate permitted by law. However, interest shall not be payable on late charges to be paid by Tenant under this Lease. The payment of interest on such amounts shall not excuse or cure any default by Tenant under this Lease.

    Section 4.8  Collection of Shopping Center Operating Costs.  Landlord shall have the right to collect Tenant's pro rata share (as defined in Section 4.5(a)) of any or all Shopping Center operating costs or other charges provided for under this Article IV including, without limitation, insurance premiums and/or Real Property Taxes, on a monthly basis. Such amounts shall be based on Landlord's reasonable estimate of the costs, charges or premiums next due, and shall be paid by Tenant as Additional Rent upon the basis and at the times described herein. Landlord shall provide to Tenant a yearly expense estimate statement (the "Estimate Statement") which shall set forth Landlord's reasonable estimate of the total amount due from Tenant for the current or next ensuing lease year. Tenant shall pay to Landlord with each installment of Minimum Monthly Rent an amount equal to one-twelfth (1/12th) of the estimated amount due from Tenant as set forth in the Estimate Statement. At any time during any lease year Landlord may provide a new Estimate Statement to Tenant indicating any additional amount due from Tenant and Tenant agrees to pay such amount to Landlord within fifteen (15) days after notification of the amount of the deficiency. Tenant's failure to pay such deficiency to Landlord within such fifteen (15) day period shall constitute a breach of this Lease and entitle Landlord to any and all remedies available under this Lease or applicable law. Such payments shall be paid to Landlord and held in an account with no obligation to pay the Tenant interest thereon. Within a reasonable period of time after the end of each lease year hereunder, Landlord shall give to Tenant a statement (the "Statement") which shall indicate all of the Shopping Center operating costs and other amounts due from Tenant hereunder for the previous lease year, and the amount paid by

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Tenant relating thereto. If the amount paid by Tenant is less than the amount due, Tenant agrees to pay such deficiency to Landlord within fifteen (15) days after receipt of the Statement. If the amount paid by Tenant for the prior lease year exceeds the amount due from Tenant, such overage shall be credited to amounts due from Tenant for the current lease year. If Tenant defaults under this Lease, Landlord may apply any funds in the impound account to any obligation then due under this Lease without waiving any other remedy available under the Lease or applicable law.

ARTICLE V

RECORDS AND BOOKS OF ACCOUNT

ARTICLE VI

AUDIT

ARTICLE VII

CONSTRUCTION OF PREMISES

    Section 7.1.  Landlord and Tenant Improvements.  If construction of the improvements on the Premises has been completed on the date of this Lease, Tenant hereby represents and warrants to Landlord that Tenant has inspected the Premises and accepts such Premises in the condition existing as of the date hereof. If construction of the improvements on the Premises have not been completed by the date of this Lease, Landlord shall, at its cost and expense, pursue to completion the improvements to be erected by Landlord "Landlord's Work" as shown on the attached Exhibit "B" labeled "Construction of the Premises." Tenant shall commence the installation of fixtures, equipment and shall perform any of Tenant's work in the tenant improvement drawings approved by Landlord or as set forth on said Exhibit "B," promptly upon substantial completion of Landlord's work on the Premises and shall diligently pursue such installation and performance to completion. If the Landlord performs any such installation or construction shown in the tenant improvement drawings approved by Landlord or on Exhibit "B" as the Tenant's work, the Tenant shall pay any cost or expense of the Landlord so incurred within fifteen (15) days after receipt of a bill therefore. Said bill will be based upon Landlord's costs and expenses plus supervision, and architectural expenses, if any.

    Tenant shall deliver plans and specifications with respect to Tenant's leasehold improvements to Landlord or Landlord's architect within the time frame set forth in Exhibit B. Said plans and specifications shall conform in all respects with the agreements of Landlord and Tenant as outlined in Exhibit "B" hereto. In the event Tenant does not deliver said plans and specifications as agreed herein, Landlord shall have the right, at its sole discretion, to immediately cancel this Lease. Nothing herein contained shall limit any other remedy of Landlord.

    The following work items ("Tenant's Work"), if required, shall be done by Landlord for Tenant at Tenant's expense, or at Landlord's option shall be completed by Tenant at Tenant's expense in accordance plans and a contractor approved by Landlord:

(a)

Design and construction of any additions, deletions, relocations or changes to the roof platforms for heating and air conditioning equipment.



(b)

Design and construction of any additions, deletions, relocations or changes to roof penetrations for ducts, vents, plumbing and conduits.



(c)

Design and construction of any additions, deletions, relocations or changes to the fire sprinkler system, if any, to accommodate Tenant's space configuration and governing agencies criteria.

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    Landlord shall have the right but not the obligation to perform, on behalf of and for the account of Tenant, subject to reimbursement of the cost thereof by Tenant, any and all of the Tenant's Work which Landlord determines, in its sole discretion, should be performed immediately and on an emergency basis for the best interest of the Shopping Center, or as required by any governmental entity or required for compliance with any manufacturer's warranty, including without limitation, work which pertains to structural components, mechanical, sprinkler and general utility systems, roofing and removal of unduly accumulated construction material and debris.

    Section 7.2.  Parking Facilities.  Landlord shall construct or shall have constructed upon the Shopping Center site at its own cost access roads, sidewalks and parking lots or facilities substantially as shown on Exhibit "A."

    Section 7.3.  Changes and Additions to Buildings.  Landlord hereby reserves the right at any time to make alterations or additions to and to build additional stories on the building in which the Premises are contained and to build another building adjoining the Premises. Landlord also reserves the right to construct other buildings or improvements in the Shopping Center from time to time and to make alterations thereof or additions thereto and to build additional stories on any such building or buildings and to build adjoining same. Easements for light and air are not included in the leasing of these Premises to Tenant. Landlord further reserves the exclusive right to the roof except as provided in this Lease.

    Section 7.4.  Financing.  Landlord shall not be obliged to proceed with the construction of the Premises unless and until financing acceptable to Landlord is obtained. Should such financing not be obtainable, Landlord shall so notify Tenant in writing, and this Lease shall thereupon cease and terminate and each of the parties hereto shall be released and discharged from any and all liability and responsibility hereunder. If Landlord can obtain financing only upon the basis of modifications of the terms and provisions of this Lease, the Landlord shall have the right to cancel this Lease if the Tenant refuses to approve in writing any such modification within ten (10) days after Landlord's request therefor, which request may not be made later than thirty (30) days prior to delivery of possession. If such right to cancel is exercised, this Lease shall thereafter be null and void, any money or security deposited hereunder shall be returned to Tenant, and neither party shall have any liability to the other by reason of such cancellation.

    Section 7.5.  Right to Adjust.  The purpose of the site plan attached hereto as Exhibit "A" is to show the approximate location of the Premises. Notwithstanding any other provision contained in this Lease, Landlord reserves the right at any time to relocate, vary and adjust the size of the various buildings, the location of any tenant, including Tenant, automobile parking areas, and other common areas as shown on said site plan, provided, however, that said parking area (including landscaped and common areas) shall at all times provide for not less than two square feet for each square foot of ground floor building area within the Shopping Center.

    Section 7.6  Relocation of Premises.  Landlord shall have the right upon sixty (60) days prior written notice to Tenant, to relocate Tenant to alternate premises of comparable size elsewhere in the Shopping Center, provided that Landlord shall reimburse Tenant a sum equal to the cost to improve the new premises to which Tenant is relocated to the substantially equivalent to the then condition of the existing Premises; and Tenant shall have all rights and obligations with respect to the new premises as provided for the original Premises in this Lease. If such relocation is consummated, Tenant's pro rata share of Shopping Center's operating costs as defined in Section 4.5(b)and Minimum Monthly Rent for the unexpired term of the Lease shall be proportionately adjusted by the increase or decrease in the new premises size in comparison to the original Premises and to any change in the Gross Floor Area of all premises in the Shopping Center. Landlord will also reimburse Tenant's reasonable out-of-pocket expenses (not to exceed two (2) months Minimum Monthly Rent) for moving Tenant's furniture, equipment, supplies, telephones and telephone equipment from the original Premises to the

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new premises. In no event shall Tenant's obligation to pay rent on the new Premises commence prior to the expiration of a reasonable period to be determined by Landlord allowing completion of Tenant's improvements and the opening of the new Premises for business. Prior to or concurrently with the relocation, Landlord will prepare, and the parties will execute, an Amendment to this Lease, or at Landlord's option the parties shall enter into a new lease evidencing the relocation and to make any necessary changes to the lease terms resulting from the relocation.

ARTICLE VIII

USE OF PROPERTY

    Section 8.1  Permitted Uses.  Tenant shall use the Premises only for the Permitted Uses set forth in Section 1.8 above and for no other use or purpose, without Landlord's written consent, to be given or withheld in Landlord's sole and absolute discretion.

    Section 8.2  Manner of Use.

    (a)  Interference with Use/Nuisance.  Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with or infringe on the rights of other occupants or customers of the Shopping Center, or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, or objectionable purposes; nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premise or commit or suffer to be committed any waste in, on or about the Premises. Tenant shall not be liable to Landlord for any other occupant's failure to so conduct itself.

    (b)  Violation of Law/Insurance Provisions.  Tenant shall not do or permit to be done in or about the Premises, nor bring, keep or permit to be brought or kept therein, anything which is prohibited by or will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated, or which is prohibited by any standard form of fire insurance policy or will in any way increase the existing rate of or affect any fire or other insurance upon the building or any part thereof or any of its contents, or cause a cancellation of any insurance policy covering the building or any part thereof or any of its contents. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the Premises, and the requirements of any Board of Fire Underwriters or other similar body now or hereafter instituted, with any order, directive or certificate of occupancy issued pursuant to any law, ordinance or regulation by any public officer insofar as the same relates to or affects the condition, use or occupancy of the Premises, including but not limited to, (i) requirements of structural changes related to or affected by Tenant's acts, occupancy or use of the Premises, and (ii) any and all requirements relating to the Premises imposed by applicable law including, but not limited to, modifications of existing portions of the Premises required under the Americans with Disabilities Act or any other applicable laws, all at Tenant's sole expense. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Landlord, whether or not Tenant is a party to such action, shall be conclusive in establishing such violations between Landlord and Tenant.

    (c)  Permits.  Tenant shall obtain and pay for all permits, including a certificate of occupancy, required for Tenant's occupancy of the Premises and shall promptly take all substantial and non-substantial actions necessary to comply with all applicable statutes, ordinances, rules, regulations, orders and requirements regulating the use by Tenant of the Premises, including the Occupational Health and Safety Act.

    (d)  Store Operation.  Subject to the terms and conditions expressly set forth in Rider Two hereof, Tenant shall continuously operate one hundred percent (100%) of the Premises during the entire Term of this Lease on the days and during the hours provided below with due diligence and efficiency so as to produce all of the gross receipts which may be produced by such manner of

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operation, unless prevented from doing so by causes beyond Tenant's control. Tenant shall conduct its business in the Premises during the regular customary days and hours for such type of business in the city or trade area in which the Shopping Center is located.

    (e)  Change of Name.  Tenant agrees not to change the advertised name of the business operated in the Premises without the written permission of Landlord.

    (f)  Solicitation of Business.  Tenant and Tenant's employees and agents shall not solicit business in the parking or other common areas, nor shall Tenant distribute any handbills or other advertising matter in automobiles parked in the parking area or in other common areas.

    Section 8.3  Competitive Business.  In no event shall Tenant shall directly or indirectly own, operate, manage or engage in any similar or competing business within a radius of three (3) miles from the outside boundary of this Shopping Center.

    Section 8.4  Indemnification of Landlord.  Tenant shall indemnify and protect Landlord and save it harmless from and against any and all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence in, upon or about the Premises, or the occupancy or use by Tenant of the Premises or any part thereof, or occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, servants, tenants or concessionaires. Tenant shall further indemnify, protect and hold Landlord harmless from and against any and all claims arising from any breach or default in performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any act, neglect, fault or omission of Tenant or its agents, contractors, employees, servants, tenants or concessionaires, and from and against all costs, attorneys' fees, expenses and liabilities incurred in connection with such claim or any action or proceeding brought thereon. In case any action or proceeding shall be brought against Landlord by reason of any such claim, Tenant upon notice from Landlord shall defend the same at Tenant's expense by counsel approved in writing by Landlord. Tenant, as a material part of the consideration to Landlord, hereby waives all claims against Landlord for and assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever except (i) that which is caused by the failure of Landlord to observe any of the terms and conditions of this Lease where such failure has persisted for an unreasonable period of time after written notice of such failure, and (ii) Landlord's gross negligence or intentional misconduct.

    Section 8.5  Landlord's Access.  Landlord or its agents may enter the Premises at all reasonable times to show the Premises to potential buyers, investors or tenants or other parties, or for any other purpose Landlord deems necessary. Landlord shall give Tenant prior notice of such entry, except in the case of an emergency. Landlord may place customary "For Sale" or "For Lease" signs on the Premises.

    Section 8.6  Excavation.  If an excavation shall be made upon land adjacent to or under the Premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the Premises for the purpose of doing such work as Landlord shall deem necessary to preserve the wall or the building of which the Premises form a part from injury or damage and to support the same by proper foundations, without any claim for damages or indemnification against Landlord or diminution or abatement of rent.

    Section 8.7  Quiet Possession.  If Tenant pays the rent and complies with all other terms of this Lease, Tenant may occupy and enjoy the Premises for the full Lease Term, subject to the provisions of this Lease and to any mortgages or deeds of trust encumbering the Shopping Center.

    Section 8.8  Window Coverings.  Landlord shall select a standard window covering and color for use throughout the building and Tenant shall use this standard window covering for any windows Tenant shall cover. Tenant shall be required to provide, at its expense, prescribed coverings in front of windows in which the space is utilized for other than office use, such as storage or manufacturing.

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ARTICLE IX

HAZARDOUS MATERIALS

    Section 9.1  Prohibition of Storage.  Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be brought upon, kept or used in or about the Premises by Tenant, its agents, employees, contractors or invitees in a manner or for a purpose prohibited by or which could result in liability under any applicable law, regulation, rule or ordinance. Tenant shall comply with all affirmative legal requirements concerning Hazardous Materials. If Tenant breaches the obligation stated in the preceding sentences, or if the presence of Hazardous Materials on the Premises caused or permitted by Tenant (including Hazardous Materials specifically permitted and identified below) results in a release of a hazardous substances or Hazardous Materials, a discharge of a pollutant or contaminant or any other contamination of the Premises resulting in a potential violation of or incurrence of liability under any law, regulation, rule or ordinance, or if contamination of the Premises by Hazardous Materials otherwise occurs for which Tenant is legally liable to Landlord for damage resulting therefrom, then Tenant shall indemnify, protect, defend and hold Landlord, its agents and contractors harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities, injunctive actions or orders, or losses (including without limitation diminution in value of the Premises, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Premises, damages arising from any adverse impact on marketing of space in the Premises and sums paid in settlement of claims, "response costs" as defined in the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), attorney's fees, consultant fees and expert fees) which arise during or after the Lease Term as a result of such contamination. With respect to the foregoing, Tenant acknowledges that it is familiar with Section 1542 of the California Civil Code which reads "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor...." and hereby releases Landlord from any unknown claims and waives all rights they may have under Section 1542 of the Civil Code or under any other statute or common law principle of similar effect.

    Section 9.2  Clean-up.  This indemnification of Landlord by Tenant pursuant to Subsection 9.1 above includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work required by any federal state or local governmental agency or political subdivision because of Hazardous Materials present in the soil or ground water on or under the Premises or emanating from the Premises. Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises caused or permitted by Tenant results in any contamination of the Premises, Tenant shall promptly take all actions at its sole expense as are necessary to return the Premises to the condition existing prior to the introduction of any such Hazardous Materials to the Premises, provided that Landlord's approval of such action shall first be obtained, which approval shall not be unreasonably withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises.

    Section 9.3  Business.  Landlord acknowledges that it is not the intent of this Section to prohibit Tenant from operating its business as described above. Tenant may operate its business so long as the use or presence of Hazardous Materials is strictly and properly monitored according to all applicable governmental requirements. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Commencement Date a list identifying each type of Hazardous Materials to be present on the Premises and setting forth any and all governmental approvals or permits required in connection with the presence of Hazardous Materials on the Premises ("Hazardous Materials List"). Tenant shall deliver to Landlord an updated Hazardous Materials List at least once a year and shall also deliver an updated list before any new Hazardous Materials are brought onto the Premises or on or before the date Tenant obtains any additional permits or approvals. In connection with any Hazardous Materials

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utilized by Tenant on the Premises, Tenant shall be responsible, at its sole cost and expense, for making any necessary modifications or improvements either to Premises or Tenant's equipment as required by applicable laws, or any governmental agency, Landlord's insurance company, Landlord's lender(s), Landlord's consultant(s), or prospective purchaser(s). Tenant will, at its sole cost and expense, promptly upon receipt of written notice from Landlord complete such improvements. If such work is not promptly undertaken and completed, Landlord shall have the right, but not the obligation, to complete such work and to charge such amounts to Tenant as additional rent under this Lease.

    Section 9.4  Termination of Lease.  Notwithstanding the provisions of Subsection 9.1 above, Landlord shall have the right to terminate the Lease in Landlord's sole and absolute discretion if (i) any anticipated use of the Premises by Tenant involves the generation or storage, use, treatment or disposal of Hazardous Materials in a manner or for a purpose prohibited by any governmental agency or authority; (ii) Tenant has been required by any lender or governmental authority to undertake removal or remedial action in connection with Hazardous Materials on the Premises if the presence of Hazardous Materials resulted from Tenant's action or use of the Premises (unless Tenant is in full compliance with all requirements connected with such removal or remedial action); or (iii) Tenant is subject to an enforcement order issued by any governmental authority in connection with the use, disposal or storage of Hazardous Materials on the Premises (unless Tenant is in full compliance with the terms of such enforcement order).

    Section 9.5  Assignment and Subletting.  Notwithstanding the provisions of Subsection 9.1 above, if (i) any anticipated use of the Premises by any proposed assignee or sublessee involves or reasonably could involve the generation or storage, use, treatment or disposal of Hazardous Materials in a manner or for a purpose prohibited by any law, regulation, rule or ordinance; (ii) the proposed assignee or sublessee has been required by an prior landlord, lender or governmental authority to undertake removal or remedial action in connection with any Hazardous Materials on a property if the presence of the Hazardous Materials resulted from such party's action or use of the property in questions; or (iii) the proposed assignee or sublessee is subject to an enforcement order issued by any governmental authority in connection with the use, disposal or storage of Hazardous Materials, it shall not be unreasonable for Landlord to withhold its consent to an assignment or subletting to such proposed assignee or sublessee. This paragraph shall not preclude other grounds for Landlord's rejection of a sublease or assignment pursuant to any other provisions of this Lease.

    Section 9.6  Landlord's Right to Perform Tests.  At any time prior to the expiration of the Lease Term, Landlord shall have the right to enter upon the Premises in order to conduct appropriate tests of water and soil and to deliver to Tenant the results of such tests to demonstrate that levels of any Hazardous Materials in excess of permissible levels has occurred as a result of Tenant's use of the Premises. Tenant shall further be solely responsible for and shall defend, indemnify and hold the Landlord, its agents and contractors harmless from and against all claims, costs and liabilities including actual attorneys' fees and costs, arising out of or in connection with any removal, remediation, clean up, restoration and materials required hereunder to return the Premises and any other property of whatever nature to their condition existing prior to the appearance of the Hazardous Materials.

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    Section 9.7  Tenant's Obligations.  Tenant's obligations under this Article 9 shall survive the termination of the Lease. During any period of time employed by Tenant after the termination of this Lease to complete the removal from the Premises or remediation of any such Hazardous Materials, Tenant shall continue to pay the full rental in accordance with this Lease, which rental shall be prorated daily.

    Section 9.8  Health and Safety Code and Civil Code Notification Requirements.  Tenant recognizes its obligations under the California Health and Safety Code to notify Landlord of any release of a hazardous substance that Tenant knows or has reason to believe has or will come to be located on or beneath the Premises. Tenant further recognizes its obligations under California Civil Code sections 850, et seq. to notify Landlord of any release of a hazardous material of which Tenant has actual awareness and which is likely to exceed the notification threshold as defined in California Civil Code section 850.

    Section 9.9  Definition of "Hazardous Materials".  The term "Hazardous Materials" shall mean any toxic or hazardous substance, material or waste or any pollutant or contaminant or infectious or radioactive material, including but not limited to those substances, materials or wastes regulated now or in the future under any of the following statutes or regulations promulgated thereto: (1) any "hazardous substance" within the meaning of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), 42 U.S.C. §§ 9601 et seq. or the California Hazardous Substance Account Act, Cal. Health & Safety Code §§ 25300 et seq.; (2) any "hazardous waste" within the meaning of the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq.; (3) any "hazardous waste" or "extremely hazardous waste" within the meaning of the California Hazardous Waste Control Law, Cal. Health & Safety Code §§ 25100 et seq.; (4) any "hazardous chemical substance or mixture" or "imminently hazardous chemical substance or mixture" within the meaning of the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.; (5) any "hazardous air pollutant" within the meaning of the Federal Clean Air Act, 42 U.S.C. §§ 7400 et seq.; (6) any "toxic pollutant" or "oil or hazardous substance" within the meaning of the Federal Water Pollution Control Act, 33 U.S.C. §§ 1250 et seq.; (7) any "contaminant" within the meaning of the Safe Drinking Water Act, 42 U.S.C. § 300i; (8) any "chemical known to the state to cause cancer or reproductive toxicity" within the meaning of the Safe Drinking Water and Toxic Enforcement Act of 1986 ("Proposition 65"), Cal. Health & Safety Code §§ 25249.5 et seq.; (9) any "refuse matter" within the meaning of the Refuse Act of 1899, 33 U.S.C. § 407; (10) any "waste" within the meaning of the Porter-Cologne Water Quality Control Act, Cal. Water Code §§ 13000, et seq.; (11) any "hazardous waste" or "extremely hazardous waste" within the meaning of the Hazardous Waste Disposal Land Use Law, Cal. Health & Safety Code §§ 25220, et seq.; (12) any "hazardous substance" within the meaning of the Hazardous Substances Underground Storage Tank Law, Cal. Health & Safety Code §§ 25280, et seq.; (13) any "air contaminant" or "air pollutant" within the meaning of the Air Resources Law, Cal. Health & Safety Code §§ 39000, et seq.; (14) any "hazardous material" or "hazardous substance" within the meaning of the Hazardous Materials Release Response Plans and Inventory Law, Cal. Health & Safety Code §§ 25500, et seq.; and (15) any "constituent" within the meaning of the Toxic Pits Cleanup Act of 1984, Cal. Health & Safety Code §§ 25208-25208.17; (16) petroleum or any fraction thereof; (17) asbestos; or (18) any other substance, chemical waste, toxicant, pollutant or contaminant regulated by any federal, state or local law, statute, rule, regulation or ordinance for the protection of health or the environment.

ARTICLE X

PARKING AND COMMON USE AREAS AND FACILITIES

    Section 10.1  Control of Common Areas by Landlord.  "Common areas" means all areas, space, equipment and special services provided by Landlord for the common or joint use and benefit of the occupants of the Shopping Center, their employees, agents, servants, customers and other invitees,

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including without limitation parking areas, access roads, driveways, retaining walls, landscaped areas, truck service-ways or tunnels, loading docks, pedestrian malls, courts, stairs, ramps and sidewalks, comfort and first aid stations, washrooms and parcel pick-up stations. All common areas shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right from time to time to establish, modify and enforce reasonable rules and regulations with respect to the common areas. Landlord shall have the right to construct, maintain and operate lighting facilities on all said areas and improvements; to police the same; from time to time to change the area, level, location and arrangement of parking areas and other facilities hereinabove referred to; to restrict parking by tenants, their officers, agents and employees to employee parking areas; to enforce parking charges (by operation of meters or otherwise), with appropriate provisions for free parking ticket validating by tenants; to close all or any portion of said areas or facilities to such extent as may, in the opinion of Landlord's counsel, be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person or the public therein; to close temporarily all or any portion of the parking areas or facilities; to discourage non-customer parking; and to do and perform such other acts in and to said areas and improvements as, in the use of good business judgment, the Landlord shall determine to be advisable with a view to the improvement of the convenience and use thereof by tenants, their officers, agents, employees and customers. Landlord will operate and maintain the common areas referred to above in such manner as Landlord, in its sole discretion, shall determine from time to time. Without limiting the scope of such discretion, Landlord shall have the full right and authority to employ all personnel and to make all rules and regulations pertaining to and necessary for the proper operation and maintenance of the common areas and facilities.

    Section 10.2  License.  All common areas and facilities not within the Premises, which Tenant may be permitted to use and occupy, are to be used and occupied under a revocable license, and if any such license be revoked, or if the amount of such areas be diminished, Landlord shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, or shall such revocation or diminution of such areas be deemed constructive or actual eviction.

    Section 10.3  Merchants' Association.  Tenant will become a member of, participate fully in, and remain in good standing in the Merchants' Association (if now formed or as soon as the same has been formed) limited to tenants occupying premises in the Shopping Center, and abide by the regulations of such Association. Each member tenant shall have one vote in the operation of said Association. The objects of such Association shall be to encourage its members to deal fairly and courteously with their customers, to sell their merchandise or services at fair prices, to follow ethical business practices, to assist the business of the tenants by sales promotions and center-wide advertising, and in particular to help the interests of members of the said Association. The Tenant agrees to pay dues to the Merchants' Association as approved by a majority vote of the members of the Association. Nothing in the bylaws or regulations of the said Association shall be in conflict with the provisions of this Lease, including without limiting the generality of the foregoing any reasonable rules and regulations adopted pursuant to the provisions of Section 12.5 hereof, or in any way shall affect the rights of the Landlord.

ARTICLE XI

SIGNS, AWNINGS, CANOPIES, FIXTURES, ALTERATIONS, IMPROVEMENTS

    Section 11.1  Signs and Auctions.  No auction, fire or bankruptcy sales may be conducted in the Premises, and no signs advertising such sales shall be posted on the Premises without the prior written consent of Landlord.

    Section 11.2  Installation by Tenant.  Tenant shall not make or cause to be made any alterations, additions or improvements or install or cause to be installed any trade fixtures, exterior signs, exterior machinery, floor covering, interior or exterior lighting, plumbing fixtures, shades or awnings or make any changes to the Premises without the prior written consent of Landlord. All fixtures installed by

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Tenant shall be new or completely reconditioned. Tenant shall present to the Landlord plans and specifications for such work at the time approval is sought.

    Section 11.3  Improvements.  It is understood and agreed by Tenant that any and all leasehold improvements made to the Premises by Tenant prior to or during the Lease Term or any extensions thereof shall be made by Landlord's contractor. In the event Tenant should employ a contractor other than Landlord's, it is expressly understood and agreed that Tenant shall first obtain the Landlord s written approval of the Tenant's contractor and the terms of the contract. It is understood and agreed that among other features of such contract, the contract shall contain a provision whereby all funds to become due and payable under the contract shall be placed by Tenant in cash into an escrow prior to Tenant's contractor entering upon the Premises to perform work under the contract. As a condition to giving consent to Tenant improvements, Landlord may require that Tenant agree to remove any such alterations, additions, improvements or utility installations at the expiration of the Lease Term and to restore the Premises to their prior condition. As a further condition to giving such consent, Landlord may require Tenant to provide Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half (1¹/2) times the estimated cost of such improvements to insure Landlord against any liability for mechanics' and materialmen's liens and to insure completion of the work.

    Section 11.4  Non-Removal by Tenant.  All alterations, additions and improvements, including signs and sign cases, made by Tenant, or made by the Landlord on the Tenant's behalf and for which Tenant has paid Landlord in accordance with this Lease, shall remain the property of the Tenant for the term of the Lease, or any extension or renewal thereof. Such alterations, additions and improvements shall not be removed from the Premises. At the expiration or termination of this Lease Term, or any extensions or renewals thereof, all such alterations, additions and improvements become the property of the Landlord.

    Section 11.5  Removal and Restoration.  Landlord may, in its sole and absolute discretion, require Tenant upon expiration or termination of this Lease Term to return all or part of the leased Premises to their condition as existed at the commencement of the Lease Term, removing any alteration, addition or improvement made by Tenant, or made by Landlord on the Tenant's behalf. In removing any such alteration, addition or improvement as may be required by the Landlord, the Tenant shall repair any damage to the Premises caused by such removal and, prior to such removal, Tenant shall post a bond or other security as may be required by the Landlord in order to insure the Landlord that the Premises will be repaired in a prompt and workmanlike manner.

    Section 11.6  Liens.  Tenant shall keep the Premises and any building of which the Premises are a part free from any liens arising out of work performed, materials furnished or obligations incurred by Tenant and shall indemnify, hold harmless and defend Landlord from any liens and encumbrances arising out of any work performed or materials furnished by, or at the direction of, Tenant. In the event that Tenant shall not, within twenty (20) days following the imposition of any lien, cause such lien to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith shall bear interest at the rate of ten percent (10%) per annum from the date expended until the date repaid. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord and the Premises, and any other party having an interest therein from mechanics' and materialmen's liens, and Tenant shall give to Landlord at least fifteen (15) business days prior written notice of the expected date of commencement of any work relating to alterations or additions to the Premises.

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    Section 11.7  Signs, Awnings and Canopies.  Tenant will not place or suffer to be placed or maintained on any exterior door, wall or window of the Premises any sign, awning or canopy, or advertising matter or other thing of any kind, and will not place or maintain any decoration, lettering or advertising matter on the glass of any window or door of the Premises without first obtaining Landlord's written approval and the approval and consent of any governmental body having jurisdiction over signs in the Shopping Center. Tenant further agrees to maintain such signs, awnings, canopy, decoration, lettering or other advertising matter as may be approved, in good condition and repair at all times. Tenant also agrees, at Tenant's sole cost, to obtain a canopy type sign or signs which shall be in strict conformance with Landlord's sign criteria attached hereto as Exhibit "C" and incorporated herein, including but not limited to design, material, color, location, size and letter style. All signs must be fabricated by a contractor selected by Landlord. Prior to authorizing Landlord's contractor to construct any sign, a detailed drawing of the proposed sign shall be prepared by the Landlord's contractor at the sole expense of the Tenant, and submitted to the Landlord and Tenant for written approval. All signs and sign cases are to be considered fixtures and improvements and become the property of the Landlord upon expiration or termination of this Lease.

ARTICLE XII

CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS

    Section 12.1  Existing Conditions.  Tenant accepts the Premises in its condition as of the execution of this Lease, subject to all recorded matters, laws, ordinances, and governmental regulations and orders. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation as to the condition of the Premises or the suitability of the Premises for Tenant's intended use.

    Section 12.2  Exemption of Landlord from Liability; Waiver.  Landlord shall not be liable for any damage or injury to the person, business (or any loss of income therefrom), goods, wares, merchandise or other property of Tenant, Tenant's employees, invitees, customers or any other person in or about the Premises, whether such damage or injury is caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures or any other cause; (c) conditions arising in or about the Premises or upon other portions of any building of which the Premises is a part, or from other sources or places; or (d) any act or omission of any other tenant or occupant of the Shopping Center or of any building of which the Premises is a part. Landlord shall not be liable for any such damage or injury even though the cause of or the means of repairing such damage or injury are not accessible to Tenant. Tenant, as a material part of the consideration to be rendered to Landlord, hereby waives all claims against Landlord for the foregoing damages from any cause arising at any time. The provisions of this Section 12.2 shall not, however, exempt Landlord from liability for Landlord's gross negligence or willful misconduct.

    Section 12.3  Tenant's Obligations.

    (a) Except for the preventative maintenance contract to be obtained as provided below, Tenant agrees at all times, at its own cost and expense, to repair, maintain in good and tenantable condition and replace, as necessary, the Premises and every part thereof (except that portion of the Premises to be maintained by Landlord under Section 12.4) including, without limitation, the following: all meters, pipes, conduits, equipment, components and facilities that supply the Premises exclusively with utilities (except if the appropriate utility company has assumed these duties) or that form an air conditioning system exclusively servicing the Premises, all fixtures and other equipment installed in the Premises; all exterior and interior glass installed in the Premises; the store front(s); all signs (see Section 12.4), locks and closing devices; all window sashes, casements and frames; doors and door frames; floor coverings; and all such items of repair, maintenance, alteration, improvement or reconstruction as may be required at any time or from

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time to time by any governmental agency having jurisdiction thereof. Landlord shall also have the right, but not the obligation, to paint/stain/varnish or otherwise refinish Tenant's store front, window sashes, casements, frames, doors and door jams with Landlord having the right, but not the obligation, to include all such costs as Shopping Center operating costs under Section 4.5 hereof. Tenant shall promptly replace any portion of the Premises or system or equipment in the Premises which cannot be fully repaired, regardless of whether the benefit of such replacement extends beyond the Lease Term. Landlord shall obtain a preventive maintenance contract providing for the regular inspection and maintenance of the heating and air conditioning system (including leaks around ducts, pipes, vents, or other parts of the air conditioning) by a licensed heating and air conditioning contractor. The cost thereof shall be included as a Shopping Center operating cost. Landlord agrees to use reasonable efforts to have Landlord's HVAC contractor provide notice to Tenant of any necessary HVAC repairs or recommended maintenance that are not covered by Landlord's preventative maintenance contract in order for Tenant to complete such items as soon as reasonably possible. Notwithstanding the foregoing, Landlord shall in no event be liable or responsible to Tenant in the event Tenant is not provided with such notice of required repairs or recommended maintenance. It is the intention of Landlord and Tenant that, at all times during the Lease Term, Tenant shall maintain the Premises in an attractive, first-class and fully operative condition.

    (b) All of Tenant's obligations to maintain and repair shall be accomplished at Tenant's sole expense. If Tenant refuses or neglects to repair properly as required hereunder and to the reasonable satisfaction of Landlord, Landlord may, on ten (10) days' prior notice (except that no notice shall be required in case of emergency) enter the Premises and perform such repair and maintenance on behalf of Tenant without liability to Tenant for any loss or damage that may accrue to Tenant's merchandise, fixtures, or other property or to Tenant's business by reason thereof, and upon completion thereof, Tenant shall pay Landlord's costs for making such repairs plus twenty percent (20%) for overhead, upon presentation of a bill therefore, as Additional Rent. Said bill shall include interest at ten percent (10%) on said costs from the date of completion of repairs by Landlord.

    Section 12.4  Landlord's Obligations.  Subject to the provisions of Section 12.3 (Tenant's Obligations) Article XIII (Damage or Destruction), Article XIV (Condemnation) and Article X (Parking and Common Use Facilities), Landlord shall repair, maintain in good and tenantable condition and replace, as necessary, the roof, exterior walls, structural parts of the Premises and all meters, pipes, conduits, equipment, components and facilities that supply the Premises with utilities on a nonexclusive basis (except if the appropriate utility company has assumed these duties) or that form a centralized air conditioning system servicing the Premises in common with other Premises in the Shopping Center provided, however, that Landlord shall not be required to make repairs necessitated by reason of the negligence of Tenant or anyone claiming under Tenant, by reason of the failure of Tenant to perform or observe any conditions or agreements of this Lease, or by reason of any improvements made by Tenant or anyone claiming under Tenant. In addition, Landlord shall have the right, but not the obligation, as a Shopping Center operating cost to maintain and repair any and all cabinet signs maintained by Tenant including but not limited to repairing the sign face and electrical portions, waxing and/or refinishing the cabinet sign faces, all at Tenant's expense. Any and all of such costs and expenses of Landlord shall be Shopping Center operating costs under Section 4.5 hereof. Tenant waives the benefit of California Civil Code Sections 1941 and 1942 and of any other present or future law which might give Tenant the right to repair the Premises at Landlord's expense or to terminate the Lease due to the condition of the Premises.

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    Section 12.5  Rules and Regulations.

    (a) The Tenant agrees as follows:

    (1) All garbage and refuse shall be kept in the kind of container specified by Landlord, and shall be placed outside of the Premises in specified trash containers prepared for collection in the manner and at the times and places specified by Landlord. If Landlord shall provide or designate a service for picking up refuse and garbage, Tenant shall use same at Tenant's cost. Tenant shall pay the cost of removal of any of Tenant's refuse or rubbish.

    (2) No aerial shall be erected on the roof or exterior walls of the Premises, or on the grounds, without in each instance, the written consent of the Landlord. Any aerial so installed without such written consent shall be subject to removal without notice at any time.

    (3) No loudspeakers, televisions, phonographs, radios, or other devices shall be used in a manner so as to be heard or seen outside of the Premises without the prior written consent of the Landlord.

    (4) The outside areas immediately adjoining the building shall be kept clean and free from dirt and rubbish by the Tenant to the satisfaction of the Landlord and Tenant shall not place or permit any obstruction or materials in such areas. No exterior storage shall be allowed without permission in writing from Landlord.

    (5) Tenant and Tenant's employees shall park only the number of cars approved and only in those portions of the parking area designated for that purpose by Landlord.

    (6) The plumbing facilities shall not be used for any other purpose than that for which they are constructed, and no foreign substance of any kind shall be thrown therein, and the expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by Tenant, who shall, or whose employees, agents or invitees shall have caused it.

    (7) Tenant shall use at Tenant's cost such pest extermination contractor as Landlord may direct and at such intervals as Landlord may require.

    (8) Tenant shall not burn any trash or garbage of any kind in or about the Premises, or the building.

    (9) Tenant shall warehouse, store and/or stock in the Premises only such goods, wares and merchandise as Tenant intends to offer for sale at retail at, in, from or upon the Premises. This shall not preclude occasional emergency transfers of merchandise to the other stores of Tenant, if any, not located in the Shopping Center. Tenant shall use for office, clerical or other non-selling purposes only such space in the Premises as is from time to time reasonably required for Tenant's business in the Premises.

   (10) Tenant shall not cause or permit any odors to be emitted from the Premises which do or may in Landlord's judgement affect other tenant's or patrons of the Shopping Center. Tenant agrees and acknowledges that if Tenant violates the foregoing provision and Landlord receives complaints from other tenant(s) or visitor(s) of the Shopping Center, then Landlord shall have the right to determine what corrective measures are required and all such corrective measures shall be immediately undertaken by Tenant at Tenant's sole cost and expense after receipt of notice of the required corrective measures from Landlord. If Tenant does not comply, Landlord shall have the right, but not the obligation, to cause such corrective measures to be implemented and charge any and all costs thereof to Tenant as additional rent due under this Lease.

    (b) Landlord reserves the right from time to time to amend or supplement the foregoing rules and regulations, and to adopt and promulgate additional rules and regulations applicable to

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the Premises. Notice of such rules and regulations and amendments and supplements thereto, if any, shall be given to the Tenant and Tenant agrees to comply with all such rules and regulations upon receipt of notice. Landlord shall not be liable in any way to Tenant for any damage or inconvenience caused by any other tenant's non-compliance with these rules and regulations.

    Section 12.6  Condition upon Termination.  Upon the termination of this Lease, Tenant shall surrender the Premises to Landlord, broom clean and in the same condition as received except for ordinary wear and tear which Tenant was not otherwise obligated to remedy under any provision of this Lease.  However, Tenant shall not be obligated to repair any damage which Landlord is required to repair under Article XIII (Damage or Destruction). In addition, Landlord may require Tenant to remove any alterations, additions or improvements (whether or not made with Landlord's consent) prior to the termination of this Lease and to restore the Premises to its prior condition, which may include at Landlord's discretion the removal of all or a part of the existing improvements which are specific to Tenant's type of business, or restoration of the Premises to a "vanilla shell" condition, all at Tenant's expense. All alterations, additions and improvements which Landlord has not required Tenant to remove shall become Landlord's property and shall be surrendered to Landlord upon the termination of this Lease, except that Tenant may remove any of Tenant's machinery or equipment which can be removed without material damage to the Premises. Tenant shall repair, at Tenant's expense, any damage to the Premises caused by the removal of any such machinery or equipment. In no event, however, shall Tenant remove any of the following materials or equipment without Landlord's prior written consent: any power wiring or power panels; lighting or lighting fixtures; wall coverings; drapes, blinds or other window coverings; carpets or other floor coverings; heaters, air conditioners or any other heating or air conditioning equipment; fencing or security gates; or other similar building operating equipment and decorations.

ARTICLE XIII

DAMAGE OR DESTRUCTION

    Section 13.1  Partial Damage to Leased Premises.  Tenant shall notify Landlord in writing immediately upon the occurrence of any damage to the Premises. If the Premises is only partially damaged (meaning the cost to repair would not exceed twenty-five percent (25%) of replacement value) and if the proceeds received by Landlord from the insurance policies described in Article IV (together with the deductible, if any) are sufficient to pay for the necessary repairs, this Lease shall remain in effect and Landlord shall repair the damage as soon as reasonably possible. Landlord may elect to repair any damage to Tenant's fixtures, equipment, or improvements. If the insurance proceeds received by Landlord (together with the deductible, if any) are not sufficient to pay the entire cost of repair, or if the cause of the damage is not covered by the insurance policies which Landlord maintains under Article IV, Landlord may elect either to (a) repair the damage as soon as reasonably possible, in which case this Lease shall remain in full force and effect, or (b) terminate this Lease as of the date the damage occurred. Landlord shall notify Tenant within thirty (30) days after receipt of notice of the occurrence of the damage, whether Landlord elects to repair the damage or terminate this Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the "deductible amount" (if any) under Landlord's insurance policies or the Tenant's pro rata share thereof if the Premises is in a multi-tenant building, and, if the damage was due to an act or omission of Tenant, the difference between the actual cost of repair and any insurance proceeds received by Landlord. If the damage to the Premises occurs during the last six (6) months of the Lease Term, Landlord may elect to terminate this Lease as of the date the damage occurred, regardless of the sufficiency of any insurance proceeds and Landlord may retain all such proceeds. Landlord shall notify Tenant of its election within thirty (30) days after receipt of notice of the occurrence of the damage.

    Section 13.2  Total or Substantial Destruction.  If the Premises is totally or substantially destroyed (meaning the cost to repair would exceed twenty-five percent (25%) of replacement value) by any cause

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whatsoever, or if the Premises is in a building which is substantially destroyed (even though the Premises is not totally or substantially destroyed), this Lease shall, at the election of the Landlord, terminate as of the date the destruction occurred regardless of whether Landlord receives any insurance proceeds. However, if the Premises can be rebuilt within one (1) year after the date of destruction, Landlord may elect to rebuild the Premises at Landlord's own expense (with all insurance proceeds being made available to the Landlord to apply against such costs), in which case, this Lease shall remain in full force and effect. Landlord shall notify Tenant of such election within thirty (30) days after the occurrence of total or substantial destruction. If the destruction was caused by an act or omission of Tenant, Tenant shall pay Landlord the difference between the actual cost of rebuilding and any insurance proceeds received by Landlord.

    Section 13.3  Partial Destruction of Shopping Center.  In the event that twenty-five percent (25%) or more of the rentable area of the Shopping Center shall be damaged or destroyed by fire or other cause, notwithstanding that the Premises may be unaffected by such fire or other cause, Landlord shall have the right, to be exercised by notice in writing delivered to Tenant within sixty (60) days from and after said occurrence, to elect to cancel and terminate this Lease. Upon the giving of such notice to Tenant, the term of this Lease shall expire by lapse of time upon the third day after such notice is given, and Tenant shall vacate the Premises and surrender the same to Landlord. Nothing in this Section nor any other Section hereof shall be construed as a limitation of Tenant's liability for such occurrence, should such liability otherwise exist.

    Section 13.4  Landlord's Obligations.  Landlord shall not be required to repair any injury or damage by fire or other cause, or to make any restoration or replacement of any paneling, decorations, partitions, railings, floor coverings, office fixtures or any other improvements or property installed in the Premises by Tenant or at the direct or indirect expense of Tenant which are not part of the original Tenant improvements paid for by Landlord. Tenant shall be required to restore or replace same in the event of damage except for damage caused solely by the Landlord's negligence or intentional misconduct. Tenant shall have no claim against Landlord for any damage suffered by reason of any such damage, destruction, repair or restoration, nor shall Tenant have the right to terminate this Lease as the result of any statutory provision now or hereafter in effect pertaining to the damage and destruction of the Premises, except as expressly provided herein.

    Section 13.5  Temporary Reduction of Rent.  If the Premises is destroyed or damaged and Landlord or Tenant repairs or restores the Premises pursuant to the provisions of this Article XIII, any rent payable during the period of such damage, repair and/or restoration shall be reduced by the amount payable under any rental income insurance paid to Landlord. Except for such possible reduction in payments required from the Tenant, Tenant shall not be entitled to any compensation, reduction, or reimbursement from Landlord as a result of any damage, destruction, repair, or restoration of or to the leased Premises.

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    Section 13.6  Waiver.  Since Landlord and Tenant have agreed that the provisions of this Article XIII shall govern the rights and obligations of Landlord and Tenant in the event of any damage or destruction of the Premises, Tenant waives the provisions of California Civil Code Section 1932(2) which indicates that the hirer of a thing may terminate the hiring before the end of the term "when the greater part of the thing hired, or that part which was and which the letter had at the time of the hiring reason to believe was the material inducement to the hirer to enter into the contract, perishes from any other cause than the want of ordinary care of the hirer," and of California Civil Code Section 1933(4) which indicates that "the hiring of a thing terminates by the destruction of the thing hired," and of any similar statute, code or judicial decision which grants a tenant the right to terminate a lease in the event of damage or destruction of the Premises.

ARTICLE XIV

CONDEMNATION

    Section 14.1  Total Condemnation.  If the whole of the Premises shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose, then the Term of this Lease shall cease and terminate as of the date of title vesting in such proceeding and all rentals shall be paid up to that date and Tenant shall have no claim against Landlord for the value of any unexpired Term of this Lease.

    Section 14.2  Total Condemnation of Parking Area.  If the whole of the common parking areas in the Shopping Center shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose, then the Term of this Lease shall cease and terminate as of the date of title vesting in such proceeding unless Landlord shall take reasonable steps to provide other parking facilities substantially equal to the previously existing ratio between the common parking areas and the Premises, and such substantially equal parking facilities shall be provided by Landlord at its own expense within ninety (90) days from the date of acquisition. In the event that Landlord shall provide such other substantially equal parking facilities, then this Lease shall continue in full force and effect. In any event, Tenant shall have no claim against Landlord for the value of any unexpired Term of this Lease.

    Section 14.3  Partial Condemnation.  If any part of the Premises shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose, and in the event that such partial taking or condemnation shall render the Premises unsuitable for the business of the Tenant, then the Term of this Lease shall cease and terminate as of the date of title vesting in such proceeding and Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease. In the event of a partial taking or condemnation which is not extensive enough to render the Premises unsuitable for the business of the Tenant, then Landlord shall within a reasonable time restore the Premises to a condition comparable to its condition at the time of such condemnation less the portion lost in the taking, and this Lease shall continue in full force and effect.

    Section 14.4  Partial Condemnation of Parking Area.  If any part of the parking area in the Shopping Center shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose and if, as the result of such partial taking the ratio of square feet of parking area and common use areas and facilities as described in Section 10.1 hereof to square feet of the sales area of the entire Shopping Center buildings is reduced to a ratio below two to one, then the Term of this Lease shall cease and terminate from the date of title vesting in such proceeding, unless the Landlord shall take reasonable steps toward increasing said ratio to a ratio equal to or in excess of two to one, in which event this Lease shall be unaffected and remain in full force and effect as between the parties. In any event, Tenant shall have no claim against Landlord for the value of any unexpired Term of this Lease.

    Section 14.5  Condemnation of Less than a Fee.  In the event of a condemnation of a leasehold interest in all or a portion of the Premises without the condemnation of the fee simple title also, this

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Lease shall not terminate and such condemnation shall not excuse Tenant from full performance of all of its covenants hereunder, but Tenant in such event shall be entitled to present or pursue against the condemning authority its claim for and to receive all compensation or damages sustained by it by reason of such condemnation, and Landlord's right to recover compensation or damages shall be limited to compensation for and damages, if any, to its reversionary interest, it being understood, however, that during such time as Tenant shall be out of possession of the Premises by reason of such condemnation, the Lease shall not be subject to forfeiture for failure to observe and perform those covenants not calling for the payment of money. In the event the condemning authority shall fail to keep the Premises in the state of repair required hereunder, or to perform any other covenant not calling for the payment of money, Tenant shall have ninety (90) days after the restoration of possession to it within which to carry out its obligations under such covenant or covenants. During such time as Tenant shall be out of possession of the Premises by reason of such leasehold condemnation, Tenant shall pay to Landlord, in lieu of the minimum and percentage rents provided for hereunder, and in addition to any other payments required of Tenant hereunder, an annual rent equal to the average annual minimum and percentage rents paid by Tenant for the period from the commencement of the term until the condemning authority shall take possession, or during the preceding three (3) full calendar years, whichever period is shorter. At any time after such condemnation or proceedings are commenced, Landlord shall have the right, at its option, to require Tenant to assign to Landlord all compensation and damages payable by the condemnor to Tenant, to be held without liability for interest thereon as security for the full performance of Tenant's covenants hereunder, such compensation and damages received pursuant to said assignment to be applied first to the payment of rents and all other sums from time to time payable by Tenant pursuant to the terms of this Lease as such sums fall due, and the remainder, if any, to be payable to Tenant at the end of the term hereof or on restoration of possession to Tenant, whichever shall first occur, it being understood and agreed that such assignment shall not relieve Tenant of any of its obligations under this Lease with respect to such rents and other sums except as the same shall be actually received by Landlord.

    Section 14.6  Distribution of Condemnation Award.  Any condemnation award or payment shall be distributed in the following order: (a) first, to any ground lessor, mortgagee or beneficiary under a deed of trust encumbering the Premises, the amount of its interest in the Premises; (b) second, to Tenant, only the amount of any award specifically designated for loss of or damage to Tenant's trade fixtures or removable personal property, and the Tenant hereby assigns any other rights which the Tenant may have now or in the future to any other award to the Landlord; and (c) third, to Landlord, the remainder of such award, whether as compensation for reduction in the value of the leasehold, the taking of the fee, or otherwise. If this Lease is not terminated, Landlord shall repair any damage to the Premises caused by the condemnation, except that Landlord shall not be obligated to repair any damage for which Tenant has been reimbursed by the condemning authority. If the severance damages received by Landlord are not sufficient to pay for such repair, Landlord shall have the right to either terminate this Lease or make such repair at Landlord's expense.

ARTICLE XV

ASSIGNMENT AND SUBLETTING

    Section 15.1  Landlord's Consent Required.  Tenant shall not either voluntarily or by operation of law, assign, mortgage, pledge, hypothecate or encumber this Lease or the leasehold interest created hereby or any interest herein, or sublet the Premises or any portion thereof, or license the use of all or any portion of the Premises or permit any other person to occupy or use the Premises or any portion thereof (collectively referred to herein as a "Transfer"), without the written consent of Landlord first had and obtained, which consent is subject to the following conditions: (i) the proposed transferee's use of the Premises must be consistent with Articles VIII and IX hereof; (ii) in Landlord's reasonable business judgment, the proposed transferee must have sufficient business reputation and experience to operate a successful business of the type and quality permitted under this Lease; (iii) in Landlord's

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reasonable business judgment, the percentage rent paid under this Lease that Landlord would reasonably anticipate receiving from the proposed transferee must not be less than the percentage rent that Landlord has received from Tenant; (iv) the proposed Transfer must not breach any covenant of Landlord respecting radius, business location, use or exclusivity in any other lease, financing agreement or any other agreement relating to the Shopping Center or, in Landlord's reasonable business judgment, create a tenant mix concern; (v) the net worth of the proposed transferee must not be less than the greater of the Tenant's net worth as of the effective date of this Lease or at the date of request for consent; (vi) twenty-five percent (25%) of any profit received by the Tenant from the proposed Transfer, whether during or after the Term of this Lease, shall be paid to Landlord when received; and (vii) the proposed transferee must not be an existing tenant in the Shopping Center.

    Section 15.2  Transfers of Interests in Tenant Requiring Landlord's Consent.  If Tenant or its general partner or manager hereunder is a corporation which, under laws of California, is not deemed a public corporation, or is an unincorporated association, partnership, or a limited liability company, then the transfer, assignment, or hypothecation of any stock or interest in such corporation, association, partnership or limited liability company or its general partner or manager in the aggregate in excess of twenty-five percent (25%) shall be deemed a Transfer under the meaning of this Article XV.

    Section 15.3  Grant of Concessions; Conditions to Grant.  The provision against subletting elsewhere contained in this Lease shall not prohibit Tenant from granting concessions for the operation of one or more departments of the business which Tenant is permitted by Section 1.8 to conduct in or upon the Premises; provided, however, that (a) each such concession may be granted only upon receipt by Tenant of the written consent of the Landlord and shall be subject to all the terms and provisions of this Lease; (b) the gross receipts, as defined in Section 3.4 hereof, from the operation of each such concession, shall be deemed to be a part of the gross receipts of Tenant for the purpose of determining the additional rental payable to Landlord; (c) all of the provisions hereof applying to the business of Tenant including the provisions concerning reports and audits shall apply to each such concession; and (d) at least seventy-five (75%) percent of the sales floor area of the Premises shall at all times be devoted to the business of and be operated by Tenant.

    Section 15.4  Transfer Without Consent.  Any Transfer without Landlord's prior written consent shall, at the option of the Landlord, constitute a non-curable breach of this Lease. In the absence of an express agreement in writing to the contrary, no Transfer shall act as a release of Tenant from any of the obligations and agreements on its part to be kept and performed hereunder. Tenant hereby fully waives and relinquishes any rights it may have under California Civil Code Section 1995.310, otherwise permitting Tenant to seek damages against Landlord and/or to attempt to terminate this Lease in connection with an allegation that Landlord has unreasonably withheld consent to a Transfer. Tenant agrees and acknowledges that Tenant's sole right and remedy against Landlord in such instance shall be to seek and to have the Transfer approved as consistent with the terms and provisions of this Lease or based upon a determination that Landlord has unreasonably withheld its consent to the proposed Transfer.

    Section 15.5  No Release of Tenant.  No transfer permitted by this Article XV, shall release Tenant or change Tenant's primary liability to pay the rent and to perform all other obligations of Tenant under this Lease. Landlord's acceptance of rent from any other person is not a waiver of any provision of this Article XV. Consent to one transfer is not a consent to any subsequent transfer. If Tenant's transferee defaults under this Lease, Landlord may proceed directly against Tenant without pursuing remedies against the transferee. Landlord may consent to subsequent assignments or modifications of this Lease by Tenant's transferee, without notifying Tenant or obtaining its consent. Such action shall not relieve Tenant's liability under this Lease.

    Section 15.6  Landlord's Election.  Tenant's request for consent to any transfer described in Section 15.1 above shall be accompanied by a written statement setting forth the details of the

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proposed transfer, including the name, business and financial condition of the prospective transferee, financial details of the proposed transfer (e.g., the term of and rent and security deposit payable under any assignment or sublease), and any other information requested by Landlord. Landlord shall have the right (a) to withhold consent based upon the standards set forth in Section 15.1; (b) to grant consent; or (c) if the transfer is a sublease of the Premises or an assignment of this Lease, to terminate this Lease as of the effective date of such sublease or assignment, in which case Landlord may elect to enter into a direct lease with the proposed assignee or subtenant.

    Section 15.7  No Merger.  No merger shall result from Tenant's sublease of the Premises under this Article XV, Tenant's surrender of this Lease or the termination of this Lease in any other manner. In any such event, Landlord may terminate any or all subtenancies or succeed to the interest of Tenant as sub-landlord thereunder.

    Section 15.8  Assignment Fees and Procedures.  In the event Landlord shall be requested to consent to a sublease, assignment, pledge, encumbrance, or any other transfer of all or any portion of Tenant's rights hereunder, as specified in Section 15.1 hereof, Tenant shall pay Landlord a reasonable fee not to exceed Five Hundred Dollars ($500.00) to reimburse Landlord for costs and expenses, excluding attorneys' fees which shall be reimbursed pursuant to Section 18.2 herein, incurred in connection with reviewing Tenant's request for consent. Tenant's check for the assignment fee shall be delivered to Landlord concurrent with Tenant's request for consent.

ARTICLE XVI

DEFAULTS; REMEDIES

    Section 16.1  Covenants and Conditions.  Tenant's performance of each of Tenant's obligations under this Lease is a condition as well as a covenant. Tenant's right to continue in possession of the Premises is conditioned upon such performance. Time is of the essence in the performance of all covenants and conditions.

    Section 16.2  Defaults.  Tenant shall be in material default under this Lease:

    (a) If Tenant abandons or vacates the Premises;

    (b) If Tenant fails to pay rent or any other charge required to be paid by Tenant, as and when due;

    (c) If Tenant fails to perform any of Tenant's nonmonetary obligations under this Lease for a period of fifteen (15) days after written notice from Landlord; provided that if more time is required to complete such performance, Tenant shall not be in default if Tenant commences such performance within the fifteen (15) day period and thereafter diligently pursues its completion. However, Landlord shall not be required to give such notice if Tenant's failure to perform constitutes a non-curable breach of this Lease. The notice required by this Paragraph is intended to satisfy any and all notice requirements imposed by law on Landlord prior to the commencement of an unlawful detainer action and is not in addition to any such requirement;

    (d) (i) If Tenant makes a general assignment or general arrangement for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for reorganization or rearrangement is filed by or against Tenant and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed to take possession of substantially all of Tenant's assets located at the Premises or of Tenant s interest in this Lease and possession is not restored to Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease is subjected to attachment, execution or other judicial seizure which is not discharged within thirty (30) days. If a court of competent jurisdiction determines that any of the acts described in this subparagraph (d) is not a default under this Lease, and a trustee is appointed to take possession (or if Tenant remains a debtor in possession) and such trustee or Tenant transfers

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Tenant's interest hereunder, then Landlord shall receive, as Additional Rent, the difference between the rent (or any other consideration) paid in connection with such assignment or sublease and the rent payable by Tenant hereunder.

    Section 16.3  Default by Landlord.  Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion.

    Section 16.4  Remedies.  On the occurrence of any material default by Tenant, Landlord may, at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have:

    (a) Terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event Landlord shall have the immediate right to re-enter the Premises and remove all persons and property and such property may be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of Tenant, all without service of notice or resort to legal process and without being deemed guilty of trespass, or becoming liable for any loss or damage which may be occasioned thereby; and Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including (i) the worth at the time of the award of all Minimum Monthly Rent, Additional Rent and other charges which were earned or were payable at the time of the termination; (ii) the worth at the time of the award of the amount by which the unpaid Minimum Monthly Rent, Additional Rent and other charges which would have been earned or were payable after termination until the time of the award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid Minimum Monthly Rent, Additional Rent and other charges which would have been payable for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom whether provided by this Lease or allowed by applicable law, including, but not limited to, any costs or expenses incurred by Landlord in maintaining or preserving the Premises after such default, the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation or alteration of the Premises, Landlord's reasonable attorneys' fees, and any real estate commissions or other such fees paid or payable. As used in subparts (i) and (ii) above, the "worth at the time of the award" is computed by allowing interest on unpaid amounts at the rate of fifteen percent (15%) per annum, or such lesser amount as may then be the maximum lawful rate. As used in subpart (iii) above, the "worth at the time of the award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). If Tenant shall have abandoned the Premises, Landlord shall have the option of (i) retaking possession of the Premises and recovering from Tenant the amount specified in this Section 16.4(a), or (ii) proceeding under Section 16.4(b);

    (b) Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant shall have abandoned the Premises. In such event, Landlord shall be entitled to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. Tenant acknowledges that Landlord has the remedy

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described in California Civil Code Section 1951.4 in that Landlord may continue the Lease in effect after Tenant's breach and abandonment and recover rent as it becomes due;

    (c) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Premises is located.

    Section 16.5  The Right to Relet the Premises.  Should Landlord elect to re-enter, as herein provided, or should it take possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate this Lease or it may from time to time without terminating this Lease, make such alterations and repairs as may be necessary in order to relet the Premises, and relet said Premises or any part thereof for such term or terms (which may be for a term extending beyond the Term of this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable; upon each such reletting all rentals received by the Landlord from such reletting shall be applied, first, to the repayment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs and expenses of such reletting, including brokerage fees and attorneys' fees and of costs of such alterations and repairs; third, to the payment of rent due and unpaid hereunder, and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same may become due and payable hereunder. If such rentals received from such reletting during any month are less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such re-entry or taking possession of said Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction.

    Section 16.6  Waiver of Rights of Redemption.  Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Landlord obtaining possession of the Premises, by reason of the violation by Tenant of any of the covenants or conditions of this Lease, or otherwise.

    Section 16.7  Cumulative Remedies.  Landlord's exercise of any right or remedy shall not prevent it from exercising any other right or remedy.

    Section 16.8  Late Charges.  Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and costly to ascertain. Such costs include, but are not limited to, processing, administrative and accounting charges, and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee within ten (10) days after such amount shall be due, Tenant shall pay to Landlord a late charge as liquidated damages as that term is used in Section 1671 of the California Civil Code, equal to ten percent (10%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur as a consequence of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder.

ARTICLE XVII

PROTECTION OF CREDITORS

    Section 17.1  Subordination.  Landlord shall have the right to require Tenant to subordinate this Lease to any ground lease, deed of trust or mortgage encumbering the Premises, any advances made on the security thereof and any renewals, modifications, consolidations, replacements or extensions thereof, whenever made or recorded. If any ground lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of its ground lease, deed of trust or mortgage and gives written notice thereof to

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Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or mortgage whether this Lease is dated prior or subsequent to the date of said ground lease, deed of trust or mortgage or the date of recording thereof.

    Section 17.2  Attornment.  If Landlord's interest in the Premises is acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or successor to Landlord's interest in the Premises and recognize such transferee or successor as Landlord under this Lease. Tenant waives the protection of any statute or rule of law which gives or purports to give Tenant any right to terminate this Lease or surrender possession of the Premises upon the transfer of Landlord's interest.

    Section 17.3  Signing of Documents.  Tenant shall execute, have notarized at Tenant's expense and deliver any instrument or documents necessary or appropriate to effectuate or evidence any such attornment or subordination or agreement to do so. If Tenant fails to do so within ten (10) days after written request (i) Tenant hereby makes, constitutes and irrevocably appoints Landlord, or any transferee or successor of Landlord, the attorney-in-fact of Tenant to execute and deliver any such instrument or document and (ii) such failure shall constitute a default under this Lease entitling Landlord to terminate this Lease.

    Section 17.4  Estoppel Certificates.

    (a) Upon Landlord's written request, Tenant shall execute, have notarized at Tenant's expense and deliver to Landlord a written statement certifying: (i) that none of the terms or provisions of this Lease have been changed (or if they have been changed, stating how they have been changed); (ii) that this Lease has not been canceled or terminated; (iii) the last date of payment of the Minimum Monthly Rent and other charges and the time period covered by such payment; (iv) that Landlord is not in default under this Lease (or, if Landlord is claimed to be in default, stating why) and (v) such other statements as required by Landlord, or any lender or prospective lender, investor or purchaser. Tenant shall deliver such statement to Landlord within ten (10) days after Landlord's request. Any such statement by Tenant may be given by Landlord to any prospective purchaser or encumbrancer of the Premises. Such purchaser or encumbrancer may rely conclusively upon such statement as true and correct.

    (b) If Tenant does not deliver such statement to Landlord within such ten (10) day period, (i) Tenant irrevocably constitutes and appoints Landlord as its special attorney-in-fact to execute and deliver the certificate to any third party and (ii) such failure shall constitute a default under this Lease entitling Landlord to terminate this Lease. Further, Landlord, and any prospective purchaser or encumbrancer, may conclusively presume and rely upon the following facts: (i) that the terms and provisions of this Lease have not been changed except as otherwise represented by Landlord; (ii) that this Lease has not been canceled or terminated except as otherwise represented by Landlord; (iii) that not more than one month's Minimum Monthly Rent or other charges have been paid in advance; and (iv) that Landlord is not in default under this Lease. In such event, Tenant shall be estopped from denying the truth of such facts.

    Section 17.5  Tenant's Financial Condition.  Within ten (10) days after written request from Landlord, Tenant shall deliver to Landlord such financial statements as are reasonably required by Landlord to verify the net worth of Tenant, or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall deliver to any lender or proposed purchaser of the Premises designated by Landlord any financial statements required by such lender to facilitate the sale, financing or refinancing of the Premises. Tenant represents and warrants to Landlord that (a) each such financial statement is a true and accurate statement as of the date of such statement; and (b) at all times after the date of any such statement during the Lease Term or any extension thereof, Tenant's net worth, as stated therein, shall not be reduced. All financial statements shall be confidential and shall be used only for the purposes set forth herein.

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    Section 17.6  Mortgagee Protection Clause.  Tenant agrees to give any mortgagees and/or trust deed holders, by registered mail, a copy of any notice of default, served upon the Landlord, provided that prior to such notice Tenant has been notified in writing (by way of Notice of Assignment of Rents and Leases, or otherwise) of the addresses of such mortgagees and/or trust deed holders, Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the mortgagees and/or trust deed holders shall have an additional thirty days (30) within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary if within such thirty days (30) any mortgagee and/or trust deed holder has commenced and is diligently pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceedings if necessary to affect such cure), in which event this Lease shall not be terminated while such remedies are being so diligently pursued.

ARTICLE XVIII

LEGAL COSTS

    Section 18.1  Legal Proceedings.  Tenant shall reimburse Landlord, upon demand, for any costs or expenses incurred by Landlord in connection with any breach or default of Tenant under this Lease, whether or not suit is commenced or judgment entered. Such costs shall include legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Furthermore, if any action for breach of or to enforce the provisions of this Lease is commenced, the court in such action shall award to the party in whose favor a judgment is entered, a reasonable sum as attorneys' fees and costs. Such attorneys' fees and costs shall be paid by the losing party in such action. Tenant shall also indemnify Landlord against and hold Landlord harmless from all costs, expenses, demands and liability incurred by Landlord if Landlord becomes or is made a party to any claim or action (a) instituted by Tenant, or by any third party against Tenant, or by or against any person holding any interest under or using the Premises by license of or agreement with Tenant; (b) for foreclosure of any lien for labor or material furnished to or for Tenant or such other person; (c) otherwise arising out of or resulting from any act or transaction of Tenant or such other person; or (d) necessary to protect Landlord's interest under this Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the United States Code, as amended. Tenant shall defend Landlord against any such claim or action at Tenant's expense with counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs incurred by Landlord in any such claim or action.

    Section 18.2  Landlord's Consent.  Tenant shall pay Landlord's reasonable attorneys' fees incurred in connection with Tenant's request for Landlord's consent under Article XV (Assignment and Subletting), or in connection with any other act which Tenant proposes to do and which requires Landlord's consent.

ARTICLE XIX

MISCELLANEOUS PROVISIONS

    Section 19.1  Non-Discrimination.  Tenant promises, and it is a condition to the continuance of this Lease, that there will be no discrimination against, or segregation of, any person or group of persons on the basis of race, color, sex, creed, national origin or ancestry in the leasing, subleasing, transferring, occupancy, tenure or use of the Premises or any portion thereof.

    Section 19.2  Landlord's Liability; Certain Duties.

    (a) As used in this Lease, the term "Landlord" means only the current owner or owners of the fee title to the Premises or the leasehold estate under a ground lease of the Premises at the time in question. Each Landlord is obligated to perform the obligations of Landlord under this Lease only during the time such Landlord owns such interest or title. Any Landlord who transfers its title or interest is relieved of all liability with respect to the obligations of Landlord under this

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Lease to be performed on or after the date of transfer. However, each Landlord shall deliver to its transferee all funds previously paid by Tenant if such funds have not yet been applied under the terms of this Lease.

    (b) Tenant shall give written notice of any failure by Landlord to perform any of its obligations under this Lease to Landlord and to any ground lessor, mortgagee or beneficiary under any deed of trust encumbering the Premises whose name and address have been furnished to Tenant in writing. Landlord shall not be in default under this Lease unless Landlord (or such ground lessor, mortgagee or beneficiary) fails to cure such non-performance within thirty (30) days after receipt of Tenant's notice. However, if such non-performance reasonably requires more than thirty (30) days to cure, Landlord shall not be in default if such cure is commenced within such thirty (30) day period and thereafter diligently pursued to completion.

    Section 19.3  Severability.  A determination by a court of competent jurisdiction that any provision of this Lease or any part thereof is illegal or unenforceable shall not cancel or invalidate the remainder of such provision or this Lease, which shall remain in full force and effect.

    Section 19.4  Interpretation.  The captions of the Articles or Sections of this Lease are to assist the parties in reading this Lease and are not a part of the terms or provisions of this Lease. Whenever required by the context of this Lease, the singular shall include the plural and the plural shall include the singular. The masculine, feminine and neuter genders shall each include the other. In any provision relating to the conduct, acts or omissions of Tenant, the term "Tenant" shall include Tenant's agents, employees, contractors, invitees, successors or others using the Premises with Tenant's expressed or implied permission.

    Section 19.5  Other Tenancies.  Landlord reserves the absolute right to effect such other tenancies in the Shopping Center as Landlord, in the exercise of its sole business judgment, shall determine to best promote the interest of the Shopping Center. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the term of this Lease, either (i) enter into a lease for any space in the Shopping Center or (ii) continue to lease any space in the Shopping Center under any lease which is in effect as of the date of this Lease, or that any tenant under any lease in effect as of the date of this Lease will not assign or transfer its interest under its lease or change the use of the premises under such lease. By executing this Lease, Tenant acknowledges that Landlord has not made any representations, warranties or statements as to any of the foregoing and agrees that the occurrence of any of the foregoing or any similar event shall not affect Tenant's obligations under this Lease.

    Section 19.6  Entire Agreement.  This Lease and the Exhibits, and Rider, if any, attached hereto and forming a part hereof, set forth all the covenants, terms, provisions, warranties (if any), obligations, limitations, promises, representations, agreements, conditions and understandings, either oral or written, between Landlord and Tenant concerning the Premises and there are no covenants, terms, provisions, warranties (if any), obligations, limitations, promises, representations, agreements, conditions and understandings, either oral, or written, between them other than are herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by the party to be charged with their performance. Tenant acknowledges and agrees that no prior information provided or statements made by Landlord or its agent(s), including without limitation, estimated gross sales and estimated Shopping Center operating costs (common area maintenance) expenses or calculations, and any other financial matters, and matters related to: (a) any of the premises in the Shopping Center; (b) the Shopping Center itself; or (c) the number and kinds of tenants in the Shopping Center, have in any way induced Tenant to enter into this Lease.

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    Section 19.7  Notices.  All notices required or permitted under this Lease shall be in writing and shall be personally delivered or sent by certified mail, return receipt requested, postage prepaid. Notices to Tenant shall be delivered to the address specified in Section 1.3 above, except that upon Tenant's taking possession of the Premises, the Premises shall be Tenant's address for notice purposes. Notices to Landlord shall be delivered to the address specified in Section 1.2 above. All notices shall be effective upon personal delivery or three (3) days after deposit in the U.S. Mail. Either party may change its notice address upon written notice to the other party.

    Section 19.8  Waivers.  All waivers must be in writing and signed by the waiving party. Landlord's failure to enforce any provision of this Lease or its acceptance of rent shall not be a waiver and shall not prevent Landlord from enforcing that provision or any other provision of this Lease in the future. No statement on a payment check from Tenant or in a letter accompanying a payment check shall be binding on Landlord. Landlord may, with or without notice to Tenant, negotiate such check without being bound to the conditions of such statement.

    Section 19.9  No Recordation.  Tenant shall not record this Lease without prior written consent from Landlord. However, Landlord may require that a "Short Form" memorandum of this Lease be executed by both parties and recorded.

    Section 19.10  Binding Effect; Choice of Law.  This Lease binds any party who legally acquires any rights or interest in this Lease from Landlord or Tenant. However, Landlord shall have no obligation to Tenant's successor unless the rights or interests of Tenant's successor are acquired in accordance with the terms of this Lease. The laws of the state in which the Premises is located shall govern this Lease.

    Section 19.11  Corporate or Company Authority; Partnership Authority.  If Tenant is a corporation or limited liability company, each person signing this Lease on behalf of Tenant represents and warrants that he has full authority to do so and that this Lease binds the corporation or limited liability company, as the case may be. Within five (5) days after this Lease is signed, Tenant shall deliver to Landlord a certified copy of a resolution of Tenant's Board of Directors or Members, as applicable, authorizing the execution of this Lease or other evidence of such authority reasonably acceptable to Landlord. If Tenant is a partnership, each person signing this Lease for Tenant represents and warrants that he is a general partner of the partnership, that he has full authority to sign for the partnership and that this Lease binds the partnership and all general partners of the partnership. Tenant shall give written notice to Landlord of any general partner's withdrawal or addition. Within five (5) days after this Lease is signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement of partnership or certificate of limited partnership.

    Section 19.12  No Partnership.  Landlord shall not by virtue of this Lease, in any way or for any purpose, be deemed to have become a partner of Tenant in the conduct of its business, or otherwise, or joint venturer or a merger of a joint enterprise with Tenant, nor is Tenant an agent of Landlord for any reason whatsoever. The provisions of this Lease relating to the percentage rent payable hereunder are included solely for the purpose of providing a method whereby the rent is to be measured and ascertained.

    Section 19.13  Joint and Several Liability.  All parties signing this Lease as Tenant shall be jointly and severally liable for all obligations of Tenant.

    Section 19.14  Force Majeure.  If Landlord cannot perform any of its obligations due to events beyond Landlord's control, the time provided for performing such obligations shall be extended by a period of time equal to the duration of such events. Events beyond Landlord's control include, but are not limited to, acts of God, war, civil commotion, labor disputes, strikes, fire, flood or other casualty, shortages of labor or material, government regulation or restriction and weather conditions.

    Section 19.15  Construction of Lease and Terms.  The terms and provisions of this Lease represent the results of negotiations between Landlord and Tenant, each of which are sophisticated parties and

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each of which has been represented or been given the opportunity to be represented by counsel of its own choosing, and neither of which has acted under any duress or compulsion, whether legal, economic or otherwise. Consequently, the terms and provisions of this Lease must be interpreted and construed in accordance with their usual and customary meanings, and Landlord and Tenant each waive the application of any rule of law that ambiguous or conflicting terms or provisions contained in this Lease are to be interpreted or construed against the party who prepared the executed Lease or any earlier draft of the same. Landlord's submission of this instrument to Tenant for examination or signature by Tenant does not constitute a reservation of or an option to lease and is not effective as a lease or otherwise until Landlord and Tenant both execute and deliver this Lease. The parties agree that, regardless of which party provided the initial form of this Lease, drafted or modified one or more provisions of this Lease, or compiled, printed or copied this Lease, this Lease is to be construed solely as an offer from Tenant to lease the Premises, executed by Tenant and provided to Landlord for acceptance on the terms set forth in this Lease, which acceptance and the existence of a binding agreement between Tenant and Landlord may then be evidenced only by Landlord's execution of this Lease.

    Section 19.16  Accord and Satisfaction.  No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, or shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided in this Lease.

    Section 19.17  Provisions are Covenants and Conditions.  All provisions, whether covenants or conditions, on the part of the Landlord, or on the part of Tenant, shall be deemed to be both covenants and conditions.

    Section 19.19  Remodel.  Landlord may in the future remodel or refurbish portions of the Shopping Center. Such remodeling and/or refurbishing may include Tenant's Premises. The remodeling and/or refurbishing will be done in accordance with the proper architect's design specifications which will be reviewed and approved by Landlord and copies of such drawings will be made available to Tenant. Tenant agrees to accept such specifications. Tenant further agrees that Tenant will not, through any act or omission on the part of Tenant, in any way hinder, impede, or frustrate the efforts of the Landlord in completing such remodeling or refurbishing in a timely fashion. As part of architect's design specifications, a new exterior Tenant sign criteria may be developed. Upon development of said new sign criteria Tenant, at Tenant's expense, upon written notice from Landlord, shall remove all existing signs and replace such exterior signs with a new sign in accordance with the new sign criteria. Such resigning by Tenant shall be completed within sixty (60) days after receipt of new sign criteria from Landlord.

    Section 19.20  Waiver of Right to Jury Trial.  Landlord and Tenant hereby waive their respective right to trial by jury of any cause of action, claim, counterclaim or cross-complaint in any action, proceeding and/or hearing brought by either Landlord against Tenant or Tenant against Landlord on any matter whatsoever arising out of, or in any way connected with, this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or damage, or the enforcement of any remedy under any law, statute, or regulation, emergency or otherwise, now or hereafter in effect.

    Section 19.21  Limitation of Actions.  Any claim, demand, right or defense of any kind by Tenant which is based upon or arises in connection with this Lease or the negotiations prior to its execution, shall be barred unless Tenant commences an action thereon, or interposes in a legal proceeding a defense by reason thereof, within six (6) months after the date of the inaction or omission or the date

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of the occurrence of the event or of the action to which the claim, demand, right or defense relates, whichever applies.

    Section 19.22  Real Estate Brokers.  Except as herein specifically set forth, Landlord and Tenant represent and warrant that there are no claims for brokerage commissions or finder's fees in connection with the execution of this Lease, and agree to indemnify the other against and hold it harmless from all liability arising from any such claim including, without limitation, the cost of attorneys' fees in connection therewith.

    Section 19.23  Exculpation.  The obligations of Landlord under this Lease do not constitute personal obligations of Landlord, or its partners, directors, officers or shareholders and Tenant shall look solely to the Shopping Center (as defined in Section 1.4) and to no other assets of Landlord for satisfaction of any liability with respect to this Lease and will not seek recourse against the partners, directors, officers or shareholders of Landlord herein, nor against any of their personal assets for such satisfaction. In addition (i) no partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership), (ii) no service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership), (iii) no partner of Landlord shall be required to answer or otherwise plead to any service of process and no judgment will be taken against any partner of Landlord, (iv) no writ of execution will ever be levied against the assets of any partner of Landlord and (v) these covenants and agreements are enforceable both by Landlord and also by any partner of Landlord.

    Landlord and Tenant have signed this Lease at the place and on the dates specified adjacent to their signatures below and have initialed all Riders which are attached to or incorporated by reference in this Lease.

Dated:	LANDLORD:
	LINCOLN TOWN CENTER LLC, A California Limited Liability Company
	By:
		Michael R. Perry, Member
	By:
		Robert W. Carson, Member
Dated:	TENANT:
	FEATHER RIVER STATE BANK, A California State Chartered Bank
	By:
		Larry Hartwig, President
	By:
		Robert Lampert, Chief Financial Officer

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RIDERS

Riders One, Two and Three to that certain Lease, dated October 18, 2000, by and between Lincoln Town Center, LLC, a California Limited Liability Company ("Landlord") and Feather River State Bank, a California State Chartered Bank, ("Tenant").

The following Riders are hereby incorporated into the Lease Agreement:

RIDER ONE—OPTION TO EXTEND TERM

    Tenant is given the option to extend the Term of this Lease for a five (5) year period ("extended term") following expiration of the initial Term, by giving written Notice of exercise of the option ("option notice") to the Landlord at least six (6) months but not more than one (1) year before the expiration of the Term. The same terms and conditions as applied during the initial Term of this Lease shall apply to the extended term except that (i) the Minimum Monthly Rent shall be adjusted at the commencement of the extended term as specified below and annually thereafter pursuant to the Index set forth in Section 1.11(a) hereof, however, in no event shall such annual increases be less than five percent (5%) nor more than seven percent (7%) over the Minimum Monthly Rent then in effect (as increased pursuant to the last adjustment), and (ii) there shall be no further right or option to extend. Provided, however, that if Tenant is in default on the date of giving the option notice, the option notice shall be totally ineffective, or if Tenant is in default on the date the extended term is to commence, the extended term shall not commence and this Lease shall expire at the end of the initial term. Tenant's Lease Option is personal to Tenant and shall automatically terminate upon any "Transfer" of this Lease requiring Landlord's Consent, as defined in Section 15.1, or if the use of the Premises is changed from that set forth in Section 1.8.

(a) Rent to be Determined.

Provided Tenant has exercised the option to extend term in the manner set forth above, Landlord shall state in writing the acceptable Minimum Monthly Rent for the extended term. Tenant shall have ten (10) days from receipt of Landlord's offer to accept or reject said terms in writing. Tenant's failure to accept or reject Landlord's offer in writing within such ten (10) day time period shall be deemed rejection of Landlord's offer and the Lease shall expire at the original expiration date of the initial Term. If Tenant accepts Landlord's offer in writing within such ten (10) day period, the parties shall immediately execute an amendment to the Lease or enter into a new lease stating the Minimum Monthly Rent for the extended term.

    Neither party to this Lease shall have the right to have a court or other third party set the Minimum Monthly Rent. Tenant shall have no other right to extend the Term beyond the extended term.

RIDER TWO—"GO DARK" PROVISION

If Tenant either gives Landlord written notice of Tenant's intention to discontinue permanently the operation of a Feather River State Bank branch in the Premises, or discontinues the operation of a Feather River State Bank branch in the Premises for a period of sixty (60) days for any reason not permitted by this Lease, then Landlord may terminate this Lease as to the Premises, or part of them, in which Tenant has given notice of its intention to discontinue, or has discontinued its operations as a Feather River State Bank branch, by thirty (30) days written notice to Tenant of Landlord's election to terminate this Lease. Tenant may override Landlord's election only once by resuming operations of its business as a Feather River State Bank branch in the Premises according to Section 1.6(c) and

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Section 8.2(d) within thirty (30) days after receipt of Landlord's notice, or by rescinding its notice of its intention to discontinue its business within ten (10) days after receipt of Landlord's notice.

RIDER THREE—CONTINGENCIES

The following contingencies shall apply:

a.

This Lease shall be subject to written approval by Tenant's Board of Directors on or before November 13, 2000. In the event Landlord does not receive written notice from Tenant on or before 12:00 PM on November 14, 2000 via facsimile at (858) 454-6501 that such written approval was not obtained by Tenant, this contingency shall automatically be deemed waived by Tenant and the Lease shall remain in full force and effect.



b.

If Tenant, after diligently pursuing approval, does not receive regulatory approval by the FDIC, the State Banking Department and the Federal Reserve Bank on or before December 27, 2000, Tenant may terminate this Lease with five (5) days written notice to the Landlord. In the event Landlord does not receive written notice from Tenant on or before 12:00 PM on December 28, 2000 via facsimile at (858) 454-6501 that such regulatory approval was not obtained by Tenant, this contingency shall automatically be deemed waived by Tenant and the Lease shall remain in full force and effect.

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EXHIBIT B

CONSTRUCTION OF THE PREMISES
Lincoln Hills Town Center

FEATHER RIVER STATE BANK
435 So. Highway 65, Suite A, Lincoln, California

I.  Plans.

Concurrently with the execution of this Lease, or as soon as plans are available to Landlord, Landlord shall deliver a floor plan of the Premises to Tenant showing the columns and other structural work. Within ten (10) days from delivery of such floor plan, Tenant, at its expense, shall submit to Landlord for its approval two (2) sets of fully dimensioned scale drawings, plans and specifications prepared by a licensed architect and if applicable, engineer. The drawings shall indicate the specific requirements of Tenant's space, clearly outlining the Premises in such detail as Landlord may require, including types of materials and colors, interior partitions, reflected ceiling plans, roof plan showing locations of proposed equipment and penetrations, if applicable, and plumbing, fire sprinkler, mechanical and electrical plans prepared by a licensed electrical engineer setting forth all electric requirements of Tenant, all in conformity with the description of Landlord's Work and of Tenant's Work herein and in strict compliance with applicable codes. Landlord shall have thirty (30) days from receipt of these drawings to approve or disapprove them. If Landlord has not notified Tenant in writing of its approval or disapproval within the thirty (30) day period, these drawings shall be deemed disapproved by Landlord. If Landlord disapproves such plans, Tenant shall, within ten (10) days of receipt of Landlord's notice of disapproval, revise and resubmit such plants to Landlord, correcting or altering such disapproved items.

II.  Landlord's Work.

Landlord agrees to deliver possession of the Premises as designed by Landlord's architect in the configuration shown on the Exhibit A-1 in the following manner:

A.  Structure.

1.

Partitioning:  Standard demising walls consisting of (a) unpainted masonry, (b) drywall over studs, taped and textured ready to receive paint, or (c) other materials permitted by applicable building or fire code.



2.

Doors:  One (1) front entry door, manually operated and one (1) single rear personnel/service door manually operated if feasible and necessary, with cylinder lock key sets.



3.

Storefront:  In accordance with the Landlord's design. Any alterations and/or deviations to the storefront must be requested by Tenant, in writing, and be approved by Landlord. All excess costs for design and construction above the standard storefront shall be borne by Tenant.



4.

Floor:  Standard natural colored concrete slab.



5.

Roof Platforms and Penetrations:  Roof platforms/sleepers/curbs for heating and air-conditioning equipment and roof penetrations for ducts, vents, plumbing and conduits shall be provided in accordance with the Landlord's drawings. Any additions, deletions, relocations or changes to the roof platforms/sleepers/curbs or roof penetrations must be requested by Tenant, in writing, and be approved by Landlord. All costs for the design and construction of these additions, deletions, relocations or changes from that on Landlord's drawings and any repair required to the roof itself shall be borne by Tenant.

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B.  Utilities:

1.

Heating/Air Conditioning:  One or more heating and air conditioning units will be furnished consistent with sound engineering practices and per state energy requirements. (Not less than one (1) ton per 400 square feet.) Unit(s) will be located on platforms/sleepers/curbs constructed on the roof structure.

Heating and air conditioning equipment control devises and time switch will be furnished and installed.

2.

Electric Service:  One 100 amp 120/208 volts, 3 phase, 4-wire electric service panel(s). Meter will not  be supplied.



3.

Gas Service:  If provided, Gas service shall be brought to locations designated on Landlord's drawings only.



4.

Telephone Service:  Telephone service shall be brought to Telephone equipment room and one (1) empty conduit for same shall be provided to the Premises by Landlord. Tenant shall arrange for further interior distribution.



5.

Electrical Outlets:  Six (6) 110V wall duplex outlets. Floor outlets will not be furnished.



6.

Light Fixtures:  A minimum of one (1) 2' × 4' lay-in fluorescent fixture with cool white lamps for every 100 square feet including necessary conduit and wiring per Landlord's drawings.



7.

Sprinkler System (if applicable):  If required, a monitored fire sprinkler system based on a standard grid and store space. System will be sized to permit the addition of heads to accommodate space configuration changes. Such changes, if required, shall be supplied by Landlord at Tenant's expense, or at Landlord's option, shall be completed by Tenant in accordance with Landlord's governing agencies' criteria.



8.

Restrooms:  One (1) standard restroom to code consisting of one water closet, one cold water lavatory, one light fixture and one wall outlet per Landlord's drawings and specifications. Landlord shall not supply water heater.

C.  SIGNS.

1.

Signage:  One (1) conduit and "J" box without wire from Landlord's service panel to designated sign location per Landlord's drawings for sign lighting.



2.

Address Numerals:  Address numerals shall be provided and installed by Landlord.

D.  CEILINGS.

1.

Ceiling:  2' × 4' acoustical tile ceiling with suspended T-bar system at a height above finished floor as designated on Landlord's drawings.

Landlord shall not be deemed to be in default with respect to the performance of any of its construction obligations herein if such default is due to any strike, lookout, civil commotion or invasion, rebellion, hostilities, sabotage, government regulations or controls, inability to obtain materials, services or financing, inclement weather, acts of God, delay on the part of Tenant or other causes beyond the control of Landlord.

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III. TENANT'S WORK.

A.  GENERAL REQUIREMENTS.

1.

Tenant shall submit to Landlord, by certified or registered mail, at least five (5) days prior to commencement of construction, the following information:



a.

The names, addresses and license class and number of all contractors and subcontractors Tenant intends to engage in the construction of the Premises.



b.

The date on which Tenant's construction work will commence together with the estimated date of completion of Tenant's construction work and fixturization, and the date on which the Tenant expects to be ready to open for business in the Premises.



c.

Evidence of builder's all risk, general liability and worker's compensation Insurance for Tenant's contractor wherein a Certificate of Insurance shall be provided to Landlord naming Lincoln Town Center LLC  as additional insured, or as Landlord may reasonably require.



d.

An itemized statement of estimated construction costs, including architectural, engineering and contractor's fees.



e.

Tenant's contractors' performance and/or labor and material bonds, if so required by Landlord, or any other bond to be furnished by Tenant as may be required by Landlord to insure the faithful performance of the work in accordance with the approved plans.

2.

All contractors engaged by Tenant shall be bondable, licensed contractors, possessing good labor relations, capable of performing quality workmanship and working in harmony with Landlord's contractors and/or other contractors working on the job. All work shall be coordinated with the general project work of the Shopping Center.



3.

Construction shall comply in all respects with applicable Federal, State, County and City statutes, ordinances, regulations, laws and codes. All required building and other permits in connection with the construction and completion of the Premises shall be obtained and paid for by Tenant.



4.

Tenant shall apply and pay for all utility meters, hook-up fees and services.



5.

Tenant shall cause its contractor to provide warranties for not less than one (1) year against defects in workmanship, materials and equipment.



6.

Tenant's Work shall be subject to the inspection of Landlord and its supervisory personnel.

B.  DESCRIPTION OF TENANT'S WORK.

The work to be done by Landlord in satisfying its obligations to construct the Premises shall be limited to only that described in the foregoing paragraph I as "Landlord's Work". All other items of work not therein specified shall be performed by Tenant at Tenant's expense in accordance with Tenant's final plans and specifications as approved by Landlord and shall be deemed "Tenant's Work." Tenant's Work shall include, but shall not be limited to, the purchase and/or installation and/or performance of the following (including all architectural and engineering fees, permits and special assessment, taxes, or fees relating to Tenant's Work):

1.

All interior partitions and curtain walls within the Premises.



2.

Such extra or special work that may be required for the installation of Tenant's fixtures and furnishings.

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3.

Light coves and hung or furred ceilings. Any changes to the ceiling system shall be subject to Landlord's prior written consent.



4.

Furring of masonry walls, columns and other construction to provide finished store space.



5.

All interior painting, decorating, wall covering, paneling and any other furnishing material and application.



6.

All floor coverings and floor finishes including base and preparation of surface to receive same.



7.

All store fixtures, furnishings and accessories.



8.

Hot water heater, water treatment systems and drinking fountains with plumbing thereto connected to facilities provided by Landlord, if required.



9.

All water and sewer connections, if required in excess of Landlord's Work including all related governmental or other fees related to said connections and meters.



10.

All required adjustments and additions to the fire sprinkler system, if any and fire protection work required as a result of Tenant's improvements including dry chemical fire protection system if required by code, portable extinguishers per the Fire Marshall's requirement or fire sprinkler alarm monitoring service if required by insurance underwriters'. Tenant shall notify Landlord in writing three (3) days prior to commencing any modification to monitored fire sprinkler system.



11.

Internal Communications and security/alarm systems.



12.

Elevators, dumbwaiters, chutes, conveyors and pneumatic tubes and their shafts, doors and other components, including electrical hookup and service, if any.



13.

All show window finishes including window display furring, fixturing or special requirements.



14.

Any special reinforcing, raised areas or depressions in concrete floor.



15.

In addition to HVAC equipment to be provided by Landlord as set forth above, special heating, cooling or ventilating equipment, including that required by local codes or otherwise for show windows, dressing rooms, toilet rooms and stock room, provided that all duct work shall be concealed or treated in a manner which receives prior approval or Landlord. Landlord shall perform relocations, adjustments, to, additions or deletions of roof platforms and roof penetrations from those provided by Landlord at Tenant's expense.



16.

Telephone conduit, cabinets and outlets within Premises as required by the telephone company including wiring from the terminal board. All telephone service and equipment shall be installed and thereafter maintained and used at the expense of Tenant.



17.

Gas connection and distribution from point of connection designated at Landlord's drawings, if any.



18.

All electrical work and equipment, including lighting, not expressly stated herein as being provided by Landlord, including meters, separate circuits and time docks for interior show window and/or ceiling lighting, special lighting fixtures, additional electrical or power outlets, or increased electrical service due to Tenant's use and operations.



19.

Installation, wiring and connection of Tenant's sign(s), both interior and exterior. All exterior signs shall be designed, constructed and located pursuant to the requirements and specifications set forth in Landlord's sign criteria, Exhibit C attached to this Lease.

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20.

Tenant to make applications for all utility services and pay for water, gas and/or electrical meter including any installation of hook up fees.



21.

Tenant to make application for all utility services and pay for water, gas and/or electrical meter including any installation of hook up fees.



22.

All other items and requirements not specifically included under Landlord's Work and any work directly or indirectly referred to as Tenant's Work herein.



23.

THE FOLLOWING WORK ITEMS, IF REQUIRED, SHALL BE DONE BY LANDLORD FOR TENANT AT TENANT'S EXPENSE:

(A)

DESIGN AND CONSTRUCTION OF ANY ADDITIONS, DELETIONS, RELOCATIONS OR CHANGES TO THE ROOF PLATFORMS FOR HEATING AND AIR CONDITIONING EQUIPMENT.

(B)

DESIGN AND CONSTRUCTION OF ANY ADDITIONS, DELETIONS, RELOCATIONS OR CHANGES TO ROOF PENETRATIONS FOR DUCTS, VENTS, PLUMBING AND CONDUITS, ETC.

(C)

DESIGN AND CONSTRUCTION OF ANY CHANGES TO THE FIRE SPRINKLER SYSTEM, IF ANY, TO ACCOMMODATE TENANT'S SPACE CONFIGURATION OR, AT LANDLORD'S OPTION SHALL BE COMPLETED BY TENANT IN ACCORDANCE WITH LANDLORD'S AND GOVERNING AGENCIES CRITERIA.

C.  LANDLORD'S RIGHT TO PERFORM WORK.

Landlord shall have the right but not the obligation to perform, on behalf of and for the account of Tenant, subject to reimbursement of the cost thereof by Tenant, any and all of the Tenant's Work which Landlord determines, in its sole discretion, should be performed immediately and on an emergency basis for the best interest of the Shopping Center, including without limitation, work which pertains to structural components, mechanical, sprinkler and general utility systems, roofing and removal of unduly accumulated construction material and debris.

D.  TEMPORARY FACILITIES DURING CONSTRUCTION.

1.

Tenant shall provide and pay for all temporary facilities, and the removal to debris, as necessary and required in connection with the construction of the Premises. Storage of Tenant's contractor's construction material, tools, equipment and debris shall be confined to the Premises and in areas which may be designated for such purposes by Landlord. In no event shall any material or debris be stored on the sidewalk or service and exit corridors or in the parking lot.



2.

During construction, Tenant shall maintain such barricades, fences or other measures as may be necessary to insure the security of the Premises and to prevent unauthorized persons from entering the Premises or any persons suffering any injury.

E.  AS-BUILT DRAWINGS.

Tenant shall cause reproducible "As-Built Drawings" to be delivered to Landlord and/or Landlord's representative no later than thirty (30) days after completion of the Tenant's Work or any alterations, additions or improvements permitted by Landlord in accordance with the terms of this Lease. In the event these drawings are not received by such date, Landlord may at it elections, cause said drawings to be obtained and Tenant shall pay to Landlord, as additional rent, the cost of producing these drawings.

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GUARANTY

    Reference is made to the Standard Shopping Center Lease dated as of December 1, 2000, ("Lease") entered into between Lincoln Town Center, LLC, a California Limited Liability Company, ("Landlord") and Feather River State Bank, a California State Chartered Bank ("Tenant"), covering certain premises commonly described as 435 South Highway 65, Suite A, Lincoln, California.

Recitals

    As an essential inducement to Landlord to enter into the Lease and accommodations reflected therein, the undersigned (hereinafter "Guarantor") has agreed to guaranty all obligations and liabilities of Tenant under the Lease.

    NOW, THEREFORE, for valuable consideration, and as an inducement to and in consideration of Landlord entering into the Lease and the making of the accommodations reflected by the Lease, Guarantor agrees as set forth below.

1.

Guaranty

1.1

Guaranty of Lease.

    (a) Guarantor hereby jointly, severally, irrevocably and unconditionally guarantees to Landlord, its successors and assigns, the payment and performance, when due, of all indebtedness and obligations of Tenant under the Lease and all other agreements executed in connection therewith, including such obligations and liabilities arising under successive and future transactions relating thereto which shall either increase or continue such obligations and renewals, extensions or modifications of the foregoing (the "Lease Documents"), together with interest thereon and fees and costs of collections thereof, including reasonable attorneys' fees.

    (b) Landlord shall have a direct cause of action against Guarantor for all loss, damage, injury and expense sustained or incurred by Landlord as a consequence of any failure or refusal of Guarantor to so perform or may, at its election, proceed against any security provided by Guarantor to secure this Guaranty.

1.2

Guarantied Obligations Defined.

    The obligations thereby guarantied are referred to collectively herein as the"Obligations".

2.

Rights of Landlord.

    The Guarantor authorizes Landlord at any time in its discretion without notice or demand and without affecting the obligations and liabilities of the Guarantor hereunder to:

    (a) enter into agreements with Tenant and in accordance therewith, renew, extend, amend, waive, restructure, refinance, release, accelerate, or otherwise change the time for payment of, or otherwise change the terms of the Obligations and/or the Lease Documents, including (A) increase or decrease in the Obligations or the rate of interest on the Obligations or rent thereunder and (B) any amendment of the Lease Documents to permit Landlord to extend further or additional accommodations to Tenant in any form, including credit by way of loan, lease, purchase, guarantee or otherwise, which shall thereupon be and become subject to the Lease Documents;

    (b) accept new or additional documents, instruments, or agreements relative to the Obligations;

    (c) consent to the change, restructure or termination of the individual, partnership or corporate structure or existence of Tenant and correspondingly restructure the Obligations;

    (d) accept partial payments on the Obligations;

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    (e) take and hold collateral or additional guaranties for the Obligations and/or the Lease Documents and amend, alter, exchange, substitute, transfer, enforce, waive, subordinate, terminate or release any such collateral or guaranties;

    (f)  apply any collateral, and direct the order and manner of sale thereof as Landlord in its sole discretion may determine;

    (g) settle, release on terms satisfactory to Landlord or by operation of law or otherwise, compound, compromise, collect or otherwise liquidate the Obligations and/or the collateral or any guaranty therefore in any manner, whether in liquidation, reorganization, receivership, bankruptcy or otherwise;

    (h) release Tenant or any other party for all or any of the Obligations;

    (i)  re-enter the premises covered by the Lease or enforce any rights of Landlord against Tenant; or

    (j)  assign this Guaranty in whole or in part.

3.

Independent Obligations.

    Guarantor's obligations under this Guaranty are independent of those of Tenant or of any other person. Landlord may bring a separate action against Guarantor without first proceeding against Tenant or any other person or any security held by Landlord and without pursuing any other remedy. Landlord's rights under this Guaranty shall not be exhausted by any action of Landlord until all of the Obligations have been fully performed.

4.

Waiver of Defenses.

4.1

Guarantor waives:

    (a) any right to require Landlord to proceed against Tenant or any other person or any security now or hereafter held by Landlord or to pursue any other remedy whatsoever, including any such right or any other right set forth in Sections 2845 or 2850 of the California Civil Code.

    (b) any defense based upon any legal disability of Tenant or any such person, or any discharge or limitation of the liability of Tenant or any other person, to Landlord, or any restraint or stay applicable to actions against Tenant or any other person, whether such disability, discharge, limitation, restraint or stay is consensual, or by order of a court or other governmental authority, or arising by operation of law or any liquidation, reorganization, receivership, bankruptcy, insolvency or debtor-relief proceeding, or from any other cause;

    (c) presentment, demand, protest, setoffs, counterclaims, and notice of any kind;

    (d) any defense based upon the modification, renewal, extension or other alteration of the Obligations, or of the Lease Documents or enforcement of any rights under the Lease Documents;

    (e) any defense based upon the negligence of Landlord, including, without limitation, the failure to record an interest under a deed of trust, the failure to perfect any security interest, or the failure to file a claim in any bankruptcy of Tenant, Guarantor or of any other person;

    (f)  any defense based upon a statute of limitations to the fullest extent permitted by law and any defense based upon Landlord's delay in enforcing this Guaranty;

    (g) any defense based upon or arising out of any defense which Tenant may have to the performance of any part of the Obligations;

    (h) any defense to recovery by Landlord of a deficiency after nonjudicial sale of real or personal property, any defense based upon the unavailability to Landlord of recovery of a deficiency judgment

2

after nonjudicial sale of real or personal property, and any defense based upon or arising out of Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure or based upon or arising out of Division 9 or any other applicable division of the California Uniform Commercial Code;

    (i)  any defense based upon the death, incapacity, lack of authority or termination of existence or revocation hereof by any person or entity or persons or entities, or the substitution of any party hereto;

    (j)  any defense based upon or related to Guarantor's lack of knowledge as to Tenant's financial condition;

    (k) any defense based upon Section 2809 of the California Civil Code; and

    (l)  any right of re-entry of the premises covered by the Lease.

    4.2 GUARANTOR HEREBY FURTHER WAIVES ALL RIGHTS OF SUBROGATION, REIMBURSEMENT, INDEMNITY AND CONTRIBUTION, ALL RIGHTS TO ENFORCE ANY REMEDY THAT LANDLORD MAY HAVE AGAINST TENANT OR ANY OTHER PERSON, AND ALL RIGHTS TO PARTICIPATE IN ANY SECURITY HELD BY LANDLORD FOR THE OBLIGATIONS, INCLUDING ANY SUCH RIGHT OR ANY OTHER RIGHT SET FORTH IN SECTIONS 2845, 2848, OR 2849 OF THE CALIFORNIA CIVIL CODE, AS WELL AS ANY DEFENSE BASED UPON THE IMPAIRMENT OF ANY SUBROGATION, REIMBURSEMENT, INDEMNITY OR CONTRIBUTION RIGHTS OR OF ANY OF THE FOREGOING RIGHTS, THAT GUARANTOR MIGHT HAVE ABSENT THE FOREGOING WAIVER; AND AGREES (i) NOT TO SEEK TO ENFORCE OR TO OBTAIN ANY SUCH RIGHT OR TO ACCEPT ANY PAYMENT FROM ANY OTHER PERSON, IN VIOLATION OF THE FOREGOING WAIVER, AND (ii) THAT ANY AGREEMENT OR OTHER UNDERSTANDING AT ANY TIME ENTERED INTO WITH ANY PERSON GRANTING ANY SUCH RIGHTS TO GUARANTOR SHALL BE NULL AND VOID.

5.

Tenant's Financial Condition.

    Guarantor is relying upon its own knowledge and is fully informed with respect to Tenant's financial condition. Guarantor assumes full responsibility to be completely familiar with the businesses, operations and conditions of the Tenant and the Guarantor hereby waives and relinquishes any duty on the part of the Landlord to disclose any matter, fact or thing relating to the businesses, operations or conditions of the Tenant now known or hereafter known by the Landlord. Guarantor assumes the responsibility for being and keeping itself informed of the financial condition of Tenant and of all circumstances bearing upon the risk of nonpayment of the indebtedness which diligent inquiry would reveal, and the Landlord shall have no duty to advise Guarantor of information known to it regarding such condition or any circumstance.

6.

Guarantor's Financial Information.

    Guarantor agrees that if requested by Landlord, Guarantor will furnish such up-to-date financial information as Landlord may require, including but not limited to, current unaudited financial statements certified by Guarantor. This financial information required by Landlord must be satisfactory to Landlord in every respect.

7.

Impairment of Subrogation Rights.

    Upon a default of Tenant, Landlord may elect to foreclose nonjudicially or judicially against any real or personal property security it holds for the Obligations or any part thereof, or exercise any other remedy against Tenant or any other person or any security. No such action by Landlord will release or limit the liability of Guarantor, even if the effect of that action is to deprive Guarantor (to the extent that any such right exists notwithstanding the waiver thereof set forth in the foregoing paragraph 4.2) of the right or ability to collect reimbursement from or assert subrogation, indemnity or contribution

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rights against Tenant or any other person for any sums paid to Landlord, or to obtain reimbursement by means of any security held by Landlord for the Obligations.

8.

Default.

    Each of the following shall constitute a default of Guarantor under this Guaranty:

    (a) the failure of Guarantor to perform any of its obligations under this Guaranty or under any other agreement executed by Guarantor in connection herewith;

    (b) the commencement of any bankruptcy, insolvency, arrangement, reorganization, or other debtor-relief proceeding under any federal or state law by Tenant or Guarantor, whether now existing or hereafter enacted.

    (c) the sale, encumbrance or other transfer by Guarantor of any significant asset without prior written consent of Landlord;

    (d) the default by Guarantor or any significant indebtedness or other obligation; or

    (e) any significant adverse change in the business or financial condition of Guarantor.

9.

Costs and Expenses.

    Guarantor agrees to pay Landlord's reasonable out-of-pocket costs and expenses, including, but not limited to, legal fees and disbursements, incurred in any effort to collect or enforce any of the Obligations or this Guaranty, whether or not any lawsuit is filed, and in the representation of Landlord in any insolvency, bankruptcy, reorganization or similar proceeding relating to Tenant, Guarantor or any other person. Until paid to Landlord, such sums will bear interest from the date such costs and expenses are incurred at the rate of ten percent (10%) per annum.

10.

Reinstatement.

    The liability of Guarantor hereunder shall be reinstated and revived, and the rights of Landlord shall continue, with respect to any amount at any time paid on account of the Obligations which Landlord shall thereafter be required to restore or return to or for the benefit of Tenant in connection with the bankruptcy, insolvency or reorganization of Tenant or otherwise, all as though such amount had not been paid.

11.

Delay; Cumulative Remedies.

    No delay or failure by Landlord to exercise any right or remedy against Tenant or Guarantor will be construed as a waiver of that right or remedy. All remedies of Landlord against Tenant and Guarantor are cumulative.

12.

Severability.

    The invalidity or unenforceability of any one or more provisions of this Guaranty will not affect the validity or enforceability of any other provision.

13.

Governing Law.

    This Guaranty shall be governed by and construed under the laws of the State of California.

14.

Binding Effect.

    The provisions of this Guaranty will bind and benefit the heirs, executors, administrators, legal representatives, successors, and assigns of Guarantor and Landlord. The term "Tenant" will mean both the named Tenant and any other person or entity at any time assuming or otherwise becoming primarily liable for all or any part of the Obligations. The term "Landlord" will mean both the

4

Landlord named herein and any future owner or holder of the Lease Documents of this Guaranty or any interest therein.

15.

Authority.

    Guarantor individually represents and warrants that it has all requisite power and authority to:

    (a) execute, deliver, and be legally bound by this Guaranty on the terms and conditions herein stated; and

    (b) transact any other business with Landlord as necessary to fulfill the terms of this Guaranty.

16.

Modification or Waiver.

    No provision of this Guaranty or Landlord's rights hereunder can be waived or modified nor can Guarantor be released from its obligations hereunder except by a writing executed by Landlord. No such waiver shall be applicable except in the specific instance for which given.

17.

Headings.

    All headings in this Guaranty are for convenience and shall be disregarded in construing the substantive provisions of this Guaranty. All words used herein in the singular shall be deemed to have been used in the plural and all works used herein in the plural shall be deemed to have been used in the singular where the context and construction so require.

18.

Notice.

    All notices or other communications required or permitted to be given hereunder shall be in writing and shall be considered effective upon personal delivery or upon the earlier of (i) two (2) business days after deposit in first class United States mail, postage prepaid, registered or certified, or (ii) actual receipt as shown by the return receipt. For purposes of notice, the addresses of the parties shall be as set forth on the signature page hereof; provided, however, that any part shall have the right to change its address for notice hereunder to any other location by giving notice to the other party in the manner set forth above.

    19.  Counterparts.  This Guaranty may be executed in counterparts all of which when taken together shall be deemed fully executed originals.

    20.  Joint and Several Liability.  The obligations of the undersigned hereunder are joint and several.

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    IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of            .

Guarantor's Address:	Guarantor:
1227 Bridge Street, Suite C Yuba City, CA 95991	CALIFORNIA INDEPENDENT BANCORP, A California Corporation
	By:
	Its:
	By:
	Its:
Landlord's Address	Landlord:
Lincoln Town Center, LLC c/o Wall Street Property Company Post Office Box 2633 La Jolla, California 92038	LINCOLN TOWN CENTER, LLC, A California Limited Liability Company
	By:
		Michael R. Perry, Member
	By:
		Robert W. Carson, Member

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QuickLinks

STANDARD SHOPPING CENTER LEASE
TABLE OF CONTENTS
ARTICLE I GRANT AND BASIC TERMS
ARTICLE II LEASE TERM
ARTICLE III MINIMUM MONTHLY RENT
ARTICLE IV OTHER CHARGES PAYABLE BY TENANT
ARTICLE V RECORDS AND BOOKS OF ACCOUNT
ARTICLE VI AUDIT
ARTICLE VII CONSTRUCTION OF PREMISES
ARTICLE VIII USE OF PROPERTY
ARTICLE IX HAZARDOUS MATERIALS
ARTICLE X PARKING AND COMMON USE AREAS AND FACILITIES
ARTICLE XI SIGNS, AWNINGS, CANOPIES, FIXTURES, ALTERATIONS, IMPROVEMENTS
ARTICLE XII CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
ARTICLE XIII DAMAGE OR DESTRUCTION
ARTICLE XIV CONDEMNATION
ARTICLE XV ASSIGNMENT AND SUBLETTING
ARTICLE XVI DEFAULTS; REMEDIES
ARTICLE XVII PROTECTION OF CREDITORS
ARTICLE XVIII LEGAL COSTS
ARTICLE XIX MISCELLANEOUS PROVISIONS
RIDERS
EXHIBIT B CONSTRUCTION OF THE PREMISES Lincoln Hills Town Center

EX-10.29

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EXHIBIT 10.29

SERVICING AGREEMENT

by and among

BANCORP FINANCIAL SERVICES, INC.,

as the Servicer,

and
EPI LEASING COMPANY, INC.

a subsidiary of FEATHER RIVER STATE BANK

as the Originator

Dated as of May 26, 2000

Small Ticket Commercial Equipment Lease Contracts

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    This SERVICING AGREEMENT, dated as of May 26, 2000 (this "Agreement") is made by and among BanCorp Financial Services, Inc., a California corporation ("BanCorp") as servicer (the "Servicer") and EPI Leasing Company, a California corporate subsidiary of Feather River State Bank, a California state banking institution ("EPI"), as the originator (the "Originator") and shall remain in full force and effect through the close of business May 31, 2005 unless terminated earlier as provided for within this Agreement, however, Originator may, in Originator's sole discretion, with thirty (30) days advance written notice to Servicer, extend the terms of this Agreement to the close of business November 30, 2005 provided neither party is in default of any of the terms and conditions contained herein.

WITNESSETH:

    WHEREAS, it is contemplated that the Servicer will service the Leases pursuant to this Agreement for the benefit of the Originator; and

    WHEREAS, each of the Servicer and the Originator agrees that all of their respective representations, warranties, covenants and agreements made by them herein are true and correct to the best of their knowledge;

    NOW, THEREFORE, in consideration of the mutual agreements herein contained, and of other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

ARTICLE 1

DEFINITIONS

    Section 1.01  General Interpretive Principles.

    For purposes of this Agreement except as otherwise expressly provided or unless the context otherwise requires:

    (a) the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender;

    (b) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP as in effect on the date hereof;

    (c) references herein to "Articles", "Sections", "Subsections", "Paragraphs" and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement;

    (d) a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions;

    (e) the words "herein", "hereof", "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision; and

    (f)  the term "include" or "including" shall mean without limitation by reason of enumeration.

    (g) the term "local bank account" shall mean the account maintained by the Servicer in the name and under the sole control of the Servicer at a federally insured commercial bank selected by the Servicer in the Servicer's sole discretion for the benefit of the Originator utilized for the deposit of Lease Payments, recoveries from Non-Performing Leases, late charges, casualty payments and other such funds as may be received from the Lease Contracts serviced under the terms of this Agreeement and into which collections from other transactions will not be deposited.

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    (h) the term "collection account" shall mean the account maintained by the Originator for deposit of amounts transferred from the Local Bank Account by the Servicer.

    (i)  the term "non-performing lease" shall mean any material breach of the lease which includes, but is not limited to, non-payment default of sixty (60) days.

    (j)  the term "servicing transfer date" shall mean 12:01 A.M. July 1, 2000.

    (h) the term "P.O. Box" shall mean the post office box maintained by the Servicer exclusively to receive payments on the leases serviced under this Agreement.

ARTICLE 2

REPRESENTATIONS, WARRANTIES AND COVENANTS

    Section 2.01  Representations, Warranties and Covenants of the Servicer.  The Servicer hereby makes the following representations, warranties and covenants to the Originator on which the Originator is relying in accepting the Agreement. Such representations, warranties and covenants are made as of this Agreement's Date.

    (a) The Servicer represents and warrants as to itself:

    (i)  Organization and Good Standing.  The Servicer is a corporation duly organized, validly existing in good standing under the laws of the State of California, has the power to own its assets and to transact the business in which it is presently engaged, and had at all relevant times and now has the power, authority and legal right to service the Leases and perform its obligations hereunder.

    (ii)  Due Qualification.  The Servicer is duly qualified to do business as a foreign corporation and is in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions where the failure to be so qualified and in good standing or obtain such licenses or approvals would have a material adverse effect on the Servicer's business and operations or the servicing of the Leases as required by this Agreement.

    (iii)  Authorization.  The Servicer has the power, authority and legal right to execute, deliver and perform this Agreement and the execution, delivery and performance of this Agreement has been duly authorized by the Servicer by all necessary corporate action.

    (iv)  Binding Obligation.  This constitutes a legal, valid and binding obligation of the Servicer, enforceable against the Servicer in accordance with its terms, except that such enforcement may be subject to bankruptcy, insolvency, moratorium or other similar laws (whether statutory, regulatory or decisional) now or hereafter in effect relating to creditors' rights generally.

    (v)  No Violation.  The consummation by the Servicer of the transactions contemplated by this and the fulfillment of the terms hereof and thereof will not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice, lapse of time or both) a default under, the articles of incorporation or by-laws of the Servicer, or any material indenture, agreement, mortgage, deed of trust or other instrument to which the Servicer is a party or by which it is bound, or result in the creation or imposition of any Adverse Claim upon any of its properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument, or violate any law or, to the best of the Servicer's knowledge, any order, rule or regulation applicable to the Servicer of any court or of any Governmental Authority having jurisdiction over the Servicer or any of its properties.

    (vi)  No Proceedings.  There are no Proceedings or investigations to which the Servicer, or any of the Servicer's Affiliates, is a party pending or, to the best of the Servicer's knowledge, threatened before any court, regulatory body, administrative agency or other tribunal or

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governmental instrumentality (A) asserting the invalidity of this (B) seeking to prevent the consummation of any of the transactions contemplated by this or (C) seeking any determination or ruling that is reasonably likely to materially and adversely affect the performance by the Servicer of its obligations under, or the validity or enforceability of, this Agreement.

    (vii)  Approvals.  All approvals, authorizations, consents, orders or other actions of any Person or court required on the part of the Servicer in connection with the execution and delivery of this Agreement have been or will be taken or obtained on or prior to the Agreement Date.

    (viii)  Servicer Event of Default.  No Servicer Event of Default has occurred and no condition exists which would constitute an Servicer Event of Default.

    (b) The Servicer additionally covenants as follows:

    (i)  Lease Management System.  The Servicer will, at its own cost and expense, (A) retain a lease management system, or an alternative system of equal capability, used by the Servicer as a master record of the Leases and (B) mark the lease management system to the effect that the Leases listed therein and serviced herein are owned by the Originator exclusively.

    (ii)  Compliance with Law.  The Servicer will comply with all material acts, rules, regulations, orders, decrees and directions of any Governmental Authority applicable to the Leases and the Equipment or any part thereof; provided, however, that the Servicer may contest any act, regulation, order, decree or direction in any reasonable manner which shall not materially and adversely affect the rights of the Originator in the Leases and the Equipment; and provided, further, that such contests shall be in good faith but only so long as such proceedings shall not individually or in the aggregate subject the Originator to any civil or criminal liability.

    (iii)  Preservation of Security Interest.  The Servicer shall execute and file such continuation statements and any other documents reasonably requested by the Originator or which may be required by law (in any case, with respect to the Equipment, subject to the Filing Requirements) to fully preserve and protect the interest of the Originator. The Servicer shall be entitled to reimbursement from the Originator of any reasonable and customary funds advanced on Originator's behalf in performing services under this Section 2.01 b (iii).

    (iv)  Obligations with Respect to Leases.  The Servicer will use commercially reasonable efforts to duly fulfill, and comply with, all obligations on the part of the "lessor" to be fulfilled under or in connection with each Lease and each Lease Contract, and the Servicer will do nothing to impair the rights of the Originator in the Leases, the Lease Contracts and the Equipment.

    (v)  Notification.  The Servicer agrees to notify the Originator as soon as practicable, but in no event later than three (3) Business Days after the earlier of the Servicer's discovery or its receipt of notice thereof, of a material breach of any representation or warranty contained herein, or the failure of the Servicer to perform its duties hereunder in any material respect.

    (vi)  Lien in Force.  The Servicer shall not release or assign any Lien in favor of the Originator on any item of Equipment related to any Lease in whole or in part, except in accordance with its Servicing Standard as defined in section 3.01 herein or as otherwise provided elsewhere herein without permission of the Originator.

    (vii)  Fulfill Obligations.  The Servicer will in all material respects duly fulfill all obligations on the Servicer's part to be fulfilled under or in connection with the Leases. The Servicer will not amend, rescind, cancel or modify any Lease or term or provision thereof, except in accordance with the Servicing Standard as defined in section 3.01 herein or as contemplated elsewhere herein without permission of the Originator.

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    (viii)  Preservation of the Equipment.  As more specifically set forth in this Agreement, in performing its servicing duties hereunder, the Servicer shall, in accordance with the Servicing Standard, collect all payments required to be made by the Lessees under the Leases, enforce all material rights of the Originator under the Leases and defend the Equipment against all Persons, claims and demands whatsoever. The Servicer shall not assign, sell, pledge, or exchange, or in any way encumber or otherwise dispose of the Equipment, except as permitted under this Agreement and only with permission of the Originator.

    (ix)  Notice of Servicing Event of Default; Other Requested Information.  The Servicer shall deliver to the Originator:

    (1)  Notice of Servicer Event of Default.  In accordance with the provisions of section 5.01 herein, immediately upon becoming aware of the existence of any condition or event which constitutes a Servicer Event of Default or an Event of Default, or any event which, with the lapse of time and/or the giving of notice, would constitute a Servicer Event of Default or an Event of Default and which, in each case, has not been waived in writing by the Originator, a written notice describing its nature and period of existence and, in the case of a Servicer Event of Default, the action the Servicer is taking or proposes to take with respect thereto; and

    (2)  Delivery of Lease Contracts.  In accordance with the provisions of section 5.03 herein, upon a Servicer Event of Default, the Servicer shall promptly deliver to the Originator any Lease Files, or portion thereof, as applicable, that may have been delivered to the Servicer pursuant to the terms of this Agreement.

    (x)  Prepayments.  The Servicer may accept Prepayment in part or in full; provided, that (1) in the event of Prepayment in full, the Servicer may consent without permission of Originator to such Prepayment only if an amount not less than the full principal balance plus one-half (¹/2) of the then remaining unearned income of the Lease and any and all fees or other charges due under the terms of the Lease is deposited in the Collection Account and (2) in the event of a partial Prepayment, the Servicer may consent to such partial Prepayment only if following such partial Prepayment there are no delinquent amounts then due from the Lessee.

    (xi)  No Ownership Interest.  The Servicer does not have any ownership interest in the Leases and will not assert any ownership interest in the Leases.

    (xii)  Collection Policies and Procedures.  The Servicer shall not materially amend, modify or otherwise change its Collection Policies and Procedures as in effect on the date hereof and attached to this Agreement as "Exhibit B" in any manner without prior notice to, and without the prior consent of the Originator if such amendment, modification or change would be reasonably likely to materially and adversely affect the collectability or the credit quality of the Leases.

ARTICLE 3

ADMINISTRATION AND SERVICING OF LEASES

    Section 3.01  Acceptance of Appointment; Duties of Servicer.  (a)  The Servicer shall service, administer and enforce the Leases as Servicer and shall have full power and authority to do any and all things in connection with such servicing and administration which it may deem necessary or desirable; provided, that such things are not inconsistent with the terms of this Agreement. The Servicer will manage, service, administer, and make collections on the Leases in accordance with the terms of this Agreement, the Leases, the Lease Contracts, the Collection Policies and Procedures and applicable law and, to the extent consistent with such terms, in the same manner in which, and with the same care, skill, prudence and diligence with which, it services and administers leases of similar credit quality for itself or others, but in any event, with no less care, skill, prudence and diligence than the customary

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and usual standards of practice of prudent institutional small and middle ticket equipment finance lease servicers and, in each case, taking into account its other obligations hereunder (the "Servicing Standard"). Notwithstanding the prior sentence, the Servicer shall, not later than five (5) Business Days after the Servicing Transfer Date direct each Lessee to make all payments with respect to the respective Leases which are due directly to the P.O. Box. The Servicer's duties shall include collection and posting of all payments, responding to inquiries of Lessees on the Leases, investigating delinquencies, accounting for collections and furnishing monthly statements as listed in Exhibit "A" attached hereto and provided herein and using commercially reasonable efforts to maintain the first priority perfected security interest of the Originator for the benefit of the Originator in the Leases and, in accordance with the Filing Requirements, in the related Equipment, including, but not limited to, the filing of any financing or continuation statements required to be filed pursuant to the UCC, which continuation statements shall be filed on or before the 60th day prior to the expiration date of such financing statement. The Servicer shall follow its customary standards, policies, and procedures as set forth in its Collection Policies and Procedures and shall have full power and authority, acting alone, to do any and all things in connection with such managing, servicing, administration, and collection that it may deem necessary or desirable, subject to Section 2.02(b)(xi). The Servicer may waive, modify or vary any term of a Lease in accordance with the Servicing Standard or otherwise as required by law if the Servicer determines, in its reasonable and prudent judgment, that it will not materially and adversely affect the Originator. In no event shall the Servicer make a Material Modification to any Lease which would result in (i) the Discounted Present Value of such modified Lease being less than the Discounted Present Value of such Lease immediately prior to such modification or (ii) the term of such Lease being extended beyond May 31, 2005 unless approved by Originator. If the Servicer, with the preapproval of the Originator, commences a legal proceeding to enforce a Non-Performing Lease or participates in a legal proceeding (including, without limitation, a bankruptcy proceeding relating to or involving a Lease or a Non-Performing Lease), the Originator shall thereupon be deemed to have automatically assigned such Lease to the Servicer for purposes of commencing or participating in any such proceeding as a party or claimant, and the Servicer is authorized and empowered by the Originator, pursuant to this Section 3.01, to execute and deliver, on behalf of the Originator, any and all instruments of satisfaction or cancellation, or partial or full release or discharge, and all other notices, demands, claims, complaints, responses, affidavits or other documents or instruments in connection with any such proceedings. The Originator shall furnish the Servicer with any powers of attorney and other documents necessary or appropriate to enable the Servicer as applicable, to carry out its servicing and administrative duties under this Agreement. If in any enforcement suit or legal proceeding it shall be held that the Servicer may not enforce a Lease on the ground that it shall not be a real party in interest or a holder entitled to enforce the Lease, the Originator may, at the Originator's expense and direction, take steps to enforce the Lease, including bringing suit in its own name. Any and all expenses, costs, charges, or fees (including legal and attorney's costs and fees) advanced by Servicer in performing its obligations under this Section 3.01 (a) shall be reimbursed by the Originator only if such fees were preapproved by the Originator.

    (b)  Consent to Assignment or Replacement.  At the request of a Lessee, the Servicer may in its sole discretion consent to the assignment or sublease of a unit of the Equipment under a Lease provided that the Lessee will remain liable for all of its obligations under such Lease; provided, however, that such assignee or sub-lessee must satisfy the credit criteria set forth by the Originator. Upon the request of any Lessee, the Servicer may, in its sole discretion, provide for additions and upgrades to a Lease, and the substitution or replacement of any unit of Equipment for a substantially similar unit of additional equipment having substantially the same fair market value as the unit of Equipment that will be replaced or substituted.

    (c)  Maintenance of Credit Files and Lease Files.  The Servicer (i) shall maintain the Credit Files in a manner consistent with the Servicing Standard and the performance of its obligations as Servicer pursuant to this Agreement and will not dispose of any documents constituting the Lease Files in any

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manner which is inconsistent with the performance of its obligations as the Servicer pursuant to this Agreement, (ii) will not permit any person other than the Originator to maintain any Adverse Claim upon any Lease and (iii) will not permit any person other than the Servicer as Custodian to maintain possession of any Lease.

    (c) The Servicer agrees to act as Custodian for the Originator with respect to the Lease Files of any Leases. Upon receipt of a list of Leases (the "List") the Servicer, in its capacity as Custodian, shall acknowledge receipt of the applicable Lease Files with respect to each and every Lease listed on the applicable List, and hereby agrees and confirms that it shall be holding such Lease Files exclusively and solely as Custodian and bailee for the benefit of the Originator, and not in its individual capacity or for its own benefit. Such Lease Files shall be maintained by the Custodian in separate cabinets that do not contain any other documents of or relating to the Servicer and that clearly identifies that such Lease Files are being held in its capacity as Custodian. The Custodian agrees to take instructions with respect to such Lease Files solely from the Originator and not to act for its own benefit as a creditor of the Originator with respect to such Lease Files. The Custodian shall not at any time exercise or seek to enforce any claim, right or remedy, including any statutory or common law rights of setoff, if any, that the Custodian may otherwise have against all or any part of the Lease Files or any proceeds thereof.

     (i) At any time, upon the request of the Originator and at the expense of the Servicer, the Custodian hereby agrees to itemize the documents that it is holding as custodian for the Originator.

    (ii) Upon reasonable notice to the Custodian, the Originator and each of its agents, accountants, attorneys and auditors will be permitted during normal business hours to examine the Lease Files at the offices of the Custodian. The Originator will promptly reimburse the Custodian as applicable, for any reasonable out-of-pocket expenses incurred by the Custodian or Servicer in connection with any such examination.

    (iii) At its own expense, the Servicer as Custodian will maintain and keep in full force and effect such fidelity bonds and/or insurance policies (including, without limitation, errors and omissions policies) in amounts, with standard coverage and subject to deductibles, all as are customarily maintained in the leasing industry (which may include self insurance to the extent customary in the industry and consistent with safe and sound practices).

    (e)  Custody of Lease Files.  (a)  Upon receipt of a written request and receipt provided by the Originator the Custodian will release to the Originator the related Lease File or the documents from a Lease file set forth in such Request for Release. The Servicer shall promptly report to the Originator the loss by it of all or part of any Lease File previously provided to it by the Originator and shall promptly take appropriate action to remedy any such loss. In such custodial capacity, the Servicer shall have and perform the following powers and duties:

     (i) hold the Leases and Lease Files that it may from time to time receive hereunder from the Originator, maintain accurate records pertaining to each Lease (including any title documentation) to enable it to comply with the terms and conditions of this Agreement, and maintain a current inventory thereof;

    (ii) implement policies and procedures in accordance with the Servicer's normal business practices with respect to the handling and custody of such Lease Files so that the integrity and physical possession of such Lease Files will be maintained and the requirements of this Agreement fulfilled;

    (iii) take all other actions in connection with maintaining custody of such Lease Files on behalf of the Originator as may be reasonably requested;

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    (iv) Acting as Custodian of such Lease Files pursuant to this section, the Servicer agrees that it does not and will not have or assert any beneficial ownership interest in the Leases or the Lease Files.

    (v) The Servicer agrees to maintain any Lease Files that it may from time to time receive from the Originator at its office located in Sacramento, California, or at such other offices of the Servicer as shall from time to time be identified by prior written notice to the Originator. Subject to the foregoing, the Servicer may temporarily move individual Lease Files or any portion of an individual Lease File without notice as necessary to conduct the collection and other servicing activities provided that the Servicer shall not move any such Lease File (or any part thereof) for more than 30 days without obtaining the consent of the Originator.

    (vi) Upon payment in full of all outstanding amounts due Originator under a Lease and upon proper release, recoveyance and transfer of the equipment title, or in the event of a defaulted lease, upon final termination of the Lease and its associated loss recoveries, if any, the Servicer shall return to the Originator within thirty (30) days the entire Lease File associated with such Lease maintained by it in its capacity as Custodian.

    (f)  Notice to Lessees.  The Servicer shall be required to notify each Lessee in accordance with Section 3.01 (a) hereof to make its payments to the P.O. Box.

    Section 3.02  Collection of Payments.  (a)  The Servicer shall use commercially reasonable efforts to collect all payments called for under the terms and provisions of the Leases as and when the same shall become due, and shall follow such collection procedures as it follows with respect to all comparable equipment leases that it services for itself or others in a manner consistent with the Servicing Standard.

    (b) To the extent provided for in any Lease, the Servicer shall make commercially reasonable efforts to collect all payments with respect to amounts due for maintenance, taxes or assessments on the Equipment or the Leases and shall remit such amounts to the appropriate maintenance provider or Governmental Authority on or prior to the date such payments are due.

    (c) The Servicer will direct all Lessees to make all Lease Payments directly to the Post-Office Box.

    (d) On each Business Day, the Servicer will cause to be collected from the Post Office Box, amounts representing payments sent by Lessees and deposit such amounts into the Local Bank Account. The Servicer shall withdraw from the Local Bank Account all excluded amounts, as defined in sections 3.02(e)(1),(2) and 3.02(g) herein only as it relates to taxes due to any governmental authority, and will cause all remaining amounts that have been collected and deposited in the Local Bank Account through 4:00 p.m. (Pacific time) on the immediately preceding Business Day to be deposited into the Collection Account by 12:00 noon (Pacific time) on each Business Day; provided, however, that if such amounts are less than $1,000, no deposit need be made to the Collection Account until the total transfer will equal or exceed $1,000. The Servicer shall notify the Originator in writing of all amounts transferred into the Collection Account on a monthly basis.

    (e) Based upon the amounts set forth in the Monthly Statement, the Servicer shall cause accounting for and distribution of the Available Funds in the Local Bank Account according to the following priority: (1) the Servicing Fee to the Servicer as calculated in Section 3.05 herein, (2) Servicer advances, if any, made on behalf of Originator for expenses, fees, or costs permitted in this Agreement, (3) Payments on Leases serviced under this Agreement and applied as provided for in section 3.02(g) herein, (4) any other remaining amounts.

    (f)  In the event that the Servicer acquires title to any item of Equipment in the enforcement of any Lease, the Servicer shall use commercially reasonable efforts to sell or otherwise dispose promptly

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of such item of Equipment, consistent with the Servicing Standard and with preapproval of the Originator. The Servicer shall not lease, operate or otherwise manage any such items of Equipment unless prior thereto, the Servicer remits to the Collection Account the related Purchase Amount with respect to such Lease.

    (g) Any payments (net of excluded emounts except taxes) received from, or on behalf of, a Lessee with respect to a Lease will be allocated first to any sales or use taxes due or payable to any taxing authority, second to any scheduled Lease Payments due on the related Lease (allocating such payments in the order that scheduled Lease Payments become due), and third to all other amounts then payable under the Lease.

    Section 3.03  Realization Upon Non-Performing Leases.  (a)  The Servicer shall use commercially reasonable efforts, consistent with the Servicing Standard and with the preapproval of the Originator, to accelerate, repossess, or otherwise comparably convert the ownership of any Equipment that it has reasonably determined should be repossessed or otherwise converted following a default under the Lease, remarket, either through sale or release, the Equipment upon the expiration of the term of the related Lease and act as sales and processing agent for Equipment which it repossesses. The Servicer shall follow such practices and procedures as are consistent with the Servicing Standard and as it shall deem necessary or advisable and as shall be customary and usual in its servicing of equipment leases and other actions by the Servicer in order to realize upon such a Lease, which may include commercially reasonable efforts to enforce any recourse obligations of Lessees and repossessing and selling the Equipment at public or private sale. The foregoing is subject to the provision that, in any case in which the Equipment shall have suffered damage, the Servicer shall not be required to expend funds in connection with any repair or towards the repossession of such Equipment unless it shall determine in its discretion that such repair and/or repossession will increase the Liquidation Proceeds by an amount greater than the amount of such expenses and it shall have the prior permission of the Originator and be reimbursed for all expended funds by the Originator.

    (b) Notwithstanding the foregoing, the Servicer, with the preapproval of the Originator, shall take action to accelerate all amounts due under any Lease immediately after such Lease becomes a Non-Performing Lease and shall, in accordance with its Collection Policies and Procedures, bring an action against the Lessee for all amounts due under the Lease and, to the extent applicable, institute proceedings to repossess and sell or re-lease the Equipment; provided, however, that the Servicer will not accelerate any scheduled Lease Payment unless permitted to do so by the terms of the Lease or under applicable law; and provided, further, that the Servicer shall not declare a Lessee to be in default under a Lease nor exercise any other remedies under such Lease based solely on a default by such Lessee under any other obligation of such Lessee to the Servicer or its Affiliates, if such Lessee is not also in default under such Lease unless it concludes that declaring such default is in the best interest of the Originator or will maximize potential recoveries from such Lessee for the benefit of the Originator. In addition, to the extent that an escrow account has been established by the related Lessee to cover defaults on Leases between such Lessee and the Servicer amounts in such escrow account shall be applied against defaults under each such Lease in the order that such defaults occur with respect to any such lease.

    (c) The Servicer shall remit to the Local Bank Account within two Business Days of receipt all Liquidation Proceeds received in connection with the sale or disposition of a Non-Performing Lease to the extent such Liquidation Proceeds do not constitute Excluded Amounts.

    (d) The Servicer shall remit to the Local Bank Account within two Business Days of receipt all payments made with respect to any guaranties of a Lessee's obligations under any Lease.

    Section 3.04  Maintenance of Insurance Policies.  In connection with its activities as Servicer of the Leases, the Servicer agrees to present claims to the insurer under each insurance policy applicable to any Lease, and to settle, adjust and compromise such claims, in each case, consistent with the terms of each Lease. The Servicer shall remit to the Local Bank Account within two Business Days of receipt all insurance proceeds received by the Servicer with respect to any Lease or Equipment subject thereto.

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    Section 3.05  Servicing Compensation; Payment of Certain Expenses by Servicer.  As compensation for its activities, the Servicer shall be entitled to receive the Servicing Fee of eighty basis points (0.80%) annually of the outstanding lease receivable balance of all serviced leases under this Agreement determined on the prior month's ending balances paid on a monthly basis, but in no case shall the monthly amount calculated and due be less than the sum of $1,000.00 and $11.00 per Lease serviced during the preceding month, excepting herefrom Leases which at the inception of this Agreement had no receivable due to Originator other than contractural purchase options. Furthermore, Servicer shall be paid a one-time fee by Originator prior to initiation of services by Servicer as required herein of $500.00 plus $1.00 per Lease for every Lease initially transferred electronically for servicing under this Agreement and $3.50 for every Lease transferred manually. Additionally, Servicer shall be paid a separate fee of $25.00 for every lease termination and/or purchase option exercised when serviced. The Servicer shall be required to pay all expenses incurred by it in connection with its activities hereunder, including, without limitation, (a) fees and disbursements of the Independent Public Accountants, (b) taxes imposed on the Servicer (but excluding any sales or property taxes imposed on any Lessee, the Originator or any other Person), (c) expenses incurred in connection with distributions and reports to the Originator except any customized or special reports requiring out of pocket cost by Servicer shall be reimbursed by Originator and (d) all other fees and expenses not expressly stated hereunder to be for the account of the Originator excepting therefrom any costs or fees advanced by the Servicer on behalf of the Originator to repossess, move, transport, store, recondition, advertise or sell any equipment under a serviced lease, or institute any collection proceeding including attorney's fees, costs and expenses as agreed to by the Originator in advance which amounts shall be reimbursed to Servicer by Originator.

    Section 3.06  Monthly Statement and Servicing Reports.  Each monthly reporting period shall begin on the twentysixth (26^th) of every month and end on the twentyfifth (25^th) of each succeeding month ("Reporting Period"). With Respect to each Reporting Period, the Servicer will provide Originator, within five (5) business days of the end of the Reporting Period, a Monthly Statement and Servicing Reports signed by a Servicing Officer in substantially the same form as Exhibit "A" attached hereto.

    Section 3.07  Access to Certain Documentation and Information Regarding the Serviced Estate.  (a)  The Servicer shall provide the Originator and its respective duly authorized representatives, attorneys or accountants access to any and all documentation regarding the Serviced Estate (including the List of Initial Leases, all Lists of Subsequent Leases and all Lists of Substitute Leases) that the Servicer may possess, such access being afforded without charge but only upon reasonable request and during normal business hours, so as not to interfere unreasonably with the Servicer's normal operations or customer or employee relations, at offices of the Servicer designated by the Servicer.

    (b) At all times during the term hereof, the Servicer shall either (i) keep available in physical form at its principal executive office for inspection by the Originator or their respective duly authorized representatives, attorneys or accountants a list of all Leases then serviced, together with a reconciliation of such list to the List of Initial Leases, all Lists of Subsequent Leases and all Lists of Substitute Leases and each of the Monthly Statements, indicating the cumulative removals and additions of Leases or, (ii) maintain electronic facilities which allow such list and reconciliation to be generated.

    (c) The Servicer will maintain accounts and records as to each respective Lease serviced by the Servicer that are accurate and sufficiently detailed to permit (i) the reader thereof to know as of the most recent Reporting Period the status of such Lease, including payments and recoveries made and payments owing (and the nature of each), and (ii) reconciliation between payments or recoveries on (or with respect to) each Lease and the amounts from time to time deposited in the Collection Account in respect of such Lease.

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    (d) The Servicer will maintain its lease management system and other computerized records so that the Servicer's accounts and records (including any back-up computer archives) that refer to any Lease indicate clearly that the Lease is part of the Serviced Estate.

    (e) Nothing in this Section 3.07 shall derogate from the obligation of the Servicer to observe any applicable law prohibiting disclosure of information regarding the Lessees, and the failure of the Servicer to disclose information whose disclosure is not permitted by applicable law shall not constitute a breach of this Section 3.07

    (f)  The Servicer shall use its respective best efforts to maintain in confidence all information which has been described as "confidential" and obtained by them regarding the Lessees and the Leases, whether upon exercise of their respective rights and obligations under this Section 3.07 or otherwise. Notwithstanding anything herein to the contrary, the foregoing shall not be construed to prohibit (i) disclosure of information obtained by the Servicer from sources other than the Lessees and the Leases (ii) disclosure of any and all information (A) required to be disclosed under any applicable statute, law, rule or regulation, (B) to any Governmental Authority having or claiming authority to regulate or oversee any respects of the Originator's business or that of its Affiliates; (C) pursuant to any subpoena, civil investigative demand or similar demand or request of any Governmental Authority to which the Originator or an Affiliate or an officer, director, employer or shareholder thereof is a party, (D) in any preliminary or final offering circular, registration statement or contract or other document pertaining to the transactions contemplated herein approved in advance by the Originator or (E) to any Affiliate, independent or internal auditor, agent, employee or attorney of the Originator having a need to know the same, provided that the Originator advises such recipient of the confidential nature of the information being disclosed, or (iii) any other disclosure authorized by the Originator. No person entitled to receive copies of such reports shall use the information therein for the purpose of soliciting the customers of the Servicer or Originator, or for any other purpose except as set forth in this Agreement.

    Section 3.08  Financial Statements.  The Servicer shall provide to the Originator annual audited financial statements of BanCorp for the most recently completed fiscal year (which shall include balance sheets, statements of income and retained earnings and a statement of cash flows) prepared in accordance with generally accepted accounting standards by a licensed CPA selected by Bancorp in Bancorp's sole discretion within 120 days of the end of each fiscal year.

ARTICLE 4

THE SERVICER

    Section 4.01  Liability of Servicer; Indemnities.  (a)  The Servicer shall be liable in accordance herewith only to the extent of the obligations specifically undertaken by the Servicer herein. Such obligations shall include the following:

     (i) The Servicer shall indemnify, defend and hold harmless the Originator (which shall include any of its directors, employees, officers and agents) against and from any and all costs, expenses, losses, damages, claims and liabilities, including fees and expenses of counsel and expenses of litigation, to the extent that such costs, expenses, losses, damages, claims, liabilities, fees or expenses arose out of, or were imposed upon the Originator in connection with or by reason of the failure by the Servicer to perform its duties under this Agreement or errors or omissions of the Servicer related to such duties including the making of any representations or warranties hereunder which are inaccurate in any material respect. The provisions of this section shall run directly to and be enforceable by an injured party subject to the limitations hereof, and the indemnification provided to the Originator pursuant to this Article 4 by the Servicer shall survive the payment in full of the Leases or the resignation or removal of the Servicer.

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    (b) The Servicer shall pay any amounts owing pursuant to Section 4.01 hereof directly to the indemnified Person, and such amounts shall not be deposited in the Collection Account.

    (c) Indemnification under this Section 4.01 shall include, without limitation, reasonable fees and expenses of counsel and expenses of litigation reasonably incurred. If the Servicer has made any indemnity payments to the Originator pursuant to this Section 4.01 and such party thereafter collects any of such amounts from others, such party will promptly repay such amounts collected to the Servicer, without interest.

    Section 4.02  Merger, Consolidation, or Assumption of the Obligations of Servicer.  Any entity (i) into which the Servicer may be merged or consolidated, (ii) resulting from any merger or consolidation to which the Servicer shall be a party or (iii) succeeding to the business of the Servicer, shall be the successor to the Servicer hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding, and such entity in any of the foregoing cases shall execute an agreement of assumption, in a form reasonably satisfactory to the Originator, agreeing to perform every obligation of the Servicer hereunder.

    Section 4.03  Limitation on Liability of Servicer and Others.  Neither the Servicer nor any of the directors, officers, employees or agents of the Servicer shall be under any liability to the Originator except for breach of any warranty or provision of this Agreement or as expressly provided herein, for any action taken or for refraining from the taking of any action pursuant to this Agreement or for errors in judgment; provided, however, that this provision shall not protect the Servicer or any Person against any liability that would otherwise be imposed by reason of willful misconduct, bad faith or gross negligence in the performance of duties hereunder. The Servicer and any director or officer or employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising. Except as expressly provided herein, the Servicer shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its duties to service the Serviced Estate in accordance with this Agreement and that in its opinion may involve it in any expense or liability.

    Section 4.04  Servicer Not to Resign.  Subject to the provisions of Section 4.02 hereof, the Servicer shall not resign from the obligations and duties hereby imposed on it as Servicer except upon consent of the Originator or a determination that the performance of its duties hereunder is no longer permissible under applicable law. No such resignation shall become effective until a successor Servicer reasonably acceptable to the Originator shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 5.02 hereof.

ARTICLE 5

SERVICING TERMINATION

    Section 5.01  Events of Default.  If either the Originator or Servicer shall in any material respect breach any representation, warranty, or condition, or fail to provide specific performance as required herein than the failing party shall be given written notice by the aggrieved party of such breach or failure and provided ten (10) business days to remedy or cure such breach or failure. If within ten (10) business days the breach or failure identified in the notice has not been cured to the satisfaction of the aggrieved party in accordance with the requirements of this Agreement, the aggrieved party shall have the option to terminate this Agreement in its entirely by giving thirty (30) days written notice to the failing party. Failure to provide such notice of termination within fifteen (15) business days of the date of the original notice of breach or failure shall be relied upon by the failing party that said breach or failure has been cured to the satisfaction of the aggrieved party

    Section 5.02  Waiver of Past Defaults.  The Originator may waive any default by the Servicer in the performance of its obligations hereunder and its consequences. Upon any such waiver of a past

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default, such default shall cease to exist, and any Servicer Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly waived.

    Section 5.03  Effects of Termination of Servicer.  Upon termination of this Agreement as provided for herein, Servicer shall immediately, (a) remit to Originator any scheduled Lease payments or any other payments that it may receive pursuant to any Lease serviced under this Agreement, (b) return to Originator all documents under custodial control of Servicer pursuant to this Agreement, (c) execute any document necessary to effectuate the termination of this Agreement (d) provide Originator a final accounting of all sums received and applied pursuant to this Agreement.

ARTICLE 6

MISCELLANEOUS PROVISIONS

    Section 6.01  Amendment.  (a)  This Agreement may be amended from time to time by the Servicer and the Originator to cure any ambiguity herein. This Agreement may also be amended from time to time by the Servicer and the Originator with the written consent of the Originator and the Servicer for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of either party.

    Section 6.02  Counterparts.  For the purpose of facilitating the execution of this Agreement and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and all of which counterparts shall constitute but one and the same instrument.

    Section 6.03  GOVERNING LAW.THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITH VENUE LAID IN SACRAMENTO COUNTY AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS OF ANY STATE.

    Section 6.04  Notices.  All demands, notices, instructions, directions and communications hereunder shall be in writing, personally delivered or mailed by overnight courier, and shall be deemed to have been duly given upon receipt (a) in the case of the Servicer, at Bancorp Financial Services, Inc.; 3 Parkcenter Drive; Sacramento, California 95825; Attention: President; telephone 916-641-2000; telecopy 916-641-2223, (b) in the case of the Originator, at EPI Leasing Company, Inc., c/o Feather River State Bank; 995 Tharp Road; Yuba City, CA 95993; Attention: Lorie Birch; telephone 530-674-4426; telecopy 530-674-4498. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given on the fifth Business Day following mailing, whether or not the Party receives such notice.

    Section 6.05  Severability of Provisions.  If any one or more of the covenants, agreements, provisions, or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement.

    Section 6.06  Assignment.  Notwithstanding anything to the contrary contained herein, except as provided in Section 4.02 hereof, this Agreement may not be assigned by the Servicer except with prior written consent of the Originator.

    Section 6.07  Binding Effect.  This Agreement shall inure to the benefit of, and shall be binding upon the Servicer, the Originator and their respective successors and permitted assigns, subject,

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however, to the limitations contained in this Agreement. This Agreement shall not inure to the benefit of any Person other than the Servicer and the Originator.

    Section 6.08  Survival of Agreement.  All covenants, agreements, representations and warranties made herein and in the other documents delivered pursuant hereto shall survive the pledge of the Serviced and shall continue in full force and effect until payment in full of the Leases and all amounts owing to the Originator hereunder.

    Section 6.09  Captions.  The captions or headings in this Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Agreement.

    Section 6.10  Exhibits.  The exhibits to this Agreement are hereby incorporated herein and made a part hereof and are an integral part of this Agreement.

    Section 6.11  Calculations.  Except as otherwise provided in this Agreement all interest rate calculations under this Agreement, including those with respect to the Leases, will be made on the basis of a 360-day year and twelve 30-day months (i.e., each Interest Accrual Period shall be deemed to be the number of days between the Issuance Date to but not including the initial Payment Date) and will be carried out to at least seven decimal places.

    Section 6.12  Arbitration.  If a dispute arises under this contract, either party may demand arbitration by filing a written demand with the other party within 45 days after occurrence of the dispute.

(a)

The parties may agree on one arbitrator. If they cannot agree on one arbitrator, there shall be three: one named in writing by each of the parties within five days after demand for arbitration is given, and a third chosen by the two appointed. Should either party refuse or neglect to join in the appointment of the arbitrator(s) or to furnish the arbitrator(s) with any papers or information demanded, the arbitrator(s) may proceed ex parte.



(b)

A hearing on the matter to be arbitrated shall take place before the arbitrator(s) in the city of Sacramento, County of Sacramento, State of California, at the time and place selected by the arbitrator(s). The arbitrator(s) shall select the time and place promptly and shall give each party written notice of the time and place at least 30 days before the date selected. At the hearing, any relevant evidence may be presented by either party, and the formal rules of evidence applicable to judicial proceedings shall not govern. Evidence may be admitted or excluded in the sole discretion of the arbitrator(s). The arbitrator(s) shall hear and determine the matter and shall execute and acknowledge the award in writing and cause a copy of the writing to be delivered to each of the parties.



(c)

If there is only one arbitrator, his or her decision shall be binding and conclusive on the parties, and if there are three arbitrator(s), the decision of any two shall be binding and conclusive. The submission of a dispute to the arbitrator(s) and a rendering of a decision by the arbitrator(s) shall be a condition precedent to any right of legal action on the dispute. A judgment confirming the award may be given by any Superior Court having jurisdiction, or that Court may vacate, modify,or correct the award in accordance with the prevailing provision of the California Arbitration Act.



(d)

If three arbitrators are selected, but no two of the three are able to reach an agreement regarding the determination of the dispute, then the matter shall be decided by three new arbitrators who shall be appointed and shall proceed in the same manner, and the process shall be repeated until a decision is agreed on by two of the three arbitrators selected.



(e)

The costs of the arbitration shall be borne by the losing party or shall be borne in such proportions as the arbitrator(s) determine(s).

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    Section 6.13  Attorneys' Fees.  If any legal action, including an action for declaratory relief, is brought to enforce or interpret the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees from the other party. These fees, which may be set by the court in the same action or in a separate action brought for that purpose, are in addition to any other relief to which the prevailing party may be entitled. This provision applies to the entire Agreement.

    IN WITNESS WHEREOF, the Servicer and the Originator have caused this Agreement to be duly executed by their respective officers, all as of the day and year first above written.

BANCORP FINANCIAL SERVICES, INC.   as Servicer
By:	Kevin D. Cochrane President
EPI LEASING COMPANY   As Originator
By:
	Name:
	Title:

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SERVICING AGREEMENT
ARTICLE 1 DEFINITIONS
ARTICLE 2 REPRESENTATIONS, WARRANTIES AND COVENANTS
ARTICLE 3 ADMINISTRATION AND SERVICING OF LEASES
ARTICLE 4 THE SERVICER
ARTICLE 5 SERVICING TERMINATION
ARTICLE 6 MISCELLANEOUS PROVISIONS

EX-13

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EXHIBIT 13

ANNUAL REPORT 2000

FEATHER RIVER STATE BANK

Table of Contents

Corporate Profile	1
Shareholder Information	2
Financial Highlights	4
Letter to the Shareholders	5
The New Millennium Continues	7
Management's Discussion and Analysis	10
Report of Independent Public Accountants	31
Consolidated Financial Statements	32
Notes to Financial Statements	36
Directors and Management Team	58

Corporate Profile

ENTERING A NEW MILLENNIUM WITH
TRADITIONAL BANKING VALUES.

"Responsive, relationship banking with experienced officers and staff is the foundation upon which the Company was established and will continue to build upon for the future."

    California Independent Bancorp ("CIB") and its wholly owned subsidiary Feather River State Bank (collectively, the "Company") are structuring for growth to meet the challenges of a changing region and a new millennium. These are exciting times and the Company is approaching the new millennium as it has done every year since its inception, with an eye toward the future.

    Formed in 1994, CIB has as its sole subsidiary, Feather River State Bank (the "Bank"). The Bank was founded in 1976 in response to a growing demand for local banking decisions. The Company is one of Northern California's leading community banks with assets of over $300 million. This Annual Report reflects the consolidated financial status of the Company and outlines its goals and strategies.

    The Bank's 138 employees serve a customer base of approximately 25,000 accounts through seven retail branches, a loan production office, a real estate department and other specialized financial service groups providing a full range of traditional banking products and services to consumers, commercial, agri-business, real estate, and business customers. The Bank is a member of the Federal Deposit Insurance Corporation (the "FDIC"), which insures each depositor's account to the maximum permitted by law.

    The Bank also offers noninsured financial services through its affiliation with London Pacific Securities, Inc., a registered broker/dealer. These alternative investments are not insured by the FDIC, are not Bank deposits or other obligations of the Bank, and are not guaranteed by the Bank.

    The Bank is a growing community bank that has been a financial leader and integral member of the communities it has served for over two decades. During 2000, the Company continued its tradition of providing great community support through the commitment of its employees, who volunteered countless hours for the betterment of their communities. Feather River State Bank's services span the Northern Sacramento Valley and are located primarily in Yuba, Sutter, Colusa, Placer, and Yolo counties.

    The Bank's professionalism and attention to customer needs has contributed to its long-standing relationships and growing reputation as "The" premier community bank in the Northern Sacramento Valley. Responsive, relationship banking with experienced officers and staff is the foundation upon which the Company was established and will continue to build upon for the future.

    It is with great excitement that the organization embraces this new millennium and the opportunities it presents for the region. The Company is strategically positioned to meet the financial needs of the growing Northern Sacramento Valley. First and foremost, the organization is dedicated to sustaining superior customer service and delivering innovative, personalized financial solutions, thereby ensuring that Feather River State Bank will retain its status as the region's premier community bank.

1

Shareholder Information

Price Range of Common Stock

    The Company's Common Stock is traded on the NASDAQ Stock Market under the trading symbol "CIBN." The Company's Common Stock began trading on the NASDAQ Stock Market on July 31, 1996. Prior to that time, the Company's Common Stock was listed on the NASDAQ Bulletin Board and was the subject of limited trading.

    The following table presents the high and low closing sale prices of the Company's common stock for each quarterly period for the last two years as reported by the NASDAQ Stock Market:

	Range of Stock Prices
2000 Quarters	High		Low
4th	$	21.63	$	19.00
3rd		22.02		17.86
2nd		24.05		15.24
1st		17.14		12.02

1999 Quarters	High		Low
4th	$	17.86	$	15.24
3rd		21.32		16.07
2nd		19.05		17.69
1st		21.32		16.33

Cash Dividend Information

    Cash dividends paid on the Company's Common Stock were $0.44 per share for the year ending December 31, 2000, and $0.42 per share for the year ending December 31, 1999.

    The Company has paid cash dividends on its Common Stock since 1980, and has paid consecutive quarterly cash dividends since 1991. It is currently the intention of the Board of Directors of the Company to continue the payment of cash dividends on a quarterly basis. However, there is no assurance that cash dividends will be paid in the future, as such dividends are dependent upon the earnings, financial condition, and capital requirements of the Company and Bank, as well as legal and regulatory requirements. As of December 31, 2000, the Company had $3,786,834 available for payment of dividends to its shareholders.

    The number of shares issued and outstanding as of December 31, 2000, was 2,008,966.

    Call your stockbroker or one of our market makers for stock information:

First Union Securities	(888) 383-3112
Ryan, Beck & Co.	(800) 342-2325
Wells Fargo Van Kasper	(800) 652-1747

    First Union Securities offers Dividend Reinvestment Plans. These plans allow conversion of cash dividends into whole or fractional shares of CIB stock. This service is offered free of fee or commission charges.

2

Shareholder Information

    Shareholders wishing more detailed information about the Company may obtain a copy of the Company's Form 10-K or Quarterly Newsletter upon request from:

California Independent Bancorp
Investor Relations Department
Robert J. Lampert
P.O. Box 929002
Yuba City, CA 95992
(530) 674-6025
(800) 258-4334

Stockholder Account Information

    If you have questions concerning your stockholder account, please call our transfer agent:

U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, California 91204
(800) 835-8778

Annual Meeting

    The annual shareholders' meeting of the Company will be held May 16, 2001, 6:00 P.M., at the Bank's Colusa Avenue Branch located at 777 Colusa Avenue in Yuba City.

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Financial Highlights

CALIFORNIA INDEPENDENT BANCORP & SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31,

	2000			1999			1998			1997			1996
Interest Income	$	23,535,234		$	23,279,582		$	24,799,713		$	23,386,677		$	20,574,110
Interest Expense		9,469,856			8,573,383			8,830,774			9,288,694			7,448,898
Net Interest Income		14,065,378			14,706,199			15,968,939			14,097,983			13,125,212
Provision for Loan Losses		200,000			1,000,000			2,246,145			6,153,000			385,000
Net Interest Income After
Provision for Loan Losses		13,865,378			13,706,199			13,722,794			7,944,983			12,740,212
Noninterest Income		2,668,972			2,564,447			3,454,179			3,142,139			2,812,030
Noninterest Expense		12,214,959			13,810,491			12,850,678			11,900,255			9,981,827
Income (Loss) Before Provision for Income Taxes		4,319,391			2,460,155			4,326,295			(813,133	)		5,570,415
Provision (Benefit) for Income Taxes		1,643,525			865,000			1,603,600			(511,350	)		2,201,000
Net Income (Loss) From Continuing Operations		2,675,866			1,595,155			2,722,695			(301,783	)		3,369,415
Loss on Disposal of Subsidiary	$	—		$	(713,772	)	$	—		$	—		$	—
Income (Loss) on Discontinued Operations		44,092			(277,685	)		157,781			140,353			31,636
Net Income (Loss)	$	2,719,958		$	603,698		$	2,880,476		$	(161,430	)	$	3,401,051
Per Common Share Data
Basic Earnings Per Share From Continuing Operations	$	1.38		$	0.88		$	1.54		$	(0.17	)	$	1.97
Cash Dividends	$	0.44		$	0.42		$	0.40		$	0.38		$	0.36
Book Value	$	12.83		$	12.20		$	12.99		$	11.65		$	12.29
Dividend Payout Ratio		31.88	%		47.73	%		25.97	%		n/a			18.27	%
Weighted Average Common Shares Outstanding—Basic		1,936,163			1,821,549			1,763,408			1,738,917			1,707,878
Financial Ratios From Continuing Operations
Return on Average Assets		0.91	%		0.54	%		0.95	%		(0.11	)%		1.51	%
Return on Average Common
Shareholders' Equity		11.36	%		6.70	%		11.82	%		(1.33	)%		16.56	%
Net Interest Margin		4.33	%		4.84	%		5.40	%		4.92	%		5.64	%
Net Charge-Offs to Average Loans and Leases, Net		0.70	%		0.14	%		0.91	%		2.70	%		0.16	%
Allowance for Loan and Lease Loss as a Percent of Net Loans and Leases		3.20	%		4.20	%		3.33	%		3.29	%		2.68	%
Efficiency Ratio		73.00	%		79.96	%		66.16	%		69.03	%		62.63	%

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Letter to the Shareholders

[PHOTO]

Caption: (left to right) David Offutt, Chairman of the Board, and Larry Hartwig, President/CEO

    In 2000, California Independent Bancorp's ("CIB") wholly-owned subsidiary Feather River State Bank (collectively, the "Company") completed its 24th year in business. It was clearly an outstanding year for our Shareholders, our Customers, and the Company. The Company made strong strides in improving earnings and enhancing shareholder value.

    Last year was a turnaround year for the Company during which we achieved a number of landmarks significantly strengthening the value of our franchise and market position. Most notably, we completed a strategic restructuring of the branch-banking network, which improved operating efficiencies and provided improved convenience and accessibility for our customers. We also continued to realize the benefits of our strategic investments in technology and in building a strong sales and service culture. Thus, positioning our staff of banking professionals to meet the financial needs of an increasingly sophisticated customer base.

    From an operating standpoint, the Company's net income from continuing operations for 2000 was $2.7 million, generating diluted earnings per share of $1.38, as compared to $1.6 million, or diluted earnings per share of $0.87 for fiscal 1999. With improved asset quality, the Company's net interest margin declined but remained strong at 4.3% for 2000, compared to 4.8% for 1999. Likewise, our allowance for loan and lease losses was $5.7 million at the end of 2000 versus $6.8 million at the end of 1999. Our allowance for loan and lease losses as a percentage of total loans and leases was 3.2% and 4.2% at year end 2000 and 1999, respectively. Also, the Company again closed the year with total assets in excess of $300.0 million.

    The Company's consolidated capital position remains strong, with all ratios well in excess of regulatory requirements. At December 31, 2000, the Company reported a total risk-based capital ratio of 12.8%, a tier 1 risk-based capital ratio of 11.5%, and a leverage capital ratio of 8.5%.

    The Company's financial results for 2000 demonstrate the progress we have made:

•

Net earnings increased and we have achieved improved efficiency and loan to deposit ratios.



•

Return on average assets improved to 0.9% and return on average equity to 11.4%, representing significant improvements over the results of 1999.



•

Balance sheet management techniques were employed to maximize earning assets and ensure improved liquidity and risk management.



•

The Company's strongly focused business plan provided end of year total assets of $301.4 million, a balanced deposit base of $267.6 million, and a well diversified loan portfolio of $179.0 million. An improvement over the prior year.

    Our 2000 performance results reflect a strong affirmation of the business strategies we put in place over one year ago. These strategies were primarily centered in three areas:

•

First, we have successfully refocused our efforts on the needs and expectations of our customers and our commitment to relationship banking.



•

Second, there has been stabilization and noticeable improvement in our asset quality. This was achieved through planned loan type diversification and a 44.2% reduction in problem loans. Year-end loan portfolio levels in general, and particularly real estate, consumer, and commercial loans, are up over the previous year.

5

•

Third, we achieved operating efficiencies while focusing on profitable growth in key markets and through product line expansion. Our plan to open full service branches during 2001 in Lincoln and Roseville, California will further expand our geographic marketplace, while keeping us concentrated in growth markets that we already know.

    Despite a very competitive marketplace, we have entered 2001 with a strengthened foundation and momentum that continues to build. The actions we are taking will leverage our investments in technology to provide customer service responsiveness and excellence. We have challenged our staff with goals to intensify our focus on pro-active relationship banking. This, along with an aggressively targeted marketing program, should allow us to establish an even more solid position in the most promising of our core market segments.

    We believe consistently strong performance results belong only to those with a clear, highly focused, and disciplined strategy which provides sustainable competitive advantages. All the employees of our Company share the same strong commitment to shareholder value and to the process of building a stronger franchise. We are proud of what we have achieved and, with optimism, look forward to even greater achievements in the future.

    We wish to again thank all of our shareholders, customers and employees for their loyalty and support during our transition into a stronger and more competitive financial institution.

/s/ DAVID A. OFFUTT
David A. Offutt
Chairman of the Board

/s/ LARRY HARTWIG
Larry Hartwig
President/CEO

"We are proud of what we have achieved and, with optimism, look forward to even greater achievements in the future."

6

THE NEW MILLENNIUM CONTINUES

"Everyone at Feather River State Bank is committed to delivering not just better service, but measurably superior service."

Our Promise of a Better Brand of Banking

    For over two decades, California Independent Bancorp and Feather River State Bank have left a positive mark on their customers and served communities by delivering a unique brand of banking that sets us apart from our competitors. The Board of Directors, Senior Management, and the Bank's dedicated employees remain fully committed to continuing the Company's strategic agenda of building meaningful, long-term customer relationships while exceeding the needs of our customers through the delivery of innovative and personalized financial solutions. In essence, providing our customers with a banking experience that they will truly find remarkable. We enter the new millennium with this strategy firmly in place as the cornerstone of our foundation for future growth and enhancing shareholder value.

Measurably Superior Service

    First and foremost, everyone at Feather River State Bank is committed to deliver on the principle of consistently providing not just better service, but measurably superior service. Ongoing customer research continues to support the finding that the three most critical elements of superior service are a positive experience when doing business with us, creative solutions to customers' needs, and an attitude of responsiveness from our employees.

    Whether in person or through an automated delivery channel, Feather River State Bank customers have come to consistently expect that their interaction with our company will include a level of friendliness, courtesy, and respect that is too often lost in larger financial institutions. Our customers come to us for expertise and advice, and they expect constructive results, each and every time. Our employees understand their customer's banking requirements and are committed to exploring creative financial services solutions to meet those needs. In short, demonstrating a level of responsiveness that continues to set them apart from other bankers.

Close-to-the-Customer Decisions

    When we revitalized our branch-banking network in 1999, the Senior Leadership Team recognized that the value of each individual branch was historically, and continues to be, based on its strong local identity, reputation for exceptional customer service, and marketplace familiarity. Our ability to provide financial services, shared expertise, and Company resources without disrupting the effectiveness of local branch leadership makes Feather River State Bank unique and has been a priority since our bank was formed in 1976.

    Our branch officers retain local market authority, delivering quick, personal decisions to customers whose financial services needs they understand and appreciate. Throughout the organization, this "close-to-the-customer" decision making process continues to put the individual needs of customers first, enabling local decisions and judgement to drive the growth of the relationship and the ongoing success of the Bank's franchise.

7

"California Independent Bancorp and Feather River State Bank's history includes a strong reputation for financial achievement and confidence in the Company's ability to provide value on behalf of its shareholders."

In-Touch Relationship Banking

    Close relationships with our customers remain the cornerstone of the entire Bank network, as employees throughout the organization continue to nurture the one-on-one relationships that provide mutual benefit to our customers and to our company. Complementing this promise of personalized service, the organization continues to place top priority on staying technologically competitive and enhancing its selection of the automated delivery options which provide customers with optimal convenience in accessing and managing their banking relationship.

    Even when it's high-tech, it's high touch at Feather River State Bank, where automated delivery options receive the attention of the service-driven support staff unique to our organization. Additionally, the individual employee's role in customer retention and attraction remains primary, and is sustained and strengthened by our employee stock ownership program. Staff dedication to customer service is also the reason that referrals remain a large source of new customers.

Customer-Driven Product Development & Delivery

    Listening to what our customers have to say about our employees, products, and processes is a critical principle for our organization. The Company is committed to the ongoing market validation programs and front-line participation in decision-making that will enhance the value of our service to the markets we serve.

    The ideas that drive our delivery methods and enhance service levels are based on customer perspective, which we gain from a variety of market research and customer satisfaction tracking programs. Front-line participation in product development and process improvements comes from the employees who know our customers, as we stay focused on delivering the products they need in the ways that serve them best.

Trust & Financial Strength

    California Independent Bancorp and Feather River State Bank's history includes a strong reputation for financial achievement and confidence in the Company's ability to provide value on behalf of its shareholders. Strong earnings and a recognized ability for prudent risk management are an integral part of the way we do business, and ensure our ability to remain independent and continue serving our markets.

    These strong earnings were accomplished in an environment where employees remain alert to opportunities for expense control without negatively impacting customer service. Our entire organization operates in a highly disciplined risk management environment, never sacrificing quality for quantity, which further ensures the safety and soundness of our financial relationships with customers and the investment of our shareholders.

Commitment to Our Communities

    The Bank was founded on the principle of community involvement, which includes heightened levels of economic partnership, community understanding, and volunteerism that continues to distinguish our bank and our employees in our communities. Still today, employees remain generous with their time and economic support of local civic projects and organizations, are widely respected as caring and engaged community volunteers, and are committed to improving the communities in which

8

they work and live. We are grateful to our staff for not only providing high quality customer service, but for the example that their volunteerism sets for the community.

    In summary, for 24 years, a portion of the Company's profits have been returned to the community through loans, charitable contributions, civic participation, employment opportunities, and local purchasing. As the organization moves forward in the new millennium, community involvement will continue to be one of our core values and guiding principles.

Commitment to Growth

    As a leading community business, the Bank understands the demanding needs of our community. Feather River State Bank offers full service banking products and services tailored to meet the needs of today's active individuals and their growing businesses. By helping our consumer and business customers grow, we in turn help our communities prosper. It is this commitment to be involved that makes Feather River State Bank truly a "community bank."

    California Independent Bancorp and Feather River State Bank's mission is to stay committed to being a premier provider of banking services to businesses, individuals and professionals in the communities we serve. In 2001, the Company is planning to add full service banking offices in Lincoln and Roseville to that list of communities.

    The customer and shareholder remain foremost in our vision. We are fully committed to creating economic value for our customer by providing service excellence, and high quality products, delivered through efficient delivery systems at a reasonable cost. By doing this, we expect to maximize shareholder value through consistent earnings, seeking profitable growth and expansion in selected markets, introducing profitable new products, and by employing our capital in the most advantageous manner.

    Our people are the platform for our future success and we are committed to providing all employees with a positive and rewarding work environment which fosters a dynamic culture that rewards integrity, innovation and excellence while promoting an active, supportive role in community service and keeping Feather River State Bank a highly desirable place to work.

    As we look to the future, California Independent Bancorp and Feather River State Bank remain firmly committed to serving the needs of the community, providing customers with a banking experience that they will truly find remarkable, and enhancing shareholder value—in short, delivering a better brand of banking.

By helping our consumer and business customers grow, we in turn help our communities prosper. It is this commitment to be involved that makes Feather River State Bank truly a "community bank."

9

Management's Discussion and Analysis

Summary of Financial Results	11
Average Balance Sheets	13
Interest Income	13
Changes in Interest Rates and the Volume of Interest Sensitive Assets and Liabilities	15
Loans and Leases	15
Investments	21
Other Assets	22
Deposits	23
Other Liabilities	23
Noninterest Income	24
Noninterest Expense	24
Income Taxes	25
Risk Management	27
Supervision, Regulation and Additional Information	29

10

Management's Discussion and Analysis

Management's Discussion and Analysis of Financial Condition and Results of Operations for the Years Ended December 31, 2000 and 1999

    Certain statements in the annual report, Form 10-K and in Management's Discussion and Analysis of Financial Condition and Results of Operations (excluding statements of fact or historical financial information) involve forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry increases significantly; changes in the interest rate environment reduce margins; general economic conditions, either nationally or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan and lease losses; the loss of key personnel; change in the regulatory environment; changes in business conditions; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; asset and liability matching risks and liquidity risks; changes in the securities markets; and the costs of steps necessary to address the residual effects, if any, of Year 2000 issues.

    The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to California Independent Bancorp's and Feather River State Bank's (collectively, the "Company") financial condition, operating results, asset and liability management, and liquidity and capital resources; and should be read in conjunction with the Consolidated Financial Statements of the Company and its accompanying notes.

Summary of Financial Results

    California Independent Bancorp ("CIB") through its wholly owned subsidiary, Feather River State Bank (the "Bank") engages in a broad range of financial service activities. The Bank commenced operations in 1977. CIB was formed in 1994 and, after receiving regulatory and shareholder approval, became the holding company for the Bank in May 1995. In October 1996, the Bank acquired E.P.I. Leasing Co., Inc. ("EPI"), and has operated it as a subsidiary.

    On March 21, 2000, the Board of Directors of the Bank, voting as the sole shareholder of EPI, approved the dissolution and winding up of EPI's affairs. The provision for the loss on discontinued operations reflected in the 1999 consolidated statement of operations includes the write-down of the assets of EPI to estimated net realizable values and the estimated costs of disposing of these operations, net of applicable expected tax benefits. The loss associated with the 1999 operation and disposal of EPI is $991,457, net of income tax benefits. This amount includes write-off of the Bank's original investment in its subsidiary and associated goodwill. During 2000, income attributable to EPI was $44,092, net of income tax expense.

    This annual report, the Form 10-K, and the following Management's Discussion and Analysis along with the accompanying financial statements, tables and charts have been written to exclude the effects of EPI for the periods stated.

    In 2000, the Company recognized a slight increase in total assets over 1999. At December 31, 2000, total assets were $301,446,561 as compared to $300,360,462 at December 31, 1999. Cash and cash equivalents decreased to $27,058,528 in 2000 from $37,887,475 in 1999, while total investments decreased to $82,011,931 at December 31, 2000 from $86,998,504 in 1999. Net loans and leases increased 12.1% to $173,290,843 at December 31, 2000 from $154,550,147 at December 31, 1999. Total

11

deposits declined 2.1% to $267,632,227 at year end 2000 from $273,459,118 at year end 1999. The Company's shareholders' equity increased $2,534,762 or 10.9%.

    During 2000, the Company recognized net income from continuing operations of $2,675,866, an increase of $1,080,711 over 1999. Net income after disposal and discontinuance of EPI was $2,719,958 and $603,698, for the years ended December 31, 2000 and 1999, respectively. The increase in net income was attributable to several factors including a reduction of 11.6%, or $1,595,532, in total noninterest expense, a decline in the provision for loan and lease losses of $800,000, and an increase in total interest and noninterest income; the combined effect of which was offset by an increase in total interest expense of $896,473. Each of these factors is discussed in detail below.

    Basic earnings per share from continuing operations in 2000 were $1.38, an increase over 1999 earnings per share from continuing operations of $0.88. Diluted earnings per share from continuing operations were also $1.38 in 2000 and $0.87 in 1999. The Company paid cash dividends of $0.44 per share in 2000, $0.42 per share in 1999, and $0.40 per share in 1998. Additionally, the Company declared and distributed 5% stock dividends in 1998, 1999, and 2000. Earnings per share for 1998 and 1999 have been adjusted retroactively to reflect the 1999 and 1998 stock dividends paid during those periods.

    The following table depicts the Average Balance Sheets for the years ended 2000, 1999, and 1998. This table shows the composition of average earning assets, average interest-bearing liabilities, average yields and rates, and the Company's net interest margin for years 1998 through 2000.

12

Average Balance Sheets

			2000							1999							1998
			Average Balance			Yield/ Rate		Interest Amount		Average Balance			Yield/ Rate		Interest Amount		Average Balance			Yield/ Rate		Interest Amount
Assets
Earning Assets:
	Short-Term Investments:
	Federal Funds Sold		$	10,811,814		5.83	%	$	630,170	$	11,724,518		5.06	%	$	593,197	$	10,196,017		5.26	%	$	536,411
Investment Securities:
	Taxable			88,214,956		6.59	%		5,815,142		66,143,534		5.90	%		3,900,332		51,637,291		6.23	%		3,219,517
	Non-Taxable			2,919,889		4.07	%		118,719		4,035,737		4.01	%		161,764		6,139,576		4.74	%		291,112
Total				91,134,845		6.51	%		5,933,861		70,179,271		5.79	%		4,062,096		57,776,867		6.08	%		3,510,629
Loans and Leases				169,272,897		10.03	%		16,971,203		181,165,760		10.28	%		18,624,289		189,891,839		10.93	%		20,752,673
Total Earning Assets				271,219,556		8.68	%		23,535,234		263,069,549		8.85	%		23,279,582		257,864,723		9.62	%		24,799,713
Allowance for Possible Loan Losses				(6,582,886	)						(6,515,380	)						(5,622,159	)
Non Earning Assets:
	Cash and Due from Banks			12,366,116							17,858,822							16,453,103
	Premises and Equipment			7,101,571							7,626,073							7,951,201
	Other			14,008,173							11,949,985							10,377,232
	Net Assets from Discontinued Operations			160,128							434,413							420,043
Total Non Earning Assets				33,635,988							37,869,293							35,201,579
Total Assets			$	298,272,658						$	294,423,462						$	287,444,143
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
	Demand, Savings and Money Market		$	111,131,911		3.00	%	$	3,336,430	$	112,541,448		3.09	%	$	3,473,386	$	107,440,206		3.00	%	$	3,225,520
	Time Certificates			98,437,633		5.71	%		5,619,730		97,162,885		5.06	%		4,917,252		94,129,266		5.50	%		5,176,284
	Other Interest-Bearing Liabilities			8,099,524		6.34	%		513,696		4,028,291		4.54	%		182,745		7,922,863		5.41	%		428,970
Total Interest-Bearing Liabilities				217,669,068		4.35	%		9,469,856		213,732,624		4.01	%		8,573,383		209,492,335		4.22	%		8,830,774
Noninterest-Bearing Liabilities:
		Demand		53,724,117							54,675,233							52,364,097
		Other Liabilities		2,941,627							2,203,717							2,553,772
Total Noninterest-Bearing Liabilities				56,665,744							56,878,950							54,917,869
Shareholders' Equity				23,937,846							23,811,888							23,033,939
Total Liabilities and Shareholders' Equity			$	298,272,658						$	294,423,462						$	287,444,143
Net Interest Income								$	14,065,378						$	14,706,199						$	15,968,939
Net Interest Margin						4.33	%						4.84	%						5.40	%

Interest Income

    Net interest income, the difference in interest earned on assets and interest paid on liabilities, declined to $14,065,378 in 2000 from a 1999 net interest income figure of $14,706,199. Interest earning assets consist of overnight federal funds sold, investment securities, and loans and leases. In total, these

13

assets averaged $271,219,556, $263,069,549, and $257,864,723 in 2000, 1999, and 1998, respectively. Average loans and leases were $169,272,897, $181,165,760, and $189,891,839 in 2000, 1999, and 1998, respectively, representing decreases of 6.6% in 2000 over 1999, and 4.6% in 1999 over 1998. This decrease reflects the combined effect of a variety of factors affecting interest income and interest expense as discussed below.

    Interest income increased 1.1% in 2000 to $23,535,234 from $23,279,582 in 1999 and was $24,799,713 in 1998.

    The Company's primary source of income is interest and fees on loans and leases. For the full year 2000, interest and fees on loans and leases declined $1,653,086 over the comparable 1999 period. The decline in interest and fee income is reflective of a decrease of $11,892,863 in average loans and leases from 1999 to 2000, which is primarily the result of tightened Bank underwriting standards, further diversification of the loan portfolio, and increased competitive pressures. More specifically, narrower margins are in part the result of originating business under a more stringent credit underwriting process and the Bank's intensified strategic focus on achieving its 2000 loan portfolio diversification objectives primarily through the origination of real estate secured products. This strategy has a direct trade off in risk that is not reflected in the yield calculation which dropped in 2000 to an average of 10.0% from the 10.3% average for full year 1999. Both volume and rate are further impacted as a result of competitive pressure to acquire and retain quality customers for the Company.

    The decrease in interest income on loans and leases in 2000 was offset by an increase in interest earned on investment securities. Average investment securities in 2000, 1999, and 1998, respectively, were $91,134,845, $70,179,271, and $57,776,867. Interest income on the investment securities for the years ending December 31, 2000, 1999, and 1998 was $5,933,861, $4,062,096, and $3,510,629, respectively. The increase in average investment securities of $20,955,574, or 29.9%, in 2000 was the result of the Company's strategy to apply the liquidity from the decline in average loans and leases into securities. The increase in interest income on investments was $1,871,765, or 46.1% in 2000 over 1999. This was due both to the increase in volume and an increase in the average interest rate earned on investments which was 6.5% in 2000, versus 5.8% in 1999. Interest income on investments rose $551,467, or 15.7%, in 1999 over 1998 primarily due to the Company's strategy to apply the liquidity from the decline in loans and leases into securities; the effect of which was partially offset by a decline in the average yield on the investment portfolio.

    Average federal funds sold were $10,811,814 in 2000, $11,724,518 in 1999, and $10,196,017 in 1998, representing a decrease of 7.8% in 2000 over 1999 and an increase of 15.0% in 1999 over 1998. The yield on federal funds sold was 5.8%, 5.1%, and 5.3% at 2000, 1999, and 1998, respectively, and is reflective of the general trends in the interest rate environment.

    After considering the effect of the preceding factors that had an impact on the Company's interest income, the yield on average earning assets was 8.7%, 8.9%, and 9.6% for years ending 2000, 1999, and 1998, respectively.

    Average interest-bearing liabilities increased to $217,669,068 in 2000 from $213,732,624 in 1999, and $209,492,335 in 1998. The primary component of interest-bearing liabilities is interest-bearing deposits which averaged $209,569,544, $209,704,333, and $201,569,472 in 2000, 1999, and 1998, respectively. The Company experienced an increase in total interest expense on deposits of $565,522, or 6.7%, in 2000 over 1999. This increase is primarily due to an overall rise in the average yield on time certificates of deposits, driven by competitive pressure in the market, and general rising trends in the interest rate environment during that time frame.

    The Company recognized an increase of $4,071,233 in average other borrowed money, which consists primarily of seasonal short term borrowings from the Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB"). Historically, during its peak lending season, which typically occurs each

14

year from early June through late October, the Bank borrows on these lines. The average balance of other borrowed funds was $8,099,524, $4,028,291, and $7,922,863 in 2000, 1999, and 1998, respectively.

    Total interest expense increased 10.5% to $9,469,856 in 2000 from $8,573,383 in 1999, and decreased 2.9% in 1999 from $8,830,774 in 1998. The rise in 2000 over 1999 is reflective of the economy's higher interest rate environment as the rates paid on time certificates of deposits increased to 5.7% in 2000 from 5.1% in 1999 and, to a lesser extent, increased utilization of the Company's FHLB and FRB credit lines which had an effective cost of funds of 6.3% in 2000 versus 4.5% in 1999.

    The rate paid on total average interest bearing liabilities was 4.4%, 4.0%, and 4.2% for years ending 2000, 1999, and 1998, respectively. The net interest margins were 4.3%, 4.8%, and 5.4% for years ending 2000, 1999, and 1998, respectively.

Changes in Interest Rates and the Volume of Interest Sensitive Assets and Liabilities

    Changes in the rates earned and paid and the change in volume of interest-earning assets and interest-bearing liabilities affect the Company's net interest margin. The impact of changes in volume and rate on net interest income in 2000 compared to 1999, and 1999 compared to 1998, is shown in the following table.

Changes in Volume/Rate

		2000 Compared to 1999									1999 Compared to 1998
		Volume			Rate			Total			Volume			Rate			Total
		(Dollars in thousands)
Federal Funds Sold		$	(46	)	$	83		$	37		$	80		$	(23	)	$	57
Investment Securities:
	Taxable		1,302			613			1,915			904			(223	)		681
	Non-Taxable		(45	)		2			(43	)		(100	)		(29	)		(129	)
Loans			(1,223	)		(430	)		(1,653	)		(954	)		(1,174	)		(2,128	)
	Total	$	(12	)	$	268		$	256		$	(70	)	$	(1,449	)	$	(1,519	)
Demand, Savings and Money Market			(44	)		(93	)		(137	)		153			95			248
Time Certificates			65			638			703			167			(426	)		(259	)
Other			185			146			331			(211	)		(35	)		(246	)
	Total	$	206		$	691		$	897		$	109		$	(366	)	$	(257	)
Increase (Decrease) in Net Interest Income		$	(218	)	$	(423	)	$	(641	)	$	(179	)	$	(1,083	)	$	(1,262	)

Loans and Leases

    The Company continues to emphasize its real estate, commercial, agricultural, and consumer lending activities. During 2000, the Company pro-actively intensified its focus on real-estate secured lending to further diversify the portfolio, improve asset quality, and meet customers needs in its served geographic market segments.

    The decrease in average total loans and leases during 2000 is primarily attributable to a substantial decrease in the agricultural loan portfolio. Average agricultural loans decreased 47.7%, or $25,100,000, during 2000. Three principal factors contributed to this event. First, the Bank closed its Madera Loan Production office during the fourth quarter of 1999. As a result, most of the agricultural loan borrowers serviced from this office have left the Bank. Second, the Bank successfully collected a substantial number of troubled agricultural loans during 2000. Finally, increased competition in the Bank's core market area resulted in some agricultural borrowers leaving the Bank.

15

    The Bank also sustained decreases in two other segments of its loan and lease portfolio. First, as a direct result of the Bank's decision to discontinue originating leases through EPI in the first quarter of 2000, a reduction of 13.8%, or $3,400,000, occurred in the average lease portfolio. Since EPI's wind-down, the Bank has not purchased new lease receivables. Consequently, the reduction of the remaining lease portfolio during 2000 was primarily due to scheduled lease amortization. Second, a 12.8%, or $3,800,000, decrease occurred in the Bank's average construction loan portfolio. The reduction in average outstanding construction loans occurred in the first half of 2000 following the downsizing of the Bank's real estate department in the fourth quarter of 1999. The Bank remains committed to providing construction loans, primarily to builders of single family homes. Through a refocused marketing effort, the

    Bank rebuilt its construction loan portfolio in the second half of 2000. As of December 31, 2000, outstanding construction loans were $5,269,554 greater than the construction loan totals at December 31, 1999.

    The Bank realized substantial growth in its real estate mortgage loan portfolio during 2000. The average balance of mortgage loans secured by commercial, residential and agricultural real estate increased 37.7%, or $18,300,000, during 2000. Most of this growth occurred in the commercial real estate portfolio. The increase is attributable to successful business development efforts and the Bank's strategic decision to further diversify its overall portfolio via growth in the real estate secured lending arena.

    The Bank also generated 13.3% growth in its commercial loan portfolio during 2000. The increase is attributed to a strategically focused marketing effort in the business loan sector.

    The Company lends to consumers, small to medium-sized businesses, and small to medium-sized farmers within its market area, which is comprised principally of Sutter, Yuba, Colusa, Yolo, and Placer counties, and secondarily, Sacramento, Butte, and Glenn counties. A significant portion of the Company's loan and lease portfolio consists of loans secured by commercial, agricultural, and residential real estate. The following table depicts the composition of the Bank's loan and lease portfolio for each of the last five years ending December 31.

Composition of Loan and Lease Portfolio

	December 31,
	2000		1999		1998		1997		1996
Commercial and Agricultural	$	41,691,321	$	55,111,154	$	72,104,377	$	79,384,520	$	71,527,482
Real Estate-Construction		35,783,474		30,513,920		53,967,821		23,927,538		29,916,204
Real Estate-Mortgage		75,626,555		46,003,764		28,930,047		28,032,552		28,564,640
Consumer		4,471,652		2,523,695		2,443,283		1,956,254		2,983,939
Lease Financing		19,608,845		27,009,815		23,033,956		33,223,586		15,892,783
Other		1,833,408		158,322		392,570		1,021,665		2,214,574
Total	$	179,015,255	$	161,320,670	$	180,872,054	$	167,546,115	$	151,099,622

    Real estate mortgage and construction loans, including loans secured by commercial, agricultural, and residential real estate, equaled $111,410,029, or 62.2%, and $76,517,684, or 47.4%, of the total loan and lease portfolio at December 31, 2000 and 1999, respectively. These loans are secured by real estate, and advances are limited to 65% to 80% of appraised value depending on the type of loan. Loans secured by real estate increased $34,892,345, or 45.6%, between December 31, 1999 and December 31, 2000.

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    The Company makes commercial and small business loans (including lines of credit) that are secured by the assets of the business. The Company had $21,042,986, or 11.8%, and $19,465,241, or 12.1%, of its loan portfolio in commercial and industrial loans outstanding at December 31, 2000 and 1999, respectively.

    The Company makes agricultural production lines of credit and other agricultural loans that are secured by crops, crop proceeds, and other collateral. These loans generally are at their peak in the third quarter of each year. The Company had $20,648,335, or 11.5%, and $35,645,913, or 22.1%, of its loan portfolio in agricultural loans outstanding at December 31, 2000 and 1999, respectively. Approximately 10% of these loans are guaranteed by the Farm Service Agency ("FSA" is an agency of the U.S. Department of Agriculture).

    The Company makes consumer loans, including secured loans and lines of credit, to finance a variety of consumer needs. During 2000, the Company placed increased focus on this market segment. The Company had $4,471,652, or 2.5%, and $2,523,695, or 1.6%, of its loan portfolio in consumer loans outstanding at December 31, 2000 and 1999, respectively.

    The Company also originates certain mortgage loans on residential and agricultural properties, which it sells into the secondary market to divest of the interest rate risk associated with these mostly fixed-interest rate products. The Company accounts for these loans in accordance with Statement of Financial Accounting Standards No. 125 "Accounting for Transfers of Financial Assets and Extinguishment of Liabilities."

    As of December 31, 2000, 1999, and 1998 total loans serviced by the Company for third parties were $92,741,075, $131,991,682, and $146,025,594, respectively. Total loans sold by the Company were $760,000 in 2000, $21,968,279 in 1999, and $65,795,347 in 1998. The decrease in loans sold during 2000 is a function of two factors. First, the Company changed its secondary market loan process during 2000. Prior to 2000, the Company would warehouse mortgage loans and subsequently sell the mortgages into the secondary market. During 2000, the Company began brokering secondary market mortgages. In this process, the Company processes mortgage loan applications and delivers the loan application for approval to the secondary market investor. Upon loan approval, the investor funds the loan directly and the Company is paid a packaging fee. Certain loans are brokered "servicing released," and other loans are brokered "servicing retained." Secondly, secondary market mortgage loan production was lower during 2000 due to the downsizing of the mortgage loan units of the Bank. Over the past eighteen months, the Company has downsized its secondary market lending activity for economic reasons. Increased competition in this line of lending has reduced profit margins industry wide. The Company has realized cost savings and redeployed resources to other more profitable lending products. The total loans serviced by the Company declined during 2000 due to principal amortization, loan payoffs, and the surrender of servicing rights related to a significant agricultural loan investor.

Quality of Loans and Leases

    Inherent in the lending function is the fact that loan and lease losses will be experienced, and the risk of loss will vary with the type of loan or lease extended, general economic conditions, and the creditworthiness of the borrower. To reflect the estimated risks of loss associated with its loan and lease portfolio, provisions are made to the Company's allowance for loan and lease losses. As an integral part of this process, the allowance for loan and lease losses is subject to review and possible adjustment as a result of Management's assessment of risk, third party reviews, or regulatory examinations conducted by governmental agencies.

Allowance for Loan and Lease Losses

    The Company uses the allowance method in providing for loan and lease losses. Loan and lease losses are charged against the Allowance for Loan and Lease Losses ("ALLL") and recoveries are

17

credited to it. The ALLL at December 31, 2000 was $5,724,412, or 3.2% of total loans and leases outstanding, as compared to $6,770,523, or 4.2% of total loans and leases outstanding at December 31, 1999. Management believes that the total ALLL is adequate to cover potential losses in the loan and lease portfolios. While Management uses all available information to provide for loan and lease losses, future additions to the ALLL may be necessary based on changes in economic conditions and other factors.

    Additions to the ALLL are made by provisions for possible losses. The provision for possible loan and lease losses is charged to operating expense and is based upon past loss experience and estimates of potential losses which, in Management's judgment and in accordance with generally accepted accounting principles, deserves current recognition. Other factors considered by Management include growth, composition, and overall quality of the loan and lease portfolio, review of specific problem loans and leases, and current economic conditions that may affect the customer's ability to repay the obligation. Actual losses may vary from current estimates. The estimates are reviewed regularly and adjustments, if necessary, are charged to operations in the period in which they become known.

    The Company had loan and lease charge-offs of $1,739,930 in 2000, $1,146,903 in 1999, and $2,333,268 in 1998. Over the same periods, the Company experienced net loan and lease charge-offs (which are net of recoveries) of $1,246,111, $253,588, and $1,736,333, respectively. These net charge-offs are equal to 0.7%, 0.1%, and 0.9%, of average loans and leases for 2000, 1999, and 1998, respectively.

    The following table illustrates the activity in the Bank's allowance for loan and lease losses for years ending 1996 through 2000.

Activity in Allowance for Loan and Lease Losses

		2000			1999			1998			1997			1996
		(Dollars in thousands)
Balance of Allowance at January 1		$	6,771		$	6,024		$	5,514		$	4,053		$	3,911
Charge-Off by Loan Category:
	Commercial and Other		1,251			1,009			2,095			4,311			323
	Consumer		19			15			49			73			—
	Real Estate		470			123			189			335			4
	Total		1,740			1,147			2,333			4,719			327
Recoveries by Loan Category:
	Commercial and Other		281			627			499			19			53
	Consumer		2			—			98			3			31
	Real Estate		210			267			—			5			—
	Total		493			894			597			27			84
Net Charge-Offs (Recoveries)			1,247			253			1,736			4,692			243
Provision Charged to Expense			200			1,000			2,246			6,153			385
Balance, December 31		$	5,724		$	6,771		$	6,024		$	5,514		$	4,053
Total Loans and Leases Outstanding		$	179,015		$	161,321		$	180,872		$	167,546		$	151,100
Average Loans and Leases			169,273			181,166			189,892			173,906			148,294
Ratios:
Net Charge-Offs (Recoveries) to Average Loans and Leases			0.7	%		0.1	%		0.9	%		2.7	%		0.2	%
Allowance to Loans and Leases at End of Year			3.2	%		4.2	%		3.3	%		3.3	%		2.7	%

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    In the preceding table, loan and lease losses are divided among three categories; "Commercial and Other" which totaled $1,250,519, or 71.9% of full year 2000 total loan and lease losses, "Real Estate" which totaled $469,991, or 27.0% of total loan and lease losses and, "Consumer" which totaled $19,419, or 1.1% of total loan and lease losses.

    For 2000, the largest category of loss is "Commercial and Other" and includes subcategories of commercial 20.8%, agricultural 13.3%, and leases that totaled 37.8% of total losses. Of these three subcategories, lease losses were $656,891 of total losses and represent the largest subcategory of losses. The Company in the past, purchased leases from EPI, who originated the leases. Lease originations were discontinued in March 2000, and EPI's operations are in the process of being wound-down. Lease servicing has been out sourced to a qualified and experienced third party lease servicing provider. Recognizing the inherent risks associated with lease activity, the Company continues to maintain higher reserves for this portfolio than other conventional loan portfolios. During 2000, actual net lease charge-offs remained within established reserves for this portfolio. Close monitoring of the lease collections has been assigned to the Special Asset Department of the Bank.

    The commercial subcategory of Commercial and Other loan losses at December 31, 2000 was $361,692. Losses were centered in one commercial business that experienced repetitive periods of unsustained profitability that eventually led to bankruptcy. As a result, loans to this customer were partially charged down to a level where recovery could be conservatively supported. Of the amount charged-off in this portfolio segment, $59,119, or 10.0%, was recovered during 2000.

    The agricultural subcategory of Commercial and Other loan losses at December 31, 2000 was $231,937. Losses were centered in two agri-businesses that were not able to withstand the current period of agricultural adversity. The largest loss, $170,049, was the result of a compromised settlement to facilitate a negotiated takeout funding proposal. The second charge-off was $61,887 and was due to the protracted collection of an agricultural loan. This charge-off was subsequently fully recovered during the third and fourth quarters of 2000.

    During 1999, the largest category of loss was also "Commercial and Other". Of the three subcategories, lease losses were the dominant factor and totaled $929,406, or 81.0% of total losses, and represented the largest subcategory of loss.

    During 1998, five sizeable charged-off loans accounted for 64.3% of the total loan losses ($1,500,000), and one of these five credits, a livestock loan, accounted for 33.0% of total loan losses ($770,000). The producer experienced severe financial difficulty due to adverse market trends and production problems. The other four loans in this grouping were all commercial credits. Each of these businesses sustained cash flow difficulties largely due to adverse economic conditions.

    The allocation of the ALLL by loan and lease type as of the end of the last five fiscal years is summarized in the following table. Any allocation or breakdown in the ALLL is provided for informational purposes only and should not be construed to lend an appearance of exactness that does not exist. Thus, the following allocation should not be interpreted as an indication of expected amounts or categories where charge-offs will occur. Management uses available information to provide for loan and lease loss reserve allocation; however, future additions to the ALLL may be necessary based upon changes in the economic conditions and other variables.

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Allocation of Allowance

	2000				1999				1998				1997				1996
	$		%		$		%		$		%		$		%		$		%
	(Dollars in thousands)
Balance applicable to:
Commercial and Agricultural	$	2,230	39.0	%	$	3,642	53.8	%	$	3,644	60.5	%	$	3,423	62.1	%	$	1,918	47.3	%
Real Estate-Construction		399	7.0	%		417	6.2	%		925	15.4	%		897	16.3	%		802	19.8	%
Real Estate-Mortgage		578	10.1	%		542	8.0	%		610	10.1	%		392	7.1	%		766	18.9	%
Consumer		36	0.6	%		48	0.7	%		32	0.5	%		31	0.6	%		80	2.0	%
Leases		832	14.5	%		940	13.9	%		706	11.7	%		656	11.9	%		364	9.0	%
Other		1,649	28.8	%		1,182	17.5	%		107	1.8	%		115	2.1	%		123	3.0	%
Total	$	5,724	100.0	%	$	6,771	100.0	%	$	6,024	100.0	%	$	5,514	100.0	%	$	4,053	100.0	%
Nonperforming Loans and Leases:
Loans and Leases Accounted for on a Nonaccrual Basis	$	4,926			$	6,115			$	5,644			$	7,585			$	846
Other Loans and Leases Contractually Past Due 90 Days or More		—				—				854				328				2,202
Total	$	4,926			$	6,115			$	6,498			$	7,913			$	3,048

    Management believes the total ALLL is adequate as of December 31, 2000. The $1,649,000 amount shown as "Other" consisted of $129,200 reserved for undisbursed commitments on the combined loan and lease portfolios and $1,519,800 in unallocated reserves. This unallocated reserve equals 36.1% of the reserve deemed necessary by Management and provides an added margin of safety for the overall portfolio.

Nonperforming Loans and Leases

    The Company places loans and leases on nonaccrual status when either principal or interest has been past due for 90 days or more. Exceptions to this policy can be made if the loan or lease is well secured and in the process of collection. The Company also places loans and leases on nonaccrual when payment in full of principal or interest is not expected or the financial condition of the borrower has significantly deteriorated. At the time that a loan or lease is placed on nonaccrual, any accrued but uncollected interest is reversed, and additional income is recorded on a cash basis as payments are received. However, loans and leases that are in the process of renewal in the normal course of business or are well-secured and in the process of collection, may not be placed on nonaccrual status, at the discretion of Management. A nonaccrual loan or lease may be restored to an accrual basis when interest and principal payments are current and the prospects for future payments are no longer in doubt.

    The trend in nonperforming loans and leases has improved over the past year decreasing from $6,115,399, or 3.8% of the portfolio, on December 31, 1999, to $4,925,579, or 2.8% of the portfolio, on December 31, 2000. The Company continues to successfully implement its classified asset reduction plan and enhance quality control in the management of the loan portfolio. The amount of nonaccrual loans and leases at December 31, 2000 reflects a four-year improving trend in the reduction of nonperforming loans and leases for the Company.

    The composition of the Company's nonaccural loans and leases remain limited primarily to a few large agricultural and commercial relationships. As of December 31, 2000, 94.9% of the Company's total nonaccrual loans and leases were concentrated in ten relationships. Three of the loans, totaling $2,649,952, or 53.2%, are agricultural in nature, while the remaining seven loans, equaling $2,079,691, or 41.7%, are commercial loans. Each of these nonaccrual loans is in the process of collection and is believed to be adequately supported by collateral.

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    Similarly, as of December 31, 1999, 95.4% of the Company's $6,115,399 in total nonaccrual loans and leases were concentrated in five relationships, comprised of four agricultural loans totaling $5,699,787, or 93.2%, and one commercial loan for $135,177, or 2.2% of the total. In comparison, as of December 31, 1998, nonaccrual loans and leases amounted to $5,644,000, or 3.1% of total loans and leases.

    Loans on accrual status that were past due 90 days or more as to principal and interest continue to be held at zero for December 31, 2000 as was December 31, 1999. At December 31, 1998 this amount totaled $854,000.

Investments

    At December 31, 2000, the Company's investment portfolio was $82,011,931, or 27.2% of total assets, a decrease from $86,998,504, or 29.0% of total assets at December 31, 1999. At December 31, 1998, the Bank's investment portfolio was $60,639,334, or 20.6% of total assets. At December 31, 2000, 1999, and 1998, federal funds sold were $7,700,000, $22,000,000, and $12,100,000, respectively. Federal funds sold are overnight deposits with other banks.

    Under Statement of Financial Accounting Standard No. 115 ("SFAS 115"), investments of a bank in debt and equity securities must be classified in three different categories: "Trading," "Available-for-Sale," and "Held-to-Maturity," and there are different accounting methods for each category. The Company has classified all of its investment securities as either "Available-for-Sale" or "Held-to-Maturity." SFAS 115 requires that any unrealized gain or loss on the "Available-for-Sale" category be reported as an adjustment to the Company's shareholders' equity, even though this gain or loss would only be realized if the investment were actually sold. If the investment is in the "Held-to-Maturity" category, no unrealized gains or losses need be reported.

    The following table summarizes the distribution of the Company's investment securities as of December 31, 2000 and 1999.

Investments

		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2000
Available-for-Sale:
	Obligations of U.S. Government Agencies	$	64,190,292	$	191,075	$	(244,192	)	$	64,137,175
	Mortgage-Backed Securities		6,191,832		213,143		(1,488	)		6,403,487
	Equity Securities		6,755,505		35,907		(637,500	)		6,153,912
		$	77,137,629	$	440,125	$	(883,180	)	$	76,694,574
Held-to-Maturity:
	Obligations of States and Political Subdivisions	$	2,568,282	$	17,784	$	(3,966	)	$	2,582,100
	Debt and Other Securities		2,749,075		—		(9,651	)		2,739,424
		$	5,317,357	$	17,784	$	(13,617	)	$	5,321,524
December 31, 1999
Available-for-Sale:
	Obligations of U.S. Government Agencies	$	52,990,659	$	—	$	(1,673,846	)	$	51,316,813
	Mortgage-Backed Securities		12,578,147		1,676		(53,110	)		12,526,713
	Equity Securities		6,976,325		—		—			6,676,325
		$	72,545,131	$	1,676	$	(1,726,956	)	$	70,819,851
Held-to-Maturity:
	Obligations of States and Political Subdivisions	$	3,606,928	$	1,894	$	(27,063	)	$	3,581,759
	Debt and Other Securities		12,571,725		517		(55,754	)		12,516,488
		$	16,178,653	$	2,411	$	(82,817	)	$	16,098,247

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    As of December 31, 2000, the Company's "Available-for-Sale" category adjustment reflected a net unrealized loss of $243,680, net of taxes, and the approximate market value of the Company's total investment portfolio was $82,016,098 reflecting an unrealized loss of $438,888.

    As of December 31, 1999, the Company's "Available-for-Sale" category adjustment reflected a net unrealized loss of $948,904, net of taxes, and the approximate market value of the Company's total investment portfolio was $86,918,098 reflecting an unrealized loss of $1,805,686.

    In the normal course of business, the Bank pledges its investment securities as collateral for certain deposits (typically deposits of government entities) and for the Bank's borrowing lines. The book value of pledged securities was $52,339,269 and $33,224,728 at December 31, 2000 and 1999, respectively.

Other Assets

    During 2000, the Company recognized a decrease in total other assets. These assets consist primarily of premises and equipment, interest receivable, other real estate owned ("OREO"), investment in a California Affordable Housing Project, cash surrender value of life insurance policies associated with certain executive officers and directors of the Company, deferred taxes, and other miscellaneous assets.

    Total other assets related to continuing operations decreased $1,839,077 to $19,085,259 at December 31, 2000, compared to $20,924,336 at December 31, 1999. The decline in total other assets is the result of several factors. Deferred taxes decreased $1,482,234 and stood at $2,168,076 at December 31, 2000 compared to $3,650,310 in 1999. This decrease is attributed to differences in the timing of the recognition of certain income and expense items for tax and financial accounting purposes. Interest receivable also declined over the same period to $2,839,611 at December 31, 2000 from $3,282,957 at December 31, 1999.

    Another factor associated with the decline in total other assets was a decrease in OREO, which consists of properties acquired by the Bank through foreclosure and is carried at the lower of cost or fair value, less estimated costs to sell. At the time the property is acquired, if the estimated fair value is less than the amount outstanding on the loan, the difference is charged against the ALLL. Subsequent declines, if any, in estimated fair value are charged to expense. OREO decreased $895,019 from the December 31, 1999 balance of $1,299,637 to $404,618 at December 31, 2000. This decrease was primarily attributable to the sale of two properties amounting to $663,272, which generated a gain of $291,871, and escrow deposits and other extension payments of $136,447 received on various properties. Additionally, two properties were reduced $140,000 in book value due to updated appraisal values. Offsetting these declines was $44,700 of capital expenditures added to an OREO property. It is projected that one of the two remaining OREO's will be sold in the first half of 2001, while the final property is anticipated to be sold in the latter half of the year.

    Premises and equipment also declined $363,818 from December 31, 1999 to December 31, 2000. During the year 2000, the Company acquired $613,657 of new property, recognized depreciation of $996,724, and disposed of various equipment with an immaterial book value. The decline in premises and equipment is due to nonrecurring expenses incurred during 1999 associated with upgrading systems for Year 2000 issues, the discontinued operations of EPI and the Company's continued focus on expense control.

    The decreases in the other assets described above were offset by an investment made in 2000 in a qualified California Affordable Housing project. This investment contributed toward the Bank's achievement of its Community Reinvestment Act ("CRA") objectives and stood at $870,403 at year-end 2000. From an economic standpoint, the investment is anticipated to generate tax benefits in excess of its book value, thereby creating a positive yield for the Bank.

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Deposits

    Total deposits at December 31, 2000, 1999, and 1998 were $267,632,277, $273,459,118, and $268,441,893, respectively. These figures represent a decrease of $5,826,841, or 2.1%, from 1999 to 2000, and an increase of $5,017,225, or 1.9%, in 1999 over 1998. Average total deposits were $263,293,661 in 2000, $264,379,566 in 1999, and $253,933,569 in 1998.

    The Company has been able to attract and retain deposits by providing superior customer service and interest rates on deposits competitive with other financial institutions in its market area. Total deposits consist of interest and noninterest-bearing deposits. At December 31, 2000, the mix of deposits consisted of 23.9% noninterest-bearing and 76.1% interest-bearing. The mix of interest-bearing deposits consists of 47.0% in time certificates of deposit, 31.5% in interest checking, and 21.5% in savings and money market accounts. Average time certificates of deposit, the largest portion of interest-bearing deposit accounts, increased to $98,437,633 in 2000, from $97,162,885 in 1999, and $94,129,266 in 1998, representing an increase of 1.3% in 2000 over 1999, and 3.2% in 1999 over 1998.

    Average noninterest-bearing demand deposits, the majority of which are business checking accounts, declined slightly to $53,724,117 in 2000 from $54,675,233 in 1999, and stood at $52,364,097 at the end of 1998.

    The remaining maturities of the Company's time certificates of deposit, including public time deposits, as of December 31, 2000 and 1999, are indicated in the following table. Interest expense on time certificates of deposit totaled $5,619,730 in 2000 and $4,917,252 in 1999. The increase in interest expense on time certificates of deposit was primarily due to competitive pricing and is reflective of the general rising interest rate environment experienced during 2000. The average yields paid on time certificates of deposit were 5.7% and 5.1% for the years ended December 31, 2000 and 1999, respectively.

Maturity of Time Certificates of Deposits

	December 31, 2000				December 31, 1999
	$100,000 and over		Under $100,000		$100,000 and over		Under $100,000
	(Dollars in thousands)
Three Months or Less	$	16,199	$	20,483	$	16,523	$	18,945
Over Three Months Through Twelve Months		19,837		28,869		19,121		27,895
Over One Year Through Three Years		3,424		4,811		5,933		4,919
Over Three Years		884		1,248		3,279		1,564
Total	$	40,344	$	55,411	$	44,856	$	53,323

Other Liabilities

    Total other liabilities relating to continuing operations for the Company increased to $8,044,725 at December 31, 2000 from $3,666,497 in 1999. Total other liabilities consist of other borrowings, interest payable on interest-bearing liabilities, deferred compensation payable, and other miscellaneous liabilities. The increase of $4,378,228, or 119.4%, in 2000 over 1999 in total other liabilities was primarily due to a $4,000,000 increase in short term borrowings on the Bank's line of credit at the FHLB. The term of the borrowing was 60 days.

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Noninterest Income

    Noninterest income from continuing operations for 2000 was $2,668,972, an increase of 4.1% over 1999, which stood at $2,564,447. Noninterest income in 1999 was 25.8% less than the 1998 amount of $3,454,179. The table below sets forth the components of noninterest income for the years indicated:

Noninterest Income

	2000		1999		1998
	(Dollars in thousands)
Service Charges and Fees on Deposit Accounts	$	1,010	$	971	$	918
Brokered Loan Fees		112		236		1,252
Loan Servicing Fees		489		553		507
Other		1,058		804		777
Total	$	2,669	$	2,564	$	3,454

    Service charges and fees on deposit accounts, one of the primary components of noninterest income, increased in 2000 to $1,009,455, or 4.0% over the 1999 amount of $970,908.

    Brokered loan fees, another primary source of noninterest income, were $112,055 in 2000. This represents a decrease of $123,713 from 1999, which stood at $235,768. Likewise, 1999 brokered loan fee income represented a substantial decrease of 81.2% from 1998. The continued reductions in brokered loan fee income can in part be traced to the Company's decision during the first half of 1999 to hold selected real estate loans in its portfolio instead of selling those loans into secondary markets. The intent of this strategy was to diversify the Company's loan portfolio and benefit from the long-term, higher yielding interest income stream created by the real estate loans, instead of the one-time brokerage fee earned from the loans' sale.

    Additionally, income generated from brokered loan fees has been adversely impacted by an overall slowing in the home refinance market which accompanied the increase in general market interest rates and, to some extent, staff reduction implemented at the Company's real estate loan production offices as a result of the slowing market.

    Loan servicing fees, another major component of noninterest income declined in 2000 to $488,995 from $553,280 in 1999. This decrease is due to two factors: a change in the Company's secondary market loan process during 2000, and lower secondary market mortgage loan production due to the downsizing of the mortgage loan units of the Bank. Both of these factors have been previously described in detail in the "Loans and Leases" section of this report.

    All other non-interest income increased $253,976 to $1,058,467 for full year 2000 in comparison to the $804,491 generated in full year 1999. The primary source of this rise was a gain of $297,871 on the sale of two OREO properties as described in the previous section titled "Other Assets". Another contributor to the rise in other non-interest income was an increase of $89,032 in the cash surrender value on life insurance policies owned by the Bank. These increases were partially offset by declines in noninsured deposit fee income and other miscellaneous income items.

Noninterest Expense

    Noninterest expense from continuing operations decreased in 2000 to $12,214,959, or by 11.6% from 1999 results, which stood at $13,810,491. The 1999 results reflected an increase of 7.5% over 1998 totals of $12,850,678. The table below sets forth the components of noninterest expense for the years indicated.

24

Noninterest Expense

	2000		1999		1998
	(Dollars in thousands)
Salaries and Benefits	$	6,541	$	6,835	$	6,818
Occupancy		726		746		748
Furniture and Equipment		1,170		1,339		1,394
Other Operating and Administrative		3,778		4,890		3,890
Total	$	12,215	$	13,810	$	12,850

    Salaries and benefits, the primary source of noninterest expense was $6,541,651 in 2000, $6,834,859 in 1999, and $6,817,870 in 1998, representing a decrease of 4.3% in 2000 from 1999 and a 0.2% increase in 1999 over 1998. During 1999, and continuing into 2000, the Company centralized services and created additional personnel efficiencies to reduce the growth in staffing expense.

    Collectively, occupancy and furniture and equipment expenses decreased by $189,644, or 9.1%, in 2000 from 1999, and stood at $1,895,793 and $2,085,437, for the full year periods, respectively. During 1999, the Company also recognized a slight decrease of 2.7% from $2,142,504 in 1998. The reduction in these two categories reflects the closure, during the later part of 1999 of the Bank's loan production offices in Madera and Chico, California. Additionally, in 1999, the Company had nonrecurring expenses associated with "Year 2000" equipment upgrades.

    Other operating and administrative expenses were $3,777,515 in 2000, a substantial decrease of 22.8% from 1999's noninterest operating and administrative expenses of $4,890,195. This same classification of expenses amounted to $3,890,304 in 1998. The decline in other operating and administrative expense during 2000 is attributed to several factors including nonrecurring items incurred in 1999. These included a loss on the sale of investments, expenses associated with option exercises pursuant to the Company's 1989 stock option plan, expenses associated with the recruitment of a new president and chief executive officer for the Bank and CIB and increased expenses associated with the need to maintain the Company's commitment to its Year 2000 readiness program.

    Other factors impacting the decline in other noninterest expenses were a decline of $73,556 in attorney fees and $64,843 in the Federal Deposit Insurance Corporation ("FDIC") assessments in 2000 from 1999. Attorney fees continue to decline as the Company continues its progress towards the resolution and collection of problem loans and leases.

Income Taxes

    The provision for income taxes from continuing operations was $1,643,525 in 2000, $865,000 in 1999, and $1,603,600 in 1998. The Company's effective tax rate was 38.0%, 35.2%, and 37.1% for 2000, 1999, and 1998, respectively.

Interest Rate Sensitivity

    Interest rate sensitivity is the relationship between market interest rates and net interest income ("NII") due to the repricing characteristics of assets and liabilities. As interest rates change, interest income and expense also change, thereby changing NII. If more liabilities reprice than assets in a given period, a liability sensitive position is created. If interest rates decline, a liability sensitive position will benefit net interest income. Alternatively, where assets reprice more quickly than liabilities in a given period (an asset sensitive position), a decline in market rates will have an adverse effect on NII.

25

    The following table depicts the Company's interest rate sensitivity position as of December 31, 2000.

Interest Rate Sensitivity as of December 31, 2000

		Repricing Opportunity
		Three months or less			Over three months through 12 months			1 year- 3 years			Over 3 years		Total
		(Dollars in thousands)
Interest-Earning Assests:
Federal Funds Sold		$	7,700		$	—		$	—		$	—	$	7,700
Loans			98,017			9,888			18,428			52,682		179,015
Investments			7,154			580			29,975			44,303		82,012
	Total Interest-Earning Assets	$	112,871		$	10,468		$	48,403		$	96,985	$	268,727
Interest-Bearing Liabilities:
Interest-Bearing Demand		$	64,172		$	—		$	—		$	—	$	64,172
Savings and Money Market Deposits			43,709			—			—			—		43,709
Time Certificates			36,682			48,706			8,235			2,132		95,755
Other Interest-Bearing Liabilities			4,160			—			—			—		4,160
	Total Interest-Bearing Liabilities	$	148,723		$	48,706		$	8,235		$	2,132	$	207,796
Gap			(35,852	)		(38,238	)		40,168			94,853		60,931
Cumulative Gap			(35,852	)		(74,090	)		(33,922	)		60,931

    The above table indicates the period in which interest-earning assets and interest-bearing liabilities will mature or may reprice in accordance with their contractual terms. However, this table does not necessarily indicate the impact of general interest rate movements on the Bank's NII or yield because the repricing of various categories of assets and liabilities is discretionary and is subject to competitive and other pressures. As a result, various assets and liabilities indicated as maturing or repricing within the same period may in fact mature or reprice at different times and at different rate levels. For example, although the Bank's regular savings accounts generally are subject to immediate withdrawal, Management considers most of these accounts to be core deposits having significantly longer effective maturities based on the Bank's experience of retention of such deposits in changing interest rate environments.

    Asset and liability management encompasses an analysis of market risk, the control of interest rate risk (interest sensitivity management) and the ongoing maintenance and planning of liquidity and capital. The composition of the Company's statement of condition is planned and monitored by the Asset and Liability Committee ("ALCO"), a committee comprised of the Bank's executive management. The primary tool used by ALCO to measure and manage interest rate exposure is a simulation model. Use of the model to perform simulations reflecting changes in interest rates over one and two-year time horizons has enabled Management to develop and initiate strategies for managing exposure to interest rate risks. ALCO believes that both individually and in the aggregate these assumptions are reasonable, but the complexity of the simulation modeling process results in a sophisticated estimate, not an absolutely precise calculation of exposure.

26

Market Risk

    Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates and prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company's primary market risk exposure is interest rate risk. The continuous monitoring and management of this risk is an important component of the Company's asset and liability management process, which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out the asset and liability management policies to ALCO. In this capacity, Management develops guidelines and strategies impacting the Company's asset and liability management related activities based upon estimated market risk sensitivity, policy limits, and overall market interest rate levels and trends.

Interest Rate Risk

    Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company's financial instruments also change thereby impacting NII, the primary component of the Company's earnings. ALCO utilizes the results of the detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes.

    The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company's balance sheet as well as for off balance sheet financial instruments. This sensitivity analysis is compared to ALCO policy limits that specify a maximum tolerance level for NII exposure over a one-year horizon, assuming no balance sheet growth, given both a 200 basis point ("bp") upward and downward shift in interest rates. A parallel and pro rata shift in rate over a 12-month period is assumed. The Bank's policy limit threshold is that NII exposure shall not exceed 10% of estimated NII over the next 12 months. The following table reflects the Company's NII sensitivity analysis as of December 31, 2000.

Rate change (bp)	Estimated exposure as a % of annual projected NII
+200	2.09%
- 200	(2.32%)

    The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of future operating results. These hypothetical estimates are based on numerous assumptions including the nature and timing of interest rate levels including yield curve shape, repayments on loans, leases and securities, deposit rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment and refinancing levels deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal and external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates.

Liquidity

    The need for liquidity in a banking institution arises principally to provide for deposit withdrawals, the credit needs of its customers, and to take advantage of investment opportunities. A banking institution may achieve desired liquidity from both assets and liabilities. The Company considers cash

27

and deposits held in other banks, federal funds sold, other short-term investments, maturing loans and investments, receipts of principal and interest on loans, investments available for sale, and potential loan sales as sources of asset liquidity. Deposit growth and access to credit lines established with correspondent banks and market sources of funds are considered by the Company as sources of liability liquidity.

    Historically, during the first half of each year the Bank experiences excess liquidity. The Bank's seasonal agricultural and construction loan demand, which typically occurs each year from early June through late October, tends to absorb excess liquidity and frequently results in a net borrowed position during that time frame.

    The Bank's short-term liquid assets consist of cash and due from banks, federal funds sold, and investment securities with maturities of one year or less (exclusive of pledged securities). Irrespective of maturity, U.S. Government and Agency securities qualify as collateral for borrowings at the FHLB, FRB, and with broker-dealers.

    The Company's liquid assets totaled $20,240,739 and $55,597,534 at December 31, 2000 and 1999, respectively. Liquid assets as a percentage of total assets were 6.7% and 18.5%, respectively, as of those dates. Liquidity is also affected by collateral requirements of the Bank's public deposits and certain borrowings. Total pledged securities were $52,339,269 at December 31, 2000, and $33,224,728 at December 31, 1999.

    In order to fund its liquidity needs, the Bank has formal and informal borrowing arrangements with the FRB to meet unforeseen deposit outflows or seasonal loan funding demands. The Bank has also entered an agreement to borrow funds from the FHLB secured by U.S. Government and Agency Obligations in the Bank's investment portfolio. As of December 31, 2000 and December 31, 1999, the Bank had $4,000,000 and $0 outstanding on these lines, respectively.

    The Bank monitors its credit facility availability and unencumbered qualifying collateral in conjunction with its asset and liability management process. Policy limits are established and monitored for maximum borrowings and minimum contingency liquidity levels.

    Management believes the Company maintains adequate amounts of liquidity to meet its needs.

Capital Resources

    The Company and the Bank are subject to requirements of the FRB and FDIC, respectively, governing capital adequacy. These guidelines are intended to reflect the degree of risk associated with both on and off balance sheet items. Financial institutions are expected to comply with a minimum ratio of qualifying total capital to risk-weighted assets of 8.0%, at least half of which must be in Tier 1 Capital. Federal regulatory agencies have also adopted a minimum leverage ratio of 4.0%, which is intended to supplement the risk-based capital requirements and to ensure that all financial institutions continue to maintain a minimum level of core capital.

    Total shareholders' equity on December 31, 2000, increased by $2,534,762 to $25,769,609 over December 31, 1999 total shareholders' equity of $23,234,847. The increase is attributed to net income during 2000 of $2,719,958, a decrease of $705,224 in the accumulated other comprehensive loss associated with the market value adjustment on the Bank's Available-for-Sale securities, and an increase of $129,084 associated with stock options exercised. These increases to shareholder equity were offset by cash dividends paid in the amount of $859,504 and the Bank's guarantee of its Employee Stock Ownership debt of $160,000. As can be seen by the following table, the Company and Bank exceeded all regulatory capital ratios on December 31, 2000.

28

Risk Based Capital Ratio
as of December 31, 2000

		Company				Bank
		Amount		Ratio		Amount		Ratio
		(Dollars in thousands)
Tier 1 Capital		$	25,683	11.51	%	$	25,534	11.45	%
Tier 1 Capital Minimum Requirement			8,928	4.00	%		8,918	4.00	%
	Excess	$	16,755	7.51	%	$	16,616	7.45	%
Total Capital			28,509	12.77	%		28,357	12.72	%
Total Capital Minimum Requirement			17,856	8.00	%		17,835	8.00	%
	Excess	$	10,653	4.77	%	$	10,522	4.72	%
Risk-Adjusted Assets		$	223,196			$	222,939
Leverage Capital Ratio
Tier 1 Capital to Quarterly Average Total Assets		$	25,683	8.49	%	$	25,534	8.45	%
Minimum Leverage Requirement			12,093	4.00	%		12,090	4.00	%
	Excess	$	13,590	4.49	%	$	13,444	4.45	%
Total Quarterly Average Assets		$	302,336			$	302,239

Inflation

    It is Management's opinion that the effects of inflation on the Company's financial statements for the years ended December 31, 2000, 1999, and 1998 are not material.

Supervision and Regulation

    The Company and the Bank operate in a highly regulated environment and are subject to supervision and examination by various federal and state regulatory agencies. CIB, as a bank holding company, is subject to regulation and supervision by primarily the FRB, and the Bank, as a California-chartered commercial bank, is subject to supervision and regulation by primarily the FDIC and the California State Department of Financial Institutions ("DFI"). Federal and California state laws and regulations govern numerous matters involving both entities, including maintenance of adequate capital and financial condition, permissible types, amounts and terms of extensions of credit and investments, permissible non-banking activities, the level of reserves against deposits, and restrictions on dividend payments. The federal and state regulatory agencies possess extensive discretion and powers to prevent or remedy unsafe or unsound practices or violations of law by banks and bank holding companies. CIB and the Bank also undergo periodic examinations by one or more of these regulatory agencies, which may subject them to changes in asset valuations, in amounts of required loss allowances, and in operating restrictions resulting from the regulators' judgments based on information available to them at the time of their examination. The Bank's operations are also subject to a wide variety of state and federal consumer protection and similar statutes and regulations. Those and other restrictions limit the manner in which CIB and the Bank may conduct business and obtain financing. The laws and regulations to which CIB and the Bank are subject can and do change significantly from time to time, and such changes could materially affect the Company's business, financial condition, and operating results.

    As a result of CIB's and the Bank's 1999 financial performance, the results of the FDIC and DFI February 2000 examination and continued concerns regarding the quality of the Bank's loan portfolio, the Bank's Board of Directors passed a resolution to address the concerns. The resolution requires the Bank to: (1) maintain management acceptable to the FDIC and DFI, (2) to seek approval of the agencies prior to appointing any individual as a director or senior officer, (3) continue with the diligent implementation of a previously adopted plan to reduce the level of nonperforming and problem loans and leases, (4) maintain an adequate reserve for loan and lease losses, (5) seek prior approval of the

29

FDIC and DFI before the payment of any cash dividends, and (6) maintain a Tier 1 Leverage ratio of at least 7.5%. Given Management's expectation for continuing improvement in the Bank's financial condition in 2001, Management intends to recommend to the Bank's Board of Directors to eliminate the resolution's management approval requirement, dividend approval requirement, and capital limitations. Management does not believe that complying with the resolution's limitations will have a material adverse impact on the Bank's operations.

    Furthermore, the FDIC and FRB have notified the Bank and CIB, respectively, that the condition of the Bank and CIB are such that prior approval of the regulatory agency is necessary before adding or replacing any member of the boards of directors, employing any person as a senior executive officer, or changing the responsibilities of any senior executive officer so that the individual would be assuming a different senior executive officer position. Finally, due to the Bank's condition, the FDIC is also restricting the Company's and the Bank's ability to enter into any contracts to pay or make any golden parachute and indemnification payments to institution-affiliated parties. Given Managements expectation for continuing improvements in the Company's financial condition in 2001, Management believes that the FDIC and FRB will rescind their limitations on the Bank and the Company.

Changes in Senior Management

    To further strengthen senior management of the Company, in June 2000 the Board announced that Robert J. Lampert accepted the positions of executive vice president and chief operating officer of CIB and the Bank. In these positions, Mr. Lampert serves as CIB and the Banks' chief financial officer. He accepted this assignment after serving as the president and chief executive officer of EPI since November of 1999. Prior to joining EPI, Mr. Lampert was Executive Vice President Strategic Operations of the Commercial Lending Division of The Money Store, and holds the credentials of a certified public accountant. CIB and the Bank received the necessary approvals to appoint Mr. Lampert to these executive officer positions.

Approval of New Lincoln, California Branch

    On July 21, 2000, the Bank received approval from the FDIC to establish a branch in Lincoln, California. Approval was also granted by the DFI on July 3, 2000. It is anticipated that the new branch will open during the second quarter of 2001.

Segment Reporting

    On January 1, 1998, the Company adopted the Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for reporting enterprise segments of a company in the footnotes to the financial statements. The Company has no segments that meet the requirements of a reportable segment according to the guidelines set forth in SFAS 131.

Year 2000 Compliance

    The "Year 2000" issue has generally been described as the inability of computer systems, software, and other equipment utilizing microprocessors to distinguish the Year 1900 from the Year 2000. Year 2000 issues posed significant risks for all businesses, households, and governments and could have resulted in system failures and miscalculations causing disruptions in normal business and governmental operations if actions were not taken to fix the problem before the year 2000 arrived.

    As a result of the Company's persistent commitment to its Year 2000 compliance efforts, it was able to roll into the new millennium without interruption. The Company will continue to monitor its systems and those of its vendors and suppliers over the coming months. The Bank continues to carry reserves for loan and lease losses that could arise from its borrowers due to Year 2000 issues.

    Expenses associated with the Year 2000 compliance efforts amounted to approximately $0 in 2000, $482,860 in 1999, and $302,000 in 1998.

30

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors
of California Independent Bancorp:

    We have audited the accompanying consolidated balance sheets of CALIFORNIA INDEPENDENT BANCORP (a California corporation) AND SUBSIDIARIES as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

    In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of California Independent Bancorp and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP

Sacramento, California
February 16, 2001

31

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2000 AND 1999

			2000			1999
Assets
Cash and Due From Banks			$	19,358,528		$	15,887,475
Federal Funds Sold				7,700,000			22,000,000
	Cash and Cash Equivalents			27,058,528			37,887,475
Investment Securities Held-to-Maturity				5,317,357			16,178,653
Investment Securities Available-for-Sale				76,694,574			70,819,851
	Total Investments		$	82,011,931		$	86,998,504
Loans and Leases				158,681,594			116,032,691
Loans and Leases Held-For-Sale				20,333,661			45,287,979
	Less: Allowance for Loan and Lease Losses			(5,724,412	)		(6,770,523	)
	Net Loans and Leases		$	173,290,843		$	154,550,147
Premises and Equipment, Net				6,978,841			7,342,659
Interest Receivable				2,839,611			3,282,957
Other Real Estate Owned				404,618			1,299,637
Cash Surrender Value of Insurance Policies				4,869,924			4,648,123
Deferred Taxes				2,168,076			3,650,310
Income Tax Receivable				89,325			375,912
Other Assets				1,508,892			324,738
Net Assets From Discontinued Operations				225,972			—
		Total Assets	$	301,446,561		$	300,360,462
Liabilities and Shareholders' Equity
Deposits:
	Noninterest-Bearing		$	63,995,909		$	60,483,798
	Interest-Bearing			203,636,318			212,975,320
		Total Deposits	$	267,632,227		$	273,459,118
Interest Payable				1,879,722			1,533,539
Accrued Compensation Payable				631,263			343,346
Other Borrowings				4,160,000			—
Other Liabilities				1,373,740			1,677,478
Net Liabilities From Discontinued Operations				—			112,134
		Total Liabilities	$	275,676,952		$	277,125,615
Commitments and Contingencies (Note 14)
Shareholders' Equity:
	Common Stock, No Par Value, Shares Authorized—20,000,000, Shares Issued and Outstanding—2,008,966 in 2000 and 1,904,618 in 1999		$	19,909,484		$	17,950,525
	Retained Earnings			6,263,805			6,233,226
	Debt Guarantee of ESOP			(160,000	)		—
	Accumulated Other Comprehensive Income (Loss)			(243,680	)		(948,904	)
		Total Shareholders' Equity	$	25,769,609		$	23,234,847
		Total Liabilities and Shareholders' Equity	$	301,446,561		$	300,360,462

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

32

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

			2000		1999			1998
Interest Income
Interest and Fees on Loans and Leases			$	16,971,203	$	18,624,289		$	20,752,673
Interest on Investments—
	Taxable Interest Income			5,815,142		3,900,332			3,219,517
	Nontaxable Interest Income			118,719		161,764			291,112
Interest on Federal Funds Sold				630,170		593,197			536,411
		Total Interest Income		23,535,234		23,279,582			24,799,713
Interest Expense
Interest on Deposits				8,956,160		8,390,638			8,401,804
Interest on Other Borrowings				513,696		182,745			428,970
		Total Interest Expense		9,469,856		8,573,383			8,830,774
		Net Interest Income		14,065,378		14,706,199			15,968,939
Provision for Loan and Lease Losses				200,000		1,000,000			2,246,145
		Net Interest Income After Provision for Loan and Lease Losses		13,865,378		13,706,199			13,722,794
Noninterest Income
Service Charges and Fees on Deposit Accounts				1,009,455		970,908			918,118
Brokered Loan Fees				112,055		235,768			1,252,066
Loan Servicing Fees				488,995		553,280			506,982
Other				1,058,467		804,491			777,013
		Total Noninterest Income		2,668,972		2,564,447			3,454,179
Noninterest Expense
Salaries and Employee Benefits				6,541,651		6,834,859			6,817,870
Occupancy Expense				725,767		746,046			748,445
Furniture and Equipment Expense				1,170,026		1,339,391			1,394,059
Other Operating and Administrative Expense				3,777,515		4,890,195			3,890,304
		Total Noninterest Expense		12,214,959		13,810,491			12,850,678
		Income Before Provision for Income Taxes		4,319,391		2,460,155			4,326,295
Provision for Income Taxes				1,643,525		865,000			1,603,600
Net Income From Continuing Operations				2,675,866		1,595,155			2,722,695
Loss on Disposal of Subsidiary
	(Net of Income Tax Benefit of $0, $499,094, $0)			—		(713,772	)		—
Income (Loss) on Discontinued Operations
	(Net of Income Tax Benefit (Provision) of ($30,950), $185,225, ($110,700))			44,092		(277,685	)		157,781
Net Income			$	2,719,958	$	603,698		$	2,880,476
Per Share Amounts
Basic Earnings Per Share From Continuing Operations			$	1.38	$	0.88		$	1.54
Diluted Earnings Per Share From Continuing Operations				1.38		0.87			1.46
Basic Earnings Per Share After Disposal and Discontinuance of Subsidiary				1.40		0.33			1.63
Diluted Earnings Per Share After Disposal and Discontinuance of Subsidiary				1.40		0.33			1.55
Cash Dividends Per Common Share				0.44		0.42			0.40

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

33

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

			Common Stock
								Retained Earnings			Debt Guarantee of ESOP			Accumulated Other Comprehensive Income (Loss)
			Shares		Amount												Total
Balance December 31, 1997			1,651,131		$	13,637,879		$	7,959,446		$	(80,000	)	$	(1,202	)	$	21,516,123
Comprehensive Income:
	Net Income From Continuing Operations		—			—			2,722,695									2,722,695
	Net Income From Discontinued Operations		—			—			157,781			—			—			157,781
	Other Comprehensive Income, Net of Tax:
		Net Unrealized Investment Gains	—			—			—			—			—			35,132
	Other Comprehensive Income, Net of Tax:		—			—			—			—			35,132			35,132
Comprehensive Income			—			—			—			—			—			2,915,608
5% Stock Dividend With Cash Paid in Lieu of Fractional Shares			82,433			1,895,959			(1,908,005	)		—			—			(12,046	)
Reduction of ESOP Debt			—			—			—			40,000			—			40,000
Options Exercised			20,190			55,837			—			—			—			55,837
Shares Surrendered From Exercise of Options			(9,174	)		(121,307	)		—			—			—			(121,307	)
Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions			—			143,859			—			—			—			143,859
Cash Dividends			—			—			(737,094	)		—			—			(737,094	)
Balance December 31, 1998			1,744,580		$	15,612,227		$	8,194,823		$	(40,000	)	$	33,930		$	23,800,980
Comprehensive Income:
	Net Income From Continuing Operations		—			—			1,595,155			—			—			1,595,155
	Net Loss on Discontinued Operations		—			—			(277,685	)		—			—			(277,685	)
	Net Loss on Disposal of Discontinued Operation		—			—			(713,772	)		—			—			(713,772	)
	Other Comprehensive Loss, Net of Tax:
		Net Unrealized Investment Losses	—			—			—			—			—			(982,834	)
	Other Comprehensive Loss, Net of Tax:		—			—			—			—			(982,834	)		(982,834	)
Comprehensive (Loss)			—			—			—			—			—			(379,136	)
5% Stock Dividend With Cash Paid in Lieu of Fractional Shares			90,084			1,756,638			(1,766,084	)		—			—			(9,446	)
Reduction of ESOP Debt			—			—			—			40,000			—			40,000
Options Exercised			132,482			117,755			—			—			—			117,755
Shares Surrendered From Exercise of Options			(62,528	)		(163,580	)		—			—			—			(163,580	)
Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions			—			627,485			—			—			—			627,485
Cash Dividends			—			—			(799,211	)		—			—			(799,211	)
Balance December 31, 1999			1,904,618		$	17,950,525		$	6,233,226		$	—		$	(948,904	)	$	23,234,847
Comprehensive Income:
	Net Income From Continuing Operations		—			—			2,675,866			—			—			2,675,866
	Net Income on Discontinued Operations		—			—			44,092			—			—			44,092
	Other Comprehensive Income, Net of Tax:
		Net Unrealized Investment Gains	—			—			—			—			—			705,224
	Other Comprehensive Income, Net of Tax:		—			—			—			—			705,224			705,224
Comprehensive Income																		3,425,182
ESOP Debt Guarantee			—			—			—			(200,000	)		—			(200,000	)
Reduction of ESOP Debt			—			—			—			40,000			—			40,000
5% Stock Dividend With Cash Paid in Lieu of Fractional Shares			94,881			1,829,875			(1,839,597	)		—			—			(9,722	)
Options Exercised			14,695			102,584			—			—			—			102,584
Shares Surrendered From Exercise of Options			(5,228	)		(32,733	)		—			—			—			(32,733	)
Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions			—			59,233			—			—			—			59,233
Cash Dividends			—			—			(849,782	)		—			—			(849,782	)
Balance December 31, 2000			2,008,966		$	19,909,484		$	6,263,805		$	(160,000	)	$	(243,680	)	$	25,769,609

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

34

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

			2000			1999			1998
Cash Flows From Operating Activities
Net Income			$	2,719,958		$	603,698		$	2,880,476
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
	Depreciation and Amortization			996,724			1,055,667			1,132,251
	Provision for Losses on Other Real Estate Owned			140,000			3,800			54,153
	Provision for Loan and Lease Losses			200,000			1,000,000			2,246,145
	Provision (Benefit) for Deferred Taxes			832,340			(1,065,186	)		20,330
	Investment Security Losses, Net			—			440,634			—
	Purchase of Loans and Leases Held-for-Sale			—			(16,171,844	)		(26,920,053	)
	Proceeds From Loan and Lease Sales			760,000			21,968,279			65,795,347
	Origination of Loans and Leases Held-for-Sale			(1,414,700	)		(8,807,109	)		(57,512,441	)
	(Gain) on Sale of Real Estate Properties, Net			(291,871	)		—			—
	(Gain) on Sale of Premises and Equipment			(19,249	)		—			—
	Loss on Disposal of Discontinued Operations			—			713,772			—
(Increase) Decrease in Assets:
	Interest Receivable			443,346			(428,283	)		(183,741	)
	Deferred Taxes			649,894			(361,754	)		(608,994	)
	Cash Surrender Value of Insurance Policies			(221,801	)		(2,332,418	)		(103,532	)
	Income Tax Receivable			286,587			(181,238	)		185,676
	Net Assets From Discontinued Operations			(338,106	)		—			(157,781	)
	Other Assets			(1,228,854	)		782,051			1,060,880
Increase (Decrease) in Liabilities:
	Interest Payable			346,183			(89,120	)		(191,538	)
	Deferred Compensation Payable			177,387			115,881			227,465
	Net Liabilities From Discontinued Operations			—			(126,060	)		—
	Other Liabilities			3,806,792			935,434			(426,200	)
		Net Cash Provided By (Used For) Operating Activities	$	7,844,630		$	(1,943,796	)	$	(12,501,557	)
Cash Flows From Investing Activities
Net (Increase) Decrease in Loans and Leases				(18,285,996	)		20,803,511			3,368,551
Purchase of Securities Held-to-Maturity				—			(9,226,784	)		(4,994,679	)
Purchase of Securities Available-for-Sale				(16,046,452	)		(47,981,149	)		(39,119,032	)
Proceeds From Maturity of Securities Held-to-Maturity				10,712,105			2,174,299			14,993,880
Proceeds From Sales, Maturities and Calls of Securities Available-for-Sale				11,026,144			27,250,996			25,713,672
Proceeds From Sales of Other Real Estate Owned				1,091,590			302,536			968,692
Purchases of Premises and Equipment				(613,657	)		(640,426	)		(785,331	)
		Net Cash Provided By (Used For) Investing Activities	$	(12,116,266	)	$	(7,317,017	)	$	145,753
Cash Flows From Financing Activities
Net Increase (Decrease) in Noninterest-Bearing Deposits				3,512,111			(5,157,680	)		4,064,072
Net Increase (Decrease) in Interest-Bearing Deposits				(9,339,002	)		10,174,905			(1,906,093	)
Cash Dividends				(849,782	)		(799,211	)		(737,094	)
Stock Options Exercised				129,084			581,660			78,389
Cash Paid in Lieu of Fractional Shares				(9,722	)		(9,446	)		(12,046	)
		Net Cash Provided By (Used For) Financing Activities	$	(6,557,311	)	$	4,790,228		$	1,487,228
		Net Decrease in Cash and Cash Equivalents	$	(10,828,947	)	$	(4,470,585	)	$	(10,868,576	)
Cash and Cash Equivalents, Beginning of Year			$	37,887,475		$	42,358,060		$	53,226,636
Cash and Cash Equivalents, End of Year			$	27,058,528		$	37,887,475		$	42,358,060
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest Expense			$	9,123,673		$	8,662,503		$	9,480,232
Income Taxes				1,375,000			477,434			1,740,000
Supplemental Disclosures of Noncash Investing and Financing Activities
	Debt Guarantee of ESOP		$	160,000		$	(40,000	)	$	(40,000	)
	Net Unrealized Gain (Loss) on Securities Held as Available-for-Sale (Net of Taxes)			705,224			(982,834	)		35,132
	Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions			59,233			627,485			143,859
	Stock Dividends			1,829,875			1,756,638			1,895,959
	Increase (Decrease) in Other Real Estate Owned as a Result of Foreclosure			—			1,504,959			(206,324	)

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

35

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2000

(1) Summary of Significant Accounting Policies:

    The accounting and reporting policies of California Independent Bancorp and Subsidiaries (the "Company") conform with generally accepted accounting principles and general practice within the banking industry. The more significant of these policies applied in the preparation of the accompanying financial statements are discussed below.

Principles of Consolidation-

    The accompanying financial statements include the accounts of California Independent Bancorp ("CIB") and its wholly-owned subsidiary, Feather River State Bank (the "Bank") and its wholly-owned subsidiary, E.P.I. Leasing Company, Inc. ("EPI"). Significant intercompany transactions and balances have been eliminated in consolidation.

Nature of Operations-

    CIB is a California corporation and the bank holding company for the Bank, located in Yuba City, California. The Bank was incorporated as a California state banking corporation on December 1, 1976, and commenced operations on April 6, 1977. The Company was incorporated on October 28, 1994, and became the holding company for the Bank on May 2, 1995. The Bank engages in a broad range of financial services activities, and its primary market is located in the Northern Sacramento Valley, with a total of seven branches. On July 21,2000, the Bank received approval from the Federal Deposit Insurance Corporation ("FDIC") to establish an eighth branch in Lincoln, California. Approval was also granted by the California State Department of Financial Institutions ("DFI") on July 3, 2000. It is anticipated that the new branch will open during the first half of 2001. In addition, the Bank operates one loan production office, emphasizing commercial real estate, residential construction, and commercial lending. The primary source of income for the Bank is from lending activities, including commercial, agricultural, real estate, and consumer and installment loans and leases.

Use of Estimates in the Preparation of Financial Statements-

    The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 income and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents-

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

Investment Securities-

    The Bank classifies its investments as either "Held-to-Maturity" or "Available-for-Sale." Securities that the Bank has the positive intent and ability to hold to maturity are classified as "Held-to-Maturity" and are accounted for at amortized cost in the consolidated balance sheets.

36

    Other securities that the Bank does not have the positive intent or ability to hold to maturity are classified as "Available-for-Sale" and are reported at their fair values, with unrealized gains and losses reported on a net-of-tax basis as a separate component of shareholders' equity. Fair values are based on quoted market prices or broker or dealer price quotations on a specific identification basis. Certain economic factors could cause the Bank to sell some of these securities prior to maturity. Such factors include significant movements in interest rates and significant changes in liquidity demands. Gains or losses on sale of investment securities are computed using the specific identification method.

Loans and Leases-

    Loans and leases are stated at the principal amount outstanding less applicable unearned interest income. A loan or lease is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is impaired, the recorded amount of the loan on the balance sheet is based on the present value of expected future cash flows discounted at the loan's effective interest rate, or on the observable or estimated market price of the loan, or the fair value of the collateral if the loan is collateral dependent. Income on impaired loans is recognized in accordance with the Bank's accounting policy for loans placed on a nonaccrual status. Cash payments are first applied as a reduction of the principal balance until collectibility of the remaining principal and interest can be reasonably assured. Thereafter, interest income is recognized as it is collected in cash.

Loans and Leases Held-for-Sale-

    The Bank originates mortgage loans on residential and farm properties that it sells into the secondary market to divest itself of the interest rate risk associated with these primarily fixed-interest rate products. The Bank accounts for these loans at the lower of cost or net realizable value.

    As of January 1, 1997, the Bank adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers of Financial Assets and Extinguishment of Liabilities." This statement requires, under certain circumstances, entities to recognize as a separate asset an amount related to the right to service mortgage loans. The adoption of this statement did not have a material impact on the Company's financial position and results of operations.

Sales and Servicing of SBA Loans-

    The Bank originates loans to customers under the Small Business Administration ("SBA") program that generally provides for SBA guarantees of 70% to 90% of each loan. The Bank generally maintains these loans in its portfolio, but occasionally sells the guaranteed portion of each loan to a third party and retains the unguaranteed portion in its own portfolio. The Bank may be required to refund a portion of the sales premium received, if the borrower defaults or the loan prepays within 90 days of the settlement date. At December 31, 2000, the Bank had received no premiums subject to such recourse. A gain is recognized on the sale of SBA loans through collection on sale of a premium over the adjusted carrying value, through retention of an ongoing rate differential less a normal service fee (excess servicing fee) between the rate paid by the borrower to the buyer and the rate paid by the Bank to the purchaser, or both.

    To calculate the gain (or loss) on the sale, the Bank's investment in an SBA loan is allocated among the retained portion of the loan, the excess servicing retained, and the sold portion of the loan, based on the relative fair market value of each portion. The gain (or loss) on the sold portion of the

37

loan is recognized at the time of sale based on the difference between the sale proceeds and the allocated investment. As a result of the relative fair value allocation, the carrying value of the retained portion is discounted, with the discount accredited to interest income over the life of the loan. The excess servicing fees are reflected as an asset that is amortized over an estimated life using a method approximating the level yield method. In the event future prepayments exceed Management's estimates and future expected cash flows are inadequate to cover the unamortized excess servicing asset, additional amortization would be recognized. In its calculation of excess servicing fees, the Bank is required to estimate a "normal" servicing fee. The Bank uses the contractual rate of 100 basis points as its estimate of a normal servicing fee.

Allowance for Loan and Lease Losses-

    The Allowance for Loan and Lease Losses ("ALLL") is maintained at a level considered adequate by Management to provide for losses that can be reasonably anticipated. Accordingly, loan and lease losses are charged to the ALLL, and recoveries are credited to it. The provision for loan and lease losses charged to operating expense is based upon past loan loss experience, loan impairment, and estimates of potential losses, which in Management's judgment, deserve current recognition. Other factors considered by Management include growth, composition, and overall quality of the loan and lease portfolio, reviews of specific problem loans and leases, and current economic conditions that may affect the borrowers' ability to pay. This evaluation process requires the use of current estimates that may vary from the ultimate losses experienced in the future. The estimates are reviewed periodically, and adjustments, as they become necessary, are charged to operations in the period in which they become known.

Other Real Estate Owned-

    Other real estate owned ("OREO") consists of properties acquired by the Bank through foreclosure and is carried at the lower of cost or fair value, less estimated costs to sell. At the time the property is acquired, if the estimated fair value is less than the amount outstanding on the loan, the difference is charged against the allowance for loan and lease losses. Subsequent declines in estimated fair value, if any, are charged to expense.

Interest and Fees on Loans and Leases-

    Origination fees and commitment fees, offset by certain direct loan and lease origination costs, are deferred and recognized over the contractual life of the loan or lease as yield adjustment. Interest income on loans and direct lease financing is accrued daily as earned on all credits not classified as nonaccrual. Unearned income on loans or leases, where applicable, is recognized as income using the effective interest method over the term of the loan or lease.

    Loans and leases are generally placed on nonaccrual status when they are 90 days past due as to either interest or principal or are otherwise determined to be impaired. At that time, any accrued but uncollected interest is reversed, and additional income is recorded on a cash basis as payments are received. However, loans and leases that are well-secured and in the process of collection may not be placed on nonaccrual status, at the discretion of Management. A nonaccrual loan or lease may be restored to an accrual basis when interest and principal payments are current and prospects for future payments are no longer in doubt.

38

Depreciation and Amortization-

    Bank premises and equipment are stated at cost, less accumulated depreciation. Depreciation on premises, furniture, fixtures, and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 31.5 years. Leasehold improvements are amortized using the straight-line method over the asset's useful life or the term of the lease, whichever is shorter. Expenditures for major renewals and improvements of bank premises and equipment are capitalized, and those for maintenance and repairs are charged to expense as incurred.

Stock-Based Compensation-

    The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." As permitted by SFAS 123, the Company has not changed its method of accounting for stock options but has provided the additional required disclosures. For the years ended December 31, 2000, 1999, and 1998 the Company recognized no compensation expense related to stock options pursuant to SFAS 123.

Income Taxes-

    Income taxes reported in the financial statements are computed at current tax rates, including deferred taxes resulting from temporary differences in the recognition of items for tax and financial reporting purposes.

    The Bank records income taxes for financial statement purposes using the liability or balance sheet method, under which the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities. Under this method, the computation of the net deferred tax asset or liability gives current recognition to changes in tax laws and rates.

Financial Accounting Pronouncements-

    On January 1, 1998, the Bank adopted the Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This statement establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Comprehensive income refers to revenues, expenses, gains, and losses that generally accepted accounting principles recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income includes net income (loss) and changes in the fair value of its "Available-for-Sale" investment securities.

    On January 1, 1998, the Bank adopted the Statement of Financial Accounting Standards No. 131 ("SFAS131"), "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for reporting enterprise segments of a company in the footnotes to the financial statements. The Company has no segments that meet the requirements of a reportable segment according to the guidelines set forth in SFAS 131.

    On January 1, 1999, the Bank adopted the Statement of Financial Accounting Standards No. 134 ("SFAS 134"), "Accounting for Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." This statement amends Statement of Financial Accounting Standards No. 65 "Accounting for Certain Mortgage Banking Activities" to

39

require that after the securitization of mortgage loans held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities or other retained interests based on its ability and intent to sell or hold those investments. SFAS 134 did not have an impact on the Company's financial statements.

Reclassifications-

    Certain reclassifications have been made to amounts previously reported to conform with current presentation methods. Such reclassifications have no effect on net income or shareholders' equity previously reported.

(2) Investment Securities:

    As of December 31, 2000, 1999, and 1998, the Bank's equity capital reflected a net unrealized gain (loss) on the Banks "Available-for-Sale" investment securities, net of applicable taxes, of $(243,680), $(948,904), and $33,930, respectively.

40

    The amortized cost and approximate fair value of investments in debt securities and other investments at December 31, 2000 and 1999 were as follows:

Investments

		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2000
Available-for-Sale:
	Obligations of U.S. Government Agencies	$	64,190,292	$	191,075	$	(244,192	)	$	64,137,175
	Mortgage-Backed Securities		6,191,832		213,143		(1,488	)		6,403,487
	Equity Securities		6,755,505		35,907		(637,500	)		6,153,912
		$	77,137,629	$	440,125	$	(883,180	)	$	76,694,574
Held-to-Maturity:
	Obligations of States and Political Subdivisions	$	2,568,282	$	17,784	$	(3,966	)	$	2,582,100
	Debt and Other Securities		2,749,075		—		(9,651	)		2,739,424
		$	5,317,357	$	17,784	$	(13,617	)	$	5,321,524
December 31, 1999
Available-for-Sale:
	Obligations of U.S. Government Agencies	$	52,990,659	$	—	$	(1,673,846	)	$	51,316,813
	Mortgage-Backed Securities		12,578,147		1,676		(53,110	)		12,526,713
	Equity Securities		6,976,325		—		—			6,976,325
		$	72,545,131	$	1,676	$	(1,726,956	)	$	70,819,851
Held-to-Maturity:
	Obligations of States and Political Subdivisions	$	3,606,928	$	1,894	$	(27,063	)	$	3,581,759
	Debt and Other Securities		12,571,725		517		(55,754	)		12,516,488
		$	16,178,653	$	2,411	$	(82,817	)	$	16,098,247

    The following table shows the amortized cost and estimated fair value of investment securities by contractual maturity at December 31, 2000 and 1999. Actual maturities may differ from contractual

41

maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Held-to-Maturity				Available-for-Sale
		Amortized Costs		Fair Value		Amortized Costs		Fair Value
December 31, 2000
No Stated Contractual Maturity		$	—	$	—	$	6,755,505	$	6,153,912
Within One Year			1,580,107		1,578,808		—		—
After One But Within Five Years			3,592,250		3,592,875		47,902,874		47,866,027
After Five But Within Ten Years			145,000		149,843		18,140,001		18,123,400
After Ten Years			—		—		4,339,249		4,551,235
	Total	$	5,317,357	$	5,321,526	$	77,137,629	$	76,694,574
December 31, 1999
No Stated Contractual Maturity		$	—	$	—	$	6,976,325	$	6,976,325
Within One Year			10,733,734		10,727,508		—		—
After One But Within Five Years			5,184,919		5,110,739		47,416,479		46,131,606
After Five But Within Ten Years			260,000		260,000		18,152,327		17,711,920
After Ten Years			—		—		—		—
	Total	$	16,178,653	$	16,098,247	$	72,545,131	$	70,819,851

    Net gains (losses) from sales of "Available-for-Sale" investment securities during 2000, 1999, and 1998 were $0, $(440,634), and $0, respectively. Gross gains of $0, $14,141, and $0 and gross losses of $0, $454,775, and $0 were realized on those sales in 2000, 1999, and 1998, respectively.

    Investment securities pledged as collateral for certain deposits amounted to $52,339,269 and $33,224,728 at December 31, 2000 and 1999, respectively.

(3) Loans and Leases:

    Loans outstanding are summarized as follows:

	December 31,
	2000		1999
Commercial and Agricultural	$	41,691,321	$	55,111,154
Real Estate Construction		35,783,474		30,513,920
Real Estate Mortgage		75,626,555		46,003,764
Consumer		4,471,652		2,523,695
Lease Financing		19,608,845		27,009,815
Other		1,833,408		158,322
Totals	$	179,015,255	$	161,320,670

    Loans and leases on which the accrual of interest has been discontinued or reduced amounted to approximately $4,925,579 and $6,115,399 at December 31, 2000 and 1999, respectively. This represents the total recorded investment in impaired loans and leases. The allowance for loan and lease losses that

42

was allocated to these impaired loans totaled $954,208 and $956,854 as of December 31, 2000 and 1999, respectively. For income reporting purposes, impaired loans are placed on a nonaccrual status. This is more fully discussed in Note 1. The average balance of impaired loans and leases during 2000, 1999 and 1998 was $7,437,963, $5,774,926, and $7,659,329 respectively. Interest income recorded on those loans and leases during 2000, 1999, and 1998 was $269,776, $212,610, and $343,812, respectively. Foregone interest on loans and leases placed on nonaccrual status was $744,369, $883,268, and $1,431,874 for the years ended December 31, 2000, 1999, and 1998, respectively.

    Changes in the allowance for loan and lease losses summarized as follows:

	Years Ended December 31,
	2000			1999			1998
Balance, Beginning of Year	$	6,770,523		$	6,024,111		$	5,514,299
Provision		200,000			1,000,000			2,246,145
Loans Charged-Off		(1,739,930	)		(1,146,903	)		(2,333,268	)
Recoveries on Loans Previously Charged-Off		493,819			893,315			596,935
Balance, End of Year	$	5,724,412		$	6,770,523		$	6,024,111

(4) Premises and Equipment:

    A summary of premises and equipment follows:

	December 31,
	2000			1999
Land	$	1,432,957		$	1,432,957
Bank Premises and Improvements		6,045,506			6,026,660
Furniture, Fixtures and Equipment		7,329,037			6,717,304
	$	14,807,500		$	14,176,921
Less Accumulated Depreciation and Amortization		(7,828,659	)		(6,834,262	)
Total Premises and Equipment	$	6,978,841		$	7,342,659

    Depreciation and amortization charged to expense was $996,724, $1,055,667, and $1,132,251 in 2000, 1999, and 1998, respectively.

(5) Deposits:

    A summary of deposit balances follows:

	December 31,
	2000		1999
Demand	$	63,995,909	$	60,483,798
Interest-Bearing Transaction Accounts		70,980,794		73,762,727
Savings Deposits		36,900,690		41,033,748
Time Certificates of Deposit		95,754,834		98,178,845
Total Deposits	$	267,632,227	$	273,459,118

43

    Time certificates of deposit of $100,000 or more, including public time deposits, amounted to approximately $40,344,063 and $44,856,075 at December 31, 2000 and 1999, respectively.

    Interest expense on time certificates of deposit of $100,000 or more, including public time deposits, amounted to approximately $2,479,544, $2,192,867, and $2,123,535 in 2000, 1999, and 1998, respectively.

    At December 31, 2000, the scheduled maturities of all time certificates of deposit were as follows:

	December 31, 2000
Three Months or Less	$	36,682,726
Over Three Through Twelve Months		48,705,787
Over One Through Three Years		8,235,064
Over Three Years		2,131,257
Total	$	95,754,834

(6) Other Borrowings:

    The Bank maintains secured lines of credit with the Federal Home Loan Bank ("FHLB") and the Federal Reserve Bank ("FRB"), against which the Bank may take advances. The terms of these credit facilities require the Bank to maintain in safekeeping with the FHLB or FRB, as applicable, eligible collateral of at least 100% of outstanding advances. To provide borrowing capacity for short-term liquidity needs, as of December 31, 2000, the Company had $23,079,887 and $21,911,025 in safekeeping and pledged to the FHLB and FRB, respectively. At December 31, 2000, 1999, and 1998 there was $4,000,000, $0, and $0 outstanding, respectively, under the FHLB line of credit. The contractual maturity of the FHLB advance as of December 31, 2000 was 52 days. At December 31, 2000, 1999, and 1998 there were no amounts outstanding on the FRB line of credit.

    The interest rates on FHLB and FRB credit advances vary dependent on the term of the advance and the nature of collateral supporting the advance. Interest is paid at maturity for overnight advances and monthly for other advances. Principal is due at maturity. At December 31, 2000, the interest rate on the FHLB advance was 6.6%. The interest expense on all FHLB and FRB advances was $460,668, $156,448, and $307,111 for the years ended December 31, 2000,1999, and 1998, respectively.

44

(7) Other Noninterest Income and Expense:

    The components of other operating income and expense were as follows:

	Years Ended December 31,
	2000		1999		1998
	(Dollars in thousands)
Non-Insured Deposit Income	$	222	$	249	$	172
Gains on Sale of OREO		292		—		—
Gains on Sales of Leases		—		45		192
Other		544		510		413
Total Other Noninterest Income	$	1,058	$	804	$	777
Attorney Fees		225		377		795
Other Operating and Administrative Expense		3,553		4,513		3,095
Total Other Noninterest Expense	$	3,778	$	4,890	$	3,890

(8) Income Taxes:

    The provision (benefit) for income taxes consists of the following:

	Years Ended December 31,
	2000		1999			1998
Current-
Federal	$	703,171	$	1,765,746		$	1,122,994
State		108,014		164,440			460,276
	$	811,185	$	1,930,186		$	1,583,270
Deferred-
Federal		631,850		(983,263	)		69,891
State		200,490		(81,923	)		(49,561	)
	$	832,340	$	(1,065,186	)	$	20,330
	$	1,643,525	$	865,000		$	1,603,600

    The effective tax rate and statutory federal income tax rate are reconciled as follows:

	Years Ended December 31,
	2000		1999		1998
Federal Statutory Income Tax Rate	34.0	%	34.0	%	34.0	%
State Franchise Taxes, Net of Federal Income Tax Benefit	7.2		7.2		7.2
Tax-Exempt Interest	(4.9	)	(4.0	)	(3.0	)
Corporate Dividends Received	—		—		(1.9	)
Other	1.7		(2.0	)	0.8
	38.0	%	35.2	%	37.1	%

45

    The components of the net deferred tax asset of the Company, recorded in other assets, as of December 31, 2000 and 1999, were as follows:

		2000		1999
Deferred Tax Assets-
	Loan Losses	$	1,662,775	$	2,270,139
	California Franchise Tax		70,725		55,910
	Other Real Estate Owned		32,920		—
	Unrealized Loss on Available-for-Sale Securities		199,375		776,376
	Nonaccrual Loans		895,004		748,940
	Other		—		266,436
Total Deferred Tax Assets		$	2,860,799	$	4,117,801
Deferred Tax Liabilities-
	Depreciation	$	150,471	$	197,619
	Stock Dividends		425,884		269,872
	Other		43,474		—
Total Deferred Tax Liabilities		$	619,829	$	467,491
Net Deferred Tax Asset		$	2,240,970	$	3,650,310

    The components of the deferred income tax provisions are summarized as follows:

	Years Ended December 31,
	2000			1999			1998
Provisions (Benefit) for Possible Loan and Lease Losses	$	607,364		$	(269,615	)	$	508,548
Interest on Non-Accrual Loans and Leases		(146,064	)		(372,311	)		(205,772	)
Tax Depreciation Methods		(47,148	)		(22,930	)		(30,029	)
California Franchise Tax		(14,815	)		110,512			(136,782	)
Other Real Estate Owned		(32,920	)		58,383			73,286
Accretion		—			—			(100,838	)
Other		465,923			(569,225	)		(88,083	)
	$	832,340		$	(1,065,186	)	$	20,330

(9) Discontinued Operations:

    On March 21, 2000, the Board of Directors of the Bank, voting as the sole shareholder of EPI, approved the dissolution and winding up of EPI's affairs. The loss associated with the 1999 operation and disposal of EPI was $991,457, net of income tax benefit. The loss on disposal of EPI includes the write-down of the assets of EPI to estimated net realizable values, the write-off of the Banks investment in EPI and the goodwill associated with it, and the estimated costs of disposing of these operations. During 2000, EPI had net income from operations of $44,092.

46

    Summarized balance sheet data for the discontinued operations as of December 31, 2000, is as follows:

Assets
Cash and Due From Banks	$	17,068
Receivables and All Other Assets		307,362
Total Assets	$	324,430
Liabilities
Payables and All Other Liabilities	$	98,458
Net Assets of Discontinued Operations	$	225,972

(10) Shareholders' Equity:

    At December 31, 2000, CIB was authorized to issue 20,000,000 shares of no par common stock. Of this amount, 2,008,966 and 1,904,618 shares of common stock were issued and outstanding at December 31,2000 and 1999, respectively.

    The principal source of cash for CIB is dividends from its subsidiary bank. Banking regulations limit the amount of dividends that may be paid without prior approval of the Company's regulatory agencies to the lesser of retained earnings or the net income of the Company for its last three fiscal years, less any distributions during such period, subject to capital adequacy requirements. At December 31, 2000, the Company had approximately $3,786,834 available for payments of dividends, which would not require the prior approval of the banking regulators under this limitation.

    The Bank adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share," effective December 15, 1998. As a result, the Bank's earnings per share for all prior periods have been restated. The following table reconciles the numerator and denominator of the basic and diluted earnings per share computations:

		Income (Numerator)								Per Share Amount
Year Ended December 31,		Continuing Operations		Discontinued Operations			Net		Shares (Denominator)	Continuing Operations		Discontinued Operations			Net
Basic Earnings (Loss) Per Share
	2000	$	2,675,866	$	44,092		$	2,719,958	1,936,163	$	1.38	$	0.02		$	1.40
	1999		1,595,155		(991,457	)		603,698	1,821,549		0.88		(0.55	)		0.33
	1998		2,722,695		157,781			2,880,476	1,763,408		1.54		0.09			1.63
Effect of Dilutive Securities-Employee Stock Options
	2000	$		$			$		2,805		—		—			—
	1999		—		—			—	19,701		—		—			—
	1998		—		—			—	99,946		—		—			—
Diluted Earnings (Loss) Per Shares
	2000	$	2,675,866	$	44,092		$	2,719,958	1,938,968	$	1.38	$	0.02		$	1.40
	1999		1,595,155		(991,457	)		603,698	1,841,250		0.87		(0.54	)		0.33
	1998		2,722,695		157,781			2,880,476	1,863,354		1.46		0.09			1.55

    For the year ending December 31,2000, 83,311 employee stock options in the amount of $1,719,082 were excluded from the computation of diluted earnings per share, as their effect was antidilutive.

47

    In August 2000, the Board of Directors authorized a 5% stock dividend that was distributed on September 15, 2000. The dividend was declared on August 15, 2000, to holders of record on August 31, 2000. The dividend resulted in the issuance of 94,881 additional shares of common stock.

    In August 1999, the Board of Directors authorized a 5% stock dividend that was distributed on September 17, 1999. The dividend was declared on August 17, 1999, to holders of record on August 31, 1999. The dividend resulted in the issuance of 90,084 additional shares of common stock. All common stock and per share amounts have been adjusted to reflect the stock dividend.

    In August 1998, the Board of Directors authorized a 5% stock dividend that was distributed on September 18, 1998. The dividend was declared on August 18, 1998, to holders of record on August 31, 1998. The dividend resulted in the issuance of 82,433 additional shares of common stock. All common stock and per share amounts have been adjusted to reflect the stock dividend.

(11) Disclosure of Fair Value of Financial Instruments:

Cash and Cash Equivalents-

    For these short-term instruments, the carrying value approximates fair value.

Investments-

    For securities held for investment, fair values are based on quoted market prices or dealer quotes. See Note 2 for further discussion.

Loans and Leases-

    The fair value of loans and leases is estimated by discounting the future cash flows using current rates at which similar loans and leases would be made to borrowers with similar credit ratings for the same remaining maturities. The fair value of nonperforming loans and leases is estimated based on allocating specific and general reserves to the various nonperforming loan and lease classifications.

Deposit Liabilities-

    The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Other Liabilities-

    Other liabilities represent short-term instruments. The carrying amount approximates fair value.

Other Borrowings-

    For these other borrowings, the carrying value approximates fair value.

Off-Balance Sheet Financial Instruments-

    The fair value of amounts for fees arising from commitments to extend credit, standby letters of credit, and financial guarantees written are not material.

48

    The estimated fair values of the Bank's financial instruments at December 31, 2000 and 1999, were as follows:

	December 31, 2000				December 31, 1999
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and Cash Equivalents	$	27,058,528	$	27,058,528	$	37,887,475	$	37,887,475
Investments		82,011,931		82,016,098		86,998,504		86,918,098
Loans (Net)		173,290,843		173,516,198		154,550,147		154,159,581
Financial Liabilities:
Deposits	$	267,632,227	$	268,074,825	$	273,459,118	$	272,994,117
Other Borrowings		4,160,000		4,160,000		—		—
Interest Payable, Accrued Compensation
Payable, and Other Liabilities		3,884,725		3,884,725		3,554,363		3,554,363

(12) Stock Options:

    During 1989, the Bank adopted the Feather River State Bank 1989 Amended and Restated Stock Option Plan. The plan is nonqualified and provides that nonemployee directors and key employees may be granted options to purchase the Company's stock at the fair market value of the shares as determined by the Board of Directors. As of May 1995, all previously granted options to purchase the Bank's stock had been retired and exchanged for options to purchase CIB's stock, on a one-for-one option basis. All granted options must be exercised within the earlier of ten years of the date of grant, or within 30 days of termination of employment, or status as a director. Vesting is determined at the time of grant by the Board of Directors. Current participants vest over five years from date of employment.

    During 1996, the Company adopted the California Independent Bancorp 1996 Stock Option Plan ("1996 Plan"), which sets aside 149,052 shares of no par value common stock of CIB for which options may be granted to key, full-time salaried employees and officers of the Company, as well as nonemployee directors of the Company. The exercise price of all options to be granted under the 1996 Plan must be at least 100% of the fair market value of the Company's common stock on the granting date. Additionally, the options must be paid in full at the time the option is exercised in cash, shares of the Company's common stock with a fair value equal to the purchase price, or a combination thereof. Under the 1996 Plan, all options expire no more than ten years after the date of grant.

    During 2000, the Company adopted the California Independent Bancorp 2000 Stock Option Plan ("2000 Plan"), which sets aside 100,000 shares of no par value common stock of CIB. The 2000 Plan provides for the grant of Incentive Stock Options ("ISO") and Non-qualified Stock Options ("NQSO"), within the meaning of the Internal Revenue Code of 1986, as amended ("Code"), to employees, including directors and officers who are also employees of the Company. The 2000 plan also provides for other types of stock and option awards which may be granted to employees, officers and directors of the Company and its subsidiaries. Awards may also be granted to the Company's consultants, independent contractors, and advisors, provided they render bona fide services that are not in connection with the offer and sale of securities in a capital-raising transaction. Options granted may be exercised within the times or upon the events determined by the Stock Option Committee (the

49

"Committee") as set forth in the Award Agreement governing such option. However, no option will be exercisable after the expiration of one hundred twenty (120) months from the date the option is granted.

    The vesting of any option granted under the 2000 Plan will be determined by the Committee at its sole discretion. The exercise price of each NQSO granted pursuant to the 2000 Plan will be determined by the Committee, but may not be less than eighty five percent (85%) of the fair market value of the stock subject to the option on the date the option is granted. The exercise price of each ISO granted pursuant to the 2000 Plan will also be determined by the Committee, but may not be less than one hundred percent (100%) of the fair market value of shares on the grant date, unless the optionee owns 10% or more of the total combined voting power of the Company. In such event, the purchase price of the stock subject to the ISO may not be less than one hundred ten percent (110%) of the fair market value of shares on the grant date.

    Federal income tax benefits relating to options exercised under the plans have been credited to shareholders' equity. The Company accounts for these plans under Accounting Principals Board Opinion No. 25, under which no compensation cost is recognized upon issuance of options. Had compensation cost for these plans been determined consistent with SFAS 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:

		2000		1999		1998
Net Income From Continuing Operations:	As reported	$	2,675,866	$	1,595,155	$	2,722,695
	Pro forma		2,625,397		313,074		2,461,329
Basic EPS:	As reported		1.38		0.88		1.54
	Pro forma		1.36		0.17		1.40
Diluted EPS:	As reported		1.38		0.87		1.46
	Pro forma		1.35		0.17		1.32

    Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years.

    A summary of the status of the Company's three stock option plans at December 31, 2000, 1999, and 1998, and changes during the years then ended is presented in the table and narrative below.

	2000			1999			1998
Outstanding at Beginning of Year		344,457			245,766			223,171
Granted		110,002			248,577			42,638
Exercised		(14,695	)		(119,353	)		(19,543	)
Expired		(1,044	)		—			—
Forfeited		(41,161	)		(30,533	)		(500	)
Outstanding at End of Year		397,559			344,457			245,766
Exercisable at End of Year		309,551			282,489			243,561
Weighted Average Fair Value of Options Granted	$	7.70		$	7.48		$	9.03

    The options outstanding at December 31, 2000 have exercise prices between $7.55 and $28.50 and remaining contractual lives between 2 years and 9.75 years.

50

    The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2000, 1999, and 1998, respectively: weighted average risk-free interest rates of 6.08%, 5.46%, and 5.48%; weighted average expected dividend yields of 2.13%, 2.05%, and 1.77%. For all three years, the expected life used was seven years and the expected volatility used was 32.86%.

(13) Profit Sharing Plan and Employee Stock Ownership Plan:

    The Bank formed a 401(k) Qualified Savings Plan (the "Plan") effective August 1, 1993. All employees who have reached the age of 21 are eligible to participate following 90 days of employment. All eligible employees are 100% vested in their own contributions, which may be any whole percentage of pay between 2% and 15%, inclusive. Beginning January 1, 1995, the Bank made annual matching contributions, which were equal to 20% of each employee's elective contributions not exceeding 6% of pay. Contributions were invested with Lincoln National Life Insurance Company under employee directed investment options.

    Beginning January 2000, the Bank made annual matching contributions equal to 50% of each employee's elective contributions not exceeding 6% of pay. Of the matching contributions, 50% is applied in cash and 50% of the funds are applied to the purchase of CIB common stock. The Bank's matching contribution amounted to $127,211 in 2000, $40,000 in 1999, and $40,000 in 1998.

    The Bank formed an Employee Stock Ownership Plan (the "ESOP") effective January 1, 1988. Effective January 1, 1995, the ESOP was amended to recognize CIB and all of its employees as participants. All employees who have completed six months of service and have reached the age of 21 are eligible to participate in the ESOP. The ESOP provides for annual contributions at the discretion of the Board of Directors. The contributions are allocated based on the participants' compensation for the year. Employees vest ratably in the ESOP over six years. The ESOP borrowed $200,000 from a nonprofit corporation to acquire 8,125 shares of CIB common stock in May 2000. The borrowing is payable in five equal annual installments with interest at prime minus ¹/2%, which rate was 9.0% at December 31, 2000. The Bank made contributions to the ESOP of approximately $40,000 in each of the years 2000, 1999, and 1998.

(14) Financial Instruments with Off-Balance-Sheet Risk:

    The Bank makes commitments to extend credit in the normal course of business to meet the financing needs of its customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

    In the event of nonperformance by the borrower, the Bank is exposed to credit loss, in the contract amount of the commitment. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments and evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, is based on Management's credit evaluation of the borrower. Collateral held varies but may include certificates of deposit, accounts receivable, inventory, personal property and equipment, and real property.

51

    The Bank also issues standby letters of credit, that are unconditional commitments to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support construction bonds, private borrowing arrangements, and similar transactions. Most of these guarantees are short-term commitments expiring in 2000 and are not expected to be drawn upon. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral as deemed necessary, as described above.

    The contract amount of commitments not reflected on the balance sheet at December 31, 2000, were as follows:

Loan Commitments	$	53,198,514
Standby Letters Of Credit	$	220,000

    The Bank is obligated under a number of noncancelable operating leases for premises and equipment used for banking purposes. Minimum future rental commitments under noncancellable operating leases as of December 31, 2000 were as follows:

Lease Commitments
2001	$	111,742
2002		139,010
2003		141,360
2004		144,283
2005		147,336
Thereafter		140,879
	$	824,610

    Rent under operating leases was approximately $53,004, $179,201, and $180,944 in 2000, 1999, and 1998, respectively.

(15) Related Party Transactions:

    The Bank has had loan and deposit transactions and has contracted for services with certain officers and directors and the companies with which they are associated. In the opinion of Management and the Board of Directors, all such loans, commitments to lend, and contracts for services were made under terms that are consistent with the Bank's normal policies. Loan transactions with these officers and directors for the years ended December 31, 2000 and 1999, respectively, were as follows:

	2000			1999
Loan Balances—Beginning of Year	$	6,215,421		$	4,375,296
Additions		4,869,767			8,929,977
Collections		(1,499,472	)		(7,089,852	)
Reclassification to Third Party Loans		(3,385,110	)		—
End of Year	$	3,177,423		$	6,215,421

    The Bank had loans outstanding to a director of the Bank and his associates in excess of 5% of shareholders' equity. The total principal balance of the loans to this director was approximately $2,765,482 and $1,904,450 at December 31, 2000 and 1999, respectively.

52

(16) California Independent Bancorp Financial Statements (Parent Only):

		December 31,
		2000			1999
		(Dollars in thousands)
Balance Sheet-
Assets:
	Cash and Due From Banks	$	56		$	21
	Investment in Subsidiaries		25,621			23,109
	Other Assets		95			105
	Total Assets	$	25,772		$	23,235
Liabilities and Shareholders' Equity:
	Liabilities	$	2		$	—
	Shareholders' Equity		25,770			23,235
	Total Liabilities and Shareholders' Equity	$	25,772		$	23,235
Statements of Income-
Administrative Expense		$	127		$	127
Other Expense			89			96
Loss Before Equity in Net Income of Subsidiaries			216			223
Equity in Net Income (Loss) of Subsidiaries:
	Distributed		1,010			909
	Undistributed		1,837			(175	)
Income Tax Benefit			89			93
Net Income		$	2,720		$	604
Statements of Cash Flows-
Operating Activities:
	Net Income	$	2,720		$	604
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities-
(Deficit) Equity in Net Income of Subsidiaries			(1,837	)		175
Increase (Decrease) in Other Operating Assets			10			(3	)
Increase in Other Operating Liabilities			2			—
	Net Cash Provided by Operating Activities		895			776
Financing Activities:
	Dividends Paid		(860	)		(809	)
	Net Cash Used in Financing Activities		(860	)		(809	)
	Increase (Decrease) Increase in Cash and Cash Equivalents		35			(33	)
Cash and Cash Equivalents, Beginning of Year			21			54
Cash and Cash Equivalents, End of Year		$	56		$	21

53

(17) Quarterly Statements of Operations:

    The following information is unaudited. However, in the opinion of Management, all adjustments, which include only normal recurring adjustments necessary to present fairly the results of operations for such periods, are reflected. Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further explanation of results of operations.

Quarterly Statements of Operations

	2000 Quarter Ended (Unaudited)
	March 31		June 30		September 30			December 31
	(Dollar amounts in thousands, except per share data)
Interest Income	$	5,684	$	5,816	$	6,044		$	5,991
Interest Expense		2,242		2,260		2,520			2,448
Net Interest Income		3,442		3,556		3,524			3,543
Provision for Loan and Lease Losses		150		50		—			—
Net Interest Income After Provision for Loan and Lease Losses		3,292		3,506		3,524			3,543
Noninterest Income		738		497		726			708
Noninterest Expense		2,931		2,914		2,935			3,435
Income Before Income Taxes		1,099		1,089		1,315			816
Provision for Income Taxes		419		403		496			325
Net Income From Continuing Operations		680		686		819			491
Gain (Loss) on Disposal of Subsidiary and Discontinued Operations		—		20		(17	)		41
Net Income	$	680	$	706	$	802		$	532
Basic Earnings Per Share From Continuing Operations	$	0.35	$	0.36	$	0.41		$	0.26
Diluted Earnings Per Share From Continuing Operations		0.35		0.36		0.41			0.26
Weighted Average Shares Outstanding—Basic		1,904,802		1,905,706		1,924,711			2,008,761

	1999 Quarter Ended (Unaudited)
	March 31		June 30			September 30			December 31
	(Dollar amounts in thousands, except per share data)
Interest Income	$	5,831	$	5,733		$	5,820		$	5,895
Interest Expense		2,055		2,039			2,244			2,235
Net Interest Income		3,776		3,694			3,576			3,660
Provision for Loan and Lease Losses		550		250			50			150
Net Interest Income After Provision for Loan and Lease Losses		3,226		3,444			3,526			3,510
Noninterest Income		646		586			687			645
Noninterest Expense		3,110		3,493			3,500			3,707
Income Before Income Taxes		762		537			713			448
Provision for Income Taxes		279		194			254			138
Net Income From Continuing Operations		483		343			459			310
Gain (Loss) on Disposal of Subsidiary and Discontinued Operations		1		(7	)		(63	)		(922	)
Net Income (Loss)	$	484	$	336		$	396		$	(612	)
Basic Earnings Per Share From Continuing Operations	$	0.28	$	0.19		$	0.25		$	0.16
Diluted Earnings Per Share From Continuing Operations		0.27		0.19			0.25			0.16
Weighted Average Shares Outstanding—Basic		1,747,213		1,792,691			1,841,000			1,903,362

Continued on next page

54

	1998 Quarter Ended (Unaudited)
	March 31		June 30		September 30		December 31
	(Dollar amounts in thousands, except per share data)
Interest Income	$	5,964	$	6,330	$	6,553	$	5,953
Interest Expense		2,172		2,191		2,368		2,100
Net Interest Income		3,792		4,139		4,185		3,853
Provision for Loan and Lease Losses		396		290		754		806
Net Interest Income After Provision for Loan and Lease Losses		3,396		3,849		3,431		3,047
Noninterest Income		761		934		1,014		745
Noninterest Expense		2,966		3,522		3,390		2,973
Income Before Income Taxes		1,191		1,261		1,055		819
Provision for Income Taxes		438		476		393		297
Net Income From Continuing Operations		753		785		662		522
Gain on Disposal of Subsidiary and Discontinued Operations		58		65		18		17
Net Income	$	811	$	850	$	680	$	539
Basic Earnings Per Share From Continuing Operations	$	0.43	$	0.45	$	0.38	$	0.29
Diluted Earnings Per Share From Continuing Operations		0.41		0.43		0.36		0.27
Weighted Average Shares Outstanding—Basic		1,733,688		1,735,796		1,752,835		1,830,090

(18) Regulatory Matters:

    CIB and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on CIB's and the Bank's financial statements. Pursuant to capital adequacy guidelines and the regulatory framework for prompt corrective action, CIB and the Bank must meet specific capital guidelines that involve quantitative measures of CIB's and the Bank's assets, liabilities, and certain off-balance-sheet items as calculated pursuant to regulatory accounting practices. CIB and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

    Quantitative measures established by regulation to ensure capital adequacy require CIB and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital ("Total Risk-Based"), and Tier 1 capital ("Tier 1 Risk-Based") (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital ("Tier 1 Leverage Ratio") (as defined) to average assets (as defined). Management believes, as of December 31, 2000, that CIB and the Bank met all capital adequacy requirements to which they are subject.

    As of December 31, 2000, the most recent notification from the FDIC 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 Risk-Based, Tier 1 Risk-Based and Tier 1 Leverage Ratios as set forth in the table. There are no conditions or events since that notification that Management believes have changed the institution's category.

    CIB and the Bank's actual capital amounts and ratios are also presented in the table:

55

		Actual				For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
		Amount		Ratio		Amount		Ratio			Amount		Ratio
		(Dollar amounts in thousands, except ratio data)
As of December 31, 2000:
Total Risk-Based Capital:
	California Independent Bancorp	$	28,509	12.77	%	GREATER THAN OR EQUAL TO	17,856	GREATER THAN OR EQUAL TO	8.00	%	GREATER THAN OR EQUAL TO	22,320	GREATER THAN OR EQUAL TO	10.00	%
	Feather River State Bank		28,357	12.72	%	GREATER THAN OR EQUAL TO	17,835	GREATER THAN OR EQUAL TO	8.00	%	GREATER THAN OR EQUAL TO	22,294	GREATER THAN OR EQUAL TO	10.00	%
Tier I Risk-Based Capital:
	California Independent Bancorp		25,683	11.51	%	GREATER THAN OR EQUAL TO	8,928	GREATER THAN OR EQUAL TO	4.00	%	GREATER THAN OR EQUAL TO	13,392	GREATER THAN OR EQUAL TO	6.00	%
	Feather River State Bank		25,534	11.45	%	GREATER THAN OR EQUAL TO	8,918	GREATER THAN OR EQUAL TO	4.00	%	GREATER THAN OR EQUAL TO	13,376	GREATER THAN OR EQUAL TO	6.00	%
Tier I Leverage Ratio:
	California Independent Bancorp		25,683	8.49	%	GREATER THAN OR EQUAL TO	12,093	GREATER THAN OR EQUAL TO	4.00	%	GREATER THAN OR EQUAL TO	15,117	GREATER THAN OR EQUAL TO	5.00	%
	Feather River State Bank		25,534	8.45	%	GREATER THAN OR EQUAL TO	12,090	GREATER THAN OR EQUAL TO	4.00	%	GREATER THAN OR EQUAL TO	15,112	GREATER THAN OR EQUAL TO	5.00	%

As of December 31, 1999:
Total Risk-Based Capital:
	California Independent Bancorp	$	27,046	11.81	%	GREATER THAN OR EQUAL TO	18,316	GREATER THAN OR EQUAL TO	8.00	%	GREATER THAN OR EQUAL TO	22,895	GREATER THAN OR EQUAL TO	10.00	%
	Feather River State Bank		26,918	11.76	%	GREATER THAN OR EQUAL TO	18,306	GREATER THAN OR EQUAL TO	8.00	%	GREATER THAN OR EQUAL TO	22,883	GREATER THAN OR EQUAL TO	10.00	%
Tier I Risk-Based Capital:
	California Independent Bancorp		24,184	10.56	%	GREATER THAN OR EQUAL TO	9,158	GREATER THAN OR EQUAL TO	4.00	%	GREATER THAN OR EQUAL TO	13,737	GREATER THAN OR EQUAL TO	6.00	%
	Feather River State Bank		24,058	10.51	%	GREATER THAN OR EQUAL TO	9,153	GREATER THAN OR EQUAL TO	4.00	%	GREATER THAN OR EQUAL TO	13,730	GREATER THAN OR EQUAL TO	6.00	%
Tier I Leverage Ratio:
	California Independent Bancorp		24,184	7.97	%	GREATER THAN OR EQUAL TO	12,134	GREATER THAN OR EQUAL TO	4.00	%	GREATER THAN OR EQUAL TO	15,167	GREATER THAN OR EQUAL TO	5.00	%
	Feather River State Bank		24,058	7.94	%	GREATER THAN OR EQUAL TO	12,125	GREATER THAN OR EQUAL TO	4.00	%	GREATER THAN OR EQUAL TO	15,157	GREATER THAN OR EQUAL TO	5.00	%

56

(19) Future Financial Accounting Standards:

    In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 138, which is effective for fiscal years beginning after June15, 2000. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company will adopt this statement on January1, 2001, and does not expect that it will have a material impact on its financial position or results of operations.

57

CALIFORNIA INDEPENDENT BANCORP, FEATHER RIVER STATE BANK AND SUBSIDIARY,
DIRECTORS AND MANAGEMENT TEAM

California Independent Bancorp and Feather River State Bank Directors		California Independent Bancorp Management
David A. Offutt Chairman of the Board President, Offutt, Shephard & Haven Attorneys-at-Law John L. Dowdell President/CEO, Dowdell Financial Services Harold M. Eastridge President, Trident Investment Corporation Real Estate Development William H. Gilbert Partner, Gilbert Orchards, Walnut Grower Larry D. Hartwig President/Chief Executive Officer California Independent Bancorp President/Chief Executive Officer Feather River State Bank John I. Jelavich Retired, Banker/Investor Donald H. Livingstone Teaching Professor, Brigham Young University Marriott School of Business	Alfred G. Montna Owner, Montna Farms William K. Retzer Chairman/CEO, Examen, Inc. Michael C. Wheeler President and General Manager, Wheeler Chevrolet-Oldsmobile-Cadillac Directors Emeritus Charles M. Lewis Vice President, Federal Agricultural Mortgage Corporation (Farmer Mac) Dale L. Green Chief Financial Officer, Dale L. Green, Inc. Contractor Lawrence Harris Walnut Grower, Consulting Civil Engineer Ross D. Scott Owner, Scott Center, Physical Therapist Louis F. Tarke Partner, Tarke Brothers & Anderson Walnut and Rice Grower	Larry D. Hartwig President/Chief Executive Officer Robert J. Lampert Chief Financial Officer/ Corporate Secretary Feather River State Bank Managing Committee Larry D. Hartwig President/Chief Executive Officer Robert J. Lampert Executive Vice President/Chief Operating Officer Don R. McDonel Executive Vice President/Commercial and Retail Banking Kenneth M. Anderson Senior Vice President/ Branch Services Blaine C. Lauhon Senior Vice President/ Chief Lending Officer Douglas R. Marr Senior Vice President/ Chief Credit Officer	Douglas R. Marr Assistant Corporate Secretary Julie Shackleford Assistant Corporate Secretary Financial Information and Media Contact Analysts, stockholders and other investors seeking financial information about California Independent Bancorp or any of its subsidiaries, or news media seeking general information, should contact: Investor Relations Department Robert J. Lampert P.O. Box 929002 Yuba City, CA, 95992 (530) 674-6025 or (800) 258-4334 Certified Public Accountants/Auditors Arthur Andersen LLP Sacramento, CA Legal Counsel Weintraub, Genshlea, Chediak, and Sproul Sacramento, CA

58

CALIFORNIA INDEPENDENT BANCORP AND
FEATHER RIVER STATE BANK

BRANCHES AND OFFICES

For information Call (530) 674-6025 or (800) 258-4334

	YUBA CITY, CA		COLUSA, CA
1.	Bridge Street Branch	6.	Colusa Branch
	1221 Bridge Street		655 Fremont Street
2.	Colusa Avenue Branch
	777 Colusa Avenue		MARYSVILLE, CA
		7.	Marysville Branch
3.	Consumer Loan Center		700 E Street
	995 Tharp Rd.
4.	Administrative Office		ROSEVILLE, CA
	CIB/FRSB Corporate Headquarters	8.	Roseville Loan Center
	1227 Bridge Street, Suite C		1552 Eureka Road, Suite
	ARBUCKLE, CA		WHEATLAND, CA
5.	Arbuckle Branch	9.	Wheatland Branch
	540 Amanda Street		114 D Street
			WOODLAND, CA
		10.	Woodland Branch
			203 Main Street

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Table of Contents
Corporate Profile
ENTERING A NEW MILLENNIUM WITH TRADITIONAL BANKING VALUES.
Shareholder Information
Financial Highlights
CALIFORNIA INDEPENDENT BANCORP & SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31,
Letter to the Shareholders
THE NEW MILLENNIUM CONTINUES
Management's Discussion and Analysis
Management's Discussion and Analysis
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000
CALIFORNIA INDEPENDENT BANCORP, FEATHER RIVER STATE BANK AND SUBSIDIARY, DIRECTORS AND MANAGEMENT TEAM
CALIFORNIA INDEPENDENT BANCORP AND FEATHER RIVER STATE BANK BRANCHES AND OFFICES For information Call (530) 674-6025 or (800) 258-4334

EX-23

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EXHIBIT 23

ARTHUR ANDERSEN LLP

Consent of Independent Public Accountants

    As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements File No. 333-09813 and 333-09823.

Arthur Andersen LLP

Sacramento, California
March 20, 2001

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Consent of Independent Public Accountants