Overview

Certain matters discussed or incorporated by reference in this Quarterly Report of Form 10-Q are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, but are not limited to, those described in Management's Discussion and Analysis of Financial Condition and Results of Operations. Such risks and uncertainties include, but are not limited to, the following factors: i) competitive pressures in the banking industry and changes in the regulatory environment; ii) exposure to changes in the interest rate environment and the resulting impact on the Company's interest rate sensitive assets and liabilities; iii) decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of the Company's loans; iv) credit quality deterioration that could cause an increase in the provision for loan losses; v) Asset/Liability matching risks and liquidity risks; volatility and devaluation in the securities markets, and vi) expected cost savings from recent acquisitions are not realized. Therefore, the information set forth therein should be carefully considered when evaluating the business prospects of the Company. For additional information concerning risks and uncertainties related to the Company and its operations, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2007.

The Company currently has eleven banking branches, which provide financial services in Fresno, Madera, Kern, and Santa Clara counties in the state of California.

Trends Affecting Results of Operations and Financial Position

The following table summarizes the nine-month and year-to-date averages of the
components of interest-bearing assets as a percentage of total interest-bearing
assets and the components of interest-bearing liabilities as a percentage of
total interest-bearing liabilities:

                                            YTD Average     YTD Average     YTD Average
                                              9/30/08        12/31/07         9/30/07
Loans and Leases                                   84.28 %         85.00 %         84.45 %
Investment securities available for sale           14.58 %         13.46 %         13.74 %
Interest-bearing deposits in other banks            1.04 %          1.02 %          1.15 %
Federal funds sold                                  0.10 %          0.52 %          0.66 %
Total earning assets                              100.00 %        100.00 %        100.00 %

NOW accounts                                        8.04 %          8.82 %          9.01 %
Money market accounts                              23.47 %         25.99 %         27.08 %
Savings accounts                                    7.62 %          8.79 %          9.14 %
Time deposits                                      45.74 %         50.05 %         48.44 %
Other borrowings                                   12.78 %          3.40 %          3.19 %
Subordinated debentures                             2.35 %          2.95 %          3.14 %
Total interest-bearing liabilities                100.00 %        100.00 %        100.00 %

The Company's overall operations are impacted by a number of factors, including not only interest rates and margin spreads, which impact results of operations, but also the composition of the Company's balance sheet. One of the primary strategic goals of the Company is to maintain a mix of assets that will generate a reasonable rate of return without undue risk, and to finance those assets with a low-cost and stable source of funds. Liquidity and capital resources must also be considered in the planning process to mitigate risk and allow for growth.

Continued weakness in the real estate markets and the general economy have impacted the Company's operations during 2008 although, the Company continues its business development and expansion efforts throughout a diverse market area.

With market rates of interest declining 100 basis points during the fourth quarter of 2007, and another 225 basis points during the first nine months of 2008, the Company has experienced continued declines in its net interest margin. The Company's net interest margin was 4.44% for the nine months ended September 30, 2008, as compared to 5.35% for the year ended December 31, 2007, and 5.50% for the nine months ended September 30, 2007. With approximately 64% of the loan portfolio in floating rate instruments at September 30, 2008, the effects of market rates continue to be realized almost immediately on loan yields. Loans yielded 7.04% during the nine months ended September 30, 2008, as compared to 9.07% for the year ended December 31, 2007, and 9.28% for the nine months ended September 30, 2007. With a significant increase in nonaccrual loans during the first nine months of 2008, the Company reversed approximately $755,000 in interest income during the period, reducing the loan yield by approximately 17 basis points during the first nine months of 2008. Loan yield was enhanced during 2007, as a nonperforming loan was paid off during the first quarter of 2007, providing an additional $825,000 in previously unrecognized interest income that would not have otherwise been recognized during 2007, and an enhancement to loan yield of approximately 19 basis points for the nine months ended September 30, 2007 and 14 basis points for the year ended December 31, 2007. With market rates of interest declining so rapidly during the past four quarters, deposit repricing has been slow to follow loan repricing, as deposit rate changes tend to lag the market, while floating-rate loans reprice immediately. While deposit rates have declined, the Company continues to experience pricing pressures on deposits, especially money market accounts and time deposits, as increased competition for deposits continues throughout the Company's market area. The Company's average cost of funds was 2.95% for the nine months ended September 30, 2008 as compared to 3.91% for the year ended December 31, 2007, and 3.90% for the nine months ended September 30, 2007.

Total noninterest income of $5.6 million reported for the nine months ended September 30, 2008 decreased $1.9 million or 25.3% as compared to the nine months ended September 30, 2007, primarily as the result of changes in SFAS No. 159 fair market value adjustments between the two nine-month periods on the Company's junior subordinated debt. Noninterest income continues to be driven by customer service fees, which totaled $3.6 million for the nine months ended September 30, 2008, representing an increase of $51,000 or 1.5% over the $3.5 million in customer service fees reported for the nine months ended September 30, 2007. Customer service fees represented 63.0% and 46.4% of total noninterest income for the nine-month periods ended September 30, 2008 and 2007, respectively.

Noninterest expense increased approximately $1.0 million or 6.4% between the nine-month periods ended September 30, 2007 and September 30, 2008. An impairment loss on the Company's core deposit intangible asset related to the Legacy Bank merger totaled $624,000 or 61.4% of the increase in noninterest expense experienced during the first nine months of 2008. Other components of the increase experienced during 2008 were employee salary and benefit costs, including additional employee costs associated with the new financial services department, increased occupancy expense, and increased expenses related to other real estate owned through foreclosure. Professional fees declined $192,000 or 15.4% between the nine-month periods ended September 30, 2007 and September 30, 2008 as the result of reductions in corporate legal fees between the two periods.

On September 23, 2008, the Company's Board of Directors declared a one-percent (1%) stock dividend on the Company's outstanding common stock. The stock dividend for the third quarter of 2008 replaces the normal quarterly cash dividend and reflects a similar value. Although the Company's capital position remains strong, the change in the dividend from cash to stock was employed as a precaution against uncertainties in the 1-4 family residential real estate market and the potential impact on the Company's construction and related land and lot loan portfolio. The Company believes, given the current uncertainties in the economy and unprecedented declines in real estate valuations in our markets, it is prudent to retain capital in this environment, and better position the Company for future growth opportunities. Based upon the number of outstanding common shares on the record date of October 10, 2008, an additional 117,732 shares were issued to shareholders on October 22, 2008. For purposes of earnings per share calculations, the Company's weighted average shares outstanding and potentially dilutive shares used in the computation of earnings per share have been restated after giving retroactive effect to a 1% stock dividend to shareholders for all periods presented.

The Company has maintained a strong, yet conservative balance sheet during the nine months ended September 30, 2008 with only minor increases in loans during the period. Total assets increased approximately $16.3 million during the nine months ended September 30, 2008, with increases of $19.1 million in investment securities and interest-bearing deposits in other banks offsetting decreases in cash and due from banks. With increased average loan volume during 2008, average loans comprised approximately 84% of overall average earning assets during the nine months ended September 30, 2008.

Nonperforming assets increased during the quarter ended September 30, 2008 as real estate markets continue to suffer from the mortgage crisis which began during mid-2007. Nonaccrual loans increased $11.1 million from the balance reported at June 30, 2008, and increased $33.5 million from the balance reported at December 31, 2007, to a balance of $55.1 million at September 30, 2008. This increase in nonaccrual loans during the quarter was almost exclusively in construction loans. In determining the adequacy of the underlying collateral related to theses loans, management monitors trends within specific geographical areas, loan-to-value ratios, appraisals, and other credit issues related to the specific loans. Impaired loans increased $33.0 million during the nine months ended September 30, 2008 and increased $12.9 million during the third quarter of 2008 to a balance of $53.7 million at September 30, 2008. Other real estate owned through foreclosure increased $1.1 million between December 31, 2007 and September 30, 2008, as five properties were moved through foreclosure proceedings when all other means of collection failed. One of those foreclosed properties totaling $1.6 million was subsequently sold during the second quarter of 2008. As a result of these events, nonperforming assets as a percentage of total assets increased from 3.66% at December 31, 2007 to 7.96% at September 30, 2008.

Management continues to monitor economic conditions in the real estate market for signs of further deterioration or improvement which may impact the level of the allowance for loan losses required to cover identified losses in the loan portfolio. Increased charge-offs and additional loan loss provisions made during the nine months ended September 30, 2008 impacted earnings during the third quarter of 2008, but the provisions made to the allowance for credit loses, totaling $265,000, $548,000, and $6.4 million during the first, second, and third quarters of 2008, respectively, are adequate to cover inherent losses in the loan portfolio. Loan and lease charge-offs totaling $1.5 million during the quarter ended September 30, 2008 included the charge-off of a single unsecured commercial loan relationship totaling $1.2 million.

Deposits decreased by $32.3 million during the nine months ended September 30, 2008, as brokered deposits of $100,000 or more matured and were replaced with less costly borrowings from the Company's FHLB lines of credit or from the Federal Reserve Discount Window. In total, average core deposits, including NOW accounts, money market accounts, and savings accounts, continue to comprise a high percentage of total interest-bearing liabilities for the nine months ended September 30, 2008, as brokered time deposits have been allowed to run off as they matured during 2008.

The Company has increasingly utilized its overnight borrowing and other term credit lines, with borrowings totaling $86.8 million at September 30, 2008 as compared to $32.3 million at December 31, 2007. The Company increased its use of FHLB term credit lines during the first nine months of 2008, with one-to-two year fixed-rate borrowings totaling $28.0 million at September 30, 2008, as compared to $10.0 million in a single two year fixed rate note at December 31, 2007. The average rate of those term borrowings was 3.43% at September 30, 2008 as compared to 4.92% at December 31, 2007, representing a cost reduction of 149 basis points during the first nine months of 2008. Overnight borrowings have increased significantly during 2008, as maturing brokered deposits were replaced with less expensive overnight borrowings through the Federal Reserve Discount window. Although the Company has realized significant interest expense reductions by utilizing these overnight borrowings lines, the use of such lines are monitored closely to ensure sound balance sheet management in light of the current economic and credit environment.

The cost of the Company's subordinated debentures issued by USB Capital Trust II has declined as market rates of interest have fallen during the nine months ended September 30, 2008. With pricing at 3-month-LIBOR plus 129 basis points, the effective cost of the subordinated debt was 4.14% at September 30, 2008, representing a rate reduction of 247 basis points between December 31, 2007 and September 30, 2008. As a result of interest rate changes experienced during the first nine months of 2008 in relation to market spreads for junior subordinated debentures, the Company recorded an additional $464,000 pretax fair value gain on its junior subordinated debt bring the total cumulative gain recorded on the debt to $2.8 million at September 30, 2008.

The Company continues to emphasize relationship banking and core deposit growth, and has focused greater attention on its market area of Fresno, Madera, and Kern Counties, as well as Campbell, in Santa Clara County. The San Joaquin Valley and other California markets have shown weaker demand for construction lending and commercial lending from small and medium size businesses, as commercial and residential real estate markets declined during 2007 and throughout the first nine months of 2008. The first nine months of 2008 have presented significant challenges for the banking industry with tightening credit markets, weakening real estate markets, and increased loan losses adversely affecting the industry.

The Company continually evaluates its strategic business plan as economic and market factors change in its market area. Growth and increasing market share will be of primary importance during 2008 and beyond. The banking industry is currently experiencing continued pressure on net margins as well as asset quality resulting from conditions in the sub-prime real estate market, and a general deterioration in credit markets. As a result, market rates of interest and asset quality will continue be an important factor in the Company's ongoing strategic planning process.

Results of Operations

For the nine months ended September 30, 2008, the Company reported net income of $3.2 million or $0.27 per share ($0.27 diluted) as compared to $10.6 million or $0.88 per share ($0.87 diluted) for the nine months ended September 30, 2007. For the quarter ended September 30, 2008, the Company reported a net loss of $1.3 million or $0.11 per share as compared to net income of $3.7 million or $0.30 per share ($0.30 diluted) for the quarter ended September 30, 2007. The net loss reported during the third quarter of 2008 was primarily the result of additional provisions for loan losses totaling $6.4 million made during the period.

The Company's return on average assets was 0.56% for the nine-month period ended September 30, 2008 as compared to 1.87% for the nine-month period ended September 30, 2007. The Bank's return on average equity was 5.18% for the nine months ended September 30, 2008 as compared to 17.43% for the same nine-month period of 2007.

Net Interest Income

Net interest income before provision for credit losses totaled $23.1 million for the nine months ended September 30, 2008, representing a decrease of $4.6 million, or 16.7% when compared to the $27.8 million reported for the same nine months of the previous year. The decrease in net interest income between 2007 and 2008 is primarily the result of decreased yields on interest-earning assets, which more than offset increases in volumes of earning assets, as well as decreases in the Company's cost of interest-bearing liabilities.

The Bank's net interest margin, as shown in Table 1, decreased to 4.44% at September 30, 2008 from 5.50% at September 30, 2007, a decrease of 106 basis point (100 basis points = 1%) between the two periods. Average market rates of interest have decreased significantly between the nine-month periods ended September 30, 2007 and 2008. The prime rate averaged 5.43% for the nine months ended September 30, 2008 as compared to 8.23% for the comparative nine months of 2007.