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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

BUSINESS BANCORP
(Name of small business issuer in its charter)

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, no par value

Preferred Share Purchase Rights
(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 ý    No o

        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. ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o    No ý

        The aggregate market value of the Common Stock held by non-affiliates, based upon the closing sale price of the Common Stock on June 28, 2002 as reported on the Nasdaq National Market System, was approximately $37,091,240. Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. Such determination of affiliate status is not necessarily a conclusive determination for other purposes. The Registrant has no non-voting common stock.

        At March 14, 2003, 3,937,389 shares of the Registrant's Common Stock were outstanding.

Documents Incorporated by Reference:

        The information required to be furnished pursuant to Part III of this Form 10-K will be set forth in, and incorporated by reference from, the registrant's definitive proxy statement for the annual meeting of stockholders to be held May 22, 2003, which definitive proxy statement will be filed by the issuer with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year ended December 31, 2002.

TABLE OF CONTENTS

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PART I

        Discussions of certain matters contained in this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and as such, may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which Business Bancorp operates, projections of future performance, perceived opportunities in the market and statements regarding our mission and vision. Our actual results, performance and achievements may differ materially from the results, performance and achievements expressed or implied in such forward-looking statements. For a discussion of some of the factors that might cause such a difference, see "Item 1. Description of Business—Factors That May Affect Future Results of Operations". We do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of those statements.

Item 1. Description of Business

Business Bancorp

        Business Bancorp ("BB", on a parent-only basis, and "we" or "our", on a consolidated basis) is a bank holding company with one bank subsidiary, Business Bank of California (the "Bank"). Business Capital Trust I, which is a Delaware statutory trust, and MCB Statutory Trust I, which is a Connecticut statutory trust, are subsidiaries of Business Bancorp. These trusts were formed for the exclusive purpose of issuing and selling trust preferred securities.

        We provide a wide range of commercial banking services to small and medium-sized businesses, real estate developers, property managers, business executives, professionals and other individuals. We operate throughout the San Francisco Bay Area and Southern California's Inland Empire with fifteen offices located in Corona, Hayward, Hemet, Hesperia, Ontario, Petaluma, Phelan, Redlands, Riverside, San Bernardino, San Francisco, San Rafael, South San Francisco and Upland.

        At December 31, 2002, we had total assets of $630.9 million, total loans of $378.1million and total deposits of $530.8 million.

History

        BB is a California corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and is headquartered in San Rafael, CA. BB was incorporated in October, 1999 and acquired all of the outstanding shares of the Bank in January, 2000.

        On December 31, 2001, we completed our merger of equals with MCB Financial Corporation ("MCB"). Under the terms of the merger agreement, MCB shareholders received 1.1763 shares of our stock in exchange for each share of MCB stock they owned. The merger with MCB increased our assets by approximately 63.4%.

        The Bank is a California state-chartered commercial bank which was incorporated under the laws of the State of California on June 15, 1983, and opened for business in April, 1984. The Bank's administrative office is located at 321 E. Sixth Street, Corona, CA 92879. The Bank was originally incorporated under the name Bank of San Bernardino and changed its name to Business Bank of California in August, 1996.

        On August 31, 2000, the Bank completed the acquisition of Valley Merchants Bank, N.A. ("VMB"), for an aggregate purchase price of $12.2 million, pursuant to a two-step transaction in which VMB was ultimately merged with and into the Bank. VMB's sole office, in Hemet, became the Hemet Office of the Bank.

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        Both the VMB and MCB transactions were accounted for using the purchase method of accounting.

Corporate Growth Strategy

        Our primary goal is to build a first-class, state-wide, middle-market business bank. Our primary strategy is to focus on increasing our market share through continued internal growth, the opening of de novo branches and the acquisition of other emerging business banks in California.

Banking Services

        The Bank is a community bank conducting a general commercial banking business. Each of its branch offices is a full service office offering a wide range of commercial banking services. The Bank provides numerous deposit products, including demand deposit accounts, money market accounts, savings accounts, super now accounts and time certificates of deposit. The Bank makes various types of commercial, installment and real estate loans, including the origination of government-guaranteed Small Business Administration Loans ("SBA Loans"). In addition, the Bank provides safe deposit, collection, travelers checks, notary public and other customary non-deposit banking services. The Bank also offers electronic "home banking" through its "EZ Banker" program and maintains an Internet web site (www.businessbank.com) for its customers. Other services offered include ATM machines located at branch offices, customer access to an ATM network, and armored carrier and courier services. The Bank does not offer trust services, however, it has arranged with a correspondent institution to offer trust services to the Bank's customers upon request. The Bank also does not offer international banking services although such services are offered indirectly through correspondent institutions.

Market Area

        The Bank concentrates on marketing its services to small and medium-sized businesses, professionals and individuals primarily in the counties of Alameda, Marin, Riverside, San Bernardino, San Francisco, San Mateo, and Sonoma.

Competition

        The banking business in California generally, and specifically in the Bank's market areas, is highly competitive with respect to virtually all products and services and has become increasingly so in recent years. The industry continues to consolidate, and strong, unregulated competitors have entered banking markets with focused products targeted at highly profitable customer segments. Many largely unregulated competitors are able to compete across geographic boundaries and provide customers increasing access to meaningful alternatives to banking services in nearly all significant products. These competitive trends are likely to continue.

        With respect to commercial bank competitors, the business is largely dominated by a relatively small number of major banks with many offices operating over a wide geographical area, which banks have, among other advantages, the ability to finance wide-ranging and effective advertising campaigns and to allocate their investment resources to regions of highest yield and demand. Many of the major banks operating in the area offer certain services which the Bank does not offer directly (but some of which the Bank offers through correspondent institutions). By virtue of their greater total capitalization, such banks also have substantially higher lending limits than does the Bank.

        In addition to other banks, competitors include savings institutions, credit unions, and numerous non-banking institutions, such as finance companies, leasing companies, insurance companies, brokerage firms, and investment banking firms. In recent years, increased competition has also developed from specialized finance and non-finance companies that offer money market and mutual funds, wholesale finance, credit card, and other consumer finance services, including on-line banking services and personal finance software. Strong competition for deposit and loan products affects the rates of those products as well as the terms on which they are offered to customers. Mergers between financial

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institutions have placed additional pressure on banks within the industry to streamline their operations, reduce expenses, and increase revenues to remain competitive. Competition has also intensified due to federal and state interstate banking laws, which permit banking organizations to expand geographically, and the California market has been particularly attractive to out-of-state institutions.

        Technological innovations have also resulted in increased competition in the financial services market. Such innovations have, for example, made it possible for non-depository institutions to offer customers automated transfer payment services that previously have been considered traditional banking products. In addition, many customers now expect a choice of several delivery systems and channels, including telephone, mail, home computer, ATM's, self-service branches, and/or in-store branches. In addition to other banks, the sources of competition for such products include savings associations, credit unions, brokerage firms, money market and other mutual funds, asset management groups, finance and insurance companies, and mortgage banking firms.

        In order to compete effectively, the Bank provides quality, personalized service and fast, local decision making which its major bank competitors are generally unable to offer. For customers whose loan demands exceed the Bank's lending limit, the Bank attempts to arrange for such loans on a participation basis with other financial institutions. The Bank also assists customers requiring services not offered by the Bank in obtaining such services from its correspondent banks.

Employees

        As of December 31, 2002, we had a total of 211 full-time equivalent employees. None of our employees are currently represented by a union or covered by a collective bargaining agreement. We believe that our employee relations are satisfactory.

Supervision and Regulation

General

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

BB

        Since BB is a registered bank holding company, BB and its bank subsidiary is subject to the Federal Reserve Board's supervision, regulation and examination under the BHC Act of 1956, as amended.

        BB is required by the Federal Reserve to maintain certain levels of capital. See "—Capital Standards, below."

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

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        BB is also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, BB and its bank subsidiary is subject to examination by, and may be required to file reports with, the California Department of Financial Institutions.

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

The Bank

        The Bank is a California chartered bank and a member of the Federal Reserve. The Bank is subject to primary supervision, periodic examination, and regulation by the Department of Financial Institutions ("the DFI") and the Federal Reserve and is also subject to regulations of the FDIC.

        If, as a result of a bank examination, the Federal Reserve should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the bank's operations are unsatisfactory or that the bank or its management is violating or has violated any law or regulation, various remedies are available to these regulatory agencies. 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 for a California chartered bank would result in a revocation of the bank's charter. The DFI has many of the same remedial powers.

        Various requirements and restrictions under the laws of California and the United States affect the Bank's operations. State and federal statutes and regulations relate to many aspects of the Bank's operations, including reserves against deposits, ownership of deposit accounts, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, capital requirements, and disclosure of obligations to depositors and borrowers. Further, the Bank is required to maintain certain levels of capital. See "—Capital Standards."

The Sarbanes-Oxley Act of 2002

        On July 30, 2002, President Bush signed into law The Sarbanes-Oxley Act of 2002. This new legislation addresses accounting oversight and corporate governance matters, including:

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the creation of a five-member oversight board appointed by the Securities & Exchange Commission that will set standards for accountants and have investigative and disciplinary powers;



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the prohibition of accounting firms from providing various types of consulting services to public clients and requiring accounting firms to rotate partners among public client assignments every five years;



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increased penalties for financial crimes;



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expanded disclosure of corporate operations and internal controls and certification of financial statements;



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enhanced controls on and reporting of insider trading; and



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statutory separations between investment bankers and analysts.

        We have implemented procedures to comply with the requirements for expanded disclosure of internal controls and the certification of the financial statements. A significant portion of the remaining items in the new legislation will become effective during 2003. We are currently evaluating what

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impacts the new legislation and its implementing regulations will have upon our operations, including a likely increase in certain outside professional costs.

USA Patriot Act of 2001

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

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due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons;



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standards for verifying customer identification at account opening;



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rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering;



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reports by nonfinancial trades and business filed with the Treasury Department's Financial Crimes Enforcement Network for transactions exceeding $10,000 and;



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filing of suspicious activities reports by securities brokers and dealers if they believe a customer may be violating U.S. laws and regulations.

        On July 23, 2002, the U.S. Treasury proposed regulations requiring institutions to incorporate into their written money laundering plans a customer identification program implementing reasonable procedures for:

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verifying the identity of any person seeking to open an account, to the extent reasonable and practicable:



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maintaining records of the information used to verify the person's identity; and



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determining whether the person appears on any list of known or suspected terrorists or terrorist organizations.

        Account is defined as a formal banking or business relationship established to provide ongoing services, dealings, or other financial transactions. We do not expect the proposed regulations will have a material impact on our operations.

Financial Services Modernization Legislation

        On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999 (the "GLBA"). The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the BHC Act framework to permit a holding company system to engage in a full range of financial activities through a new entity known as a Financial Holding Company.

        The law also:

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broadened the activities that may be conducted by national banks, banking subsidiaries of bank holding companies, and their financial subsidiaries;



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provided an enhanced framework for protecting the privacy of consumer information;



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adopted a number of provisions related to the capitalization, membership, corporate governance, and other measures designed to modernize the Federal Home Loan Bank system;

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modified the laws governing the implementation of the Community Reinvestment Act, and



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addressed a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.

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

        Expanded Bank Activities.    The GLBA also permits national banks to engage in expanded activities through the formation of financial subsidiaries. A national bank may have a subsidiary engaged in any activity authorized for national banks directly or any financial activity, except for insurance underwriting, insurance investments, real estate investment or development, or merchant banking, which may only be conducted through a subsidiary of a financial holding company. Financial activities include all activities permitted under new sections of the BHC Act or permitted by regulation. Because California permits commercial banks chartered by the state to engage in any activity permissible for national banks, the Bank will be permitted to form subsidiaries to engage in the activities authorized by the GLBA to the same extent as a national bank.

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

Dividends and Other Transfers of Funds

        Dividends from the Bank constitute the principal source of income to BB. BB is a legal entity separate and distinct from the Bank. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends to BB. Under such restrictions, the amount available for payment of dividends to BB by the Bank totaled $2.1 million at December 31, 2002. In addition, the California Department of Financial Institutions and the Federal Reserve have the authority to prohibit the Bank from paying dividends, depending upon the Bank's financial condition, if such payment is deemed to constitute an unsafe or unsound practice.

Transactions with Affiliates

        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, BB 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 BB or other affiliates. Such restrictions prevent BB 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 BB or to or in any other affiliate are limited, individually, to 10.0% 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 BB and other controlling persons of the Bank. Additional restrictions on transactions with affiliates may be imposed on the Bank under the prompt

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corrective action provisions of federal law. See "—Prompt Corrective Action and Other Enforcement Mechanisms."

Capital Standards

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

        The guidelines require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.

Prompt Corrective Action and Other Enforcement Mechanisms

        Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions, including but not limited to those 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, 2002, the Bank and BB exceeded 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.

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

Safety and Soundness Standards

        The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to:

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internal controls, information systems and internal audit systems;



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loan documentation;

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credit underwriting;



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asset growth;



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earnings; and



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compensation, fees and benefits.

        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:

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conduct periodic asset quality reviews to identify problem assets;



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estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses;



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compare problem asset totals to capital;



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take appropriate corrective action to resolve problem assets;



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consider the size and potential risks of material asset concentrations; and



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provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk.

        These new 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.

Premiums for Deposit Insurance

        Through the Bank Insurance Fund ("BIF"), the FDIC insures the deposits of BB's depository institution subsidiary up to prescribed limits for each depositor. The amount of FDIC assessments paid by each BIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution's capitalization risk category and supervisory subgroup category. An institution's capitalization risk category is based on the FDIC's determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution's supervisory subgroup category is based on the FDIC's assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required.

        The assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis. Due to continued growth in deposits and some recent bank failures, The BIF is nearing its minimum ratio of 1.25% of insured deposits as mandated by law. If the ratio drops below 1.25%, it is likely the FDIC will be required to assess premiums on all banks for the frist time since 1996. An increase in the assessment rate could have a material adverse effect on BB's earnings, depending on the amount of the increase.

        The FDIC is authorized to terminate a depository institution's deposit insurance upon a finding by the FDIC that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution's regulatory agency. The termination of deposit insurance for the Bank, while not anticipated, could have a material adverse effect on BB's earnings.

Community Reinvestment Act and Fair Lending Developments

        The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act activities. The Community

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Reinvestment Act generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low- and moderate-income neighborhoods. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies may take compliance with such laws and Community Reinvestment Act obligations into account when regulating and supervising other activities. Furthermore, financial institutions are subject to annual reporting and public disclosure requirements for certain written agreements that are entered into between insured depository institutions or their affiliates and nongovernmental entities or persons that are made pursuant to, or in connection with, the fulfillment of the Community Reinvestment Act.

        A bank's compliance with its Community Reinvestment Act obligations is based on a performance-based evaluation system which bases Community Reinvestment Act ratings on an institution's lending service and investment performance. When a bank holding company applies for approval to acquire a bank or other bank holding company, the Federal Reserve will review the assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application. In connection with its assessment of Community Reinvestment Act performance, the appropriate bank regulatory agency assigns a rating of "outstanding", "satisfactory", "needs to improve" or "substantial noncompliance". The Bank was last examined for CRA compliance in June, 2002 and received a satisfactory CRA Assessment Rating.

Factors That May Affect Future Results of Operations

        In addition to the other information contained in this report, the following risks may affect us. If any of these risks occurs, our business, financial condition or operating results could be adversely affected.

        Failure to successfully execute our growth strategy or to integrate our recent merger with MCB could adversely affect our performance.

        Our financial performance and profitability will depend on our ability to execute our corporate growth strategy and manage our recent and possible future growth. Although management believes that it will successfully integrate the business and operations of MCB, there can be no assurance that unforeseen issues relating to the assimilation of MCB will not adversely affect us. In addition, any future acquisitions and our continued growth may present operating and other problems that could have an adverse effect on our business, financial condition and results of operations. Accordingly, there can be no assurance that we will be able to execute our growth strategy or maintain the level of profitability that we have recently experienced.

Changes in market interest rates may adversely affect our performance.

        Our earnings are impacted by changing interest rates. Changes in interest rates impact the demand for new loans, the credit profile of existing loans, the rates received on loans and securities and rates paid on deposits and borrowings. The relationship between the rates received on loans and securities and the rates paid on deposits and borrowings is known as interest rate spread. Given our current volume and mix of interest-bearing liabilities and interest-earning assets, our interest rate spread could be expected to increase during times of rising interest rates and, conversely, to decline during times of falling interest rates. Although we believe our current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates may have an adverse effect on our business, financial condition and results of operations.

Our geographic concentration may adversely affect our operations.

        Our Northern and Southern California business focus and economic conditions in those areas could adversely affect our operations. A continued weakening in the national economy might further

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exacerbate local economic conditions. The extent of the future impact of these events on economic and business conditions cannot be predicted.

        We are subject to government regulation that could limit or restrict our activities, which in turn could adversely impact our operations.

        The financial services industry is regulated extensively. Federal and state regulation is designed primarily to protect the deposit insurance funds and consumers, and not to benefit our shareholders. These regulations can sometimes impose significant limitations on our operations. In addition, these regulations are constantly evolving and may change significantly over time. Significant new laws or changes in existing laws or repeal of existing laws may cause our results to differ materially. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions for us.

Competition may adversely affect our performance.

        The financial services business in our market areas is highly competitive. It is becoming increasingly competitive due to changes in regulation, technological advances, and the accelerating pace of consolidation among financial services providers. We face competition both in attracting deposits and in making loans. We compete for loans principally through the interest rates and loan fees we charge and the efficiency and quality of services we provide. Increasing levels of competition in the banking and financial services businesses may reduce our market share or cause the prices we charge for our services to fall. Our results may differ in future periods depending upon the nature or level of competition.

        If a significant number of borrowers, guarantors and related parties fail to perform as required by the terms of their loans, we will sustain losses.

        A significant source of risk arises from the possibility that losses will be sustained if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. We have adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses, that management believes are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could materially adversely affect our results of operations.

Item 2. Properties

        We own six of our offices and lease twelve additional offices throughout Northern and Southern California. The leases expire under various dates, including options to renew, through June 2024.

        We believe our present facilities are adequate for our present needs but anticipate the need for additional facilities as we continue to grow.

Item 3. Legal Proceedings

        From time to time, we are involved in certain legal proceedings arising in the normal course of our business. Management believes that the outcome of these matters will not have a material adverse effect on us.

Item 4. Submission of Matters to a Vote of Security Holders

        There were no submissions of matters to a vote of security holders during the fourth quarter of the year ended December 31, 2002.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

        Our common stock is traded on the Nasdaq National Market ("Nasdaq") under the symbol "BZBC". Our stock began trading on Nasdaq on January 2, 2002. From February 27, 2001 until December 31, 2001, our stock was traded on the Nasdaq SmallCap Market. The quotations shown for 2002 reflect the high and low closing sales prices for our common stock as reported by Nasdaq. The quotations shown for 2001 reflect the high and low bid prices for our common stock as reported by ADP Quotation Services, Historical Data Base. The following prices have been adjusted to reflect the 5% stock dividend paid in 2002.

        We had approximately 558 shareholders of record at December 31, 2002.

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Item 6. Selected Consolidated Financial Data

SELECTED FINANCIAL INFORMATION

        The following table represents the selected financial information at and for the five years ended December 31, 2002:

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

General

        Total loans were $378.1 million at December 31, 2002 compared to $388.4 million at December 31, 2001. Investment securities increased to $179.2 million at December 31, 2002 from $169.9 million at December 31, 2001. Our primary source of funds, deposits from customers, were $530.8 million at December 31, 2002 compared to $518.1 million at December 31, 2001.

        Net income was $5.8 million, $2.5 million, and $2.3 million for 2002, 2001 and 2000, respectively.

        On December 31, 2001, we completed our merger of equals with MCB. We issued 1.1763 shares of our common stock for each share of MCB outstanding for an aggregate purchase price of $28.5 million. The merger was accounted for using the purchase method of accounting. Under this method of accounting, the purchase price was allocated to the assets acquired and deposits and liabilities assumed based on their fair values as of the merger date. Since the merger was completed on December 31, 2001, the results of MCB's operations have not been included in the consolidated financial statements of income for the year ended 2001. Goodwill arising from the transaction totaled $14.1 million.

        On August 31, 2000, the Bank consummated its acquisition of VMB. In order to fund a substantial portion of the approximately $12.2 million acquisition price of VMB, on March 23, 2000, Business Capital Trust I, a newly formed Delaware statutory business trust and a wholly-owned subsidiary of BB, issued an aggregate of $10,000,000 of principal amount of 10⁷/8% Fixed Rate Capital Trust Pass-through Securities which in turn were used to purchase the same principal amount of Subordinate Debt Securities issued by BB. In the third quarter of 2000, BB contributed to the Bank approximately $8.7 million of the approximately $9.7 million in net proceeds which it received from the sale of the Subordinated Debt Securities in order to fund the acquisition of VMB. The balance of the purchase price for the acquisition of VMB was paid out of the working capital of the Bank. See Part I—Item 1. "Description of Business—History."

Results of Operations

Net Interest Income

        Our earnings depend significantly upon the difference or spread between the income received from our loans and other interest-earning assets and the interest paid on interest-bearing liabilities. This computed difference is net interest income. The net interest income, when expressed as a percentage of average total interest-earning assets, is referred to as the net interest margin. The net interest income is affected by the change in the level and the mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. The net interest margin is also affected by changes in the yield earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on loans are affected principally by the demand for such loans, the supply of money available for lending purposes and competitive factors. These factors are in turn affected by general economic conditions and other factors frequently beyond our control, such as governmental economic policies, money supply, governmental tax policies and actions of the Federal Reserve Board.

        Our net interest income increased 82.7% to $30.3 million in 2002 from $16.6 million in 2001. This was primarily due to the 77.3% increase in average interest-earning assets.

        Our net interest income increased 15.3% to $16.6 million in 2001 from $14.4 million in 2000. This was primarily due to the 33.3% increase in average interest-earning assets partially offset by the 113 basis point decrease in our net yield on interest-earning assets.

        The following table presents, for the years indicated, our condensed average balance sheet information together with interest income and yields earned on average interest-earning assets and

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interest expense and rates paid on average interest-bearing liabilities. Average balances are average daily balances.

(1)

Loan fees have been included in the calculation of interest income. Loan fees were approximately $2,504,000, $1,723,874 and $1,058,170 for the years ended December 31, 2002, 2001 and 2000, respectively. Loans are net    of the allowance for loan losses and unearned income.

(2)

Yields on tax-exempt income have been computed on a tax equivalent basis.

(3)

Represents net interest income as a percentage of average interest-earning assets adjusted to reflect tax benefit of tax-exempt income.

        The most significant impact on our net interest income between periods is derived from the interaction of changes in the volume of, and rate earned orpaid on, interest-earning assets and interest-bearing liabilities. The volume of interest-earning asset dollars in loans and investments, compared to the volume of interest-bearing liabilities represented by deposits and borrowings, combined with the spread, produces the changes in the net interest income between periods. The table below sets forth,

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for the years indicated, a summary of the changes in average asset and liability balances (volume) and changes in average interest rates (rate).

(1)

The rate/volume variance has been included in the rate variance.

        Interest income in 2002 increased to $38.1 million from $25.1 million in 2001. This was primarily due to the increase in average loans partially offset by a 121 basis point decline in the yield earned on average interest-earning assets. Average loans increased $201.5 million, or 107.2%, to $389.4 million in 2002 compared to $187.9 million in 2001. The increase in average loans during 2002 was primarily due to the merger with MCB on December 31, 2001. The yield earned on average interest-earning assets decreased to 6.95% during 2002 from 8.16% during 2001, reflecting the overall decline in market interest rates during this period. Loans represented approximately 70.3% of total interest-earning assets during 2002 compared to 60.1% during 2001.

        Interest expense during 2002 decreased to $7.8 million from $8.5 million during 2001. Lower interest rates paid on interest-bearing liabilities were offset by the volume increase in interest-bearing liabilities. The interest rates paid on interest-bearing liabilities decreased by 182 basis points during 2002 to 2.00% compared to 3.82% during 2001. This decrease was due to the overall declining market rate environment. Average interest-bearing liabilities increased 75.1% to $390.4 million during 2002 from $223.0 million during 2001. The increase in average interest-bearing liabilities was due primarily to the merger with MCB on December 31, 2001.

        As a result of the foregoing analyses, our net yield on interest-earning assets increased during 2002 to 5.54% from 5.44% during 2001.

        Interest income in 2001 increased to $25.1 million from $21.4 million in 2000. This was primarily due to the increase in average loans partially offset by a 113 basis point decline in the yield earned on average interest-earning assets. Average loans increased $45.0 million, or 31.5%, to $187.9 million in 2001 compared to $143.0 million in 2000. The yield earned on average interest-earning assets decreased to 8.16% during 2001 from 9.29% during 2000, reflecting the overall decline in market interest rates during this period. Loans represented approximately 60.1% of total interest-earning assets during 2001 compared to 61.0% during 2000.

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        Interest expense during 2001 increased to $8.5 million from $7.0 million during 2000. The volume increase in interest-bearing liabilities was partially offset by lower interest rates paid on those liabilities. Average interest-bearing liabilities increased 37.8% to $223.0 million during 2001 from $161.8 million during 2000. The interest rates paid on interest-bearing liabilities decreased by 52 basis points during 2001 to 3.82% compared to 4.34% during 2000. This decrease was due to the overall declining market rate environment.

        As a result of the foregoing analyses, our net yield on interest-earning assets decreased during 2001 to 5.44% from 6.29% during 2000.

Provision for Loan Losses

        Credit risk is inherent in the business of making loans. We set aside an allowance for loan losses ("ALL") through charges to earnings, which charges are reflected in the income statement as the provision for loan losses. The provision for loan losses represents the amount charged against current period earnings to achieve an allowance for loan losses that in management's judgment is adequate to absorb losses inherent in the loan portfolio.

        We formally assess the ALL in a multi-step process on a quarterly basis. See "Allowance for Loan Losses," below.

        The provision for loan losses was $1,000,000 for the year ended December 31, 2002, compared to $225,000 for the year ended December 31, 2001 and $255,000 for the year ended December 31, 2000. The ratio of the allowance for loan losses to total loans was 1.44% and 1.17% at December 31, 2002 and 2001, respectively.

        The increase in the provision for loan losses in 2002 was recorded due to growth in the loan portfolio and deteriorating economic conditions in our market areas.

        During 2000 the provision for loan losses increased to $255,000 from $180,000 in 1999. This increase was primarily attributable growth within the loan portfolio.

Noninterest Income

        The following table sets forth the various components of noninterest income for the periods indicated (in thousands):

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        Service charges on deposits represent amounts charged to customers in the form of transactional fees and other charges imposed for providing services normally associated with account services. Gains from the sale of SBA loans are premiums recognized on sales of loans generated by us and sold in the secondary market. Gains on the sale of other real estate owned (real estate acquired through foreclosure or similar means) ("OREO") represent gains recognized when we sell OREO property.

        Noninterest income increased $778,000, or 19.1%, to $4.8 million in 2002. Increases in service fees on deposit accounts, gains on sale of SBA loans and other income were partially offset by decreases in gains on sales of OREO and gains on sales of investment securities.

        Noninterst income increased $1.3 million, or 44.5%, to $4.1 million in 2001. This increase was primarily due to the increase in service fees on deposit accounts and the increase in gains on sales of investment securities. Due to the decline in overall interest rates during 2001, we were able to recognize gains on sales of some of our securities.

Operating Expenses

        The following table sets forth the break-down of our operating expenses for the periods indicated (in thousands):

        Our operating expenses increased by $8.4 million, or 50.6%, in 2002 compared to 2001. This increase was primarily due to the merger with MCB on December 31, 2001. Pursuant to purchase accounting standards, the operating expenses of MCB are not reflected in the 2001 and 2000 amounts shown above.

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        We recorded approximately $685,000 in costs associated with the merger with MCB Financial Corporation and the on-going integration effort during 2002. These costs are included in the legal and other professional fees category.

        Our operating expenses increased by $3.0 million, or 21.7%, in 2001 compared to 2000. Our total operating expenses as a percentage of average assets have continued to decline from 5.10% in 2000, to 4.73% in 2001 and to 4.00% in 2002. The decline in 2002 was due primarily to the economies of scale generated from the merger with MCB and the elimination of the amortization of goodwill due to a change in the accounting for goodwill. See Note #7 of the Notes to Consolidated Financial Statements.

Income Taxes

        Our effective income tax rate was 37.9% in 2002 compared to 35.8% in 2001 and 32.5% in 2000. The effective rates were lower than the statutory rate of 42% primarily due to the benefits of tax-exempt income on municipal securities.

Financial Condition

Investment Portfolio

        Our investment portfolio market value was $179.2 million, representing 28.4% of the our total assets as of December 31, 2002. The portfolio grew by $9.3 million or 5.4% in 2002. At year-end 2001, the investment portfolio was 26.9% of total assets. We invest in governmental, mortgage-backed, municipal and corporate securities and categorize those securities as held to maturity or available for sale depending upon the circumstances in place as to our intent and ability to hold such securities. We invest our liquid funds in excess of loan requirements in the investment portfolio and fed funds sold.

        The following table summarizes the amortized cost and estimated fair value and distribution of our investment securities as of the dates indicated:

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        The following table summarizes the maturity of our investment securities and their weighted average yield at December 31, 2002:

Maturities of Investment Securities at December 31, 2002