<PAGE> 1
                                 FORM 10-K
                 SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549
                              (Mark One)
      X  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 
     For the fiscal year ended           December 31, 1997                  or 
     
          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
     THE SECURITIES EXCHANGE ACT OF 1934      
     For the transition period from                    to      
     
     Commission file number          2-77519-LA                                 
     
                           SARATOGA BANCORP                                     
        (Exact name of registrant as specified in its charter)
     
                 California                             94-2817587           
       (State or other jurisdiction of               (I.R.S. employer   
        incorporation or organization)               Identification No.)
                              
        12000 Saratoga-Sunnyvale Road                            
              Saratoga, California                          95070            
      (Address of principal executive offices)           (Zip Code)   
     
     Registrant's telephone number, including area code   (408)973-1111
     
     Securities registered pursuant to Section 12 (b) of the Act:
                                                  Name of each exchange
       Title of each class                         on which registered
           NONE                                             NONE         
                              
     Securities registered pursuant to Section 12 (g) of the Act:
                                                        NONE               
                                                  (Title of class)
     
          Saratoga Bancorp (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, and (2) has been subject to such filing 
     requirements for the past 90 days.  Yes  X  No     . 
     
          Indicate by checkmark 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.  [X]                 
        
     
          The aggregate market value of the voting stock held by non-affiliates 
     of Saratoga Bancorp on March 10,  1998 was $19,421,316
     
          As of March 10,  1998, Saratoga Bancorp had 1,091,967 shares of common
     stock outstanding.
     
          DOCUMENTS INCORPORATED BY REFERENCE
     
          The Company's Proxy Statement is incorporated herein by reference in
     Part III, Items 10 through 13.
     
                 The Index to Exhibits appears on page 62
                             
                             
                               Page 1 of 64  pages
<PAGE> 2                              
                              PART 1
Item 1. Business

General 

     Certain matters discussed or incorporated by reference in this Annual
Report on Form 10-K including, but not limited to, matters described in Item 7
- "Managements Discussion and Analysis of Financial Condition and Results of 
Operations," are forward-looking statements that are subject to risks and 
uncertainties that could cause actual results to differ materially from those
projected.  Changes to such risks and uncertainties, which could impact 
future financial performance, include, among others, (1)competitive pressures
in the banking industry; (2)changes in interest rate environment; (3)general
economic conditions, nationally, regionally and in operating market areas; 
(4)changes in the regulatory environment; (5)changes in business conditions and 
inflation; and (6)changes in securities markets.  Therefore, the information 
set forth herein should be carefully considered when evaluating the business 
prospects of the Company and the Bank.

     Saratoga Bancorp (the "Company") is a registered bank holding company whose
principal asset (and only subsidiary) is the common stock of Saratoga National 
Bank (the "Bank").  The Company itself does not engage in any business 
activities other than the ownership of the Bank and investment of its available
funds.   As used herein, the term "Saratoga Bancorp" or the "Company" includes 
the subsidiary of the Company unless the context requires otherwise.  
The Company was incorporated in California on December 8, 1981. The Bank 
commenced operations on November 8, 1982.  The Bank provides a variety of 
banking services to businesses, governmental units and individuals.  The Bank
conducts a commercial and retail banking business, which includes accepting 
demand, savings and time deposits and making commercial, real estate and 
consumer loans.  It also offers installment note collections, issues 
cashier's checks, sells traveler's checks and provides other customary 
banking services.  The Bank's deposits are insured by the Federal Deposit 
Insurance Corporation (the "FDIC") up to the legal limits thereupon.  The
Bank does not offer trust services nor international banking services and does
not plan to do so in the near future.  At December 31, 1997, the Company had 
total assets of approximately $131 million and total deposits of approximately 
$91 million.  At December 31, 1997, the Company had 23 full-time equivalent 
employees. 

     Most of the Bank's deposits are obtained from the Bank's primary service 
area.  No material portion of the Bank's deposits have  been obtained from a 
single person or group of related persons, the loss of any one or more of which
would have a materially adverse effect on the business of the Bank, nor is a 
material portion of the Bank's loans concentrated within a single industry or 
group of related industries.   Although real estate construction loans represent
approximately 14% and other real estate loans represent approximately 46% of 
total loans, no material portion is located in a single geographic area. 
<PAGE 3>
Furthermore, the extent to which the business of the Bank is seasonal is 
insignificant.  The importance of, and risks attendant to, foreign sources and 
application of the Bank's funds is negligible.

     For additional information concerning the Company and the Bank, see 
Selected Financial Data under Item 6 on page 17.

SUPERVISION AND REGULATION

     The stock of the Company is subject to the registration requirements of the
Securities Act of 1933, as amended, and the qualification requirements of the 
California Corporate Securities Law of 1968, as amended.  The Company is also 
subject to the periodic reporting requirements of Section 15(d) of the 
Securities Exchange Act of 1934, as amended, which include, but are not limited 
to, filing annual, quarterly and other current reports with the Securities 
and Exchange Commission.

     The Bank is chartered under the national banking laws of the United States 
of America, and its deposits are insured by the FDIC. The Bank has no 
subsidiaries. Consequently, the Bank is regularly examined by the Office of the 
Comptroller of the Currency (the "OCC"), its primary regulator, and is subject 
to the supervision of the FDIC and the OCC.  Such supervision and regulation 
include comprehensive reviews of all major aspects of the Bank's business and
condition, including its capital ratios, allowance for possible loan losses 
and other factors.  However, no inference should be drawn that such
authorities have approved any such factors.  The Company and the Bank are 
required to file reports with the OCC, the FDIC and the Board of Governors of 
the Federal Reserve System (the "Board of Governors") and provide such 
additional information as the Board of Governors, FDIC and OCC may require.

     The Company is a bank holding company within the meaning of the Bank 
Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and is
registered as such with, and subject to the supervision of, the Board of 
Governors.  The Company is required to obtain the approval of the Board of 
Governors before it may acquire all or substantially all of the assets of any 
bank, or ownership or control of the voting shares of any bank if, after 
giving effect to such acquisition of shares, the Company would own or
control more than 5% of the voting shares of such bank.  The Bank Holding 
Company Act prohibits the Company from acquiring any voting shares of, or 
interest in, all or substantially all of the assets of, a bank located outside 
the State of California unless such an acquisition is specifically authorized by
the laws of the state in which such bank is located.  Any such interstate 
acquisition is also subject to the provisions of the Riegle-Neal Interstate 
Banking and Branching Efficiency Act of 1994 discussed below.  The OCC
regulates the number and locations of the branch offices of a national bank and 
may only permit a national bank to maintain branches in locations and under 
conditions imposed by state law upon state banks.

<PAGE> 4

     The Company, and any subsidiaries which it may acquire or organize, are 
deemed to be "affiliates" of the Bank within the meaning of that term as defined
in the Federal Reserve Act.  This means, for example, that there are limitations
(a) on loans by the Bank to affiliates, and (b) on investments by the Bank in 
affiliates' stock as collateral for loans to any borrower.  The Company and 
the Bank are also subject to certain restrictions with respect to engaging in
the underwriting, public sale and distribution of securities. 

     In addition, regulations of the Board of Governors promulgated under the
Federal Reserve Act require that reserves be maintained by the Bank in 
conjunction with any liability of the Company under any obligation 
(promissory note, acknowledgement of advance, banker's acceptance or similar 
obligation) with a weighted average maturity of less than seven (7) years to 
the extent that the proceeds of such obligations are used for the purpose of 
supplying funds to the Bank for use in its banking business, or to maintain
the availability of such funds.

     The Board of Governors, FDIC and OCC have adopted risk-based capital 
guidelines for evaluating the capital adequacy of bank holding companies and 
banks.  The guidelines are designed to make capital requirements sensitive to
differences in risk profiles among banking organizations, to take into 
account off-balance sheet exposures and to aid in making the definition of 
bank capital uniform nationally.  Under the guidelines, the Company and the 
Bank are required to maintain capital equal to at least 8.0% of its assets
and commitments to extend credit, weighted by risk, of which at least 4.0% must
consist primarily of common equity (including retained earnings) and the 
remainder may consist of subordinated debt, cumulative preferred stock, or a 
limited amount of loan loss reserve.

     Assets, commitments to extend credit, and off-balance sheet items are 
categorized according to risk and certain assets considered to present less 
risk than others permit maintenance of capital at less than the 8% ratio.  
For example, most home mortgage loans are placed in a 50% risk category and 
therefore require maintenance of capital equal to 4% of such loans, while 
commercial loans are placed in a 100% risk category and therefore require 
maintenance of capital equal to 8% of such loans.

     The guidelines establish two categories of qualifying capital: Tier 1 
capital comprising core capital elements, and Tier 2 comprising supplementary
capital requirements.  At least one-half of the required capital must be 
maintained in the form of Tier 1 capital.  Tier 1 capital includes common 
shareholders' equity and qualifying perpetual preferred stock.  However, no 
more than 25% of the Company's total Tier 1 capital may consist of perpetual
preferred stock.  The definition of Tier 1 capital for the Bank is the same, 
except that perpetual preferred stock may be included only if it is
noncumulative.  Tier 2 capital includes, among other items, limited life (and in
the case of banks, cumulative) preferred stock, mandatory convertible 
securities, subordinated debt and a limited amount of reserve for credit losses.

<PAGE> 5

     The Board of Governors, FDIC and OCC also adopted minimum leverage ratios 
for banking organizations as a supplement to the risk-weighted capital 
guidelines.  The leverage ratio is generally calculated using Tier 1 capital (as
defined under risk-based capital guidelines) divided by quarterly average net 
total assets (excluding intangible assets and certain other adjustments).  
The leverage ratio establishes a limit on the ability of banking organizations,
including the Company and the Bank, to increase assets and liabilities 
without increasing capital proportionately.  

     The Board of Governors and OCC emphasized that the leverage ratio 
constitutes a minimum requirement for well-run banking organizations having 
diversified risk, including no undue interest rate risk exposure, excellent 
asset quality, high liquidity, good earnings and a composite rating of 1 
under the regulatory rating system for banks and 1 under the regulatory 
rating system for bank holding companies.  Banking organizations experiencing
or anticipating significant growth, as well as those organizations which do not
exhibit the characteristics of a strong, well-run banking organization described
above, will be required to maintain minimum capital ranging generally from 100 
to 200 basis points in excess of the leverage ratio.  The FDIC adopted a 
substantially similar leverage ratio for state non-member banks which 
established (i) a 3 percent Tier 1 minimum capital leverage ratio for highly-
rated banks (those with a composite regulatory rating of 1 and not experiencing
or anticipating significant growth); and (ii) a 4 percent Tier 1 minimum capital
leverage ratio for all other banks, as a supplement to the risk-based capital 
guidelines.

     The federal banking agencies during 1996 issued a joint agency policy 
statement regarding the management of interest-rate risk exposure (interest rate
risk is the risk that changes in market interest rates might adversely affect a
bank's financial condition) with the goal of ensuring that institutions with 
high levels of interest-rate risk have sufficient capital to cover their 
exposures.  This policy statement reflected the agencies' decision at that 
time not to promulgate a standardized measure and explicit capital charge for 
interest rate risk, in the expectation that industry techniques for measurement
of such risk will evolve.  
     
     However, the Federal Financial Institution Examination Counsel 
(the "FFIEC") on December 13, 1996, approved an updated Uniform Financial 
Institutions Rating System (the "UFIRS").  In addition to the five components 
traditionally included in the so-called "CAMEL" rating system which has been 
used by bank examiners for a number of years to classify and evaluate the 
soundness of financial institutions (including capital adequacy, asset 
quality, management, earnings and liquidity), UFIRS includes for all bank 
regulatory examinations conducted on or after January 1, 1997, a new rating for
a sixth category identified as sensitivity to market risk.  Ratings in this 
category are intended to reflect the degree to which changes in interest 
rates, foreign exchange rates, commodity prices or equity prices may 
adversely affect an institution's earnings and capital.  The rating system
henceforth will be identified as the "CAMELS" system.

<PAGE> 6

     At December 31, 1997, the Bank and the Company are in compliance with 
the risk-based capital and leverage ratios described above.  See Item 7 below 
for a listing of the Company's risk-based capital ratios at December 31, 1997
and 1996.

     During 1997, the Company's primary source of income was interest income.  
In the future, the Company also expects to receive dividends and management fees
from the Bank.  The Bank's ability to make such payments is subject to 
restrictions established by federal banking law, and subject to approval by 
the OCC.  Such approval is required if the total of all dividends declared by
the Bank's Board of Directors in any calendar year will exceed the Bank's net
profits for that year combined with its retained net profits for the 
preceding two years, less any required transfers to surplus or to a fund for the
retirement of preferred stock. The OCC generally prohibits national banks 
from, among other matters, adding the allowance for loan and lease losses to 
undivided profits then on hand when calculating the amount of dividends which
may be paid.  Additionally, while the Board of Governors has no general 
restriction with respect to the payment of cash dividends by an adequately 
capitalized bank to its parent holding company, the Board of Governors, FDIC
and/or OCC, might, under certain circumstances, place restrictions on the 
ability of a bank to pay dividends based upon peer group averages and the 
performance and maturity of that bank, or object to management fees on the 
basis that such fees cannot be supported by the value of the services 
rendered or are not the result of an arms length transaction. The FDIC may 
also restrict the payment of dividends if such payment would be deemed
unsafe or unsound or if after the payment of such dividends, the Bank would be 
included in one of the "undercapitalized" categories for  capital adequacy 
purposes pursuant to the Federal Deposit Insurance Corporation Improvement Act 
of 1991.  See the discussion of dividends in Item 5 below for additional 
information regarding dividends.   Under the formulas discussed in Item 5, at
December 31, 1997, approximately $3,080,000 of the Bank's net profits were 
available for distribution as dividends without the necessity of any prior 
governmental approvals.  These net profits constitute part of the capital of the
Bank and sound banking practices require the maintenance of adequate levels of 
capital.
 


COMPETITION

     The banking business in Santa Clara County, as it is elsewhere in 
California, is highly competitive, and each of the major branch banking 
institutions has one or more offices in the Bank's service area.  The Bank 
competes in the marketplace for deposits and loans, principally against these
banks, independent community banks, savings and loan associations, thrift and
loan companies, credit unions, mortgage banking companies, and other 
miscellaneous institutions that claim a portion of the market.

     Larger banks may have a competitive advantage because of higher lending 
limits and major advertising and marketing campaigns.  They also perform 
services, such as trust services, international banking, discount brokerage and 

<PAGE> 7

insurance services which the Bank is not authorized or prepared to offer 
currently. The Bank has made arrangements with its correspondent banks and 
with others to provide such services for its customers.  For borrowers 
requiring loans in excess of the Bank's legal lending limit, the Bank has 
offered, and intends to offer in the future, such loans on a participating basis
with its correspondent banks and with other independent banks, retaining the 
portion of such loans which is within its lending limit.  As of December 31, 
1997, the Bank's legal lending limit to a single borrower and such borrower's
related parties was $1,990,000 based on regulatory capital of $13,266,000.

     The Bank's business is concentrated in its service area, which primarily
encompasses Santa Clara County, and also includes, to a lesser extent, the 
contiguous areas of Alameda, San Mateo and Santa Cruz counties.

     In order to compete with major financial institutions in its primary 
service area, the Bank uses to the fullest extent possible the flexibility which
is accorded by its independent status.  This includes an emphasis on 
specialized services, local promotional activity, and personal contacts by 
the Bank's officers, directors and employees.  The Bank also seeks to provide
special services and programs for individuals in its primary service area who 
are employed in the agricultural, professional and business fields, such as 
loans for equipment, furniture, tools of the trade or expansion of practices 
or businesses.  In the event there are customers whose loan demands exceed 
the Bank's lending limit, the Bank seeks to arrange for such loans on a 
participation basis with other financial institutions.  The Bank also assists
those customers requiring services not offered by the Bank to obtain such
services from correspondent banks.

     Banking is a business which depends on interest rate differentials.  In 
general, the difference between the interest rate paid by the Bank to obtain its
deposits and its other borrowings and the interest rate received by the Bank on 
loans extended to its customers and on securities held in the Bank's 
portfolio comprise the major portion of the Bank's earnings.

     Commercial banks compete with savings and loan associations, credit unions,
other financial institutions and other entities for funds.  For instance, yields
on corporate and government debt securities and other commercial paper affect 
the ability of commercial banks to attract and hold deposits.  Commercial banks
also compete for loans with savings and loan associations, credit unions, 
consumer finance companies, mortgage companies and other lending institutions.

     The interest rate differentials of the Bank, and therefore its earnings,
are affected not only by general economic conditions, both domestic and foreign,
but also by the monetary and fiscal policies of the United States as set by 
statutes and as implemented by federal agencies, particularly the Federal 
Reserve Board.  This agency can and does

<PAGE> 8

implement national monetary policy, such as seeking to curb inflation and combat
recession, by its open market operations in United States government securities,
adjustments in the amount of interest free reserves that banks and other 
financial institutions are required to maintain, and adjustments to the 
discount rates applicable to borrowing by banks from the Federal Reserve 
Board.  These activities influence the growth of bank loans, investments and 
deposits and also affect interest rates charged on loans and paid on 
deposits.  The nature and timing of any future changes in monetary policies
and their impact on the Bank cannot be predicted.

     On December 19, 1991, President Bush signed the Federal Deposit Insurance
Corporation Improvement Act of 1991 (the "FDICIA").  The FDICIA substantially 
revised banking regulations, certain aspects of the Federal Deposit Insurance 
Act and established a framework for determination of capital adequacy of 
financial institutions, among other matters.  Under the FDICIA, financial 
institutions are placed into five capital adequacy categories as follows: 
(1) well capitalized, (2) adequately capitalized, (3) undercapitalized,
(4) significantly undercapitalized, and (5) critically undercapitalized.  The
FDICIA authorized the Board of Governors, the OCC and FDIC to establish 
limits below which financial institutions will be deemed critically 
undercapitalized, provided that such limits can not be less than two percent
(2%) of the ratio of tangible equity to total assets or sixty-five percent
(65%) of the minimum leverage ratio established by regulation.  Financial
institutions classified as undercapitalized or below are subject to limitations 
including restrictions related to (i) growth of assets, (ii) payment of interest
on subordinated indebtedness, (iii) capital distributions, and (iv) payment of 
management fees to a parent holding company.  

     The FDICIA requires the Board of Governors, FDIC and OCC to initiate 
corrective action regarding financial institutions which fail to meet minimum 
capital requirements. Such action may result in orders to augment capital such 
as through sale of voting stock, reduction in total assets, and restrictions 
related to correspondent bank deposits.  Critically undercapitalized 
financial institutions may also be subject to appointment of a receiver or
conservator unless the financial institution submits an adequate capitalization
plan. 

      In 1995 the FDIC, pursuant to Congressional mandate, reduced bank deposit
insurance assessment rates to a range from $0 to $0.27 per $100 of deposits, 
dependent upon a bank's risk.  The FDIC has continued these assessment rates 
through the first semiannual assessment period of 1998.  Based upon the above 
risk-based assessment rate schedule, the Bank's current capital ratios, the 
Bank's current level of deposits, and assuming no further change in the 
assessment rate applicable to the Bank during 1998, the Bank estimates that 
its annual noninterest expense attributed to assessments will remain 
unchanged during 1998.

     The Board of Governors, FDIC and OCC adopted regulations effective December
19, 1992, implementing a system of prompt corrective action pursuant to Section
38 of the

<PAGE> 9
Federal Deposit Insurance Act and Section 131 of the FDICIA.  The regulations 
establish five capital categories with the following characteristics: (1) "Well 
capitalized" - consisting of institutions with a total risk-based capital ratio
of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a 
leverage ratio of 5% or greater, and the institution is not subject to an 
order, written agreement, capital directive or prompt corrective action
directive; (2) "Adequately capitalized" - consisting of institutions with a 
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital 
ratio of 4% or greater and a leverage ratio of 4% or greater, and the 
institution does not meet the definition of a "well capitalized" institution;
(3) "Undercapitalized" - consisting of institutions with a total risk-based 
capital ratio less than 8%, a Tier 1 risk-based capital ratio of less than 4%, 
or a leverage ratio of less than 4%; (4) "Significantly undercapitalized" - 
consisting of institutions with a total risk-based capital ratio of less than 
6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of
less than 3%; (5) "Critically undercapitalized" - consisting of an 
institution with a ratio of tangible equity to total assets that is equal to or 
less than 2%.

     The regulations established procedures for classification of financial 
institutions within the capital categories, filing and reviewing capital 
restoration plans required under the regulations and procedures for issuance of 
directives by the appropriate regulatory agency, among other matters.  The 
regulations impose restrictions upon all institutions to refrain from certain
actions which would cause an institution to be classified within any one
of the three "undercapitalized" categories, such as declaration of dividends or
other capital distributions or payment of management fees, if following the 
distribution or payment the institution would be classified within one of the 
"undercapitalized" categories.  In addition, institutions which are 
classified in one of the three "undercapitalized" categories are subject
to certain mandatory and discretionary supervisory actions.  Mandatory 
supervisory actions include (1) increased monitoring and review by the 
appropriate federal banking agency; (2) implementation of a capital 
restoration plan; (3) total asset growth restrictions; and (4) limitation 
upon acquisitions, branch expansion, and new business activities without prior
approval of the appropriate federal banking agency.  Discretionary 
supervisory actions may include (1) requirements to augment capital; 
(2) restrictions upon affiliate transactions; (3) restrictions upon deposit 
gathering activities and interest rates paid; (4) replacement of senior 
executive officers and directors; (5) restrictions upon activities of the 
institution and its affiliates; (6) requiring divestiture or sale of the 
institution; and (7) any other supervisory action that the appropriate 
federal banking agency determines is necessary to further the purposes of 
the regulations.  Further, the federal banking agencies may not accept a
capital restoration plan without determining, among other things, that the plan 
is based on realistic assumptions and is likely to succeed in restoring the 
depository institution's capital. In addition, for a capital restoration plan
to be acceptable, the depository institution's parent holding company must 
guarantee that the institution will comply with such capital restoration 
plan.  The aggregate liability of the parent holding company under the guaranty
is limited to the lesser of (i) an amount equal to 5 percent of the depository 
institution's total assets at the time it became

<PAGE> 10

undercapitalized, and (ii) the amount that is necessary (or would have been 
necessary) to bring the institution into compliance with all capital 
standards applicable with respect to such institution as of the time it fails to
comply with the plan.  If a depository institution fails to submit an acceptable
plan, it is treated as if it were "significantly undercapitalized."  The FDICIA 
also restricts the solicitation and acceptance of and interest rates payable 
on brokered deposits by insured depository institutions that are not "well 
capitalized."  An "undercapitalized" institution is not allowed to solicit 
deposits by offering rates of interest that are significantly higher than the 
prevailing rates of interest on insured deposits in the particular 
institution's normal market areas or in the market areas in which such 
deposits would otherwise be accepted.

     Any financial institution which is classified as "critically under-
capitalized" must be placed in conservatorship or receivership within 90 days of
such determination unless it is also determined that some other course of 
action would better serve the purposes of the regulations.  Critically under-
capitalized institutions are also prohibited from making (but not accruing) 
any payment of principal or interest on subordinated debt without the prior
approval of the FDIC and the FDIC must prohibit a critically undercapitalized 
institution from taking certain other actions without its prior approval, 
including (1) entering into any material transaction other than in the usual 
course of business, including investment expansion, acquisition, sale of assets 
or other similar actions; (2) extending credit for any highly leveraged 
transaction; (3) amending articles or bylaws unless required to do so to
comply with any law, regulation or order; (4) making any material change in 
accounting methods; (5) engaging in certain affiliate transactions; (6) paying 
excessive compensation or bonuses; and (7) paying interest on new or renewed 
liabilities at rates which would increase the weighted average costs of funds 
beyond prevailing rates in the institution's normal market areas.

     The capital ratio requirements for the "adequately capitalized" category 
generally are the same as the existing minimum risk-based capital ratios 
applicable to the Company and the Bank.

     Under the FDICIA, the federal financial institution agencies have adopted
regulations which require institutions to establish and maintain comprehensive 
written real estate policies which address certain lending considerations, 
including loan-to-value limits, loan administrative policies, portfolio 
diversification standards, and documentation, approval and reporting 
requirements.  The FDICIA further generally prohibits an insured state bank 
from engaging as a principal in any activity that is impermissible for a 
national bank, absent FDIC determination that the activity would not pose a 
significant risk to the Bank Insurance Fund, and that the bank is, and will 
continue to be, within applicable capital standards.  Similar restrictions apply
to subsidiaries of insured state banks.  The Company does not currently 
intend to engage in any activities which would be restricted or prohibited
under the FDICIA.

<PAGE> 11

     The federal financial institution agencies have established 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) excessive compensation for 
executive officers, directors or principal shareholders which could lead
to material financial loss.   If an agency determines that an institution fails
to meet any standard the agency may require the financial institution to submit 
to the agency an acceptable plan to achieve compliance with the standard.  If 
the agency requires submission of a compliance plan and the institution fails to
timely submit an acceptable plan or to implement an accepted plan, the agency 
must require the institution to correct the deficiency.  Under the final rule, 
an institution must file a compliance plan within 30 days of a request to do
so from the institution's primary federal regulatory agency.  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.

     The Board of Governors issued final amendments to its risk-based capital 
guidelines to be effective December 31, 1994, requiring that net unrealized 
holding gains and losses on securities available for sale determined in 
accordance with Statement of Financial Accounting Standards (the "SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities," are not to 
be included in the Tier 1 capital component consisting of common stock-
holders' equity.  Net unrealized losses on marketable equity securities
(equity securities with a readily determinable fair value), however, will 
continue to be deducted from Tier 1 capital.  This rule has the general effect 
of valuing available for sale securities at amortized cost (based on historical 
cost) rather than at fair value (generally at market value) for purposes of 
calculating the risk-based and leverage capital ratios. 

     On December 13, 1994, the Board of Governors issued amendments to its 
risk-based capital guidelines regarding concentration of credit risk and risks 
of non-traditional activities, which were effective January 17, 1995.  As 
amended, the risk-based capital guidelines identify concentrations of credit 
risk and evaluate an institution's ability to manage such risks and the risk 
posed by non-traditional activities as important factors in assessing an 
institution's overall capital adequacy.

     Since 1986, California has permitted California banks and bank holding 
companies to be acquired by banking organizations based in other states on a 
"reciprocal" basis (i.e., provided the other state's laws permit California 
banking organizations to acquire banking organizations in that state on 
substantially the same terms and conditions applicable to local banking 
organizations).  Some increase in merger and acquisition activity among
California and out-of-state banking organizations has occurred as a result of 
this law, as well as increased competition for loans and deposits.

<PAGE> 12

     Since October 2, 1995, California law implementing certain provisions of 
prior federal law has (1) permitted interstate merger transactions; (2) 
prohibited 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) prohibited interstate branching through de novo 
establishment of California branch offices.  Initial entry into California by
an out-of-state institution must be accomplished by acquisition of or merger
with an existing whole bank which has been in existence for at least five 
years.

       Community Reinvestment Act (the "CRA") regulations effective as of July 
1, 1995 evaluate banks' lending to low and moderate income individuals and 
businesses across a four-point scale of "outstanding", "satisfactory", "needs
to improve" and "substantial noncompliance," and are a factor in regulatory 
review of applications to merge, establish new branches or form bank holding 
companies.  In addition, any bank rated in "substantial noncompliance" with 
the CRA regulations may be subject to enforcement proceedings.
     
     The Bank has a current rating of "satisfactory" CRA compliance, and is 
scheduled for further examination for CRA compliance during 1998.

     Recently, the Federal banking agencies, especially the Board of Governors 
and the OCC, have taken steps to increase the types of activities in which 
national banks and bank holding companies can engage, and to make it easier to 
engage in such activities.  On November 20, 1996, the OCC issued final 
regulations permitting national banks to engage in a wider range of 
activities through subsidiaries.  "Eligible institutions" (those national
banks that are well capitalized, have a high overall rating and a satisfactory 
CRA rating, and are subject to an enforcement order) may engage in activities 
related to banking through operating subsidiaries after going through a new 
expedited application process. In addition, the new regulations include a 
provision whereby a national bank may apply to the OCC to engage in an 
activity through a subsidiary in which the bank itself may not engage.  
Although the Bank is not currently intending to enter into any new type of
business, this OCC regulation could be advantageous to the Bank if the Bank 
determines to expand its operations in the future, depending on the extent to 
which the OCC permits national banks to engage in new lines of business and 
whether the Bank qualifies as an "eligible institution" at the time of making 
application.  

     Certain legislative and regulatory proposals that could effect the Bank and
the banking business in general are pending or may be introduced before the 
United States Congress, the California State Legislature and Federal and state 
government agencies. The United States Congress is considering numerous bills 
that could reform banking laws substantially.  For example, proposed bank 
modernization legislation under consideration would, among other matters, 
include a repeal of the Glass-Steagall Act restrictions on banks that now 
prohibit the combination of commercial and investment banks.

     It is not known to what extent, if any, the legislation proposals will be 
enacted and

<PAGE> 13

what effect such legislation would have on the structure, regulation and 
competitive relationships of financial institutions.  It is likely, however, 
that many of these proposals would subject the Bank to increased regulation, 
disclosure and reporting requirements and would increase competition to the Bank
 and its cost of doing business.

     In addition to pending legislative changes, the various banking regulatory
agencies frequently propose rules and regulations to implement and enforce 
already existing legislation.  It cannot be predicted whether or in what form 
any such rules or regulations will be enacted or the effect that such rules and
 regulations may have on the Bank's business.

ACCOUNTING PRONOUNCEMENTS

     In October, 1995, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 123, "Accounting for Stock-Based Compensation."  SFAS No. 123 
establishes accounting and disclosure requirements using a fair value method of
accounting for stock based employee compensation plans.  Under SFAS No. 123, the
Company may either adopt the new fair value based accounting method or continue
the intrinsic value based method and provide proforma disclosures of net income 
and earnings per share as if the accounting provisions of SFAS No. 123 had been
adopted.  The provisions of SFAS No. 123 became effective January 1, 1996.  
The Company adopted only the disclosure requirements of SFAS No. 123 and such 
adoption had no effect on the Company's consolidated net earnings or cash flows.

     In June, 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities."  SFAS No. 
125 establishes accounting and reporting standards for transfers and servicing 
of financial assets and extinguishment of liabilities based on a financial-
component approach that focuses on control.  Under that approach, after a 
transfer of financial assets, an entity recognizes the financial and 
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets  when control has been surrendered, and derecognizes 
liabilities when extinguished.  In December 1996, the FASB reconsidered certain
provisions of SFAS No. 125 and issued SFAS 127, "Deferral of the Effective 
Date of Certain Provisions of FASB Statement No. 125" to defer for one year the 
effective date of implementation for transactions related to repurchase 
agreements, dollar-roll repurchase agreements, securities lending and similar
transactions.  Earlier adoption or retroactive application of this statement 
with respect to any of its provisions is not premitted.  The Company adopted
SFAS 125 effective January 1, 1997.  The adoption of SFAS 125 had no effect on 
the Company's financial condition or results of operations.

In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share."  SFAS No. 
128 requires restatement of all prior year earnings per share (EPS) and presen-
tation of basic and diluted EPS.  Basic EPS is computed by dividing net income 
by the weighted average 

<PAGE> 14

common shares outstanding during the period.  Diluted EPS reflects the 
potential dilution if securities or other contracts to issue common stock are
exercised or converted to common shares.  The Company adopted SFAS 128 during 
1997 and all EPS amounts have been retroactively adjusted to comply with SFAS
128.

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive 
Income," which requires that an enterprise report, by major components and as a 
single total, the change in net assets during the period from nonowner sources; 
and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related 
Information," which establishes annual and interim reporting standards for an 
enterprise's business segments and related disclosures about its products, 
services, geographic areas and major customers.

      Both statements are effective for the Company's 1998 consolidated 
financial statements and are not expected to have a material impact on the 
Company's financial position and results of operations.

ITEM 2. PROPERTIES

     As of December 31, 1997, the Bank had three banking offices located in 
Santa Clara County.  The first banking office, which is owned by the Bank, is 
also the principal executive office of the Company, and is located at 12000 
Saratoga-Sunnyvale Road, Saratoga, California, comprising of approximately 5,500
square feet.  The office was purchased by the Company in 1988 for $1,800,000.
The foregoing description of the office and purchase of the office is 
qualified by reference to the Agreement of Purchase and Sale dated July 27, 
1988 attached as Exhibit 10.1 to the Company's Annual Report on Form 10-K for 
the year ended December 31, 1988, filed with the Securities and Exchange
Commission on March 27, 1989.

     The second banking facility, which is located at 15405 Los Gatos Blvd., 
Suite 103, Los Gatos, California, was opened March 9, 1988.  The 3,082 square 
foot facility is leased under a noncancellable operating lease which expires in 
2003. Current lease payments are $6,387 per month for the building and ground 
lease.  Effective March, 1998, the lease payments are tied to the Consumer 
Price Index.  The foregoing description of the lease is qualified by 
reference to the lease agreement dated October 19, 1987 attached as Exhibit
10.1 to the Company's Annual Report on Form 10-K for the year ended December 31,
1987, filed with the Securities and Exchange Commission on March 31, 1988.

     The third banking facility located at 160 West Santa Clara Street, in San 
Jose, California, was opened on October 3, 1989.   The lease agreement for the 
7,250 square foot location in the downtown area of San Jose is under a 
noncancellable operating lease which expires in 1999.  Current lease payments
are $10,989 per month for the ground floor and $4,008 for the second floor.  The
lease payments for the second floor are tied to the Consumer Price Index with
the increase not to exceed 4% per year.  The foregoing description of the 
lease is qualified by reference to the lease agreement dated January 17,

<PAGE> 15

1989 attached as Exhibit 10.4 to the Company's Annual Report on Form 10-K for 
the year ended December 31, 1989, filed with the Securities and Exchange 
Commission on March 27, 1990.

ITEM 3. LEGAL PROCEEDINGS

     Neither the Company nor the Bank is a party to, nor is any of their 
property the subject of, any material pending legal proceedings other than 
ordinary routine litigation incidental to their respective businesses, nor are 
any such proceedings known to be contemplated by governmental authorities.

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

     Not Applicable.
                            PART II
                                
Item 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER 
         MATTERS.

     There is limited trading in and no established public trading market for 
the Company's Common Stock.  The Company's Common Stock is not listed on any 
exchange.  Hoefer and Arnett, Incorporated, Burford Capital and Sutro and 
Company facilitate trades in the Company's Common Stock.

     The following table summarizes those trades of which the Company has 
knowledge based on information provided by Hoefer and Arnett, Incorporated, 
Burford Capital and Sutro and Company, setting forth the approximate high and 
low bid prices for the periods indicated.  The prices indicated below may not 
necessarily represent actual transactions. 
<TABLE>
<CAPTION>                                                   
                                        Bid Price of 
                                      Common Stock  (1) 
 <S>                               <C>        <C>            
  Quarter ended                       Low        High  
  March 31, 1996................    $7.25       $8.50
  June 30, 1996..................    8.25        9.75
  September 30, 1996........         9.06       13.50
  December 31, 1996.........        12.00       12.88 
  
  March 31, 1997................    12.00       15.00
  June 30, 1997..................   14.50       16.50
  September 30, 1997........        15.75       19.00
  December 31, 1997.........        16.25       18.25 
</TABLE>
  
(1)  As estimated by the Company based upon trades of which it was aware, and 
not including purchases of stock pursuant to the exercise of employee stock 
options.  

<PAGE> 16

The Company had 294 shareholders of record as of February 10, 1998.  The 
Company's shareholders are entitled to receive dividends when and as declared 
by its Board of Directors, out of funds legally available therefore, subject to
the restrictions set forth in the California General Corporation Law (the 
"Corporation Law").  The Corporation Law provides that a corporation may make
a distribution to its shareholders if the corporation's retained earnings 
equal at least the amount of the proposed distribution.  The Corporation
Law further provides that, in the event that sufficient retained earnings are 
not available for the proposed distribution, a corporation may nevertheless make
a distribution to its shareholders if it meets two conditions, which generally 
stated are as follows:  (i) the corporation's assets equal at least 1-1/4 
times its liabilities; and (ii) the corporation's current assets equal at 
least its current liabilities or, if the average of the corporation's 
earnings before taxes on income and before interest expenses for the two 
preceding fiscal years was less than the average of the corporation's interest 
expenses for such fiscal years, then the corporation's current assets must equal
at least 1-1/4 times its current liabilities.  Funds for payment of any cash 
dividends by the Company would be obtained from its investments as well as 
dividends and/or management fees from the Bank.  The payment of cash 
dividends by the Bank may be subject to the approval of the OCC, as well as 
restrictions established by federal banking law, the Board of Governors
and the FDIC.

  Approval of the OCC is required if the total of all dividends declared by the 
Bank's Board of Directors in any calendar year will exceed the Bank's net 
profits for that year combined with its retained net profits for the preceding 
two years, less any required transfers to surplus or to a fund for the 
retirement of preferred stock.

  Additionally, the Board of Governors,FDIC and/or OCC, might, under certain 
circumstances, place restrictions on the ability of a bank to pay dividends 
based upon peer group averages and the performance and maturity of that bank, 
or object to management fees on the basis that such fees cannot be supported by
the value of the services rendered or are not the result of an arms length 
transaction.

  It is the intention of the Company to pay cash and stock dividends, subject to
the restrictions on the payment of cash dividends as described above, depending 
upon the level of earnings, management's assessment of future capital needs and 
other factors considered by the Board of Directors.   

<PAGE> 17

ITEM 6.  SELECTED FINANCIAL DATA

  The following table presents certain consolidated financial information
concerning the business of the Company and the Bank.  This information should
be read in conjunction with the Consolidated Financial Statements and the notes
thereto, and Management's Discussion  and Analysis of Financial Condition and
Results of Operations contained elsewhere herein.
<TABLE>
<CAPTION>
Operations                                 Year ended December 31,
                                    (in thousands, except per share data)
<S>                           <C>       <C>       <C>       <C>       <C> 
                                1997      1996      1995      1994      1993 
Interest income                $9,346    $7,585    $6,572    $5,446    $4,949 
Interest expense               (4,273)   (3,558)   (2,861)   (1,929)   (1,685)

Net interest income             5,073     4,027     3,711     3,517     3,264 
(Credit) provision for
 credit losses                   -         (150)     -         (636)      560

Net interest income
  after (credit) provision
  for credit losses             5,073     4,177     3,711     4,153     2,704 
Other income                      477       353       577       405       581
Other expenses                 (2,978)   (2,870)   (2,868)   (3,523)   (2,912)
Income before income
  taxes                         2,572     1,660     1,420     1,035       373  
Provision for income
  taxes                          (976)     (559)     (539)     (377)     (128)
                         
Net income                     $1,596    $1,101    $  881   $   658   $   245
                               ======    ======    ======    ======    ======
Earnings per share(1):
 Basic                        $  1.52   $  1.06   $  0.85   $  0.64   $  0.21   
 Diluted                      $  1.39   $  0.96   $  0.82   $  0.59   $  0.21
                               ======    ======    ======    ======    ======
Cash dividends
 declared per
 common share                 $   .20   $  .175   $  0.10   $   -     $   -
                               ======    ======    ======    ======    ======
</TABLE>
(1) Earnings per share amounts have been restated to conform with SFAS 128,
"Earnings Per Share" requirements.
<TABLE>
<CAPTION>
Balances at year end                        December 31,
                                (in thousands,except per share data)
<S>                         <C>        <C>       <C>       <C>        <C>
                                1997       1996      1995     1994       1993  
Total assets                 $131,044   $121,784  $100,497  $87,536    $79,209 
Net loans                      63,187     52,033    36,759   32,803     33,685
Total deposits                 91,046     89,444    74,949   73,872     65,714
Shareholders' equity           13,605     11,952    11,057    9,627     10,721
Book value per share            12.46      11.53     10.72     9.34       9.17
</TABLE>

<PAGE> 18

DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS'
EQUITY, INTEREST RATES, AND INTEREST DIFFERENTIAL.  The following are the
Company's daily average balance sheets for 1997 and 1996.
<TABLE>
<CAPTION>
                                                                    1997
                                                         (dollars in thousands)
                                                            YIELDS    INTEREST
                                               AVERAGE       OR        INCOME/
                                               BALANCE      RATES      EXPENSE
<S>                                          <C>           <C>        <C>
ASSETS
Interest earning assets:
  Loans (1)                                    $54,537      10.2%      $5,571 
  Investment securities (2)                     49,579       6.3        3,138
  Federal funds sold                            11,204       5.4          607
  Other                                            485       6.2           30
Total interest earning assets                  115,805       8.1        9,346
                                                           
Noninterest-earning assets:
  Cash and due from banks                        4,621
  Premises and equipment                         2,071
  Other assets (3)                               2,230  

      TOTAL                                   $124,727
                                               =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Deposits:
   Demand                                      $23,674       3.6          853
   Savings                                      17,547       3.0          530 
   Time                                         26,742       5.8        1,539
Total interest bearing deposits                 67,963       4.3        2,922  
Federal Home Loan Bank 
  borrowings                                    21,759       6.2        1,350
Other interest bearing liabilities                  10      10.0            1 
Total interest bearing liabilities              89,732       4.8        4,273
Noninterest-bearing liabilities:
   Demand deposits                              21,301
   Accrued expenses and other  
     liabilities                                 1,124
Shareholders' equity                            12,570
    TOTAL                                     $124,727
                                               =======
Net interest income                                                    $5,073
                                                                        =====
Net yield on interest earning assets                        4.4% 
                                                            ====
</TABLE>
(1) Including average non-accrual loans of $60,000 and loan fees of $357,000.
(2) Interest income is reflected on an actual basis, not a fully taxable 
    equivalent basis.  Yields are based on historical cost for held to maturity
    securities and fair market value for available for sale securities.       
(3) Net of average deferred loan fees of $374,000 and average allowance for 
    credit losses of $605,000.

<PAGE> 19
<TABLE>
<CAPTION>
    
                                                       1996
                                                   (dollars in thousands)
                                                           YIELDS     INTEREST
                                             AVERAGE        OR          INCOME/
                                             BALANCE       RATES       EXPENSE
<S>                                        <C>            <C>          <C>
ASSETS
Interest earning assets:
   Loans (1)                                $ 41,313       10.6%        4,395 
   Investment securities (2)                  40,422        6.0         2,419
   Federal funds sold                         14,555        5.2           761

  Other                                          193        5.2            10
Total interest earning assets                 96,483        7.9         7,585
                                                           
Noninterest-earning assets:
  Cash and due from banks                      4,190
  Premises and equipment                       2,186
  Other assets (3)                             1,802  

      TOTAL                                 $104,661
                                             =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Deposits:
   Demand                                    $17,984        3.6           644
   Savings                                    14,238        2.8           403 
   Time                                       28,773        5.8         1,665
Total interest bearing deposits               60,995        4.4         2,712  
Federal Home Loan Bank 
  borrowings                                  13,253        6.3           841
Other interest bearing liabilities                82        6.1             5 
Total interest bearing liabilities            74,330        4.8         3,558 
Noninterest-bearing liabilities:
   Demand deposits                            18,123
   Accrued expenses and other  
     liabilities                                 877
Shareholders' equity                          11,331
    TOTAL                                   $104,661
                                             =======
Net interest income                                                    $4,027
                                                                        =====
Net yield on interest earning assets                        4.2% 
                                                            ====
</TABLE>
(1) Including average non-accrual loans of nil, and loan fees of $383,000.
(2) Interest income is reflected on an actual basis, not a fully taxable 
    equivalent basis. Yields are based on historical cost for held to maturity 
    securities and fair market value for available for sale securities.       
(3) Net of average deferred loan fees of $318,000 and average allowance for 
    credit losses of $729,000.

<PAGE> 20
INTEREST DIFFERENTIAL - RATE/VOLUME CHANGES

Interest differential is affected by changes in volume, changes in rates and a 
combination of changes in volume and rates.  Volume changes are caused by 
changes in the levels of average earning assets and average interest bearing 
deposits and borrowings.  Rate changes result from changes in yields earned on 
assets and rates paid on liabilities. Changes not solely attributable to 
volume or rates have been allocated to the rate component.  The following 
table shows the effect on the interest differential of volume and
rate changes for the years 1997 and 1996.
<TABLE>
<CAPTION>


                           1997 over 1996                   1996 over 1995
                        Increase (Decrease) Due        Increase (Decrease) Due
                           to Changes in:                   to Changes in:
                                           (in thousands)
                                            Net                          Net 
                         Volume    Rate   Change      Volume   Rate     Change 
Interest earning assets:
<S>                    <C>     <C>       <C>        <C>      <C>       <C>
Loans(1)                $1,402  $  (226)  $1,176     $   798  $(191)    $  340
Securities (2)             550      169      719         196   (140)        56
Federal funds sold         (25)    (129)    (154)        409    (69)       340
Interest bearing                                             
  deposits in other                                          
  banks                     15        5       20          10     -          10
Total                    1,942     (181)   1,761       1,413   (400)     1,013

Interest bearing                                                      
 liabilities:                                                
  Demand deposits         208         1      209         110     33        143
  Savings deposits         88        39      127           4     33         37
  Time deposits          (114)      (12)    (126)         95    (33)        62 
  Borrowings              536       (27)     509         954   (490)       464
  Other liabilities        (4)       -        (4)         (9)    -          (9)
  Total                   714         1      715       1,154   (457)       697 

Interest differential  $1,228  $   (182)  $1,046      $  259  $  57     $  316
</TABLE>
 
(1)Including non accrual loans.  
(2)Interest income is reflected on an actual basis, not a fully taxable 
   equivalent basis.

<PAGE> 21

INVESTMENT PORTFOLIO

The amortized cost and fair values of securities at December 31 are as follows:
<TABLE>
<CAPTION>
                                                     December 31,   
            
                                          1997                    1996 
                                                 (in thousands)
Securities Available for Sale
                                    Amortized    Fair    Amortized       Fair
                                      Cost      Value       Cost        Value 
<S>                                <C>        <C>        <C>          <C>
U.S. Treasury and agency securities $11,228    $11,152    $11,704      $11,671
Governmental mutual fund              3,128      3,018      3,128        2,958
Federal Home Loan Bank stock          1,864      1,864      3,170        3,170
Bankers Bank stock                      150        150        150          150
Total                               $16,370    $16,184    $18,152      $17,949
                                     ======     ======     ======       ======
</TABLE>
<TABLE>
<CAPTION>
Securities Held to Maturity
                                   Amortized     Fair    Amortized       Fair
                                     Cost       Value       Cost        Value  
<S>                                <C>        <C>        <C>          <C>
U.S. Treasury and agency securities $10,879    $10,845    $ 5,489      $ 5,501
Mortgage-backed securities           15,024     15,124     13,204       13,070
Obligations of states and political
  subdivisions                        5,159      5,234      5,328        5,354
Federal Reserve Bank stock               90         90         90           90
                                    $31,152    $31,293    $24,111      $24,015
                                     ======     ======     ======       ======
</TABLE>
As investment securities mature, to the extent that the proceeds are reinvested
in investment securities, management expects that the categories of taxable 
investment securities purchased will be in approximately the same proportion as
existed at December 31, 1997.  The maturities and yields of the investment 
portfolio at December 31, 1997 are shown below.

<PAGE> 22
<TABLE>
<CAPTION>
MATURITY AND YIELDS OF INVESTMENT SECURITIES
At December 31, 1997
(Dollars in thousands)
Securities Available for Sale
        Estimated               After 1 Year,   After 5 years
         Market Within 1 Year  Within 5 Years  Within 10 Years After 10 years
         Value Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) 
<S>    <C>    <C>     <C>     <C>      <C>     <C>    <C>     <C>     <C>
U.S. Treas-
  ury and
  agency
  secur-
  ities $11,152 $  999  5.38%   $7,018   6.00%  $3,135  8.00%   $ -      -   %
Govern-
  mental
  mutual 
  fund    3,018  3,018  6.04       -       -       -      -       -      -
Federal 
  Home 
  Loan 
  Bank    1,864   -      -        -       -       -      -         1,864  5.09 
 stock    
Bankers 
  Bank
  stock     150   -      -        -       -       -      -           150    -  
        $16,184 $4,017  5.90%  $7,018   6.00%   $3,135 8.00%      $2,014 4.71%
         ====== ======          =====            =====             =====
</TABLE>
<TABLE>
<CAPTION>
Securities Held to Maturity
          Total                   After 1 Year,   After 5 Years  
        Carrying Within 1 Year   Within 5 Years  Within 10 Years After 10 Years
          Value  Amount Yield(1) Amount Yield(1) Amount Yield(1) AmountYield (1)
<S>    <C>     <C>     <C>    <C>      <C>      <C>      <C>    <C>    <C>
U.S. Treas-
  ury and 
  agency
  secur-
  ities $10,879 $1,998  4.55%  $  -       -  %    $ 3,417 6.28%   $5,464 7.87%
  
Obligat-
  ions of
  States
  and
  polit-
  ical
  sub
  divis-
  ions    5,159    861  4.63%   1,983     6.16      1,786 5.55%     529   5.44

Federal
  Reserve
  Bank 
  stock      90   -      -      -         -          -    -          90   6.00

Total   $16,128 $2,859  4.57%  $1,983    6.16%    $ 5,203 6.03%  $6,083   6.00%
         ======  =====          =====              ======         =====
Mortgage-
 backed
 secur-
 ities   15,024
Total   $31,152
         ======
</TABLE>
(1)  Yields are actual, not fully taxable equivalent.

Mortgage-backed securities generally have stated maturities of 4 to 15 years but
are subject to likely and substantial prepayments which effectively accelerate 
actual maturities.

<PAGE > 23

LOAN PORTFOLIO

The composition of the loan portfolio at December 31, 1997 and 1996 is 
summarized in the following table.
<TABLE>
<CAPTION>
                                               December 31, 
                                           1997         1996   
                                               (in thousands)
      <S>                               <C>           <C> 
       Real estate:
        Construction                     $ 8,945       $ 9,249
        Other                             29,100        21,473
       Commercial                         21,282        18,242
       Installment                         1,548         1,861
       Lease financing                     3,215         2,160
                                         $64,090       $52,985
                                         =======       ======= 
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1997, loans were due as follows:
                        Real      Real
                       Estate    Estate                        Lease
                       Const.     Other    Com'l.  Install.  Financing  Total
                       =====     ======    ======   =======  =========  ======
                                      (in thousands)
<S>                  <C>     <C>         <C>        <C>       <C>     <C>
Due in one year
  or less             $8,808  $   1,818   $15,489    $    1    $  559  $26,675
Due after one year       137     27,282     5,793     1,547     2,656   37,415
 
TOTAL                 $8,945    $29,100   $21,282    $1,548    $3,215  $64,090
                       =====     ======    ======    ======     =====   ======
</TABLE>
Of the loans due after one year, $25,512,000 have fixed rates and $11,903,000 
have variable interest rates.

RISK ELEMENTS

       Nonaccrual loans were $360,000 at December 31, 1997.  There were no 
nonaccrual loans at December 31, 1996.           

       At December 31, 1997 and 1996, there were no loans past due 90 days or 
more as to principal or interest and still accruing interest.  There were no 
loans at December 31, 1997 which were troubled debt restructurings ( $187,000 
at December 31, 1996).

<PAGE> 24
       There were five potential problem loans at December 31, 1997 having a 
combined principal balance of $305,000 ($1,140,000 at December 31, 1996).  
Potential problem loans are loans which are generally current as to principal 
and interest but have been identified by the Company as potential problem loans 
due either to a decrease in the underlying value of the property securing the 
credit or some other deterioration in the creditworthiness of the borrower.  
All of the five loans identified as potential problem loans are secured by 
real estate and personal property.  

       The Company does not believe there to be any concentration of loans in 
excess of 10% of total loans which is not disclosed above which would cause them
to be similarly impacted by economic or other conditions.  See Management's 
Discussion and Analysis of Financial Condition and Results of Operations-
Provision for Credit Losses, regarding discussion of California economic 
conditions.

SUMMARY OF CREDIT EXPERIENCE

Analysis of the Allowance for Credit Losses
<TABLE>
<CAPTION>
                                        Year Ended December 31,
                                           1997          1996 
<S>                                     <C>           <C>
Beginning balance                        $628,000      $776,000 
Reductions credited
  to operations                              -         (150,000)
Charge-offs - Commercial                 (115,000)      (39,000)
Recoveries - Commercial                    65,000        41,000     

Ending balance                          $ 578,000     $ 628,000
                                         ========      ========
Ratio of net charge-offs
 (recoveries) during the period
 to average loans outstanding
 during the year.                           .092%       (.005)%
                                         ========      ========
Ratio of allowance for credit
  losses to loans outstanding
  at end of year                            0.90%         1.19%
                                         ========      ========
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
Allocation of the Allowance for Credit Losses 
                        December 31, 1997         December 31, 1996
                                  Percent                    Percent 
                                of loans in                of loans in
                               each category              each category
                      Amount   to total loans    Amount   to total loans
<S>                 <C>            <C>         <C>             <C>
Real estate-
  other              $254,000       46%         $215,000        41%
Commercial            254,000       33           331,000        34 
Real estate- 
 construction          61,000       14            70,000        18
Installment             9,000        2            12,000         3 
Lease financing          -           5              -            4 
                     $578,000      100%         $628,000       100%
                     ========      ===          ========       ===
</TABLE>
DEPOSITS

The average balance sheets for 1997 and 1996 set forth the average amount and
average interest rate paid for deposits.

At December 31, 1997, time deposits of $100,000 or more have remaining
maturities as follows (in thousands):

3 months or less                          $ 5,233
Over 3 months to 6 months                   1,897
Over 6 months to 12 months                  4,033
Over 1 year to 5 years                      2,510
Over 5 years                                  100
  TOTAL                                   $13,773  
                                           ======

RETURN ON EQUITY AND ASSETS

Ratios of profitability, liquidity and capital for the years ended December 31,
are as follows:
                                               1997             1996 
Return on average assets                        1.3%             1.1% 
Return on average equity                       12.7%             9.7%
Cash dividends declared per share
  to diluted earnings per share                14.4%            18.2% 
Average equity to average assets               10.1%            10.8%

<PAGE> 26

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

      Certain matters discussed or incorporated by reference in this Annual 
Report on Form 10-K are forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those 
projected. Such risks and uncertainties include, but are not limited to, matters
described in Item 7 - "Management's Discussion and Analysis of Financial 
Condition and Results of Operations."  Therefore, the information set forth 
therein should be carefully considered when evaluating business prospects of 
the Company and the Bank.

OVERVIEW

      Net income in 1997 was $1,596,000 ($1.52 basic earnings per share, $1.39
diluted earnings per share) compared to $1,101,000 ($1.06 basic earnings per
share, $0.96 diluted earnings per share) in 1996 and $881,000 ($.85 basic
earnings, $0.82 diluted earnings per share) in 1995.  The increase in net 
income in 1997 resulted primarily from an increase in the volume and yield of 
earning assets, offset, in part by an increase in interest expense due to the 
increased volume of interest-bearing liabilities.  The increase in net income in
1996 resulted primarily from an increase in the volume of earning assets, 
offset, in part, by an increase in the volume of  interest-bearing liabilities.
The table below highlights the changes in the nature and sources of income 
and expense from 1996 to 1997 and from 1995 to 1996.
<TABLE>
<CAPTION>

                                               Net                       Net
                                             Income                    Income 
                                            Increase                  Increase
                       1997      1996      (Decrease)       1995     (Decrease)
                                         (in thousands)
<S>                 <C>       <C>          <C>            <C>          <C>
Net interest income  $5,073    $4,027       $1,046         $3,711       $ 316 
Provision (credit)
  for credit losse     -         (150)        (150)          -            150
Noninterest income      477       353          124            577        (224)
Noninterest expenses (2,978)   (2,870)        (108)        (2,868)         (2)
Income before
  income taxes        2,572     1,660          912          1,420         240   
Provision for
 income taxes          (976)     (559)        (417)          (539)        (20)

Net income           $1,596    $1,101        $ 495         $  881       $ 220
                      =====     =====        =====         ======       =====
</TABLE>

<PAGE> 27
NET INTEREST INCOME                                              

Net interest income is affected by changes in the nature and volume of earning 
assets held during the year, the rates earned on such assets and the rates 
paid on interest-bearing liabilities. The table below details the average 
balances, interest income and expense and the effective yields/rates for earning
assets and interest bearing liabilities. 
<TABLE>
<CAPTION>
                    1997                   1996                   1995   
          Average         Yield/ Average          Yield/ Average         Yield/
          Balance Interest Rate  Balance  Interest Rate  Balance Interest Rate
                            (in thousands, except percentages)
<S>       <C>     <C>    <C>    <C>      <C>     <C>    <C>     <C>    <C>
Earning 
  assets:
  Loans    $54,537 $5,571 10.2%  $41,313  $4,395  10.6%  $34,057 $3,788  11.1%
  Other     61,268  3,775  6.2    55,170   3,190   5.8    44,658  2,784   6.2 
Total 
  earning 
  assets  $115,805               $96,483                 $78,715              
          =======                =======                 =======

Interest
 bearing
 liabil-
 ities:
 Deposits $ 67,963  2,922 4.3    $60,995  2,712   4.4    $55,649  2,470   4.5 
 Other  
  interest
  bearing
  funds     21,769  1,351 6.2     13,335    846   6.3      5,446    391   7.2  

Total
  interest
  bearing 
  liabil-
  ities   $ 89,732               $74,330                 $61,095             
          ========               =======                 =======
Net
 interest
 income
 and 
 margin            $5,073 4.4%            $4,027 4.2%            $3,711   4.7%
                    ===== ====             ===== ====             =====   ====

</TABLE>
Average earning assets increased $19.3 million or 20%, to $115.8 million during
1997 compared to $96.5 million in 1996.  The increase in 1997 was primarily in 
SBA and USDA loans which were purchased as a means to diversify the loan 
portfolio.  In 1996, the increase in loans was primarily in the longer term real
estate loan portfolio.  These loans are generally made for a term of between 
five and fifteen years and are matched against specific blocks of deposits or 
borrowings in order to alleviate interest rate risk.  The increase in the 
investment portfolio is primarily the result of increased average deposits 
and other borrowings.   Average interest-bearing liabilities increased $15.4 
million, or 21%, during 1997 to $89.7  million from $74.3 million in 1996 
primarily due to an increase in Federal Home Loan Bank borrowings which were
matched against specific longer term real estate loans and an increase in 
interest bearing checking deposits.  Average interest-bearing liabilities 
increased $13.4 million, or 22%, to $74.3 million, in 1996 from $61.1 

<PAGE> 28
million in 1995.  This increase was primarily due to an increase in Federal Home
Loan Bank borrowings which were matched against specific longer term real estate
loans.


EARNING ASSETS-LOANS

The average loan portfolio increased $13.2 million, or 32%, from $41.3 million
in 1996 to $54.5 million in 1997.  The increase was primarily in SBA and USDA 
loans which were purchased in order to diversify the loan portfolio.  Average
loans increased $7.2 million from $34.1 million in 1995 to $41.3 million in 
1996.  The increase was primarily in the longer term real estate loan portfolio 
as a result of marketing efforts in that area. The average loan to average 
deposit ratio for 1997 was 61% compared to 68% in 1996 and 49% in 1995.  The 
average yield on loans decreased from 11.1% in 1995 to 10.6% in 1996 and 10.2% 
in 1997.  The decrease in yield in 1997 is primarily attributable to the 
purchase of SBA and USDA loans which generally had lower average yields as 
compared to the rest of the loan portfolio.  The decrease in yield in 1996 
primarily reflects a decrease in interest rates on loans originated during the 
year as compared to 1995.

OTHER EARNING ASSETS

Average other earning assets, consisting of Investment securities, Federal funds
sold and interest bearing deposits in other banks, increased $6.1 million or 11%
during 1997 from $55.2 million to $61.3 million.  During 1996, average other 
earning assets increased $10.5 million from $44.7 million in 1995.  The increase
in the securities portfolio in 1997 and 1996 was primarily due to the increased
level of deposits.  The yield earned on average other earning assets decreased 
from 6.2% in 1995 to 5.8% in 1996 and then increased to 6.2% in 1997.  
In 1997, the change in the volume and yields of other earning assets resulted in
an increase in  interest income of $585,000 on other earning assets. In 1996, 
the change in the volume and yields resulted in an increase in  interest 
income of $406,000 on other earning assets. 

INTEREST BEARING LIABILITIES

Average interest bearing liabilities increased $15.4 million, or 21%,  from 
$74.3 million in 1996 to $89.7 million in 1997 and increased $13.4 million, or 
22%, from $60.9 million in 1995 to $74.3 million in 1996.  The increases in 1997
and 1996 were primarily a result of increased Federal Home Loan Bank borrowings
which were matched against certain longer term real estate loans to alleviate 
the impact of interest rate risk.  Average non-interest bearing deposits 
increased $3.2 million, or 18%,  in 1996 to $21.3 million and increased $2.8 
million, or 19%,  to $18.1 

<PAGE 29>

million in 1997 from an average of $15.3 million in 1995.  Overall rates on 
interest bearing deposits decreased from 4.5% in 1995 to 4.4% in 1996 and 
4.3% in 1997. The net result of the changes in average balances and rates was an
increase in total interest expense of $715,000 in 1997 from 1996 and an increase
of $697,000 in 1996 from 1995.  

NET INTEREST MARGIN

The net interest margin decreased from 4.7% in 1995 to 4.2% in 1996 and then
increased to 4.4% in 1997.  The changes in the net interest margin are primarily
attributable to fluctuations in the loan, deposit and borrowing mix and the
relationship between rates charged and rates paid.

PROVISION FOR CREDIT LOSSES

The Bank maintains an allowance for credit losses which is based, in part, on 
the Bank's historical loss experience, the impact of forecasted economic 
conditions within the Bank's market area, and, as applicable, the State of 
California, the value of underlying collateral, loan performance and inherent 
risks in the loan portfolio.  The allowance is reduced by charge-offs and 
increased by provisions for credit losses charged to operating expense and 
recoveries of previously charged-off loans.  During 1997 and 1995, the Bank did
not provide any additional provision for credit losses.  In 1996, $150,000 was 
reversed from the allowance for credit losses. The allowance for credit losses 
was $578,000 in 1997, compared to $628,000 for 1996 and $776,000 for 1995.  At 
December 31, 1997, the allowance was approximately 0.9% of total loans, compared
to approximately 1.2% at December 31, 1996.  Nonaccrual loans were $360,000 at 
December 31, 1997. There were no nonaccrual loans at December 31, 1996.  
Interest income foregone on nonaccrual loans during 1997 was $13,000. The 
nonaccrual loans consisted of one loan secured by real estate which was paid off
on January 22, 1998.

At December 31, 1997 and 1996, there were no loans past due 90 days or more as
to principal or interest and still accruing interest. 

There was no Other Real Estate Owned ("OREO") at December 31, 1997 ($1,252,000
at December 31, 1996).   OREO at December 31, 1996 consisted of a 12 lot 
subdivision which was sold on June 19, 1997.

<PAGE> 30
Nonperforming loans and other real estate owned are summarized below:
<TABLE>
<CAPTION>
                                 December 31, 1997 December 31, 1996
<S>                               <C>              <C>
Nonperforming loans:
  Past due 90 days or more        
    and still accruing interest    $      -          $     -    
  Nonaccrual                           360,000             -      
    
    Total                              360,000             -   

Other real estate owned                   -           1,252,000

Total nonperforming loans and
  other real estate owned          $   360,000       $1,252,000
                                   ===========       ==========  
</TABLE>
Management is of the opinion that the allowance for credit losses is maintained
at a level adequate for known and currently anticipated future risks inherent in
the loan portfolio.  However, the Bank's loan portfolio, which includes approx-
imately $38,000,000 in real estate loans, representing approximately 60% of the 
portfolio, could be adversely affected if California economic conditions and the
real estate market in the Bank's market area were to weaken.  The effect of such
events, although uncertain at this time, could result in an increase in the 
level of nonperforming loans and OREO and the level of the allowance for loan 
losses, which could adversely affect the Company's and the Bank's future growth 
and profitability.

NONINTEREST INCOME

Noninterest income increased $124,000, or 35%, to $477,000 during 1997
compared to $353,000 during 1996. During 1996, noninterest income decreased
$224,000, or 39%, from $577,000 in 1995.  The increase in 1997 was primarily
attributable to a net gain on sale of securities of $34,000 and an increase of
$74,000 in charges assessed on deposit accounts.  The decrease in 1996 is
primarily attributable to net gain on sale of securities of $72,000 in 1995, a 
gain on sale of OREO of $55,000 realized in 1995 and a decrease of $102,000 in 
rental income from OREO.

NONINTEREST EXPENSES

Noninterest expenses were approximately $3.0 million in 1997, compared to
approximately $2.9 million in 1996 and 1995. 

<PAGE> 31
Generally, expenses have grown commensurate with the growth in assets and
increases in the volume of transactions.  As a percentage of average earning
assets, noninterest expense decreased to 2.6% in 1997 from 3.0% in 1996.  In
1996, noninterest expense as a percentage of earning assets decreased to 3.0%
from 3.6% in 1995.  As pressure continues on net interest margins and net asset
growth, management of operating expenses will continue to be a priority. 

INCOME TAXES

The Company's effective tax rate was 38.0% for 1997, 33.7% for 1996 and 38.0%
for 1995.  See Note 9 to the consolidated financial statements for additional
information on income taxes.

LIQUIDITY/INTEREST RATE SENSITIVITY

The Bank manages its liquidity to provide adequate funds at an acceptable cost 
to support borrowing requirements and deposit flows of its customers. At 
December 31, 1997 and 1996, liquid assets as a percentage of deposits were 36% 
and 46%, respectively.  In addition to cash and due from banks, liquid assets 
include interest bearing deposits with other banks, Federal funds sold and 
securities which are available for sale.  The Bank has $10.0 million in Federal 
funds lines of credit available with correspondent banks to meet liquidity 
needs. 

Management regularly reviews general economic and financial conditions, both
external and internal, and determines whether the positions taken with respect 
to liquidity and interest rate sensitivity continue to be appropriate.  The Bank
also utilizes a monthly "Gap" report which identifies rate sensitivity over the 
short- and long-term.        

The following table sets forth the distribution of repricing opportunities, 
based on contractual terms, of the Company's earning assets and interest-bearing
liabilities at December 31, 1997, the interest rate sensitivity gap (i.e. 
interest rate sensitive assets less interest rate sensitive liabilities), the 
cumulative interest rate sensitivity gap, the interest rate sensitivity gap 
ratio (i.e. interest rate sensitive assets divided by interest rate sensitive 
liabilities) and the cumulative interest rate sensitivity gap ratio.

Based on the contractual terms of its assets and liabilities, the Bank is 
currently asset sensitive in terms of its short-term exposure to interest rates.
In other words, the Bank's assets reprice faster than its liabilities.

<PAGE> 32
DISTRIBUTION OF REPRICING OPPORTUNITIES
At December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>

                          After Three After Six  After One
                    Within Months But Months But Year But    After 
                    Three  Within Six Within One  Within      Five 
                    Months  Months      Year     Five Years  Years      Total 
<S>                <C>      <C>      <C>        <C>        <C>       <C>
Federal funds sold  $10,500  $ -      $  -       $   -      $    -    $ 10,500
Interest bearing 
  deposits in other
  banks                -       -         -          1,489       -        1,489 
Municipal securities   -        861    1 ,112         871      2,315     5,159
U.S. Treasury and                                                            
  agency securities   5,017     999       605      14,593     18,859    40,073
FRB/FHLB stock         -       -         -            -        2,104     2,104
Loans                34,583   1,006     2,439       9,513     16,549    64,090 

Total 
  earning assets    $50,100  $2,866    $4,156     $26,466    $39,827  $123,415  
Interest bearing
  demand accounts   $22,789  $ -       $ -        $  -       $  -     $ 22,789  
Savings accounts     14,092    -         -           -          -       14,092  
Time certificates 
  of deposit of
  $100,000 or more    5,233   1,897     4,033       2,510        100    13,773
Other time deposits   2,965   3,336     5,930       2,705        -      14,936 
Federal funds
  purchased           2,000    -         -           -           -       2,000 
Other borrowings      5,000    -         -          7,038      10,946   22,984 
 Total interest-
  bearing
  liabilities       $52,079 $ 5,233    $9,963     $12,253     $11,046 $ 90,574
 Interest rate
  sensitivity gap  $ (1,979)$(2,367)  $(5,807)    $14,213     $28,781 $ 32,841
                     ======  ======    ======      ======      ======  ======= 
Cumulative interest
  rate sensitivity
  gap              $ (1,979)$(4,346)  $(10,153)   $  4,060    $32,841        
                    =======  ======    =======     =======     ======
Interest rate
  sensitivity gap
  ratio               0.96%   0.55%      0.42%       2.16%      1.38%
                      ====    ====       ====        ====       ==== 
Cumulative interest
  rate sensitivity
  gap ratio           0.96%   0.92%      0.85%       1.05 %     1.36%
                      ====    ====       ====        ====       ==== 
</TABLE>
<PAGE> 33
INFLATION

The impact of inflation on a financial institution differs significantly from 
that exerted on manufacturing, or other commercial concerns, primarily because 
its assets and liabilities are largely monetary.  In general, inflation 
primarily affects the Company indirectly through its effect on the ability of
its customers to repay loans, or its impact on market rates of interest, and 
thus the ability of the Bank to attract loan customers.  Inflation affects the
growth of total assets by increasing the level of loan demand, and potentially 
adversely affects the Company's capital adequacy because loan growth in inflat-
ionary periods may increase more rapidly than capital.  Interest rates in 
particular are significantly affected by inflation, but neither the timing nor 
the magnitude of the changes coincides with changes in the Consumer Price Index,
which is one of the indicators used to measure the rate of inflation.  
Adjustments in interest rates may be delayed because of the possible imposition 
of regulatory constraints.  In addition to its effects on interest rates, 
inflation directly affects the Company by increasing the Company's operating 
expenses.  The effect of inflation during the three-year period ended December 
31, 1997 has not been significant to the Company's financial position or results
of operations. 

CAPITAL RESOURCES

The Company's capital resources consist of shareholders' equity and (for regul-
atory purposes) the allowance for credit losses. During the year ended December 
31, 1997, the Company's regulatory capital increased $1,603,000. Tier 1 capital
increased $1,653,000 due primarily to the retention of earnings and sale of 
stock.  Tier 2 capital decreased $50,000 due to the decrease in the allowance 
for credit losses.  

The Company and the Bank are subject to capital adequacy guidelines issued by 
the Board of Governors and the OCC. The Company and the Bank are required to 
maintain total capital equal to at least 8% of assets and commitments to extend
credit, weighted by risk, of which at least 4% must consist primarily of common
equity including retained earnings (Tier 1 capital) and the remainder may 
consist of subordinated debt, cumulative preferred stock or a limited amount of 
loan loss reserves.  Certain assets and commitments to extend credit present 
less risk than others and will be assigned to lower risk-weighted categories 
requiring less capital allocation than the 8% total ratio.  For example, cash 
and government securities are assigned to a 0% risk-weighted category, most home
mortgage loans are assigned to a 50% risk-weighted category requiring a 4% 
capital allocation and commercial loans are assigned to a 100% risk-weighted 
category requiring an 8% capital allocation.  As of December 31, 1997, the 
Company's total risk-based capital ratio was approximately 18.1% (approximately 
17.0% for the Bank) compared to approximately 18.1% (approximately 17.1% for the
Bank) at December 31, 1996.

The Board of Governors and the OCC adopted a 3% minimum leverage ratio for 
banking organizations as a supplement to the risk-weighted capital guidelines.  
The minimum
<PAGE> 34
leverage ratio is intended to limit the ability of banking  organizations to 
leverage their equity capital base by increasing assets and liabilities without 
increasing capital proportionately.  The 3% minimum leverage ratio constitutes a
minimum ratio for well-run banking organizations.  Organizations experiencing or
anticipating significant growth or failing to meet certain Board of Governors 
standards will be required to maintain a minimum leverage ratio ranging from 100
to 200 basis points in excess of the 3% ratio.  

The following table reflects the Company's Leverage, Tier 1 and total risk-based
capital ratios for the three year period ended December 31, 1997.
<TABLE>
<S>                                    <C>      <C>      <C>   
                                         1997     1996     1995
Leverage ratio                          10.9%    10.5%    11.7%
Tier 1 capital ratio                    17.4%    18.1%    20.8% 
Total risk-based capital ratio          18.1%    18.1%    22.0%
</TABLE>
On December 19, 1991, President Bush signed the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (the "FDICIA").  The FDICIA, among other 
matters, substantially revised banking regulations and established a framework 
for determination of capital adequacy of financial institutions.  Under the 
FDICIA, financial institutions are placed into one of five capital adequacy 
catagories as follows: (1) "Well capitalized" - consisting of institutions with 
a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital
ratio of 6% or greater and a leverage ratio of 5% or greater, and the instit-
ution is not subject to an order, written agreement, capital directive or prompt
corrective action directive; (2) "Adequately capitalized" - consisting of 
institutions with a total risk-based capital ratio of 8% or greater, a Tier 1 
risk-based capital ratio of 4% or greater and a leverage ratio of 4% or greater,
and the institution does not meet the definition of a "well capitalized" 
institution; (3) "Undercapitalized" - consisting of institutions with a total 
risk-based capital ratio less than 8%, a Tier 1 risk-based capital ratio of less
than 4%, or a leverage ratio of less than 4%; (4) "Significantly under-
capitalized" - consisting of institutions with a total risk-based capital ratio 
of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a 
leverage ratio of less than 3%; (5) "Critically undercapitalized" - consisting
of an institution with a ratio of tangible equity to total assets that is equal 
to or less than 2%.

Financial institutions classified as undercapitalized or below are subject to 
various limitations including, among other matters, certain supervisory actions 
by bank regulatory authorities and restrictions related to (i) growth of assets,
(ii) payment of interest on subordinated indebtedness, (iii) payment of 
dividends or other capital distributions, and (iv) payment of management fees to
a parent holding company.  The FDICIA requires the bank regulatory authorities 
to initiate corrective action regarding financial institutions which fail
to meet minimum capital requirements.  Such action may result in orders to, 
among other matters, augment capital and reduce total assets.  Critically under-
capitalized financial institutions may also be subject to appointment of a 
receiver or implementation of a capitalization plan.

<PAGE> 35
OTHER MATTERS

     From time to time, the Company's Board of Directors reviews and consults 
with advisors, including investment banking, accounting and legal advisors, 
regarding banking industry trends and developments, as well as internal and 
external opportunities to maximize shareholder value.  Such reviews and consul-
tations include evaluating and comparing internal results of operations 
projections and external opportunities for mergers, acquisitions, 
reorganizations, or other transactions with third parties which may be in the  
interests of the Company's shareholders.  The Company's Board of Directors 
considers such periodic review and consultation to be important as part of their
analysis of the Company's value and prospects in the changing banking environ-
ment and in view of the current consolidation activity within the banking 
industry.

YEAR 2000

     As the year 2000 approaches, a critical issue has emerged regarding how 
existing application software programs and operating systems can accommodate 
this date value.  In brief, many existing application software products  were 
designed to only accommodate a two digit date position which represents the year
(e.g. "97" is stored on the system and represents the year 1997).  As a result,
the year 1999 (i.e. "99",  could be the maximum date value these systems will be
able to accurately process.  This is not just a banking problem, as corporations
around the world and in all industries are similarly impacted.  Management is
in the process of working with its software vendors to assure that the
Company is prepared for the year 2000. The Company has put procedures in place 
to inquire whether the systems of key borrowers are year 2000 compliant.  At 
present the Company has not identified any special problems and does not have an
estimate of the total cost of evaluating and fixing any potential year 2000 
problems. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK

Disclosures under this item are not required for the current fiscal year as the
Company qualifies as a "Small Business" filer.

<PAGE> 36

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                               Page
Independent Auditors' Report                                    37

Consolidated Balance Sheets, December 31, 1997 and 1996         38 

Consolidated Income Statements for the years ended  
   December 31, 1997, 1996, and 1995                            39

Consolidated Statements of Shareholders' Equity for the  
   years ended December 31, 1997, 1996 and 1995                 40

Consolidated Statements of Cash Flows for the years 
   ended December 31, 1997, 1996 and 1995                       41


Notes to Consolidated Financial Statements                    42-56

All schedules have been omitted since the required information is not present or
not present in amounts sufficient to require submission of the schedule or 
because the information required is included in the Consolidated Financial 
Statements or notes thereto.

<PAGE> 37
     INDEPENDENT AUDITORS' REPORT
     
     To the Board of Directors and Shareholders
      of Saratoga Bancorp:

     We have audited the accompanying consolidated balance sheets of Saratoga 
     Bancorp and subsidiary as of December 31, 1997 and 1996, and the related 
     consolidated statements of  income, shareholders' equity and cash flows
     for each of the three years in the period ended December 31, 1997.  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 generally accepted auditing 
     standards.  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 state-
     ments.  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, such consolidated financial statements present fairly, in 
     all material respects, the financial position of Saratoga Bancorp and 
     subsidiary as of December 31, 1997 and 1996, and the results of their
     operations and their cash flows for each of the three years in the period 
     ended December 31, 1997 in conformity with generally accepted accounting 
     principles.
     
     
     
     DELOITTE  &  TOUCHE LLP
     San Jose, California
     January 20, 1998
     
<PAGE> 38
<TABLE>
<CAPTION>
      SARATOGA BANCORP AND SUBSIDIARY
     CONSOLIDATED BALANCE SHEETS                              
     DECEMBER 31, 1997 AND 1996                          
                                
     ASSETS                              1997                 1996
    <S>                              <C>                 <C>
     CASH AND DUE FROM BANKS         $     4,760,000     $     4,543,000
     FEDERAL FUNDS SOLD                   10,500,000          18,300,000
        Total cash and  equivalents       15,260,000          22,843,000 
     INTEREST-BEARING         
        DEPOSITS IN OTHER BANK             1,489,000                -         
     SECURITIES AVAILABLE FOR SALE        16,184,000          17,949,000
     SECURITIES HELD TO MATURITY          31,152,000          24,111,000
     LOANS                                63,765,000          52,661,000
     ALLOWANCE FOR CREDIT LOSSES            (578,000)           (628,000)
               Loans, net                 63,187,000          52,033,000
     PREMISES AND EQUIPMENT, Net           1,992,000           2,135,000
     OTHER REAL ESTATE OWNED                    -              1,252,000
     ACCRUED INTEREST RECEIVABLE AND
        OTHER ASSETS                       1,780,000           1,461,000
     TOTAL                          $    131,044.000     $   121,784,000  
                                    ================    ================

     LIABILITIES AND  
       SHAREHOLDERS' EQUITY                                        
     DEPOSITS:                            
       Demand, noninterest-bearing  $    25,456,000      $    22,823,000   
       Demand, interest-bearing          22,789,000           23,171,000
          Savings                        14,092,000           13,935,000
          Time                           28,709,000           29,515,000
               Total deposits            91,046,000           89,444,000
      FEDERAL FUNDS PURCHASED             2,000,000            1,500,000
     OTHER BORROWINGS                    22,984,000           18,201,000
     ACCRUED INTEREST PAYABLE AND
       OTHER LIABILITIES                  1,409,000              687,000 
               Total liabilities        117,439,000          109,832,000
     COMMITMENTS (Notes 5 and 11)                             
     SHAREHOLDERS' EQUITY:                          
      Preferred stock, no par value; 
      authorized 1,000,000 shares; 
      no shares issued Common stock, 
      no par value; authorized         
      20,000,000 shares; outstanding 
      1,091,967 in 1997 and 1,036,392 
      shares in 1996.                     4,705,000            4,461,000
          Retained earnings               9,099,000            7,717,000
          Net unrealized loss on 
          securities available
             for sale                      (199,000)            (226,000)
       Total shareholders' equity        13,605,000           11,952,000
      TOTAL                        $    131,044,000      $   121,784,000  
                                    ===============      ===============  
</TABLE>
          See notes to consolidated financial statements.
<PAGE> 39
<TABLE>
<CAPTION>
     SARATOGA BANCORP AND SUBSIDIARY                     

CONSOLIDATED INCOME STATEMENTS                      
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                     1997            1996             1995 
INTEREST INCOME:                          
   <S>                      <C>              <C>               <C> 
    Loans, including fees    $    5,571,000   $    4,395,000    $   3,788,000
     Securities:                          
          Taxable                 2,894,000        2,244,000        2,194,000
          Non-taxable               244,000          175,000          169,000  
    Federal funds sold              607,000          761,000          421,000
    Other                            30,000           10,000             -   
      Total interest income       9,346,000        7,585,000        6,572,000
INTEREST EXPENSE:                              
     Deposits                     2,922,000        2,712,000        2,470,000
     Borrowings                   1,350,000          841,000          377,000
     Other                            1,000            5,000           14,000
      Total interest expense      4,273,000        3,558,000        2,861,000
NET INTEREST INCOME BEFORE
   CREDIT FOR CREDIT LOSSE        5,073,000        4,027,000        3,711,000
CREDIT FOR CREDIT LOSSES               -            (150,000)            -      
NET INTEREST INCOME AFTER
  CREDIT FOR CREDIT LOSSE         5,073,000        4,177,000        3,711,000
OTHER INCOME:                             
     Service charges                273,000          199,000          194,000
     Rental income from 
       leased assets                 98,000           83,000          119,000
     Net gain on sale of
       securities available
       for sale                      34,000             -              72,000
     Rental income from other 
       real estate owned               -                -             102,000   
     Net gain on sale of other 
       real estate owned               -                -              55,000
     Other                          72,000            71,000           35,000
       Total other income          477,000           353,000          577,000
OTHER EXPENSES:                           
     Salaries and employee 
       benefits                  1,338,000         1,342,000        1,188,000
     Occupancy                     372,000           348,000          376,000
     Professional fees             154,000           158,000          156,000
     Furniture and equipment       141,000           138,000          126,000
     Depreciation on leased 
       assets                       79,000            65,000          110,000
     Data processing                75,000            71,000           45,000
     Net cost of other real 
       estate owned                 59,000             5,000          115,000
     Insurance                      40,000            88,000          161,000
     Net loss on sale of 
       securities available
       for sale                       -                4,000             -  
     Other                         720,000           651,000          591,000
       Total other expenses      2,978,000         2,870,000        2,868,000
INCOME BEFORE INCOME TAXES       2,572,000         1,660,000        1,420,000
PROVISION FOR INCOME TAXES         976,000           559,000          539,000
NET INCOME                    $  1,596,000       $ 1,101,000     $    881,000
EARNINGS PER SHARE:           ============       ===========     ============
  BASIC                       $       1.52       $      1.06     $       0.85 
                              ============       ===========     ============
  DILUTED                     $       1.39       $      0.96     $       0.82
                              ============       ===========     ============
</TABLE>
See notes to consolidated financial statements.     

<PAGE> 40                      
SARATOGA BANCORP AND SUBSIDIARY                     
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY     
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                               Net            
                                            Unrealized           
                                               Loss            
                                           On Securities              Total
                       Common Stock          Available    Retained Shareholders'
                    Shares      Amount        for sale    Earnings    Equity
<S>               <C>        <C>          <C>           <C>         <C>
BALANCES,                  
 JANUARY 1, 1995   1,030,972  $4,427,000   $  (819,000)  $6,019.000  $9,627,000

Cash dividend
($0.10 per share)       -           -             -        (103,000)   (103,000)

Change in net 
  unrealized loss 
  on securities                        
  available 
  for sale              -           -          652,000         -        652,000 
                      
Net income              -           -             -         881,000     881,000
                  ----------  ----------   -----------    --------- -----------
BALANCES,
 DECEMBER 31, 1995 1,030,972   4,427,000      (167,000)   6,797,000  1,057,000  

Exercise of 
  stock options        5,420      34,000          -            -        34,000
Cash dividend 
  ($.175 per share)     -           -             -        (181,000)  (181,000) 

Change in net 
  unrealized loss 
  on securities                        
  available 
  for sale              -           -          (59,000)        -       (59,000) 
                      
Net income              -           -             -       1,101,000  1,101,000
                  ----------  ----------    -----------  ----------  ---------  
BALANCES, 
 DECEMBER 31, 1996 1,036,392   4,461,000      (226,000)   7,717,000  1,952,000  

Exercise of 
  stock options       55,575     244,000          -            -       244,000  
Cash dividend 
 ($.20 per share)       -           -             -        (214,000)  (214,000) 
       
Change in net 
  unrealized loss 
  on securities                        
  available 
  for sale              -           -           27,000         -        27,000 

                      
Net income              -           -             -       1,596,000  1,596,000
                  ----------  ----------  ------------   ---------- ----------
BALANCES, 
DECEMBER 31, 1997  1,091,967  $4,705,000  $   (199,000)  $9,099,000 $3,605,000
                  ==========  ==========  ============   ========== ==========
</TABLE>
See notes to consolidated financial statements.                         
<PAGE> 41
SARATOGA BANCORP AND SUBSIDIARY                               
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS                                 
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995   
                                              1997        1996         1995 
CASH FLOWS FROM OPERATIONS:                    
    <S>                                 <C>          <C>           <C>  
     Net income                          $ 1,596,000  $ 1,101,000   $  881,000 
     Adjustments to reconcile net 
       income to net cash provided 
       by operating activities:
     Credit for credit losses                   -        (150,000)        -  
     Depreciation and amortization           179,000      170,000      233,000
     Gain on sale of other real 
       estate owned                          (7,000)         -         (55,000)
     Gain on sale of leased assets             -          (22,000)        -  
     Net loss (gain)  on sale 
       of investments                       (34,000)        4,000      (72,000)
     Deferred income taxes                 (158,000)      (86,000)     392,000 
     Valuation allowance - 
       other real estate owned                 -          (50,000)      35,000  
     Accrued interest receivable 
       and other assets                    (198,000)     (233,000)     514,000
     Deferred loan fees                       1,000        16,000       78,000 
     Accrued expenses and other 
         liabilities                        722,000      (216,000)     367,000 
       Net  cash provided by operating 
         activities                       2,101,000       534,000    2,373,000  

CASH FLOWS FROM INVESTING ACTIVITIES:               
     Purchases of securities 
       available for sale               (20,205,000)  (14,065,000)  (2,590,000)
     Purchases of securities held 
       to maturity                      (19,256,000)   (6,080,000)  (4,885,000) 
     Proceeds from maturities of 
       securities available for sale     18,933,000     6,993,000         - 
     Proceeds from maturities of 
       securities held to maturity       12,315,000     4,170,000    8,417,000 
     Proceeds from sale of 
       securities available for sale      2,923,000     2,496,000    2,625,000
     Purchase of interest bearing 
       deposits                          (1,489,000)         -            -
     Proceeds from maturity of 
       interest-bearing
       deposits in other banks                 -          200,000         -
     Net increase in loans              (11,105,000)  (15,142,000)  (4,797,000)
     Purchases of premises 
       and equipment                        (36,000)     (450,000)     (40,000)
     Proceeds from sale of 
       premises and equipment                  -          134,000       14,000
     Proceeds from sale of other 
       real estate owned                  1,321,000       652,000      735,000 
     Other                                     -             -        (238,000)
       Net cash used in investing 
         activities                     (16,599,000)  (21,092,000)    (759,000)
CASH FLOWS FROM FINANCING ACTIVITIES:               
     Net increase in deposits             1,602,000    14,495,000    1,077,000
     Net increase in federal 
       funds purchased                      500,000          -            -
     Net increase in other borrowings     4,783,000     6,114,000   10,087,000  
     Issuance of common stock               244,000        34,000         -
     Payment of cash dividends             (214,000)     (181,000)    (103,000)
       Net cash provided by 
         financing activities             6,915,000    20,462,000   11,061,000
NET (DECREASE) INCREASE IN CASH
   AND EQUIVALENTS                       (7,583,000)      (96,000)  12,675,000
CASH AND EQUIVALENTS,
   BEGINNING OF YEAR                     22,843,000    22,939,000   10,264,000
CASH AND EQUIVALENTS, END OF YEAR       $15,260,000   $22,843,000  $22,939,000 
                                        ===========   ===========  ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW           
    INFORMATION - 
  Cash paid during the year for:              
          Interest                      $ 4,212,000   $ 3,518,000  $ 2,703,000
          Income taxes                  $   541,000   $   923,000  $    75,000
</TABLE>
See notes to consolidated financial statements.
<PAGE> 42
SARATOGA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995                           

1.     SIGNIFICANT  ACCOUNTING  POLICIES
  
  The accounting and reporting policies of Saratoga Bancorp and subsidiary 
  conform to generally accepted accounting principles and prevailing practices 
  within the banking industry.

  Business - Saratoga Bancorp ("the Company") is a registered bank holding 
  company whose principal asset (and only subsidiary) is the common stock of 
  Saratoga National Bank (the "Bank").  The Bank conducts commercial and retail
  banking business, which includes accepting demand, savings and time deposits
  and making commercial, real estate and consumer loans.  It also offers 
  installment note collections, issues cashier's checks, sells travelers checks
  and provides other customary banking services.

  Consolidation - The consolidated financial statements include Saratoga Bancorp
  and its wholly-owned subsidiary, Saratoga National Bank (the Bank).  All 
  material intercompany accounts and transactions have been eliminated.

  Use of Estimates - The preparation of financial statements in conformity 
  with generally accepted accounting principles requires management to make 
  estimates and assumptions that affect reported amounts of assets, liabilities,
  revenues and expenses as of the dates and for the periods presented.  A
  significant estimate  included in the accompanying financial statements is the
  allowance for loan losses. Actual results could differ from those estimates.

  Cash and  Equivalents - The Bank considers all highly liquid debt instruments
  purchased with an original maturity of three months or less to be cash 
  equivalents.               

  Securities - At the time of purchase the Company classifies its securities 
  into two categories, securities available for sale and held to maturity.  
  Securities available for sale are measured at market value with a 
  corresponding recognition of the net unrealized holding gain or loss as a 
  separate component of shareholders' equity, net of income taxes, until 
  realized.  Securities held to maturity are measured at amortized cost based on
  the Company's positive intent and ability to hold the securities to maturity.
  
  Any gains and losses on sales of securities are computed on a specific 
  identification basis.

  Loans - Loans are stated at the principal amount outstanding.  Interest on 
  loans is credited to income as earned.  The accrual of interest is 
  discontinued and any accrued and unpaid interest is reversed when the payment
  of principal or interest is 90 days past due unless the amount is well secured
  and in the process of collection.  Income on non accrual loans is recognized
  only to the extent that cash is received and where the future collection of 
  principal is probable.

  Loan origination fees and costs are deferred and amortized to income by a 
  method approximating the effective interest method over the lives of the 
  underlying loans.

  Allowance for Credit Losses - The allowance for credit losses is established
  through a provision charged to expense.  Loans are charged against the 
  allowance when management believes that the collection of principal is 
  unlikely.  The allowance is an amount that management believes will be 
  adequate to absorb losses inherent in existing loans and commitments to 
  extend credit, based on evaluations of collectibility and prior loss 
  experience.  The evaluations take into consideration such factors as changes
  in the composition of the portfolio, overall portfolio quality, loan 
<PAGE> 43

  concentrations,  specific problem loans, and current and anticipated economic
  conditions that may affect the borrowers' ability to repay.  In evaluating the
  probability of collection, management is  required to make estimates and 
  assumptions.  

  Accounting for Impaired Loans -  A loan is considered impaired when it is 
  probable that interest and principal will not be collected according to the 
  contractual terms of the loan agreement.  Impaired loans are required to be 
  measured based on the present value of expected future cash flows discounted 
  at the loan's effective interest rate or, as a practical expedient, at the  
  loan's observable market price or the fair value of the collateral if the loan
  is collateral dependent.  Income recognition on impaired loans is consistent 
  with the policy for income recognition on nonaccrual loans described above.  
  The Bank had no impaired loans as of December 31, 1997 or 1996.

  Premises and Equipment - Premises and equipment are stated at cost less 
  accumulated depreciation and amortization.  Depreciation and amortization 
  are computed on a straight-line basis over the shorter of the lease term or
  the estimated useful lives of the assets, which are generally three to fifteen
  years for furniture, equipment and leasehold improvements and 35 years for a 
  building.

  Leased Equipment - Leased equipment is stated at cost net of accumulated 
  depreciation.  Depreciation is computed on a straight-line basis over the 
  lease term to an estimated residual value.  Such leases are accounted for 
  as operating leases.  Revenue is recognized when earned and  depreciation 
  expense is recorded as other expense.   

  Long-lived Assets - The Company adopted Statement of Financial Accounting 
  Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets 
  and for Long-Lived Assets to be Disposed Of",  effective January 1, 1995.  
  The adoption of this statement had no effect on the Company's financial 
  condition or results of operations.

  Other Real Estate Owned - Other real estate owned is carried at the lower of 
  cost or fair value less estimated costs to sell.  When the property is 
  acquired through foreclosure any excess of the related loan balance over its 
  estimated fair value less estimated costs to sell is charged to the allowance 
  for credit losses.  Costs of maintaining other real estate owned and any 
  subsequent declines in the estimated fair value are charged to other expenses.

  Accounting for Financial Assets and Liabilities -.The Company adopted SFAS No.
  125 "Accounting for Transfers and Servicing of Financial Assets and 
  Extinguishment of Liabilities" effective January 1, 1997.  The adoption of 
  this statement had no effect on the Company's financial condition or results 
  of operations.

  Income Taxes - Income taxes are provided at current rates.  Deferred income 
  taxes are provided on income and expense items recognized in different periods
  for financial statement and tax reporting purposes.

  Net Income per Share - The Company adopted SFAS No. 128 "Earnings per Share" 
  during the fourth quarter of 1997.   SFAS 128 requires presentation of basic
  and diluted earnings per share  (EPS) and restatement of all prior period EPS 
  presented.  Basic EPS is computed by dividing net income by the weighted 
  average common shares outstanding during the period.  Diluted EPS reflects the
  potential dilution is securities or other contracts to issue common stock are
  exercised or converted into common stock.  The weighted average shares used in
  computing earnings per share are as follows:

<PAGE> 44

                                                 Years ended December 31,
                                              1997        1996         1995

  Weighted average shares used in computing:

       Basic earnings per share            1,048,747    1,033,809    1,030,972
       Diluted potential common shares
         from exercise of stock options,
        using the treasury stock method      103,159      119,525       32,963

       Diluted earnings per share          1,151,906    1,150,497    1,066,772 

  Stock-Based Awards - The Company accounts for stock-based awards to employees
  using the intrinsic value method in accordance with Accounting Principles 
  Board Opinion No. 25, "Accounting for Stock Issued to Employees."

2.   CASH AND DUE FROM BANKS

  At December 31, 1997, average aggregate reserves (in the form of deposits with
  the Federal Reserve  Bank) of $1,742,000 were maintained, which satisfied 
  federal regulatory requirements to maintain certain average reserve balances.

3.    SECURITIES 

  The amortized cost and estimated market values of securities at December 31 
  are as follows:
<TABLE>
<CAPTION>
                                                    1997                   
                                               Gross      Gross     Estimated
                                  Carrying  Unrealized  Unrealized    Market 
                                   Amount      Gains      Losses       Value
 <S>                           <C>          <C>       <C>          <C> 
  SECURITIES AVAILABLE FOR SALE 
  U. S. Treasury and agency 
    securities                  $11,228,000  $ 27,000  $(103,000)   $11,152,000
  Governmental mutual fund        3,128,000      -      (110,000)     3,018,000
  Federal Home Loan Bank Stock    1,864,000      -          -         1,864,000
  Bankers Bank Stock                150,000      -          -           150,000
                                -----------  --------  ---------    -----------
  Total                         $16,370,000  $ 27,000  $(213,000)   $16,184,000
                                ===========  ========  =========    ===========
  SECURITIES HELD TO MATURITY
  U. S. Treasury and agency 
    securities                  $10,879,000  $ 94,000  $(128,000)   $10,845,000
  Mortgage-backed securities     15,024,000   128,000    (28,000)    15,124,000
  Obligations of states and 
    political subdivisions        5,159,000    75,000       -         5,234,000
  Federal Reserve Bank Stock         90,000      -          -            90,000
                                -----------  --------  ---------    -----------
  Total                         $31,152,000  $297,000  $(156,000)   $31,293,000
                                ===========  ========  =========    ===========

</TABLE>

<PAGE> 45
<TABLE>
<CAPTION>
                                                   1996                  
                                              Gross      Gross      Estimated
                                  Carrying  Unrealized Unrealized     Market
                                   Amount      Gains     Losses        Value
 <S>                           <C>          <C>       <C>          <C>
  SECURITIES AVAILABLE FOR SALE
  U. S. Treasury and agency 
    securities                  $11,704,000  $ 12,000  $ (45,000)   $11,671,000
  Governmental mutual fund        3,128,000      -      (170,000)     2,958,000
  Federal Home Loan Bank Stock    3,170,000      -          -         3,170,000
  Bankers Bank Stock                150,000      -          -           150,000
                                -----------  --------  ---------    -----------
  Total                         $18,152,000  $ 12,000  $(215,000)   $17,949,000
                                ===========  ========  =========    ===========
  SECURITIES HELD TO MATURITY
  U. S. Treasury and agency 
    securities                  $ 5,489,000  $ 51,000  $ (39,000)   $ 5,501,000
  Mortgage-backed securities     13,204,000    14,000   (148,000)    13,070,000
  Obligations of states and 
    political subdivisions        5,328,000    33,000     (7,000)     5,354,000
  Federal Reserve Bank Stock         90,000      -          -            90,000
                                -----------  --------  ---------    -----------
  Total                         $24,111,000  $ 98,000  $(194,000)   $24,015,000
                                ===========  ========  =========    ===========
</TABLE>
  The amortized cost and estimated market value of debt securities at December 
  31, 1997, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
                               Available for Sale         Held to Maturity   
                                          Estimated                  Estimated
                              Carrying      Market      Carrying       Market 
                               Amount        Value       Amount         Value
 <S>                       <C>          <C>          <C>           <C>
  Due in one year or less   $   997,000  $   999,000  $ 2,859,000   $ 2,865,000
  Due after one year 
    through five years        6,994,000    7,018,000    1,983,000     2,016,000
  Due after five years 
    through ten years         3,237,000    3,135,000   11,196,000    11,198,000
  Mortgage-backed securities       -            -      15,024,000    15,024,000
  Governmental mutual fund    3,128,000    3,018,000         -             -
                            -----------  -----------  -----------   -----------
  Total                     $14,356,000  $14,170,000  $31,062,000   $31,203,000
                            ===========  ===========  ===========   ===========
</TABLE>
  
  Sale of investments resulted in gross realized gains of $69,000 for 1997,  
  ($1,000 in 1996 and $148,000 in 1995) and gross realized losses of $35,000 
  in 1997, $5,000 in 1996 and $76,000 in 1995.  During 1994, the Company 
  transferred investments from available for sale to held to maturity.  
  The net unrealized loss at the date of transfer of $214,000 is being amortized
  over the remaining maturities of the investments.  The unamortized portion of 
  the loss is $135,000 at December 31, 1997.

  Mortgage-backed securities generally have stated maturities of four to fifteen
  years, but are subject to substantial prepayments which effectively accelerate
  actual maturities. The Company's investment in governmental mutual funds has 
  no fixed maturity.  At December 31, 1997 investments with an amortized cost 
  of $26,491,000 were pledged to secure public and certain other deposits as 
  required by law or contract.

<PAGE> 46  


4.     LOANS  AND  ALLOWANCE  FOR  CREDIT  LOSSES

  Loans at December 31, are comprised of the following:       
<TABLE>
<CAPTION>
                                      1997           1996
 <S>                                <C>            <C>
  Real estate:   
    Construction                     $  8,945,000   $  9,249,000
    Other                              29,100,000     21,473,000 
  Commercial                           21,282,000     18,242,000       
  Installment                           1,548,000      1,861,000           
  Lease financing                       3,656,000      2,535,000            
  Unearned income on lease financing     (441,000)      (375,000)
                                     ------------   ------------
  Total loans                          64,090,000     52,985,000
  Deferred loans fees                    (325,000)      (324,000)
                                     ------------   ------------
  Loans, net of deferred loan fees    $63,765,000    $52,661,000
                                      ===========    =========== 

</TABLE>
  The activity in the allowance for credit losses is summarized as follows:
<TABLE>
 <S>                              <C>           <C>             <C>
                                       1997          1996           1995
  Balance, beginning of year       $ 628,000     $ 776,000       $ 738,000
  Provision credited to expense         -         (150,000)           -
  Write-offs                        (115,000)      (39,000)        (45,000)
  Recoveries                          65,000        41,000          83,000
                                    --------      --------        --------      
  Balance, end of year             $ 578,000     $ 628,000       $ 776,000
                                    ========      ========        ========
</TABLE>
  Nonaccrual loans were $360,000 at December 31, 1997.  There were no nonaccrual
  loans at December 31, 1996 and 1995. The reduction in interest income 
  associated with these loans in 1997 was $13,000.  Interest income recognized 
  on such loans in 1997 was $26,000.


5.     PREMISES  AND  EQUIPMENT

  Premises and equipment at December 31, are comprised of the following:
<TABLE>
                                                   1997           1996
 <S>                                          <C>            <C>
  Land                                         $   948,000    $   948,000
  Building and leasehold improvements            1,194,000      1,194,000 
  Furniture and equipment                          982,000         945,000      
  Equipment held for lease                         365,000         365,000 
                                               -----------    ------------
  Total                                          3,489,000       3,452,000
  Accumulated depreciation and amortization     (1,497,000)     (1,317,000)
                                               -----------    ------------
  Premises and equipment, net                  $ 1,992,000    $  2,135,000
                                               ===========    ============ 

<PAGE> 47
  The Company's Los Gatos and San Jose branches are leased under noncancellable 
  operating leases which expire in 1998 and 1999, respectively.  The Bank has 
  renewal options with adjustments to the lease payments based on changes in the
   consumer price index.  Future minimum annual lease payments are as follows:
  
  1998      $    188,000
  1999           176,000
            ------------
  Tota      $    364,000
            ============
  
  Rental expense under operating leases was $227,000 in 1997 and $236,000 in 
  1996 and 1995.

6.     OTHER  REAL  ESTATE  OWNED

  There was no Other real estate owned at December 31, 1997 ( $1,252,000 at 
  December 31, 1996 net of  valuation allowance of $143,000).  The net cost 
  of operation of other real estate owned is as follows:                    
                                            1997       1996       1995    

</TABLE>
<TABLE>
 <S>                                    <C>         <C>       <C>
  Decreases (increases) in valuation 
    allowance to reflect increases and
    decreases in estimated fair value    $    -      $ 50,000  $ (35,000)
  Net holding costs                        (59,000)   (55,000)   (80,000)       
                                         ---------   --------  ---------
  Total                                  $ (59,000)  $ (5,000) $(115,000)
                                         =========   ========  =========
</TABLE>
  
7.     DEPOSITS

  The  amount of short-term jumbo time deposits, each with a minimum 
  denomination of $100,000, was approximately $13,773,000 and 12,429,000 in 1997
  and 1996, respectively.

  At December 31, 1997, the scheduled maturities of these time deposits are as 
  follows:

                 1998           $11,163,000
                 1999             1,695,000
                 2000               815,000
                 2003               100,000
                                $13,773,000    
                                ===========

8.       OTHER BORROWINGS
  
  Other borrowings consist of borrowings from the Federal Home Loan Bank
  which are due as follows:
       
                 1998           $ 5,000,000
                 2000             2,149,000
                 2001             4,133,000
                 2002               756,000
                 2003             2,681,000
                 Thereafter       8,265,000
                                $22,984,000     
                                ===========
<PAGE> 48
At December 31, 1997 other borrowings consisted of borrowings from the Federal 
Home Loan Bank of $22,984,000. Borrowings from the Federal Home Loan Bank are 
secured by U.S. Government and Agency Securities and bear interest at rates 
between 5.565% and 7.25%.

9.        INCOME TAXES

  The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
                         Years Ended December 31,                  
                      1997         1996         1995            
 <S >            <C>            <C>         <C>
  Current:
    Federal       $ 896,000      $478,000    $  68,000
    State           238,000       167,000       79,000
                  ---------      --------    ---------
  Total current   1,134,000       645,000      147,000
                 ----------      --------    ---------
  Deferred:
    Federal        (168,000)      (75,000)     345,000
    State            10,000       (11,000)      47,000 
                 ----------      --------    ---------
  Total deferred   (158,000)      (86,000)     392,000 
                 ----------      --------    ---------
  Total            $976,000      $559,000     $539,000
                 ==========      ========     ========

</TABLE>
  
  The effective tax rate differs from the federal statutory rate as follows:
  
                                                Years Ended December 31,
                                                1997      1996      1995     

  Federal statutory rate                        35.0%     35.0%     35.0%
  State income tax, net of federal effect        6.3       6.2       6.0  
  Tax exempt income                             (2.8)     (3.1)     (3.6)
  Officer's life insurance                        -         -        1.3  
  Other, net                                    (0.5)     (4.4)     (0.7)
                                                -----     -----     -----
  Total                                         38.0%     33.7%     38.0%
                                                =====     =====     =====

<PAGE> 49
  The Company's net deferred tax asset at December  31 is comprised of the 
  following:
<TABLE>

                                              1997     1996   
 <S>                                     <C>       <C>
  Deferred tax assets:
    Provision for credit losses           $ 132,000 $ 197,000
    Deferred compensation                   133,000    93,000                  
    Unrealized loss on investments
       available for sale                   122,000   138,000     
    State income taxes                       72,000      -
    Depreciation & amortization              43,000      -                   
    Deferred gain on sale of other real 
      estate owned                           29,000      - 
    Deferred rent                            24,000    36,000  
    Provision for other real estate owned      -       59,000
                                          --------- ---------
Total deferred assets                       555,000   523,000          
                                          --------- ---------
Deferred tax liabilities:
  
   Federal Home Loan Bank stock             (69,000)     -
    Depreciation and amortization              -     (183,000)
    Other                                   (32,000)  (28,000)
                                          --------- ---------  
  Total deferred liabilities                101,000   211,000              
                                          --------- ---------  
  Net deferred tax asset                  $ 454,000 $ 312,000     
                                          ========= =========  
</TABLE>
  
  There was no valuation allowance at December 31, 1997 and 1996.


10.    STOCK OPTION PLANS

  
  The Company's stock option plans authorize the issuance to employees, officers
  and directors of incentive and nonstatutory options to purchase common stock.

  The Company's 1982 Amended Stock Option Plan (the "1982 Plan") expired on 
  October 26, 1992, therefore, no options were granted by the Company during 
  1995, 1996 or 1997 under the 1982 Plan. Prior to expiration of the 1982 Plan,
  options were granted to key officers and employees of the Company and its 
  subsidiary.  Options granted under the 1982 Plan were either incentive options
  or nonstatutory options and became exercisable in accordance with a vesting 
  schedule established at the time of grant.  Vesting may not extend beyond ten 
  years from the date of grant.  Upon a change in control of the Company, all 
  outstanding options under the 1982 Plan will become fully vested and 
  exercisable.  Options granted under the 1982 plan are adjusted to protect
  against dilution in the event of certain changes in the Company's capital-
  ization, including stock splits and stock dividends.

  The Company's  1994 Stock Option Plan (the "1994 Plan") is substantially 
  similar to the 1982 Plan regarding provisions related to option grants, 
  vesting and dilution.  Upon a change in control, options do not become fully
  vested and exercisable, but may be assumed or equivalent options may be
  substituted by a successor corporation.

<PAGE> 50
<TABLE>
<CAPTION>
Option activity is summarized as follows:
                                                        Outstanding Options 
                                                    ---------------------------
                                                    Number of  Weighted Average
                                                      Shares    Exercise Price
 <S>                                                <C>             <C>
  Balances,  January 1, 1995                          267,177        $6.06

    Granted (weighted average value of $1.26)          31,750         6.88 
    Canceled                                           (6,200)        6.46
                                                      -------       ------
  Balances,  December 31, 1995                        292,727         6.14

    Granted (weighted average value of $1.93)           4,500        10.17
    Exercised                                          (5,420)        6.31
    Canceled                                          (24,856)        7.09 
                                                      -------       ------
  Balances,  December 31, 1996                        266,951         6.12
  (245,728 exercisable at weighted average 
     price of $5.89)

    Exercised                                         (61,854)        4.45    
    Canceled                                           (2,050)        8.12
                                                      -------       ------
  Balances,  December 31, 1997                        203,046         $6.61
  (196,133 exercisable at weighted average 
     price of $6.26)                                  =======       =======
</TABLE>
  At December 31, 1997, 38,544 shares are available for future grant.

  
  The Company continues to account for its stock-based awards using the 
  intrinsic value method in accordance with Accounting Principles Board Opinion 
  No. 25, "Accounting for Stock Issued to Employees" and its related 
  interpertations.  Accordingly, no compensation expense has been recognized in 
  the financial statements for employee stock arrangements.

  SFAS No. 123, "Accounting for Stock-Based Compensation" requires the 
  disclosure of proforma net income and earnings per share had the Company
  adopted the  fair value  method as of the beginning of fiscal 1995.  Under 
  SFAS 123, the fair value of stock-based awards to employees is calculated 
  through the use of option pricing models, even though such models were 
  developed to estimate the fair value of freely tradable, fully transferrable 
  options without vesting restriction, which significantly differ from the
  Company's stock option awards.  These models also require subjective
  assumptions, including future stock price volatility and expected time to 
  exercise, which greatly affect the calculated values.  The Company's
  calculations were made using the Black-Scholes option pricing model with
  the following weighted average assumptions: expected life, 114 months; stock
  volatility, 19%; risk free interest rates, not applicable in 1997, 6.54% and
  6.68% in 1996 and 5.85%, 6.15% and   7.66% in 1995; and a dividend yield of 
  5.50% as they occur.  If the computed fair values of the 1997, 1996 and 1995
  awards had been amortized to expense over the vesting period of the awards,
  pro forma net income would have been as follows:

<PAGE> 51
<TABLE>
<CAPTION>
                                          Years ended December 31,
                                       1997           1996       1995
 <S>                               <C>            <C>          <C>
  Pro forma net income              $1,587,000     $1,090,000   $868,000

  Pro forma earnings per share
    Basic                           $1.51          $1.06        $0.84 
    Diluted                         $1.38          $0.95        $0.81
</TABLE>
11.    COMMITMENTS AND CONTINGENT LIABILITIES

  The Bank is party to financial instruments with off-balance-sheet risk in the 
  normal course of business to meet the financing needs of its customers.  These
  financial instruments include loan commitments of $24,435,000 and standby 
  letters of credit of $25,000 at December 31, 1997.  The Bank's exposure to 
  credit loss is limited to amounts funded or drawn; however, at December 31, 
  1997, no losses are anticipated as a result of these commitments.

  Loan commitments are typically contingent upon the borrower's meeting certain
  financial and other covenants and such commitments typically have fixed 
  expiration dates and require payment of a fee.  As many of these commitments 
  are expected to expire without being drawn upon, the total commitments do not 
  necessarily represent future cash requirements.  The Bank evaluates each 
  potential borrower and the necessary collateral on an individual basis.  
  Collateral varies, and may include real property, bank deposits, or business 
  or personal assets.

  Standby letters of credit are conditional commitments written by the Bank to 
  guarantee the performance of a customer to a third party.  These guarantees 
  are issued primarily relating to inventory purchases by the Bank's commercial
  customers and such guarantees are typically short-term.  Credit risk is 
  similar to that involved in extending loan commitments to customers and the 
  Bank, accordingly, uses evaluation and collateral requirements similar to 
  those for loan commitments.   Virtually all of such commitments are 
  collateralized.

  Officers of the Company have severance agreements which provide, in the event 
  of a change in control meeting certain criteria, severance payments based on 
  a multiple of their current compensation.  At  December 31, 1997, these 
  payments would have aggregated up to $348,000.

12.    LOAN  CONCENTRATIONS

  The Bank's customers are primarily located in Santa Clara County, which is 
  located in the southern portion of the San Francisco Bay Area.  Many of the 
  Bank's customers are employed by or are otherwise dependent on the high tech-
  nology and real estate development industries and, accordingly, the ability 
  of the Bank's borrowers to repay loans may be affected by the performance of 
  these sectors of the economy.  Virtually all loans are collateralized.  
  Generally, real estate loans are secured by real property and commercial and 
  other loans are secured by business or personal assets.  Repayment is 
  generally expected from refinancing or sale of the related property for real 
  estate construction loans and from cash flows of the borrower for all other 
  loans.  

<PAGE> 52
  The composition of the loan portfolio at December 31, 1997 and 1996 is 
  summarized in the following  table.
<TABLE>
                           
                                             1997       1996
      <S>                                   <C>        <C>
       Real estate:               
           Construction:
               Single family construction     11%        15% 
               Land Development                3          2     
           Other                              46         41
       Commerical                             38         34
       Installment                             2          8  
                                             ---        ---
                                             100%       100%
                                             ===        ===
</TABLE>

13.    DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS 

  The following estimated fair value amounts have been determined by using 
  available market information and appropriate valuation methodologies. 
  However, considerable judgment is required to interpret market data to develop
  the estimates of fair value.  Accordingly, the estimates presented are not 
  necessarily indicative of the amounts that could be realized in a current 
  market exchange.  The use of different market assumptions and/or estimation 
  techniques may have a material effect on the estimated fair value amounts. 
  
  The following table presents the carrying amount and estimated fair value of 
  certain assets and liabilities of the Company at December 31, 1997.  The 
  carrying amounts reported in the  consolidated balance sheets approximate fair
  value for the following financial instruments: cash and due from banks,
  federal funds sold, interest bearing deposits in other banks, demand and 
  savings deposits, federal funds purchased and other borrowings  (See Note 3 
  for information regarding securities).
<TABLE>
<CAPTION>
                                               December 31, 1997  
                                     --------------------------------
                                      Carrying          Estimated Fair
                                       Amount               Value       
 <S>                                <C>                 <C>
  Loans, net                         $63,187,000         $62,284,000
  Time deposits                      $28,709,000         $28,644,000
  

                                               December 31, 1996   
                                     --------------------------------
                                      Carrying          Estimated Fair
                                       Amount               Value       
  Loans, net                         $52,033,000         $52,202,000
  Time deposits                      $29,515,000         $29,590,000

</TABLE>

  LOANS

  The fair value of loans with fixed rates is estimated by discounting the 
  future cash flows using current rates at which similar loans would be made 
  to borrowers with similar credit ratings.  For loans with variable rates 
  which adjust with changes in market rates of interest, the carrying amount
  is a reasonable estimate of fair value.  

<PAGE> 53
  TIME DEPOSITS
 
  The fair value of fixed maturity certificates of deposit is estimated using 
  rates currently offered for deposits of similar remaining maturities.
  
  COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT

  Commitments to extend credit and standby letters of credit are issued in the
  normal course of business by the Bank.  Commitments to extend credit are 
  issued with variable interest rates tied to market interest rates at the time 
  the commitment is funded and the amount of the commitment equals their fair 
  value.  Standby letters of credit are supported by commitments to extend 
  credit with variable interest rates tied to market interest rates at the 
  time the commitments are funded and the amount of standby letters of credit 
  equals their fair value.


14.    REGULATORY  MATTERS

  The Company 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 the Company's financial statements.  Under 
  capital adequacy guidelines and the regulatory framework for prompt corrective
  action, the Company and the Bank must meet specific capital guidelines that 
  involve quantitative measures of the Company's and the Bank's assets, 
  liabilities, and certain off-balance-sheet items as calculated under 
  regulatory accounting practices.  The Company's 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 the Company and the Bank to maintain minimum amounts and ratios (set 
  forth in the table below) of total and Tier 1 capital (as defined in the 
  regulations) to risk-weighted assets (as defined), and of Tier I capital (as 
  defined) to average assets (as defined).  Management believes, as of December
  31, 1997 and 1996, that the Company and the Bank meet all capital adequacy 
  requirements to which they are subject.

  As of December 31, 1997, the most recent notification from the Office of the
  Comptroller of the Currency categorized the Company and 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 I risk-based, and Tier I 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.

<PAGE> 54
  The following table shows the Company's and the Bank's actual capital amounts
  and capital ratios at December 31, 1997 and 1996 as well as the minimum 
  capital ratios required to be deemed "well capitalized" under the regulatory
  framework.
<TABLE>
<CAPTION>
                                                                   To Be Well
                                                               Capitalized Under
              Bancorp         Bank Only         For Capital    Prompt Corrective
              Actual            Actual     Adequacy Purposes: Action Provisions:
           Amount   Ratio   Amount    Ratio   Amount    Ratio   Amount   Ratio  
          ---------------  ----------------  ----------------  ----------------
<S>    <C>         <C>   <C>         <C>    <C>        <C>    <C>        <C> 
  As of
 December
 31, 1997  
Total 
 Capital
 (to Risk 
 Weighted 
 Assets)$14,183,000 18.1% $13,266,000 17.0% >$6,232,000 >8.00% >$7,790,000>10.0%
Tier I 
 Capital
 (to Risk 
 Weighted 
 Assets)$13,605,000 17.4% $12,688,000 16.3% >$3,116,000 >4.00% >$4,716,000> 6.0%
Tier I 
 Capital                     
 (to 
 Average 
 Assets)$13,605,000 10.9% $12,688,000 10.2% >$4,989,000 >4.00% >$6,236,000> 5.0%

As of 
December 
31, 1996  
Total 
 Capital
 (to Risk 
 Weighted 
 Assets)$12,580,000 18.1% $11,826,000 17.1% >$5,602,000 >8.00% >$7,003,000>10.0%
Tier I 
 Capital
 (to Risk 
 Weighted 
 Assets)$11,952,000 18.1% $11,198,000 16.2% >$2,802,000 >4.00% >$4,202,000 >6.0%
Tier I 
 Capital                     
 (to 
 Average 
 Assets)$11,952,000 10.5% $11,198,000  9.8% >$4,614,000 >4.00% >$5,767,000 >5.0%
 
</TABLE>

15.    CONDENSED FINANCIAL INFORMATION OF SARATOGA BANCORP (PARENT ONLY)
  
  The condensed financial statements of Saratoga Bancorp are as follows:

  CONDENSED BALANCE SHEETS
                                                    December 31,           
                                                1997            1996
  ASSETS:             
    Cash-interest bearing account with Bank     $   185,000   $   102,000
    Real estate loans                               660,000       764,000
    Investment in Bank                           12,688,000    11,078,000
    Other assets                                     79,000         8,000
                                                -----------    ----------
  Total                                         $13,612,000   $11,952,000
                                                ===========   ===========

  LIABILITIES AND SHAREHOLDERS' EQUITY:
    Other liabilities                           $     7,000   $      -   
    Common stock                                  4,705,000     4,461,000
    Retained earnings                             9,099,000     7,717,000
    Net unrealized loss on investments 
      available for sale                           (199,000)     (226,000)
                                                -----------   -----------
  Total                                         $13,612,000   $11,952,000
                                                ===========   ===========
<PAGE> 55
  CONDENSED INCOME STATEMENTS
<TABLE>
<CAPTION>
                           
                                               Years Ended December 31,
                                           ----------------------------------
                                                1997         1996        1995

<S>                                       <C>          <C>         <C>
  Interest income                          $   73,000   $   26,000  $     8,000
  Dividend from subsidiary                       -         861,000         -    
  Other expenses                              (53,000)     (50,000)     (50 000)
                                           ----------   ----------   ----------
  Income (loss) before income taxes 
    and equity in undistributed net 
    income of Bank                             20,000      837,000      (42,000)
  Income tax (expense) benefit                ( 7,000)     ( 9,000)      16,000
                                           ----------   ----------   ----------
  Income(loss) before equity in 
    undistributed net income of Bank           13,000      846,000      (26,000)
  Equity in undistributed net income 
    of Bank                                 1,583,000      255,000      907,000
                                           ----------   ----------   ----------
  Net income                               $1,596,000   $1,101,000   $  881,000
                                           ==========   ==========   ==========
</TABLE>
  CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                Years ended December 31,
                                         -------------------------------------
                                            1997         1996          1995
 <S>                                    <C>          <C>           <C>       
  Cash flows from operations:
    Net income                           $1,596,000   $1,101,000    $  881,000
    Adjustments to reconcile net 
      income to net cash (used in) 
      provided by operating activities:     
      Equity in undistributed net 
        income of Bank                   (1,583,000)    (255,000)     (907,000)
      Credit for credit losses                 -            -          (16,000)
      Change in other assets                 (1,000)      19,000          -   
      Change in other liabilities           (63,000)      (1,000)         -
                                        -----------   ----------    ----------
  Net cash (used in) provided by 
     operating activities                   (51,000)     864,000       (42,000)
  Cash flows from investing activities - 
    Net change in loans                     104,000     (764,000)       36,000
                                        -----------   -----------   ----------
  Cash flows from financing activities:        
    Cash dividend                          (214,000)    (181,000)     (103,000)
    Issuance of common stock                244,000       34,000          -
                                        -----------   ----------    ----------
  Net cash provided by (used in) 
    financing activities                     30,000     (147,000)     (103,000)
                                        -----------   ----------    ----------
  Net increase (decrease) in cash            83,000      (47,000)     (109,000)

  Cash, beginning of year                   102,000      149,000       258,000
                                        -----------   ----------    ----------
  Cash, end of year                     $   185,000   $  102,000    $  149,000
                                        ===========   ==========    ==========
</TABLE>

<PAGE> 56
  The ability of the Company to pay future dividends will largely depend upon 
  the dividends paid to it by the Bank.  Under federal law regulating national 
  banks, dividends declared by the Bank in any calendar year may not exceed the 
  lesser of its undistributed net income for the most recent three fiscal years
  or its retained earnings.  As of December 31, 1997, the amount available for 
  distribution from the Bank to the Company was approximately $3,080,000, 
  subject to approval by the Office of the Comptroller of the Currency. The Bank
  is also restricted as to the amount and form of loans, advances or other 
  transfers of funds or other assets to the Company.
            

16. NEW ACCOUNTING PRONOUNCEMENTS                

In June 1997, the Financial Accounting Standards Board adopted SFAS No. 130 
"Reporting Comprehensive Income", which requires that an enterprise report, 
by major components and as a single total, the change in its net assets during 
the period from nonowner sources; and  SFAS No. 131 "Disclosure about Segments 
of an Enterprise and Related Information", which establishes annual and interim
reporting standards for an enterprise's business segments and related 
disclosures about its products, services, geographic areas and major customers.
Both statements are effective for the Company's 1998 consolidated financial 
statements and are not expected to have a material impact on the Company's 
financial position and results of operations.
                               * * * * *
<PAGE> 57
         
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.
  The information required hereunder is incorporated by reference from the
Company's definitive proxy statement for the Company's 1998 Annual Meeting of
Shareholders (to be filed pursuant to Regulation 14A).

Item 11. Executive Compensation.
     The information required hereunder is incorporated by reference from the
Company's definitive proxy statement for the Company's 1998 Annual Meeting of
Shareholders (to be filed pursuant to Regulation 14A).

Item 12. Security Ownership of Certain Beneficial Owners and Management.
  The information required hereunder is incorporated by reference from the
Company's definitive proxy statement for the Company's 1998 Annual Meeting of
Shareholders (to be filed pursuant to Regulation 14A).

Item 13. Certain Relationships and Related Transactions.
     The information required hereunder is incorporated by reference from the
Company's definitive proxy statement for the Company's 1998 Annual Meeting of
Shareholders (to be filed pursuant to Regulation 14A).

                           PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a)  (1)  Financial Statements. This information is listed and included in
               Part II, Item 8.

     (a)  (2)  Financial Statement Schedules.  All schedules have been omitted
               since the required information is not present or is not present 
               in amounts sufficient to require submission of the schedule or
               because the information required is included in Consolidated 
               Financial Statements or notes thereto.

<PAGE> 58
     (a)  (3)  Exhibits.  The exhibits listed on the accompanying Exhibit Index
               are filed as part of this report.
        
         (3.1) Articles of Incorporation, as amended, are incorporated by 
               reference herein to Exhibit 3.1 of Registrant's Annual Report on
               Form 10-K for the fiscal year ended December 31, 1988, as filed 
               with the Securities and Exchange Commission on March 27, 1989.

         (3.2) By-laws, as amended, are incorporated by reference herein to 
               Exhibit 3.2 of Registrant's Annual Report on Form 10-K for the 
               fiscal year ended December 31, 1993 as filed with the Securities
               and Exchange Commission on March 29, 1994.

         (4.1) Specimen stock certificate is incorporated by reference to 
               Exhibit 4.1 of Registrant's Annual Report on Form 10-K for 
               the fiscal year ended December 31, 1994 as filed with the 
               Securities and Exchange Commission on March 30, 1995.  

        (10.1) Lease agreement dated 10/19/87 for 15405 Los Gatos Blvd., 
               Suite 103, Los Gatos, CA is incorporated by reference herein 
               to Exhibit 10.1 of Registrant's Annual Report on Form 10-K for
               the fiscal year ended December 31, 1987 as filed with the 
               Securities and Exchange Commission on March 31, 1988.

        (10.2) Agreement of Purchase and Sale dated July 27, 1988 for 12000
               Saratoga-Sunnyvale Road, Saratoga, CA is incorporated by refer-
               ence herein to Exhibit 10.1 of Registrant's Annual Report on Form
               10-K for the fiscal year ended December 31, 1988, as filed with
               the Securities and Exchange Commission on March 27, 1989.

      *(10.3)  Indemnification Agreements with directors and Executive Officers 
               of the Registrant are incorporated by reference herein to Exhibit
               10.2 of Registrant's Annual Report on Form 10-K for the fiscal 
               year ended December 31, 1988, as filed with the Securities and 
               Exchange Commission on March 27, 1989.

       (10.4)  Lease agreement dated 1/17/89 for 160 West Santa Clara Street, 
               San Jose, California is incorporated by reference herein to 
               Exhibit 10.4 of Registrant's Annual Report on Form 10-K for the
               fiscal year ended December 31, 1989, as filed with the Securities
               and Exchange Commission on March 27, 1990.             

       (10.5)  Bank of the West Master Profit Sharing and Savings Plan and 
               Amendment, amended as of March, 1990 are  incorporated by

<PAGE> 59
               reference herein to Exhibit 10.5 of Registrant's Annual Report
               on Form 10-K for the fiscal year ended December 31, 1990, as 
               filed with the Securities and Exchange Commission on March 20, 
               1991. 

      *(10.6)  Employment Agreement and Management Continuity Agreement and
               Chief Executive Officer Compensation Plan/Richard L. Mount is
               incorporated by reference herein to Exhibit 10.6 of Registrant's
               Annual Report on Form 10-K for the fiscal year ended December 
               31, 1990, as filed with the Securities and Exchange Commission 
               on March 20, 1991.

       (10.7)  Saratoga Bancorp 1982 Stock Option Plan is incorporated by
               reference herein to the exhibits to Registration Statement 
               No. 33-34674 on Form S-8 as filed with the Securities and 
               Exchange Commission on May 7, 1990.       

       (10.8)  Saratoga National Bank Savings Plan dated June 19, 1995 is
               incorporated by reference herein to Exhibit 10.8 of Registrant's
               Annual Report on Form 10-K for the fiscal year ended December 
               31, 1995, as filed with the Securities and Exchange Commission on
               March 27, 1996.

       (10.9)  Saratoga Bancorp 1994 Stock Option Plan dated March 18, 1994 is
               incorporated by referencce herein to Appendix A of Proxy 
               Statement dated April 19, 1994 filed as with the Securities and
               Exchange Commission on April 27, 1994.       

     (10.10)   Forms of Incentive Stock Option Agreement, Non-Statutory Stock
               Option Agreement and Non-Statutory Agreement for Outside 
               Directors, as amended is incorporated by reference herein to 
               Exhibit 10.8 of Registrant's Quarterly Report on Form 10-Q 
               for the Quarter ended June 30, 1994 as filed with the Securities
               and Exchange Commission on August 15, 1994.
             
        (21)   Subsidiaries of the registrant:  Registrant's only subsidiary is 
               Saratoga National Bank, a national banking association, which 
               operates a commercial and retail banking operation in California.

        (23)   Independent Auditors' consent

        (27)   Financial Data Schedule

* Denotes management contracts, compensatory plans or arrangements.
<PAGE> 60

    (b)        Reports on Form 8-K
               
               Registrant filed no reports on Form 8-K for the three month 
               period ended December 31, 1997.

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.

No annual report or proxy material has been sent to security holders.  The 
Company shall furnish copies of such material to the Commission when it is 
sent to security holders.

                         SIGNATURES

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

                      SARATOGA BANCORP


                                        Richard L. Mount
                                   By_______________________________
                                     Richard L. Mount, President   
                                     (Principal Executive Officer)

                                           March 25, 1998
                                   Date_____________________________

                                       Mary Page Rourke                      
                                   By_______________________________
                                      Mary Page-Rourke, Treasurer
                                      (Principal Financial and   
                                       Accounting Officer)     

                                          March 25, 1998
                                   Date_____________________________


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

<PAGE> 61
   Name                       Title                         Date

Victor Aboukhater                                       March 25, 1998
__________________         Director                     _______________
Victor Aboukhater

Robert G. Egan                                          March 25, 1998
__________________         Director                     _______________
Robert G. Egan

William D. Kron                                         March 25, 1998
__________________         Director                     ______________
William D. Kron

John F. Lynch III                                       March 25, 1998
__________________         Director                     ______________
John F. Lynch III

V. Ronald Mancuso                                       March 25, 1998
__________________         Director                     ______________
V. Ronald Mancuso


Richard L. Mount     Chairman of the Board              March 25, 1998
__________________   President and Director             ______________
Richard L. Mount     (Principal Executive Officer)

Mary Page Rourke                                        March 25, 1998
__________________          Treasurer                   ______________
Mary Page-Rourke     (Principal Financial and
                      Accounting Officer)



<PAGE> 62


                      INDEX TO EXHIBITS
                                                                 Sequentially
                                                                   Numbered
Number                      Exhibits                                 Page    


33.1            Independent Auditors' Consent                          63 
27.1            Financial Data Schedule                                64