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

                                   FORM 10-KSB

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934 [Fee Required]

                   For the fiscal year ended December 31, 1999

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934 [No Fee Required]

     For the transition period from ____________ to ____________ .

                        Commission file number: 033-76832

                            MCB FINANCIAL CORPORATION
                 (Name of small business issuer in its charter)

          California                                             68-0300300
(State or Other Jurisdiction of                               (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)

                               1248 Fifth Avenue,
                          San Rafael, California 94901
                                 (415) 459-2265
          (Address and telephone number of principal executive offices)

         Securities registered under Section 12(b) of the Exchange Act:
                           Common Stock, No Par Value
                                (Title of class)

         Securities registered under Section 12(g) of the Exchange Act:
                           Common Stock, No Par Value
                         Preferred Stock Purchase Rights
                                (Title of class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements for the past 90 days.
Yes [X] No [ ].

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  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-KSB
or any amendment to this Form 10-KSB. [ ].

     The issuer's revenues for its most recent fiscal year were $16,014,000.

     At March 20, 2000,  the aggregate  market value of the voting stock held by
non-affiliates of the issuer was approximately $11,612,000. For purposes of this
information,  the  outstanding  shares of Common  Stock owned by  directors  and
executive  officers of the issuer were deemed to be shares of Common  Stock held
by affiliates.

     At March 20, 2000, the issuer had  outstanding  2,030,181  shares of Common
Stock, no par value, which is the issuer's only class of common stock.

                      Documents Incorporated by Reference:

     The information  required to be furnished pursuant to Part III of this Form
10-KSB  will  be  set  forth  in,  and   incorporated  by  reference  from,  the
registrant's  definitive  proxy statement for the annual meeting of stockholders
to be held May 17, 2000,  which  definitive proxy statement will be filed by the
issuer with the Securities and Exchange Commission not later than 120 days after
the end of the fiscal year ended December 31, 1999.

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                                TABLE OF CONTENTS

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                                     PART I

Item 1.  Description of Business............................................   1
         MCB Financial Corporation..........................................   1
         Metro Commerce Bank................................................   1
         Competition........................................................   2
         Insurance..........................................................   2
         Employees..........................................................   3
         Supervision and Regulation.........................................   3
Item 2.  Description of Property............................................   9
Item 3.  Legal Proceedings..................................................   9
Item 4.  Submission of Matters to a Vote of Security Holders................   9

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters...........  10
Item 6.  Management's Discussion and Analysis...............................  10
Item 7.  Financial Statements...............................................  22
Item 8.  Changes In and Disagreements With Accountants on Accounting
         and Financial Disclosure...........................................  46

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act..................  46
Item 10. Executive Compensation.............................................  46
Item 11. Security Ownership of Certain Beneficial Owners and Management.....  46
Item 12. Certain Relationships and Related Transactions.....................  46
Item 13. Exhibits and Reports on Form 8-K...................................  46
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                                     PART I

Item 1. Description of Business

MCB Financial Corporation

     MCB  Financial  Corporation  (the  "Company")  is a  bank  holding  company
registered  under the Bank Holding  Company Act of 1956, as amended ("BHC Act").
The  Company  was  incorporated  under  the laws of the State of  California  on
January 20, 1993.

     On October 1, 1993, the Company began  operations as a bank holding company
with Metro  Commerce  Bank (the  "Bank")  as its  wholly-owned  subsidiary.  The
Company's  only  significant  asset is its investment in the Bank. The principal
business and activity of the Company is to serve as the bank holding company for
the Bank and its principal source of income is dividends paid by the Bank.

Metro Commerce Bank

     The Bank is a California  state-chartered  commercial bank that is a member
of the  Federal  Reserve  System.  The Bank was  licensed  by the  Office of the
Comptroller  of the Currency  ("Comptroller")  on June 12, 1989,  and  commenced
operations as a national  banking  association  on December 8, 1989. On July 24,
1998, the Bank converted from a national  banking  association into a California
State  bank.  The  Bank is  subject  to  primary  supervision,  examination  and
regulation  by the State of  California  Department  of  Financial  Institutions
("DFI") and the  Federal  Reserve  Board  ("FRB").  The Bank is also  subject to
certain  federal  laws and  regulations,  and the Bank is subject to  applicable
provisions of California law insofar as such  provisions do not conflict with or
are not preempted by federal  banking laws. The deposits of the Bank are insured
under the Federal Deposit Insurance Act up to the applicable limits thereof. The
Bank  is  a  wholly-owned  subsidiary  of  the  Company  and  presently  has  no
subsidiaries or other affiliates.

     The  Bank  is  engaged  in  substantially  all of the  business  operations
customarily conducted by independent commercial banks in California.  The Bank's
banking  services  include of checking and savings  deposits,  and the making of
commercial,  construction, mortgage, real estate, small business administration,
home equity and other installment loans and term extensions of credit.  The Bank
also offers travelers'  checks,  notary public and other customary bank services
to its customers. The Bank is not a credit card issuing bank; however, it offers
Visa cards through one of its correspondent banks.

     The  Bank  operated  began a Small  Business  Administration  ("SBA")  Loan
Division.  The SBA is an agency of the U.S.  Government  that offers  guaranteed
loan  programs  for small  businesses  which  might not  otherwise  qualify  for
standard  bank  credit.  The SBA Loan  Division  offers  various  business  loan
programs  secured by both  residential  and commercial  real estate and business
property.  The Bank primarily  sells the guaranteed  portion of SBA loans in the
secondary market to private investors. Loan fundings through this division began
during the first quarter of 1995.

     The Bank does not operate a trust department; however, it has arranged with
a correspondent institution to offer trust services to the Bank's customers upon
request.  The Bank also does not offer  international  banking services although
such services are offered indirectly through correspondent institutions.

     Currently,  the Bank  conducts  its  business  operations  through its head
office  located in San Rafael,  California,  and through its five branch  office
locations in San Francisco,  South San Francisco,  Hayward, Petaluma and Upland,
California. An application to establish the branch in San Francisco was approved
by the  Comptroller on December 10, 1997. This office opened January 8, 1998. An
application  to establish a branch office in Petaluma was approved by the DFI on
November 10, 1998 and by the FRB on January 19, 1999. The Petaluma office opened
in June 1999.  An  application  to relocate  the San  Francisco  office from 353
Sacramento  Street,  San  Francisco,  CA  94111  to  650  Townsend  Street,  San
Francisco, CA 94103 was approved by the DFI on October 5, 1999 and by the FRB on
November 5, 1999. The relocated San Francisco office is scheduled to open during
the second quarter of 2000.

     The Bank's  primary  service  area is central  Marin  County along with the
cities of San Francisco, South San Francisco, Hayward, Petaluma and Upland. Most
of the  Bank's  loans  and  deposits  originate  from  small  and  medium  sized
businesses and professionals located within the Bank's primary service areas.

     The Bank's  business has little,  if any,  emphasis on foreign  sources and
application of funds. The Bank's business,  based upon performance to date, does
not appear to be seasonal.  The Bank is not dependent upon a single  customer or
group of related  customers  for a material  portion of its  deposits,  nor is a
material  portion of the Bank's loans  concentrated  within a single industry or
group of related  industries.  Management of the Bank is unaware of any material
effect upon the Bank's capital expenditures, earnings or competitive position as
a result of federal, state or local environmental regulation.

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     The Bank holds no patents, licenses (other than licenses obtained from bank
regulatory authorities), franchises or concessions.

Competition

     The banking  business in California is highly  competitive  with respect to
both loans and deposits,  and is dominated by a relatively small number of major
banks with many offices operating over a wide geographic area. The Bank competes
for deposits and loans  principally  with other  commercial  banks and also with
non-bank  financial  intermediaries,  including  savings and loan  associations,
credit unions,  thrift and loans,  mortgage  companies,  money market and mutual
funds,  finance and insurance  companies and other  financial and  non-financial
institutions.  In  addition,  other  entities  (both  governmental  and  private
industry)  seeking to raise  capital  through the  issuance  and sale of debt or
equity  securities  and  instruments  provide  competition  for the  Bank in the
acquisition of deposits.

     Among the advantages  certain of these  institutions have over the Bank are
their ability to finance wide-ranging and effective advertising campaigns and to
allocate their investment resources to regions of highest yield and demand. Many
of the major commercial banks operating in the Bank's service area offer certain
services  (such as  international  banking  and  trust  services)  which are not
offered  directly by the Bank.  In addition,  by virtue of their  greater  total
capitalization,  such banks have  substantially  higher lending limits than does
the Bank (legal  lending  limits to each customer are restricted to a percentage
of a bank's  capital,  the  exact  percentage  depending  on the  nature  of the
particular loan transaction involved).

     From the time the Bank commenced its operations,  officers and employees of
the Bank  have  continually  engaged  in  marketing  activities,  including  the
evaluation  and  development of new services,  involvement in community  service
groups,  and  direct  marketing  in order  to  retain  and  improve  the  Bank's
competitive position in its service areas.

Insurance

     The Company and the Bank maintain  insurance at levels  deemed  adequate by
its Board of Directors to protect  against certain  business risks,  operational
losses,  and property damage. In accordance with rulings  promulgated by the DFI
and  pursuant to the  Company's  and the Bank's  Articles of  Incorporation  and
certain  contractual  obligations,  the officers and  directors  are entitled to
indemnification,  under certain circumstances, for certain expenses, liabilities
and losses  including,  but not limited to,  costs of defense,  settlements  and
judgments rendered against them. However, indemnification is not authorized when
a supervisory action results in a final order assessing civil money penalties or
when a supervisory action requires affirmative action in the form of payments by
an  individual  to the Bank.  The Company and the Bank  maintain  directors  and
officers liability insurance to cover certain costs of indemnification.

Employees

     Except  for  its  officers,  the  Company  has no  full-time  or  part-time
employees. It is anticipated that the Company will rely on its officers and will
utilize  the  employees  of the  Bank  until  it  becomes  actively  engaged  in
additional  business  activities.  The  Company  reimburses  the Bank a fair and
reasonable amount for all services furnished to it.

     As of December  31, 1999,  the Bank had a total of 58 full-time  equivalent
employees.  The management of the Bank believes that its employee  relations are
satisfactory.

SUPERVISION AND REGULATION

Bank Holding Company Regulation

     The Company is a bank holding company  registered  under the BHC Act and is
subject to the  supervision of the FRB. As a bank holding  company,  the Company
must obtain the  approval of the FRB 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.  With
certain  limited  exceptions,  the  Company is  prohibited  from  engaging in or
acquiring direct or indirect  ownership or control of more than 5% of the voting
shares  of any  company  engaged  in  non-banking  activities,  unless  the  FRB
determines  that such  activities  are so closely  related to banking as to be a
proper incident thereof.

     The FRB has the authority to examine the Company periodically. In 1997, the
FRB  adopted  a  policy  for  risk-focused  supervision  of small  bank  holding
companies that do not engage in significant non-banking  activities.  Under this
policy, examinations focus on whether the Company has systems in place to manage
the risks  inherent in its  business.  In analyzing  risk,  the FRB looks at the
financial  condition of the Company and the Bank,  management,  compliance  with
laws and  regulations,  inter-company  transactions  and any new or contemplated
activities.

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     The  Company  and any  subsidiary  which it may  acquire or organize in the
future are deemed to be  affiliates  of the Bank within the meaning set forth in
the Federal  Reserve Act and are subject to the Federal Reserve Act. This means,
for example,  that there are limitations on loans by the Bank to affiliates,  on
investments  by the Bank in any  affiliate's  stock and on the Bank's taking any
affiliate's  stock as  collateral  for  loans  to any  borrower.  All  affiliate
transactions  must satisfy  certain  limitations  and  otherwise be on terms and
conditions  that are consistent with safe and sound banking  practices.  In this
regard,  the Bank  generally  may not purchase  from any affiliate a low-quality
asset (as that term is defined in the Federal Reserve Act).  Also,  transactions
by the Bank with an affiliate must be on  substantially  the same terms as would
be available for non-affiliates.

     The  Company  and the Bank are also  subject to certain  restrictions  with
respect  to  engaging  in the  underwriting,  public  sale and  distribution  of
securities.

     The Company and the Bank are  prohibited  from  engaging in certain  tie-in
arrangements in connection with the extension of credit.  For example,  the Bank
generally may not extend credit on the condition  that the customer  obtain some
additional service from the Bank or the Company,  or refrain from obtaining such
service from a competitor.

Dividends Payable by the Company

     Holders of Common Stock of the Company are entitled to receive dividends as
and when  declared by the  Company's  Board of  Directors  out of funds  legally
available therefor under the laws of the State of California.

     A California corporation such as the Company may make a distribution to its
shareholders if the corporation's retained earnings equal at least the amount of
the proposed  distribution.  In the event sufficient  retained  earnings are not
available for the proposed  distribution,  a corporation may nevertheless make a
distribution to its  shareholders  if, after giving effect to the  distribution,
the  corporation's  assets  equal at least 125  percent of its  liabilities  and
certain other  conditions are met. Since the 125 percent ratio translates into a
minimum capital ratio of 20 percent, most bank holding companies,  including the
Company based on its current capital  ratios,  are unable to meet this last test
and so must have sufficient retained earnings to fund the proposed distribution.

     The FRB has advised bank holding companies that it believes that payment of
cash dividends in excess of current  earnings from  operations is  inappropriate
and may be cause for supervisory  action. As a result of this policy,  banks and
their  holding  companies may find it difficult to pay dividends out of retained
earnings from historical periods prior to the most recent fiscal year or to take
advantage  of  earnings  generated  by  extraordinary  items  such as  sales  of
buildings or other large assets in order to generate  profits to enable  payment
of future  dividends.  Further,  the FRB's  position that holding  companies are
expected  to provide a source of  managerial  and  financial  strength  to their
subsidiary banks  potentially  restricts a bank holding company's ability to pay
dividends.

Financial Services Modernization Legislation

     On  November  12,  1999,  President  Clinton  signed  into  law the  Gramm-
Leach-Bliley  Act of 1999 (the  "Financial  Services  Modernization  Act").  The
Financial Services  Modernization Act repeals the two affiliation  provisions of
the Glass-Steagall  Act: Section 20, which restricted the affiliation of Federal
Reserve Member Banks with firms "engaged  principally"  in specified  securities
activities;  and Section 32,  which  restricts  officer,  director,  or employee
interlocks  between a member bank and any company or person "primarily  engaged"
in  specified  securities  activities.   In  addition,  the  Financial  Services
Modernization Act also contains  provisions that expressly preempt any state law
restricting the  establishment of financial  affiliations,  primarily related to
insurance.  The  general  effect  of the  law is to  establish  a  comprehensive
framework to permit  affiliations among commercial banks,  insurance  companies,
securities  firms,  and  other  financial  service  providers  by  revising  and
expanding the BHCA  framework to permit a holding  company system to engage in a
full range of  financial  activities  through a new entity  known as a Financial
Holding Company.  "Financial  activities" is broadly defined to include not only
banking,  insurance,  and securities  activities,  but also merchant banking and
additional  activities  that  the  Federal  Reserve,  in  consultation  with the
Secretary of the Treasury,  determines to be financial in nature,  incidental to
such  financial  activities,  or  complementary  activities  that do not  pose a
substantial  risk to the safety and soundness of depository  institutions or the
financial system generally.

Generally, the Financial Services Modernization Act:

     *    Repeals  historical  restrictions  on, and eliminates many federal and
state law barriers to,  affiliations  among banks,  securities firms,  insurance
companies, and other financial service providers;

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     *    Provides a uniform  framework  for the  functional  regulation  of the
activities of banks, savings institutions, and their holding companies;

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

     *    Provides an enhanced  framework for protecting the privacy of consumer
information;

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

     *    Modifies  the  laws  governing  the  implementation  of the  Community
Reinvestment Act ("CRA"); and

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

     In order for the Company to take advantage of the ability to affiliate with
other financial services providers, the Company must become a "Financial Holding
Company" as  permitted  under an  amendment  to the BHCA.  To become a Financial
Holding Company,  the Company would file a declaration with the Federal Reserve,
electing to engage in activities permissible for Financial Holding Companies and
certifying  that it is eligible  to do so because all of its insured  depository
institution subsidiaries are well-capitalized and well-managed. In addition, the
Federal  Reserve must also  determine that each insured  depository  institution
subsidiary of the Company has at least a "satisfactory"  CRA rating. The Company
currently  meets the  requirements  to make an  election  to become a  Financial
Holding  Company.  The  Company's  management  has not  determined  at this time
whether it will seek an  election  to become a Financial  Holding  Company.  The
Company is examining its strategic business plan to determine whether,  based on
market  conditions,  the relative  financial  conditions  of the Company and its
subsidiaries,  regulatory capital requirements, general economic conditions, and
other  factors,  the  Company  desires to  utilize  any of its  expanded  powers
provided in the Financial Services Modernization Act.

     The Financial  Services  Modernization Act provides that designated federal
regulatory agencies, including the FDIC, the FRB, the OCC and the Securities and
Exchange Commission,  are to publish regulations to implement certain provisions
of the Act.  In  February  2000  these  agencies  cooperated  in the  release of
proposed  rules that would  establish  minimum  requirements  to be  followed by
financial  institutions  for  protecting  the privacy of  financial  information
provided by consumers.  The FDIC's proposed rule, which would establish  privacy
standards  to be  followed  by state  nonmember  bank such as the  Banks,  would
require a financial  institution  to (i) provide  notice to customers  about its
privacy  policies and practices,  (ii) describe the  conditions  under which the
institution  may disclose  nonpublic  personal  information  about  consumers to
nonaffiliated third parties, and (iii) provide a method for consumers to prevent
the financial  institution  from  disclosing that  information to  nonaffiliated
third parties by "opting out" of that disclosure.

     The Financial  Services  Modernization  Act also permits  national banks to
engage in expanded activities through the formation of financial subsidiaries. A
national  bank may have a  subsidiary  engaged in any  activity  authorized  for
national  banks  directly  or  any  financial  activity,  except  for  insurance
underwriting,  insurance investments,  real estate investment or development, or
merchant  banking,  which  may  only be  conducted  through  a  subsidiary  of a
Financial Holding Company. Financial activities include all activities permitted
under new sections of the BHCA or permitted by regulation.

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

     The Financial Services Modernization Act also includes a new section of the
Federal Deposit Insurance Act governing  subsidiaries of state banks that engage
in "activities as principal that would only be permissible"  for a national bank
to conduct in a financial  subsidiary.  It expressly  preserves the ability of a
state bank to retain  all  existing  subsidiaries.  Because  California  permits
commercial  banks  chartered by the state to engage in any activity  permissible
for national banks, HBC, HBEB and HBSV will be permitted to form subsidiaries to
engage in the activities authorized by the Financial Services Modernization Act,
to the same extent as a national bank. In order to form a financial  subsidiary,
the bank must be  well-capitalized,  and the bank  would be  subject to the same
capital deduction, risk management and affiliate transaction rules as applicable
to national banks.

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

Bank Regulation

     The Bank is subject to regulation,  supervision and regular  examination by
the DFI and FRB.  The  deposits of the Bank are insured up to the maximum  legal
limits by the Bank  Insurance  Fund  ("BIF"),  which is managed  by the  Federal
Deposit  Insurance  Corporation  ("FDIC"),  and the Bank is therefore subject to
applicable  provisions of the Federal Deposit  Insurance Act. The regulations of
these  agencies  affect  most  aspects  of the  Bank's  business  and  prescribe
permissible  types of loans and  investments,  the amount of required  reserves,
requirements for branch offices,  the permissible scope of the Bank's activities
and various other requirements.

Supervision and Examination

     Federal law mandates frequent  examinations of all banks, with the costs of
examinations to be assessed against the bank being examined.  In the case of the
Bank, its primary Federal  regulator is the FRB. The Federal banking  regulatory
agencies have substantial  enforcement  powers over the depository  institutions
that  they  regulate.  Civil  and  criminal  penalties  may be  imposed  on such
institutions  and persons  associated with those  institutions for violations of
laws or regulation.

     The  Federal  Deposit  Insurance   Corporation   Improvement  Act  of  1991
("FDICIA") places limits on brokered deposits and extends the limits to any bank
that  is  not  "well  capitalized"  or is  notified  that  it  is  in  "troubled
condition."  A   well-capitalized   institution  (which  generally  includes  an
institution  that is  considered  well  capitalized  for  purposes of the prompt
corrective  action  regulations  discussed  below)  may  still  accept  brokered
deposits  without  restriction,  unless it has been informed by its  appropriate
Federal regulatory agency that it is in "troubled  condition." All other insured
depository institutions are prohibited from accepting brokered deposits unless a
waiver is obtained from the FDIC. If a waiver is obtained,  the interest paid on
such  deposits  may not exceed the rate paid for  deposits in the bank's  normal
market area, or the national rate as determined in the FDIC's regulation.

Risk-Based Deposit Insurance Assessments

     FDICIA  required the FDIC to develop and  implement a system to account for
risks  attributable  to different  categories and  concentrations  of assets and
liabilities  in  assessing  deposit  insurance  premiums.  The  FDIC  adopted  a
risk-assessment system effective January 1, 1994. Under this system, each bank's
deposit insurance premium assessment is calculated based on information relevant
to evaluating the risk posed by the institution.

California Law

     The  activities of the Bank are also regulated by state law. State law, for
example,  regulates  certain  loans to any  officer  of the  Bank,  directly  or
indirectly,   or  to  any  related  corporation  in  which  such  officer  is  a
stockholder, director, officer or employee.

     Subject  to  certain   limitations,   California  law  permits   California
state-chartered  banks to invest in the stock  and  equity  securities  of other
corporations,  to engage directly in or invest  directly in  subsidiaries  which
conduct real estate related activities  (including  property management and real
estate  appraisal),  and  to  participate  in  management  consulting  and  data
processing  services  for third  parties.  FDICIA  limits the powers,  including
investment  authority and subsidiaries,  of state banks to those activities that
are either permitted to national banks, or activities that the FDIC finds do not
pose a significant  risk to the deposit  insurance  fund. In November  1998, the
FDIC  announced  it would make it easier  for well run state  banks to engage in
real estate and securities underwriting,  if permitted by state law. State banks
are now required to file notice of intention to engage in such activities.

Capital Standards

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

                                       5
<PAGE>
risk, such as commercial  loans.  The federal banking agencies require a minimum
ratio of qualifying  total capital to  risk-adjusted  assets of 8% and a minimum
ratio of Tier 1  capital  to  risk-adjusted  assets of 4%.  In  addition  to the
risked-based   guidelines,    federal   banking   regulators   require   banking
organizations  to maintain a minimum  amount of Tier 1 capital to total  assets,
referred  to as the  leverage  ratio.  For a banking  organization  rated in the
highest of the five categories used by regulators to rate banking organizations,
the minimum leverage ratio of Tier 1 capital to total assets must be 3%. For all
banking  organizations not rated in the highest  category,  the minimum leverage
ratio must be at least 100 to 200 basis  points  above the 3% minimum,  or 4% to
5%. In addition to these  uniform  risk-based  capital  guidelines  and leverage
ratios that apply across the industry, the regulators have the discretion to set
individual  minimum  capital  requirements  for specific  institutions  at rates
significantly above the minimum guidelines and ratios. See Notes to Consolidated
Financial  Statements  for the  capital  ratios of the  Company  and the Bank at
December 31, 1999.

Dividends Payable by the Bank to the Company

     The Bank is a legal entity which is separate and distinct from the Company.
Aside  from  raising  capital  on its own,  the  exercise  of stock  options  or
borrowing funds for operating  capital,  it is anticipated  that the Company may
receive  additional  income through  dividends paid by the Bank.  Subject to the
regulatory  restrictions described below, future cash dividends by the Bank will
depend upon management's assessment of future capital requirements,  contractual
restrictions and other factors.

     The power of the Board of Directors of the Bank to declare a cash  dividend
is subject to California  law,  which  restricts  the amount  available for cash
dividends  to the lesser of the  retained  earnings or the bank's net income for
its last three fiscal years (less any  distributions to shareholders made during
such period). Where the above test is not met, cash dividends may still be paid,
with  the  prior   approval  of  the   California   Commissioner   of  Financial
Institutions,  in an amount  not  exceeding  the  greatest  of (1) the  retained
earnings of the bank;  (2) the net income of the bank for its last fiscal  year;
or (3) the net income of the bank for its current  fiscal year. See the Notes to
Consolidated Financial Statements for the amount of funds the Bank had available
for the payment of dividends at December 31, 1999.

     Under  the  Federal  Deposit  Insurance  Act,  bank  regulators  also  have
authority  to  prohibit a bank from  engaging in  business  practices  which are
considered to be unsafe or unsound. It is possible, depending upon the financial
condition of the bank in question and other factors,  that such regulators could
assert that the payment of  dividends or other  payments  might,  under  certain
circumstances,   be  an  unsafe  or  unsound   practice,   even  if  technically
permissible.

Prompt Corrective Action and Other Enforcement Mechanisms

     Federal  banking  agencies  possess broad powers to take prompt  corrective
action to resolve the problems of insured depository institutions, including but
not  limited  to those that fall below one or more  prescribed  minimum  capital
ratios.  Each federal  banking agency has promulgated  regulations  defining the
following five  categories in which an insured  depository  institution  will be
placed,  based on the level of its capital ratios: well capitalized,  adequately
capitalized,  undercapitalized,  significantly  undercapitalized  and critically
undercapitalized.  At December 31, 1999,  the Company and the Bank  exceeded the
required ratios for classification as "well capitalized".

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

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

Impact of Monetary Policies

     Banking is a business which depends in large part on rate differentials. In
general,  the  difference  between  the  interest  rate  paid by the Bank on its
deposits and its other  borrowings and the interest rate received by the Bank on
loans  extended to its customers  and  securities  held in the Bank's  portfolio
comprise  a major  portion  of the  Bank's  earnings.  These  rates  are  highly
sensitive to many factors that are beyond the control of the Bank.  Accordingly,
the earnings and growth of the Bank and the Company are subject to the influence
of domestic and foreign economic conditions,  including recession,  unemployment
and inflation.

                                       6
<PAGE>
     The commercial  banking  business is not only affected by general  economic
conditions  but is also  influenced  by the monetary and fiscal  policies of the
federal  government and the policies of regulatory  agencies,  particularly  the
FRB. The FRB implements  national  monetary  policies (with  objectives  such as
curbing  inflation and combating  recession)  by its  open-market  operations in
United States Government securities, by adjusting the required level of reserves
for  financial   institutions   and   intermediaries   subject  to  its  reserve
requirements  and by varying the discount  rates  applicable  to  borrowings  by
depository  institutions.  The actions of the FRB in these areas  influence  the
growth of bank loans,  investments  and deposits and also affect  interest rates
charged  on loans and paid on  deposits.  The  nature  and  impact of any future
changes in monetary policies cannot be predicted.

Environmental Regulation

     Federal,  state and local regulations  regarding the discharge of materials
into the environment may have an impact on both the Company and the Bank.  Under
federal law,  liability for environmental  damage and the cost of cleanup may be
imposed  upon any person or entity who owns or operates  contaminated  property.
State law provisions, which were modeled after Federal law, impose substantially
similar  requirements.  Both  federal  and state  laws were  amended  in 1996 to
provide  generally  that a lender who is not actively  involved in operating the
contaminated  property will not be liable to clean up the property,  even if the
lender  has a  security  interest  in the  property  or  becomes an owner of the
property through foreclosure.

     The Economic  Growth Act  includes  protection  for lenders from  liability
under the Comprehensive  Environmental Response,  Compensation and Liability Act
of 1980 by adding a new section  which  specifies  the actions a lender may take
with  respect  to  lending  and   foreclosure   activities   without   incurring
environmental  clean-up  liability  or  responsibility.  Under  the new  section
typical  contractual  provisions  regarding  environmental  issues  in the  loan
documentation and due diligence inspections conducted in connection with lending
transactions  will not lead to lender  liability for clean-up,  and a lender may
foreclose on contaminated  property,  so long as the lender merely maintains the
property and moves to divest it at the earliest possible time.

     Under  California  law, a lender  generally will not be liable to the State
for the cost associated with cleaning up contaminated property unless the lender
realized some benefit from the property, failed to divest the property promptly,
caused or  contributed  to the release of the hazardous  materials,  or made the
loan primarily for investment purposes.  This amendment to California law became
effective  with respect to judicial  proceedings  filed and orders  issued after
January 1, 1997.

     The extent of the protection  provided by both the federal and state lender
protection  statutes  will  depend on the  interpretation  of those  statutes by
administrative  agencies and courts, and the Bank cannot predict whether it will
be adequately protected for the types of loans made by the Bank.

     In  addition,  the Company  and the Bank remain  subject to the risk that a
borrower's   financial   position  will  be  impaired  by  liability  under  the
environmental  laws and that  property  securing  a loan made by the Bank may be
environmentally  impaired and  therefore not provide  adequate  security for the
Bank.  California  law  provides  some  protection  against  the second  risk by
establishing   certain  additional,   alternative   remedies  for  a  lender  in
circumstances  where  the  property  securing  a  loan  is  later  found  to  be
environmentally  impaired,  permitting the lender to pursue remedies against the
borrower other than foreclosure under the deed of trust.

     The  Bank   attempts  to  protect  its  position   against  the   remaining
environmental   risks  by  performing   prudent  due  diligence.   Environmental
questionnaires  and information on use of toxic substances are requested as part
of the Bank's  underwriting  procedures.  The Bank makes lending decisions based
upon its  evaluation  of the  collateral,  the net worth of the borrower and the
borrower's capacity for unforeseen business interruptions or risks.

Public Interest Laws, Consumer and Lending Laws

     In addition to the other laws and regulations discussed herein, the Bank is
subject to certain  consumer and public interest laws and  regulations  that are
designed to protect  customers in  transactions  with banks.  While the list set
forth below is not exhaustive,  these laws and regulations  include the Truth in
Lending Act, the Truth in Savings Act, the  Electronic  Funds  Transfer Act, the
Expedited Funds  Availability  Act, the Equal Credit  Opportunity  Act, the Fair
Housing  Act,  the Real Estate  Settlement  Procedures  Act,  the Home  Mortgage
Disclosure  Act,  the  Fair  Credit  Reporting  Act,  the Fair  Debt  Collection
Practices Act, the Right to Financial Privacy Act and the Community Reinvestment
Act. These laws and regulations  mandate  certain  disclosure  requirements  and
regulate the manner in which  financial  institutions  must deal with  customers
when  taking  deposits,  making  loans,  collecting  loans and  providing  other
services.  The Bank must comply with the applicable provisions of these laws and
regulations as part of its ongoing  customer  relations.  Failure to comply with
these laws and regulations can subject the Bank to various penalties,  including
but  not  limited  to  enforcement  actions,  injunctions,   fines  or  criminal
penalties,  punitive  damages to consumers  and the loss of certain  contractual
rights.

                                       7
<PAGE>
Americans with Disabilities Act

     The Americans With  Disabilities  Act ("ADA"),  in conjunction with similar
California legislation,  has increased the cost of doing business for banks. The
legislation  requires  employers  with 15 or more  employees and all  businesses
operating  "commercial  facilities"  or "public  accommodations"  to accommodate
disabled  employees  and  customers.  The ADA has two major  objectives:  (1) to
prevent  discrimination  against  disabled job  applicants,  job  candidates and
employees,  and (2) to provide  disabled persons with ready access to commercial
facilities and public accommodations.  Commercial facilities,  such as the Bank,
must ensure that all new facilities are accessible to disabled  persons,  and in
some  instances  may be  required  to adapt  existing  facilities  to make  them
accessible.

New and Pending Legislation

     Certain legislative and regulatory proposals that could affect the Company,
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, state and local government agencies.

     ATM Fees. Legislation has been proposed in the past in the Congress and the
California  legislature  and  measures  are  currently  being  proposed in local
jurisdictions  to  regulate  the amount of ATM fees that  operators  of ATMs may
charge,  and to further  regulate the disclosure of such fees. If the collection
of interchange fees by the operator of an ATM were prohibited,  as some of these
bills have  proposed,  the Bank's  income from its ATM network would be severely
reduced. Management believes that the possible reduction in ATM income would not
have a material impact on the Company's consolidated financial statements.

     Expansion in Credit Union  Membership.  In 1999 a broad rule was adopted by
the National Credit Union Administration  ("NCUA") relaxing the limits on credit
union  membership.  The NCUA will now approve credit unions with  memberships of
more than 300,000  residents  with proof that they function as a community.  The
effect is to  substantially  expand the limits on credit union membership and to
make  credit  unions,  as tax  exempt  entities  serving  credit  needs of large
communities,  more  competitive to banks.  Litigation  attacking the new rule is
pending.

     The Office of Thrift Supervision ("OTS") Expansion of Charters to Insurance
Industry.  In recent  years the OTS granted a number of charters  for  insurance
companies to operate a thrift or savings and loan subsidiary. These new charters
to the  insurance  industry are expected to result in yet more  competition  for
banks.

     It is not known to what  extent the pending  proposals  will be enacted and
what  effect  such  legislation  would  have on the  structure,  regulation  and
competitive relationship of financial institutions.  It is likely, however, that
many of these  proposals  would  subject the  Company and 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  legislation  or  regulations  will be  enacted  or the  effect  that  such
legislation or regulations may have on the Bank's business.

Item 2. Description of Property

     Currently,  the Company does not own or lease any property.  The Company is
not actively engaged in any business activities outside of the activities of the
Bank.  Therefore,  the Bank's property is not significantly used by the Company.
The Company  will  continue to utilize the premises of the Bank until it becomes
actively  engaged in  additional  business  activities.  The  Company  currently
reimburses the Bank for a fair and reasonable amount for all services  furnished
to it.

     The Bank leases the land and the  buildings at which its office  facilities
are located.  The Bank has six full-service  banking offices. The head office of
the Bank is located at 1248 Fifth Avenue, San Rafael, California and consists of
approximately 10,000 square feet of office space. The Bank occupies the premises
for its head  office  under a lease  which will  expire in June  2014,  with two
five-year options to renew.

     The Bank's  five  branch  offices in San  Francisco,  South San  Francisco,
Hayward,  Upland and Petaluma,  California occupy  approximately  2,015, 12,300,
14,000, 5,000 and 4,635 square feet,  respectively,  under leases that expire at
various dates through the year 2009. In the second  quarter of 2000, the Company
expects to relocate its San Francisco  branch  office.  The Bank's lease for the
new San  Francisco  location is  scheduled to commence  June 1, 2000.  The lease
covers 3,570 square feet and expires in 2010.

     The Bank believes that its existing facilities are adequate for its current
needs and anticipated growth.

                                       8
<PAGE>
Item 3. Legal Proceedings

     The Company is not a party to any pending legal  proceeding  and is unaware
of any proceeding being contemplated against it by any governmental authority.

     There are various  legal actions  pending  against the Company and the Bank
arising from the normal course of business. Management, upon the advice of legal
counsel  handling such actions,  believes that the ultimate  resolution of these
actions  will  not have a  material  effect  on the  financial  position  of the
Company.

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

     None.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

During most of 1999, the Company's common stock traded on the OTC Bulletin Board
under the symbol MCBF. On December 28, 1999,  the  Company's  common stock began
trading on the American Stock Exchange under the symbol MCB. The Company's stock
transfer agent is U.S. Stock Transfer Corporation.  There were approximately 700
shareholders  as of December 31, 1999.  The following  high and low stock prices
reflect inter-dealer prices which may not include retail markups,  markdowns, or
commissions. Prices are adjusted to reflect stock dividends and stock splits.

                            1998      Cash Dividend      1999      Cash Dividend
                       High      Low    Declared    High      Low     Declared
                      ------    -----   --------   ------    -----    --------
First quarter         $10.32    $7.62              $ 9.05    $7.14
Second quarter         12.70    10.08                7.98     6.55
Third quarter          11.75     7.38                9.25     6.67      $0.01
Fourth quarter          9.52     7.74               11.75     8.50       0.01

Item 6. Management's Discussion and Analysis.

The  following  discussion  presents  information  pertaining  to the  financial
condition  and results of  operations  of the Company that may not  otherwise be
apparent from the financial statements and related notes. This discussion should
be read in conjunction  with the financial  statements and notes found in Item 7
of this report as well as other  information  presented  throughout this report.
Average  balances,  including  balances used in  calculating  certain  financial
ratios, are generally comprised of average daily balances.

This document may contain  forward-looking  statements that are subject to risks
and  uncertainties  that could cause actual  results to differ  materially  from
those indicated.  For a discussion of factors that could cause actual results to
differ, please see the discussion contained herein and in the Company's publicly
available Securities and Exchange Commission filings and press releases.

                                       9
<PAGE>
OVERVIEW

Earnings  Summary.  The Company reported net income of $2,333,000,  or $1.12 per
share  basic and $1.07 per share  diluted,  for 1999  compared  to net income of
$1,621,000,  or $0.75 per share basic and $0.70 per share  diluted,  in 1998 and
net income of 1,350,000,  or $0.64 per share basic and $0.61 per share  diluted,
in 1997.

Return on average  assets for 1999 was 1.30% compared to 1.03% in 1998 and 0.97%
in 1997. Return on average equity for 1999 was 17.12% compared to 12.61% in 1998
and 12.22% in 1997.

FINANCIAL CONDITION

Summary. Assets increased by 15.7% during 1999 versus 21.2% and 6.4% in 1998 and
1997,  respectively.  The increase in assets during 1999 resulted primarily from
growth in existing  operations,  largely due to the  continuation  of  favorable
economic conditions in the Company's market areas.

Loans. Loans held for investment  increased by $26.5 million,  or 24.1% in 1999,
as compared  to an increase of $22.8  million,  or 26.1%,  during  1998.  Strong
demand for commercial  real estate and  construction  loans resulted in the loan
growth for 1999.

In the normal  practice  of  extending  credit,  the Bank  accepts  real  estate
collateral  on loans that have  primary  sources of  repayment  from  commercial
operations. Loans secured by real estate totaled $113.9 million, or 82.5% of all
loans, at December 31, 1999 versus $92.6 million,  or 83.3% of all loans, a year
earlier. Due to the Bank's limited marketing area, its real estate collateral is
primarily  concentrated  in the San Francisco Bay Area and Southern  California.
Management  believes  that its prudent  underwriting  standards  for real estate
secured  lending  provide an adequate  safeguard  against  changing  real estate
prices.

The Bank focuses its portfolio  lending on commercial,  commercial  real estate,
and construction  loans. These loans generally carry a higher level of risk than
conventional  real  estate  loans,  and  accordingly,  yields on these loans are
typically  higher than those on other loans.  The  performance of commercial and
construction  loans is generally  dependent upon future cash flows from business
operations  (including the sale of products,  merchandise  and services) and the
successful  completion  or  operation  of  large  real  estate  projects.  Risks
attributable to such loans can be  significantly  increased,  often to a greater
extent than on other loans, by regional  economic  factors,  real estate prices,
the demand for commercial  and retail office space,  and the demand for products
and  services  of  industries  which are  concentrated  within the  Bank's  loan
portfolio.  As of December 31,  1999,  the two largest  industry  concentrations
within the loan portfolio were real estate and related services at 28.6% and the
business/personal  service  industry at 20.5% of the  portfolio.  Because credit
concentrations  increase portfolio risk, the Bank places significant emphasis on
the purpose of each loan and the related sources of repayment.

Nonperforming  Assets.  The Company  carefully  monitors the quality of its loan
portfolio  and  the  factors  that  affect  it,  including   regional   economic
conditions,  employment  stability,  and real  estate  values.  The  accrual  of
interest on loans is  discontinued  when the payment of principal or interest is
considered to be in doubt, or when a loan becomes  contractually  past due by 90
days or more with respect to  principal  or interest,  except for loans that are
well secured and in the process of collection.

As of December  31, 1999 the Company had  nonperforming  assets in the amount of
$1,747,000,  of which  $1,707,000  represented two nonaccrual  loans.  Had these
nonaccrual loans performed under their contractual terms  approximately  $66,000
in additional  interest income would have been recognized  during 1999. Also, as
of  December  31,  1999,  the  Company had one loan 90 days or more past due and
still  accruing in the amount of $40,000.  This loan is well  secured and in the
process  of  collection.   The  following   table  sets  forth  the  balance  of
nonperforming assets as of the dates indicated (dollar amounts in thousands):

                                       10
<PAGE>
Nonperforming Assets                                 December 31,   December 31,
                                                         1998           1999
                                                        ------         ------
Nonaccrual loans                                        $  563         $1,707
Loans 90 days or more past due and still accruing          404             40
Other real estate owned
                                                        ------         ------
                                                        $  967         $1,747
                                                        ======         ======
As a percent of total loans                               0.87%          1.27%
As a percent of total assets                              0.57%          0.89%

Allowance for Possible  Credit  Losses.  The Company  maintains an allowance for
possible  credit  losses  (the  "APCL")  which is reduced  by credit  losses and
increased  by credit  recoveries  and  provisions  to the APCL  charged  against
operations.  Provisions  to the APCL and the total of the APCL are based,  among
other factors,  upon the Company's  credit loss  experience,  the performance of
loans  within  the  portfolio,  evaluation  of loan  collateral  value,  and the
prospects or worth of respective borrowers and guarantors.

In determining the adequacy of its APCL, the Company segments its loan portfolio
into pools of  homogeneous  loans that share similar risk factors.  Each pool is
given a risk assessment  factor that largely reflects the expected future losses
from each category.  These risk assessment factors change as economic conditions
shift and actual loan losses are recorded. The APCL totaled $1,492,000, or 1.08%
of total  loans,  as of December  31, 1999 versus  $1,117,000  or 1.01% of total
loans,  a year  earlier.  In both  periods,  the  APCL was  determined  to be an
adequate allowance against foreseeable future losses. Note 3 to the consolidated
financial  statements  provides  a summary of the  activity  in the APCL for the
three years ended December 31, 1999.

                                       11
<PAGE>
The following table summarizes,  for the periods indicated, loan balances at the
end of each  period  and  average  balances  during the  period,  changes in the
allowance for possible  credit losses arising from credit losses,  recoveries of
credits  losses  previously  incurred,  additions to the  allowance for possible
credit losses charged to operating  expense,  and certain ratios relating to the
allowance for possible credit losses:

              Analysis of the Allowance for Possible Credit Losses

<TABLE>
<CAPTION>
                                                                      1998       1999
                                                                    --------   --------
                                                                   (Dollars in thousands)
<S>                                                                 <C>        <C>
Allowance for loan losses:
Beginning balance                                                   $  1,007   $  1,117
                                                                    --------   --------
Provision for loan losses                                                153        365
Charge-offs:
   Commercial                                                             53         62
   Consumer
                                                                    --------   --------
      Total charge-offs                                                   53         62
                                                                    --------   --------
Recoveries:
   Commercial                                                              9         72
   Consumer                                                                1
                                                                    --------   --------
      Total recoveries                                                    10         72
                                                                    --------   --------
Net charge-offs (recoveries)                                              43        (10)
                                                                    --------   --------
Ending balance                                                      $  1,117   $  1,492
                                                                    ========   ========
Loans outstanding at December 31                                    $111,075   $137,966
Average loans outstanding during period ended December 31           $100,130   $125,035

Ratios:
Allowance to loans at end of period                                    1.01%      1.08%
Net charge-offs (recoveries) to average loans during period            0.04%     -0.01%
Net charge-offs (recoveries) to allowance at beginning of period       4.27%     -0.90%
</TABLE>

The  following  table sets forth the  allocation  of the  allowance for possible
credit losses as of the dates indicated:

             Allocation of the Allowance for Possible Credit Losses

                                    1998                        1999
                         --------------------------   --------------------------
                                         Percent of                  Percent of
                                           Loans                        Loans
                           Allowance      in Each       Allowance      in Each
                         for Possible   Category to   for Possible   Category to
                         Credit Losses  Total Loans   Credit Losses  Total Loans
                         -------------  -----------   -------------  -----------
                                           (Dollars in thousands)
Commercial                  $  641          42.79%        $  904        47.87%
Real Estate                    245          53.27            260        48.98
Consumer                        38           3.94             30         3.15
Not Allocated                  193            N/A            298          N/A
                            ------         ------         ------       ------
          Total             $1,117         100.00%        $1,492       100.00%
                            ======         ======         ======       ======

     The  allowance  is  available  to absorb  losses  from all loans,  although
allocations have been made for certain loans and loan categories. The allocation
of the allowance as shown above should not be interpreted as an indication  that

                                       12
<PAGE>
charge-offs  in future  periods will occur in these amounts or  proportions,  or
that the allocation  indicates future charge-off trends. In addition to the most
recent analysis of individual loans and pools of loans, management's methodology
also places emphasis on historical loss data,  delinquency and nonaccrual trends
by loan  classification  category and expected  loan  maturity.  This  analysis,
management  believes,  identifies potential losses within the loan portfolio and
therefore  results in allocation of a large portion of the allowance to specific
loan categories.

Investments.  Total investment  securities decreased by $5,960,000,  or 14.2% in
1999,  as  compared to an increase  of  $6,522,000,  or 18.3% in 1998.  In 1999,
investment  securities  held to maturity  decreased $4.1 million due to calls of
the Company's callable bonds. Investment securities available for sale decreased
$1.9 million as the Company used the  proceeds on sales and  maturities  to fund
loan growth during the year. At December 31, 1999, $2.0 million,  or 5.5% of the
Company's  investment  securities  were invested in callable  government  agency
debentures  compared to $6.1  million,  or 14.4% at  December  31,  1998.  These
securities  offer above market yields,  but may be called if interest rates fall
below certain  levels.  If these  securities are called,  the Company may not be
able to reinvest the proceeds to obtain the same yield.

Deposits.  Total deposits increased by $24.9 million,  or 16.1%,  during 1999 as
compared to an increase of $28.8 million, or 22.8%, during 1998. The increase in
1999 was primarily the result of growth in existing  operations,  largely due to
improved  economic  conditions in the Company's market areas. The Company's cost
of funds  declined to 2.73% during 1999 from 3.23% during 1998 as the  Company's
rates paid on deposits in 1999 decreased from the rates paid in 1998 in response
to the decline in overall  interest  rates year over year.  The following  table
summarizes the  distribution of average  deposits and the average rates paid for
the periods indicated (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                         For the Years Ended December 31,
                                           ------------------------------------------------------------
                                                  1997                 1998                 1999
                                           ------------------   ------------------   ------------------
                                           Average    Average   Average    Average   Average    Average
                                           Balance      Rate    Balance      Rate    Balance      Rate
                                           --------   -------   --------   -------   --------   -------
<S>                                        <C>        <C>       <C>        <C>       <C>        <C>
Noninterest-bearing demand deposits        $ 27,019             $ 31,371             $ 40,290

Interest-bearing transaction deposits
 (includes money market deposit accounts)    78,521     4.10%     88,255     3.93%     98,954     3.42%
Savings deposits                              1,928     1.93%      1,845     1.92%      2,259     1.90%
Time deposits, $100,000 and over             10,214     5.42%     12,493     5.31%     13,477     4.85%
Other time deposits                           8,080     5.13%      8,194     5.06%      8,816     4.41%
                                           --------             --------             --------
    Total interest-bearing                   98,743     4.28%    110,787     4.14%    123,506     3.62%
                                           --------             --------             --------
Total deposits                             $125,762     3.36%   $142,158     3.23%   $163,796     2.73%
                                           ========             ========             ========
</TABLE>

RESULTS OF OPERATIONS

Net Interest  Income / Net Interest  Margin.  Net interest  income  increased by
$1,921,000,  or 22.4%, during 1999 to reach $10.5 million.  This compares to net
interest  income of $8.6 million in 1998 and $7.2 million in 1997.  The increase
in 1999 was  primarily  due to the growth in average  loans,  largely due to the
continuation of favorable economic conditions in the Company's market areas.

                                       13
<PAGE>
The following table sets forth average assets,  liabilities,  and  shareholders'
equity; the amount of interest income or interest expense;  the average yield or
rate  for  each  category  of  interest-bearing   assets  and   interest-bearing
liabilities;  and the net  interest  margin for the  periods  indicated  (dollar
amounts in thousands):

<TABLE>
<CAPTION>
                                                                For the Years Ended December 31,
                                         --------------------------------------------------------------------------------
                                                   1997                        1998                        1999
                                         ------------------------    ------------------------    ------------------------
                                         Average                     Average                     Average
                                         Balance   Interest  Rate    Balance   Interest  Rate    Balance   Interest  Rate
                                         --------   ------  -----    --------   ------  -----    --------  -------  -----
<S>                                      <C>        <C>     <C>      <C>        <C>     <C>      <C>       <C>      <C>
ASSETS
Federal funds sold                       $  6,613   $  356   5.38%   $  9,005   $  473   5.25%   $ 10,775  $   544   5.05%
Interest-bearing deposits with banks          348       21   6.03%        286       17   5.94%        286       15   5.24%
Investment securities                      38,797    2,485   6.41%     36,431    2,156   5.93%     31,475    1,732   5.51%
Mortgage loans                                 66        5   7.58%
Loans                                      82,893    8,633  10.41%    100,130   10,559  10.55%    125,035   12,735  10.19%
                                         --------------------------------------------------------------------------------
Total Earning Assets                      128,717   11,500   8.94%    145,852   13,205   9.06%    167,571   15,026   8.97%
Total Non-earning Assets                    9,958                      10,894                      12,127
                                         --------                    --------                    --------
Total Assets                             $138,675                    $156,746                    $179,698
                                         ========                    ========                    ========

LIABILITIES & SHAREHOLDERS' EQUITY
Demand deposits                          $ 27,019                    $ 31,371                    $ 40,290

Interest-bearing transaction accounts      78,521    3,219   4.10%     88,255    3,472   3.93%     98,954    3,388   3.42%
Time deposits, $100,000 or more            10,214      554   5.42%     12,493      664   5.31%     13,477      653   4.85%
Savings and other time                     10,009      452   4.52%     10,039      450   4.48%     11,075      432   3.90%
                                         --------------------------------------------------------------------------------
     Total interest-bearing deposits       98,744    4,225   4.28%    110,787    4,586   4.14%    123,506    4,473   3.62%
                                         --------------------------------------------------------------------------------
Other borrowings                              591       28   4.74%        495       24   4.85%        793       37   4.67%
                                         --------------------------------------------------------------------------------
     Total interest-bearing liabilities    99,335    4,253   4.28%    111,282    4,610   4.14%    124,299    4,510   3.63%
Other liabilities                           1,278                       1,243                       1,483
Shareholders' equity                       11,043                      12,850                      13,626
Total Liabilities
                                         --------                    --------                    --------
     and Shareholders' Equity            $138,675                    $156,746                    $179,698
                                         ========                    ========                    ========

                                                    ------                      -------                    -------
Net interest income                                 $7,247                      $8,595                     $10,516
                                                    ======                      =======                    =======

Net interest margin                                          5.63%                       5.89%                       6.28%
</TABLE>

                                                            14
<PAGE>
The  Company's  net  interest  margin (net  interest  income  divided by average
earning  assets)  increased to 6.28% during 1999. This compared to 5.89% in 1998
and  5.63% in 1997.  The  increases  were  primarily  attributable  to growth in
average loans as a percentage of earning  assets.  The increase in average loans
was largely due to the  continuation  of favorable  economic  conditions  in the
Company's market areas.

     The  following  table  presents  the dollar  amount of changes in  interest
earned and interest paid for each major category of  interest-earning  asset and
interest-bearing  liability  and the  amount of change  attributable  to average
balances  (volume)  fluctuations  and average  rate  fluctuations.  The variance
attributable  to both balance and rate  fluctuations  is allocated to a combined
rate/volume variance (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                               1998 Compared to 1997                1999 Compared to 1998
                                             Increase (decrease) due to           Increase (decrease) due to
                                         -----------------------------------------------------------------------
                                                             Rate/                                Rate/
                                         Volume     Rate    Volume    Total    Volume    Rate    Volume   Total
                                         -----------------------------------------------------------------------
<S>                                      <C>        <C>      <C>     <C>       <C>       <C>      <C>     <C>
Interest Income:
   Federal funds sold                    $  129     $ (9)    $ (3)   $  117    $   93    $(18)    $ (4)   $   71
   Interest-bearing deposits with banks      (4)       0        0        (4)        0      (2)       0        (2)
   Investment securities                   (152)    (188)      11      (329)     (292)   (153)      21      (424)
   Mortgage loans held for sale              (5)      (5)       5        (5)
   Loans                                  1,788      114       24     1,926     2,626    (360)     (90)    2,176
                                         -----------------------------------------------------------------------
Total Interest Income                     1,756      (88)      37     1,705     2,427    (533)     (73)    1,821
                                         -----------------------------------------------------------------------

Interest Expense:
   Interest-bearing transaction accounts    403     (133)     (17)      253       421    (450)     (55)      (84)
   Time deposits, $100,000 or more          124      (11)      (3)      110        52     (58)      (5)      (11)
   Savings and other time                     1       (3)       0        (2)       46     (58)      (6)      (18)
   Other borrowings                          (5)       1        0        (4)       15      (1)      (1)       13
                                         -----------------------------------------------------------------------
Total Interest Expense                      523     (146)     (20)      357       534    (567)     (67)     (100)
                                         -----------------------------------------------------------------------

Net Interest Income                      $1,233     $ 58     $ 57    $1,348    $1,893    $ 34     $ (6)   $1,921
                                         =======================================================================
</TABLE>

Provision for Possible Credit Losses.  The Company provided $365,000 to the APCL
during 1999  compared to $153,000 in 1998 and $120,000 in 1997.  The  provisions
during  these  periods  were  recorded  primarily  due to  growth  in  the  loan
portfolio.  Net credit  recoveries were $10,000 in 1999,  compared to net credit
losses of $43,000 in 1998 and $57,000 in 1997.

                                       15
<PAGE>
Noninterest  Income.  The following table summarizes  noninterest income for the
years 1997, 1998 and 1999 and expresses these amounts as a percentage of average
assets (dollar amounts in thousands):

                                                     Years Ended December 31,
                                                   -----------------------------
Components of Noninterest Income                    1997       1998       1999
--------------------------------                   -------    -------    -------
Gain on sale of mortgage loans                     $    13
Gain on sale of SBA loans                              133    $   151    $    87
Service fees on deposit accounts                       494        522        610
Loan servicing fees                                     34         45         53
Gain on sale of investment securities                              53         13
Other income                                           165        238        225
                                                   -------    -------    -------
    Total                                          $   839    $ 1,009    $   988
                                                   =======    =======    =======

As a Percentage of Average Assets
---------------------------------
Gain on sale of mortgage loans                       0.01%
Gain on sale of SBA loans                            0.10%      0.10%      0.05%
Service fees on deposit accounts                     0.36%      0.33%      0.34%
Loan servicing fees                                  0.02%      0.03%      0.03%
Gain on sale of investment securities                           0.03%      0.01%
Other income                                         0.12%      0.15%      0.12%
                                                   ------     ------     ------
    Total                                            0.61%      0.64%      0.55%
                                                   ======     ======     ======

                                       16
<PAGE>
Noninterest  Expenses.  The following table summarizes  noninterest expenses and
the  associated  ratios to  average  assets  for the years  1997,  1998 and 1999
(dollar amounts in thousands):

                                                    Years Ended December 31,
                                                   ---------------------------
Components of Noninterest Expense                    1997      1998      1999
---------------------------------                  -------   -------   -------
Salaries and employee benefits                     $ 3,011   $ 3,646   $ 4,069
Occupancy expense                                      774       864       983
Furniture and equipment expense                        322       414       414
Professional services                                  365       310       300
Supplies                                               212       294       272
Promotional                                            202       361       293
Data processing                                        354       323       369
Regulatory assessments                                  61        58        41
Other                                                  372       433       428
                                                   -------   -------   -------
    Total                                          $ 5,673   $ 6,703   $ 7,169
                                                   =======   =======   =======
Average full-time equivalent staff                      49        55        56

As a Percentage of Average Assets
---------------------------------
Salaries and employee benefits                       2.17%     2.32%     2.26%
Occupancy expense                                    0.56%     0.55%     0.55%
Furniture and equipment expense                      0.23%     0.26%     0.23%
Professional services                                0.26%     0.20%     0.17%
Supplies                                             0.15%     0.19%     0.15%
Promotional                                          0.15%     0.23%     0.16%
Data processing                                      0.26%     0.21%     0.20%
Regulatory assessments                               0.04%     0.04%     0.02%
Other                                                0.27%     0.28%     0.24%
                                                   -------   -------   -------
    Total                                            4.09%     4.28%     3.99%
                                                   =======   =======   =======

Noninterest  expense  increased  to $7.2  million  during 1999  compared to $6.7
million  during  1998.  In June,  1999,  the Company  opened a branch  office in
Petaluma which contributed to the increase in noninterest expense during 1999.

Year 2000 Data Processing Issues

The  Company  and the Bank  previously  recognized  the  material  nature of the
business  issues  surrounding  computer  processing of dates into and beyond the
Year  2000 and  began  taking  corrective  action as  required  pursuant  to the
interagency  statements issued by the Federal Financial Institution  Examination
Council.  Management  believes the Company has completed  all of the  activities
within their control to ensure that systems are Year 2000 compliant.

The Company and the Bank have not  experienced  any material  disruptions due to
the  start  of the  Year  2000 of the  internal  computer  systems  or  software
applications nor have they experienced any problems with the computer systems or
software  applications  of their  third  party  vendors,  suppliers  or  service
providers. The Company will continue to monitor these third parties to determine
the impact,  if any, on the  business of the Company and the actions the Company
must take, if any, in the event of non-compliance by any of these third parties.
Based upon the Company's  assessment of compliance by third parties,  there does
not appear to be any material business risk posed by any such non-compliance.

                                       17
<PAGE>
Although the Company's Year 2000 rollover did not present any material  business
disruption,  there  are some  remaining  Year  2000  related  risks.  Management
believes that  appropriate  actions have been taken to address  these  remaining
Year 2000 issues and  contingency  plans are in place to minimize the  financial
impact to the  Company.  Management,  however,  cannot be certain that Year 2000
issues affecting  customers,  suppliers or service providers of the Company will
not have a material adverse impact on the Company.

Income  Taxes.  The  Company's  effective tax rate was 41.2% in 1999 compared to
41.0% in 1998 and 41.1% in 1997. Note 6 to the consolidated financial statements
provides a  reconciliation  of the statutory tax rates to the effective tax rate
for each period.

Liquidity and Asset/Liability Management.  Liquidity is the Company's ability to
absorb  fluctuations in deposits while  simultaneously  providing for the credit
needs of its borrowers.  The objective in liquidity management is to balance the
sources and uses of funds.  Primary  sources of  liquidity  include  payments of
principal  and  interest  on loans and  investments,  proceeds  from the sale or
maturity of loans and  investments,  growth in deposits,  and increases in other
borrowings. The Company holds overnight federal funds as a cushion for temporary
liquidity needs. During 1999, federal funds sold averaged $10.8 million, or 6.0%
of total assets. In addition to its federal funds, the Company maintains various
lines of credit with  correspondent  banks,  the Federal  Reserve Bank,  and the
Federal Home Loan Bank.

As of December 31, 1999, the Company had cash, time deposits with banks, federal
funds sold, and unpledged investment  securities of approximately $40.6 million,
or 20.7% of total  assets.  This  represented  the total amount of liquid assets
available for sale and/or available to secure the Company's lines of credit.

Several  methods  are used to measure  liquidity.  One method is to measure  the
balance between loans and deposits (gross loans divided by total  deposits).  In
general,  the closer  this  ratio is to 100%,  the more  reliant an  institution
becomes on its illiquid  loan  portfolio  to absorb  temporary  fluctuations  in
deposit  levels.  As of December 31, 1999, the  loan-to-deposit  ratio was 76.7%
compared to 71.7% a year earlier.

Another  frequently used method is the relationship  between  short-term  liquid
assets  (federal  funds  sold and  investments  maturing  within  one  year) and
short-term  liabilities (total deposits and other borrowings) as measured by the
liquidity  ratio. As of December 31, 1999, this ratio was 15.2% as compared 3.1%
a year earlier.

As of  December  31, 1999 the  Company  had no  material  commitments  that were
expected to adversely impact liquidity.

Net  interest  income and the net interest  margin are largely  dependent on the
Company's ability to closely match interest-earning assets with interest-bearing
liabilities.  As interest  rates  change,  the Company must  constantly  balance
maturing and repricing  liabilities  with maturing and  repricing  assets.  This
process is called  asset/liability  management  and is commonly  measured by the
maturity/repricing  gap.  The  maturity/repricing  gap is the dollar  difference
between  maturing or repricing  assets and maturing or repricing  liabilities at
different intervals of time.

     The following table sets forth rate sensitive  interest-earning  assets and
interest-bearing  liabilities  as  of  December  31,  1999,  the  interest  rate
sensitivity  gap  (i.e.  interest  sensitive  assets  minus  interest  sensitive

                                       18
<PAGE>
liabilities),  the cumulative  interest rate  sensitivity gap, the interest rate
sensitivity gap ratio (interest  sensitive assets divided by interest  sensitive
liabilities)  and the cumulative  interest rate  sensitivity gap ratio.  For the
purposes of the  following  table,  an asset or  liability  is  considered  rate
sensitive  within a specified  period when it matures or can be repriced  within
that period  pursuant  to its  original  contractual  terms  (dollar  amounts in
thousands):

<TABLE>
<CAPTION>
December 31, 1999                                              Over 90     Over 180     After One      After
                                                   90 days     days to      days to      Year to       Five
                                                   or less     180 days    365 days     Five Years     Years       Total
                                                  ---------   ---------    ---------    ---------    ---------   ---------
<S>                                               <C>         <C>          <C>          <C>          <C>         <C>
Earning Assets (Rate Sensitive):
   Federal funds sold                             $  10,400                                                      $  10,400
   Interest-bearing deposits with other banks            90                $     196                                   286
   Investment securities                             16,852                    2,001    $  13,082    $   5,069      37,004
   Loans, gross of allowance for possible losses     71,539   $   3,658          967       44,944       16,989     138,097
                                                  ---------   ---------    ---------    ---------    ---------   ---------
     Total                                           98,881       3,658        3,164       58,026       22,058     185,787
                                                  ---------   ---------    ---------    ---------    ---------   ---------

Interest-Bearing Liabilities (Rate Sensitive):
   Interest-bearing transaction deposits                                      49,796       62,946                  112,742
   Time deposits, $100,000 or more                    5,719       3,229        4,766          757                   14,471
   Savings and other time deposits                    3,783       1,292        3,501        2,984                   11,560
   Other borrowings                                     750                                                            750
                                                  ---------   ---------    ---------    ---------    ---------   ---------
     Total                                           10,252       4,521       58,063       66,687                  139,523
                                                  ---------   ---------    ---------    ---------    ---------   ---------
Period GAP                                        $  88,629   $    (863)   $ (54,899)   $  (8,661)   $  22,058
                                                  =========   =========    =========    =========    =========
Cumulative GAP                                    $  88,629   $  87,766    $  32,867    $  24,206    $  46,264
                                                  =========   =========    =========    =========    =========
Interest Sensitivity GAP Ratio                        89.63%     (23.59%)   (1735.11%)     (14.93%)     100.00%
                                                  =========   =========    =========    =========    =========
Cumulative Interest Sensitivity                       89.63%      85.59%       31.09%       14.78%       24.90%
                                                  =========   =========    =========    =========    =========
</TABLE>

     The  Company  classifies  its  interest-bearing  transaction  accounts  and
savings  accounts  into the over 180 days to 365 days time period as well as the
after  one  year to five  years  time  period.  This is done to  adjust  for the
relative  insensitivity of these accounts to changes in interest rates. Although
rates on these accounts can be contractually reset at the Company's  discretion,
historically these accounts have not demonstrated strong correlations to changes
in the prime rate.  Generally,  a positive  gap at one year  indicates  that net
interest income and the net interest margin will increase if interest rates rise
in the future. A negative gap at one year indicates that net interest income and
the net interest margin will decrease if interest rates rise in the future.  The
Company  neither  currently   utilizes   financial   derivatives  to  hedge  its
asset/liability position nor has any plans to employ such strategies in the near
future.

The  maturities  and  weighted  average  yields  of  investment  securities  are
presented in the following table:

Maturities of Investment Securities at December 31, 1999 (At amortized cost)

<TABLE>
<CAPTION>
                                                 After 1 Year     After 5 Years
                              Within 1 Year     Within 5 Years   Within 10 Years         Total
                             ----------------------------------------------------------------------
(Dollars in thousands)        Amount   Yield    Amount   Yield    Amount   Yield     Amount   Yield
<S>                          <C>       <C>     <C>       <C>      <C>      <C>      <C>       <C>
U.S. Treasury and other
  U.S. government agencies   $16,853   5.26%   $13,132   5.31%    $5,069   5.58%    $35,054   5.32%
Corporate securities                             1,950   6.32%                        1,950   6.32%
                             ----------------------------------------------------------------------
   Total                     $16,853   5.26%   $15,082   5.44%    $5,069   5.58%    $37,004   5.38%
                             =====================================================================
</TABLE>

                                       19
<PAGE>
Time Certificates, $100,000 and Over

     The  following  table  sets forth the time  remaining  to  maturity  of the
Company's  time  deposits  in amounts of  $100,000  or more  (dollar  amounts in
thousands):

Time remaining to maturity                                     December 31, 1999
                                                               -----------------
Three months or less                                               $  5,719
After three months to six months                                      3,229
After six months to one year                                          4,766
After twelve months                                                     757
                                                                   --------
          Total                                                    $ 14,471
                                                                   ========

Maturities of Loans at December 31, 1999

Time remaining to maturity              Fixed rate   Adjustable rate     Total
                                        ----------   ---------------    --------
One year or less                         $  7,268       $ 35,248       $ 42,516
After one year to five years               43,025         12,483         55,508
After five years                           16,989         23,084         40,073
                                         --------       --------       --------
    Total                                $ 67,282       $ 70,815       $138,097
                                         ========       ========       ========

As of December 31, 1999, the percentage of loans held for investment  with fixed
and floating interest rates was 49% and 51%, respectively.

The following  table  provides  typical terms of maturity  ranges offered by the
Company for each loan category indicated:

Loan Category                            Typical Term in Years
                                         ---------------------
Commercial Loans                                1 to 3
Real Estate Loans:
  Commercial                                    5
  Construction                                  1
  Land                                          1
Home Equity                                     5
Loans to Consumers and Individuals              1 to 5

Capital  Resources.  The principal source of capital for the Company is and will
continue to be the retention of operating profits.  Total  shareholders'  equity
was $14.4  million as of  December  31, 1999  compared  to $13.1  million a year
earlier.

Shareholder Rights Plan

In  January,  1999 the Company  adopted a  shareholder  rights plan  designed to
maximize  the  long-term  value of the  Company  and to  protect  the  Company's
shareholders  from improper takeover tactics and takeover bids that are not fair
to all shareholders.

                                       20
<PAGE>
In accordance with the plan, preferred share purchase rights were distributed as
a dividend at the rate of one right for each  common  share held of record as of
the close of business on February 8, 1999. The rights, which are not immediately
exercisable, entitle the holders to purchase one one-hundredth of a share of the
Company's  Series A Junior  Participating  Preferred  Stock at a price of $37.00
upon the occurrence of certain triggering events. In the event of an acquisition
not approved by the Board of  Directors,  each right  enables its holder  (other
than the acquirer) to purchase the  Preferred  Stock at 50% of the market value.
Further,  in the event the Company is acquired in an unwanted merger or business
combination,  each right enables the holder to purchase  shares of the acquiring
entity at a similar  discount.  Under certain  circumstances,  the rights may be
exchanged  for  common  shares  of the  Company.  The  Board  may,  in its  sole
discretion, redeem the rights at any time prior to any of the triggering events.

The rights can be exercised and separate rights certificates distributed only if
any of the following events occur: acquisition by a person of 10% or more of the
Company's  common shares; a tender offer for 10% or more of the Company's common
shares;  or  ownership  of 10% or  more  of the  Company's  common  shares  by a
shareholder  whose actions are likely to have a material  adverse  impact on the
Company or shareholder interests.  The rights will initially trade automatically
with the common  shares.  The rights are not deemed by the Board of Directors to
be presently exercisable.

Stock Repurchase Plan

In February, 1999 the Board of Directors authorized the Company to repurchase an
additional  $2,000,000  of  the  Company's  common  stock  in  addition  to  the
$1,000,000  authorized pursuant to the repurchase programs announced in 1994 and
1998. The 1994 repurchase  program was completed in 1998 and the 1998 repurchase
program was completed in February,  1999. The 1999 repurchase program authorizes
the Company to repurchase shares in open market and private  transactions during
the next five years. As of December 31, 1999, 84,638 shares had been repurchased
under the 1999 repurchase program for a total purchase price of $691,973.

Cash Dividends

During the third quarter of 1999 the Company began the payment of a regular cash
dividend of $0.01 per share. The regular cash dividends will be paid quarterly.

Risk Based Capital

Regulatory  authorities  have established  minimum capital  adequacy  guidelines
requiring that qualifying  capital be 8% of risk-based assets, of which at least
4% must be tier 1 capital (primarily  shareholders'  equity). As of December 31,
1999 the  Company's  qualifying  capital was 10.9%,  of which the tier 1 capital
ratio was 9.9%. In addition,  the Company,  under the guidelines established for
adequately capitalized institutions, must also maintain a minimum leverage ratio
(tier 1 capital  divided by total  assets) of 4%. As of December 31,  1999,  the
Company's leverage ratio was 7.4%.

                                       21
<PAGE>
Item 7. Financial Statements.

Consolidated Balance Sheets
December 31, 1998 and 1999

<TABLE>
<CAPTION>
Dollar amounts in thousands                                               1998        1999
                                                                        ---------   ---------
<S>                                                                     <C>         <C>
Assets

Cash and due from banks                                                 $   8,804   $   6,556
Federal funds sold                                                          3,200      10,400
                                                                        ---------   ---------
           Total cash and cash equivalents                                 12,004      16,956

Interest-bearing deposits with banks                                          286         286
Investment securities available for sale at fair value                     36,023      34,118
Investment securities held to maturity; fair values
  of $6,081 in 1998 and $1,979 in 1999                                      6,055       2,000
Loans held for investment (net of allowance for possible
  credit losses of $1,117 in 1998 and $1,492 in 1999)                     109,958     136,474
Premises and equipment - net                                                2,431       2,791
Accrued interest receivable                                                 1,152       1,077
Deferred income taxes                                                         547       1,068
Other assets                                                                1,040       1,349
                                                                        ---------   ---------
Total assets                                                            $ 169,496   $ 196,119
                                                                        =========   =========
Liabilities and Shareholders' Equity

Liabilities:
  Deposits:
    Noninterest-bearing                                                 $  38,788   $  41,011
    Interest-bearing:
      Transaction accounts                                                 92,491     112,742
      Time certificates, $100,000 and over                                 12,622      14,471
      Savings and other time deposits                                      11,003      11,560
                                                                        ---------   ---------
           Total interest-bearing deposits                                116,116     138,773
                                                                        ---------   ---------
            Total deposits                                                154,904     179,784
  Other borrowings                                                            356         750
  Accrued interest payable and other liabilities                            1,154       1,188
                                                                        ---------   ---------
           Total liabilities                                              156,414     181,722
                                                                        ---------   ---------
Shareholders' equity:
  Preferred stock, no par value: authorized 20,000,000 shares;
    none issued or outstanding
  Common stock, no par value: authorized 20,000,000 shares;
    issued 2,094,031 shares in 1998 and 2,078,501 shares in 1999
    outstanding 2,088,466 shares in 1998 and 2,078,501 shares in 1999       9,578      10,068
  Accumluated other comprehensive income                                      191        (518)
  Retained earnings                                                         3,313       4,847
                                                                        ---------   ---------
           Total shareholders' equity                                      13,082      14,397
                                                                        ---------   ---------
Total liabilities and shareholders' equity                              $ 169,496   $ 196,119
                                                                        =========   =========
</TABLE>

See notes to consolidated financial statements.

                                       22
<PAGE>
Consolidated Statements of Operations
Years ended December 31, 1997, 1998 and 1999

In thousands, except per share amounts                1997      1998      1999

Interest Income:
  Loans, including fees                              $ 8,638   $10,559   $12,735
  Federal funds sold                                     356       473       544
  Investment securities                                2,506     2,173     1,747
                                                     -------   -------   -------
           Total interest income                      11,500    13,205    15,026
                                                     -------   -------   -------
Interest Expense:
  Interest-bearing transaction, savings
    and other time deposits                            3,671     3,922     3,820
  Time certificates, $100,000 and over                   554       664       653
  Other interest                                          28        24        37
                                                     -------   -------   -------
           Total interest expense                      4,253     4,610     4,510
                                                     -------   -------   -------
Net Interest Income                                    7,247     8,595    10,516

Provision for Possible Credit Losses                     120       153       365
                                                     -------   -------   -------
Net Interest Income After Provision
  for Possible Credit Losses                           7,127     8,442    10,151

Other Income:
  Gain on sale of loans                                  146       151        87
  Service fees on deposit accounts                       494       522       610
  Loan servicing fees                                     34        45        53
  Gain on sale of investment securities                             53        13
  Other                                                  165       238       225
                                                     -------   -------   -------
           Total other income                            839     1,009       988
                                                     -------   -------   -------
Other Expenses:
  Salaries and employee benefits                       3,011     3,646     4,069
  Occupancy expense                                      774       864       983
  Furniture and equipment expense                        322       414       414
  Professional services                                  365       310       300
  Supplies                                               212       294       272
  Promotional expenses                                   202       361       293
  Data processing fees                                   354       323       369
  Regulatory assessments                                  61        58        41
  Other                                                  372       433       428
                                                     -------   -------   -------
           Total other expenses                        5,673     6,703     7,169
                                                     -------   -------   -------
Income Before Income Taxes                             2,293     2,748     3,970

Income Tax Provision                                     943     1,127     1,637
                                                     -------   -------   -------
Net Income                                           $ 1,350   $ 1,621   $ 2,333
                                                     =======   =======   =======
Basic Earnings Per Share                             $  0.64   $  0.75   $  1.12
                                                     =======   =======   =======
Diluted Earnings Per Share                           $  0.61   $  0.70   $  1.07
                                                     =======   =======   =======

See notes to consolidated financial statements.

                                       23
<PAGE>
Consolidated Statements of Comprehensive Income
Years ended December 31, 1997, 1998 and 1999

In thousands                                          1997      1998      1999

Net Income                                           $1,350    $1,621    $2,333

Other comprehensive income:
   Unrealized gains (losses) on securities:
      Unrealized holding gains (losses)
        arising during period, net of tax                46       159      (717)
      Less: reclassification adjustment for gains
        included in net income, net of tax
        ($22 in 1998 and $5 in 1999)                               31         8
                                                     ------    ------    ------
   Other comprehensive income (loss)                     46       190      (709)
                                                     ------    ------    ------
   Comprehensive income                              $1,396    $1,811    $1,624
                                                     ======    ======    ======

See notes to consolidated financial statements.

                                       24
<PAGE>
Consolidated  Statements of Changes in Shareholders' Equity
Years ended December 31, 1997, 1998 and 1999

<TABLE>
<CAPTION>
                                                                      Accumulated     Retained
                                                 Common Stock            Other        Earnings
                                              --------------------   Comprehensive  (Accumulated
Dollar amounts in thousands                     Shares      Amount   Income (Loss)    Deficit)      Total
----------------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>          <C>            <C>         <C>
Balance, January 1, 1997                      1,885,319    $ 9,398      $ (45)         $  832      $10,185
  Net income                                                                            1,350        1,350
  Other comprehensive income, net of taxes                                 46                           46
  Dividends on common stock (5%)
     Cash payment                                                                          (2)          (2)
     Stock issued                                95,428        591                       (591)
  Common stock issued upon
     exercise of stock options                   73,968        321                                     321
  Tax benefit of stock options exercised                                                   67           67
----------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                    2,054,715     10,310          1           1,656       11,967
  Net income                                                                            1,621        1,621
  Other comprehensive income, net of taxes                                190                          190
  Common stock issued upon
     exercise of stock options                   26,457        115                                     115
  Tax benefit of stock options exercised                                                   36           36
  Purchases of common stock                     (92,156)      (847)                                   (847)
----------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                    1,989,016      9,578        191           3,313       13,082
  Net income                                                                            2,333        2,333
  Other comprehensive income, net of taxes                               (709)                        (709)
  Dividends on common stock (5%)
     Cash payment                                                                          (2)          (2)
     Stock issued                                98,427        867                       (867)
  Cash Dividends                                                                          (40)         (40)
  Common stock issued upon
     exercise of stock options                   77,831        363                                     363
  Tax benefit of stock options exercised                                                  110          110
  Purchases of common stock                     (86,773)      (740)                                   (740)
----------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                    2,078,501    $10,068      $(518)         $4,847      $14,397
==========================================================================================================
</TABLE>

See notes to consolidated financial statements.

                                       25
<PAGE>
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1998 and 1999

<TABLE>
<CAPTION>
Dollar Amounts In Thousands                                            1997        1998        1999

<S>                                                                  <C>         <C>         <C>
Cash Flows From Operating Activities:
  Net income                                                         $  1,350    $  1,621    $  2,333
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Settlement of mortgage loans sold                                     648
    Provision for possible credit losses                                  120         153         365
    Depreciation and amortization                                         318         479         463
    Gain on sale of investment securities                                             (53)        (13)
    Change in deferred tax provision                                       28         (32)        (17)
    Effect of change in:
        Accrued interest receivable                                       (67)        (82)         75
        Other assets                                                     (199)        124        (309)
        Accrued interest payable and other liabilities                     90          96         161
                                                                     --------    --------    --------
           Net cash provided by operating activities                    2,288       2,306       3,058
                                                                     --------    --------    --------
Cash Flows From Investing Activities:
  Held to maturity securities:
     Calls                                                              7,500      21,250       4,055
     Purchases                                                         (7,000)     (2,055)
  Available for sale securities:
     Maturities                                                         5,127       3,046       4,272
     Calls                                                              4,000       1,000
     Purchases                                                        (10,012)    (30,642)    (26,760)
     Sales                                                                          1,206      23,164
  Decrease in interest-bearing deposits with banks                         98
  Net (increase) in loans held for investment                          (7,178)    (22,932)    (26,881)
  Purchases of premises and equipment, net                               (641)       (278)       (811)
                                                                     --------    --------    --------
          Net cash used by investing activities                        (8,106)    (29,405)    (22,961)
                                                                     --------    --------    --------
Cash Flows From Financing Activities:
  Net increase in noninterest-bearing demand deposits                   2,885       9,637       2,223
  Net increase in interest-bearing transaction, savings and
    other time deposits                                                 3,389      19,135      22,657
  Net increase (decrease) in other borrowings                             303        (394)        394
  Cash dividends paid                                                                             (40)
  Cash payment for fractional shares resulting from stock dividend         (2)                     (2)
  Proceeds from the exercise of stock options                             321         115         362
  Purchases of common stock                                                          (847)       (739)
                                                                     --------    --------    --------
           Net cash provided by financing activities                    6,896      27,646      24,855
                                                                     --------    --------    --------
Net Increase in Cash and Cash Equivalents                               1,078         547       4,952
                                                                     --------    --------    --------
Cash and Cash Equivalents:
  Beginning of year                                                    10,379      11,457      12,004
                                                                     --------    --------    --------
  End of year                                                        $ 11,457    $ 12,004    $ 16,956
                                                                     ========    ========    ========
Cash Paid During the Year for:
  Interest on deposits and other borrowings                          $  4,217    $  4,648    $  4,522
                                                                     ========    ========    ========
  Income taxes                                                       $  1,111    $    976    $  1,666
                                                                     ========    ========    ========
Noncash Investing and Financing Activities:
  Stock dividends paid on common stock                               $    591                $    867
                                                                     ========                ========
</TABLE>

See notes to consolidated financial statements.

                                       26
<PAGE>
MCB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The  accounting  and  reporting  policies  of  MCB  Financial  Corporation  (the
"Company"  on a  consolidated  basis) and its  wholly  owned  subsidiary,  Metro
Commerce Bank (the "Bank"),  conform to generally accepted accounting principles
and general  practice in the banking  industry.  The Company was incorporated in
California  on  January  20,  1993 for the  purpose of  becoming a bank  holding
company registered under the Bank Holding Company Act of 1956.

The following is a summary of the significant  accounting policies and reporting
methods used by the Company:

Nature of Operations

The Company  operates five branches in the San Francisco Bay Area and one branch
in Upland,  California.  The  Company's  primary  source of revenue is providing
loans to small and middle-market businesses.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Basis of Consolidation

The accompanying  consolidated  financial statements include the Company and its
wholly owned  subsidiary,  the Bank. All intercompany  amounts are eliminated in
consolidation.

Cash and Due from Banks

Cash and due from banks  include  balances with the Federal  Reserve  Bank.  The
Company is required by federal  regulations to maintain  certain minimum average
balances with the Federal  Reserve,  based  primarily on the  Company's  average
daily deposit balances.  At December 31, 1999, the Company had required balances
and compensating balances with the Federal Reserve of $274,000.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, due from banks and federal funds
sold. Generally, federal funds are sold for one-day periods.

Investment Securities

The Company classifies its qualifying investments as trading, available for sale
or held to  maturity.  Management  has  reviewed the  securities  portfolio  and
classified  securities  as either held to maturity or  available  for sale.  The
Company's  policy of  classifying  investments as held to maturity is based upon
its  ability  and  management's  intent to hold  such  securities  to  maturity.

                                       27
<PAGE>
Securities  expected to be held to maturity are carried at amortized  historical
cost. All other  securities are classified as available for sale and are carried
at fair  value.  Fair value is  determined  based upon  quoted  market  prices .
Unrealized  gains and losses on  securities  available  for sale are included in
shareholders'  equity on an after-tax basis. Gains and losses on dispositions of
investment  securities  are included in  noninterest  income and are  determined
using the specific identification method.

Loans

Loans  which  are  held  for  investment  are  stated  at the  principal  amount
outstanding,  net of deferred loan  origination fees and costs and the allowance
for possible credit losses.  Interest  income is recognized  using methods which
approximate  a level  yield on  principal  amounts  outstanding.  The accrual of
interest on loans is  discontinued  when the payment of principal or interest is
considered to be in doubt, or when a loan becomes  contractually  past due by 90
days or more with respect to  principal  or interest,  except for loans that are
well secured and in the process of  collection.  Loan  origination  fees, net of
certain  related direct loan  origination  costs,  are deferred and amortized as
yield adjustments over the contractual lives of the underlying loans.

Sale and Servicing of Small Business Administration ("SBA") Loans

The Company  originates  loans to customers  under SBA programs  that  generally
provide for SBA  guarantees  of 70% to 90% of each loan.  The Company  generally
sells the  guaranteed  portion of the  majority of the loans to an investor  and
retains the  unguaranteed  portion and  servicing  rights in its own  portfolio.
Funding  for the SBA  programs  depend  on  annual  appropriations  by the  U.S.
Congress.

Gains on these sales are earned  through the sale of the  guaranteed  portion of
the loan for an amount in excess of the adjusted  carrying  value of the portion
of the loan sold. The Company allocates the carrying value of such loans between
the portion  sold,  the portion  retained  and a value  assigned to the right to
service the loan.  The  difference  between the adjusted  carrying  value of the
portion  retained  and the face amount of the portion  retained is  amortized to
interest  income  over  the  life  of the  related  loan  using a  method  which
approximates the interest method.

Allowance for Possible Credit Losses

The  allowance  for  possible  credit  losses is  maintained  at a level  deemed
appropriate  by management  to provide for known and inherent  risks in the loan
portfolio  and  commitments  to  extend  credit.  The  allowance  is based  upon
management's   continuing   assessment   of  various   factors   affecting   the
collectibility of loans and commitments to extend credit,  including current and
projected  economic  conditions,  past  credit  experience,  the  value  of  the
underlying  collateral,  and such  other  factors  as in  management's  judgment
deserve current recognition in estimating  potential credit losses. Loans deemed
uncollectible are charged-off and deducted from the allowance,  while subsequent
recoveries are credited to the allowance.

A loan is considered  impaired when  management  determines  that it is probable
that the Company  will be unable to collect all  amounts  due  according  to the
original contractual terms of the loan agreement.  Impaired loans are carried at
the estimated  present value of total expected future cash flows,  discounted at
the loan's  effective rate, or the fair value of the collateral,  if the loan is
collateral  dependent,  if  less  than  the  recorded  investment  in  the  loan
(including  accrued  interest,  net deferred loan fees or costs and  unamortized
premium or discount).  An impairment is recognized by adjusting an allocation of
the existing allowance for credit losses.

                                       28
<PAGE>
Premises and Equipment

Premises  and  equipment  consist  of  leasehold  improvements,   furniture  and
equipment,   and  automobiles   which  are  stated  at  cost,  less  accumulated
depreciation and amortization. Depreciation is computed on a straight-line basis
over the estimated  useful lives of the assets,  primarily  from three to thirty
years. Leasehold improvements are amortized over the terms of the lease or their
estimated useful lives, whichever is shorter.

Stock-based Compensation

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

Income Taxes

The Company and its subsidiary file consolidated income tax returns. The Company
provides a deferred  tax expense or benefit  equal to the net change in deferred
tax assets and  liabilities  during the year.  Deferred income taxes reflect the
net tax effects of temporary  differences  between the carrying amount of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes.

Stock Splits and Stock Dividends

In February  1998, the Company's  outstanding  shares of common stock were split
four-for-three.  In August 1998,  outstanding  shares of common stock were split
three-for-two.  In  September  1999,  outstanding  shares of common  stock  were
increased  due to the payment of a 5% stock  dividend.  All shares and per share
amounts reported have been restated to reflect the splits and dividends.

Comprehensive Income

The  Company  has  adopted  SFAS  No.  130,  "Reporting  Comprehensive  Income."
Comprehensive  income  is  equal  to  net  income  plus  the  change  in  "other
comprehensive  income," as defined by SFAS No. 130. This statement  requires the
Company to report income and (loss) from non-owner  sources.  The only component
of other  comprehensive  income  currently  applicable to the Company is the net
unrealized gain or loss on available for sale investments. SFAS No. 130 requires
that an entity: (a) classify items of other comprehensive income by their nature
in a  financial  statement,  and (b)  report  the  accumulated  balance of other
comprehensive  income  separately from common stock and retained earnings in the
equity section of the balance sheet.

Net Income Per Common Share

Net income per common share is stated in accordance with SFAS No. 128, "Earnings
per Share." Basic net income per common share is computed by dividing net income
by the weighted  average  number of common shares  outstanding  during the year.
Diluted net income per common  share is  computed by dividing  net income by the
weighted  average  number  of  common  shares  plus  common   equivalent  shares
outstanding including dilutive stock options.

                                       29
<PAGE>
Segment Information

The Company operates as a single business segment - commercial banking.

Derivatives and Hedging Activities

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments  embedded  in  other  contracts,  and for  hedging  activities.  The
statement  requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value.  The  statement  requires that changes in the  derivative's  fair
value be  recognized  currently in earnings  unless  specific  hedge  accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset  related  results  on the  hedged  item in the income
statement,  and requires that a company formally document,  designate and assess
the effectiveness of transactions  that receive hedge accounting.  SFAS No. 133,
as amended by SFAS 137, is  effective  for all fiscal  quarters of fiscal  years
beginning after June 15, 2000.  Initial  application of SFAS No. 133 would be as
of  the  beginning  of  an  entity's  fiscal  quarter.  On  that  date,  hedging
relationships must be designated anew and documented  pursuant to the provisions
of SFAS No. 133. Earlier application of all of the provisions of SFAS No. 133 is
encouraged,  but it is permitted  only as of the beginning of any fiscal quarter
that begins after issuance.  SFAS No. 133 should not be applied retroactively to
financial  statements of prior periods.  The Company has no derivative or hedged
instruments and therefore the  implementation  of this statement is not expected
to have a material  impact on the  Company's  financial  position  or results of
operations.

Reclassifications

Certain  1997  and  1998  amounts  were  reclassified  to  conform  to the  1999
presentation.

                                       30
<PAGE>
2. INVESTMENT SECURITIES

The amortized  cost and  approximate  market value of  investment  securities at
December 31 were as follows (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                  Gross       Gross     Estimated
                                     Amortized  Unrealized  Unrealized    Fair     Carrying
                                       Cost       Gains       Losses      Value      Value

<S>                                   <C>        <C>         <C>         <C>        <C>
1999:
  Held to maturity securities:
    U.S. Government agencies          $ 2,000                $   (21)    $ 1,979    $ 2,000
                                      -------    -------     -------     -------    -------
           Total held to maturity       2,000                    (21)      1,979      2,000
                                      -------    -------     -------     -------    -------
  Available for sale securities:
    U.S. Treasury                      21,920                   (320)     21,600     21,600
    U.S. Government agencies           11,134                   (537)     10,597     10,597
    Corporate securities                1,950                    (29)      1,921      1,921
                                      -------    -------     -------     -------    -------
           Total available for sale    35,004                   (886)     34,118     34,118
                                      -------    -------     -------     -------    -------
Total investment securities           $37,004    $           $  (907)    $36,097    $36,118
                                      =======    =======     =======     =======    =======

                                                  Gross       Gross     Estimated
                                     Amortized  Unrealized  Unrealized    Fair      Carrying
                                       Cost       Gains       Losses      Value      Value
                                      -------    -------     -------     -------    -------
1998
  Held to maturity securities:
    U.S. Government agencies          $ 6,055   $    26                  $ 6,081    $ 6,055
                                      -------    -------     -------     -------    -------
           Total held to maturity       6,055         26                   6,081      6,055

  Available for sale securities:
    U.S. Treasury                      15,206        214     $    (6)     15,414     15,414
    U.S. Government agencies           17,247        137         (60)     17,324     17,324
    Mortgage-backed securities          1,172          5                   1,177      1,177
    Coporate securities                 1,971         36                   2,007      2,007
    Municipal bonds                       100          1                     101        101
                                      -------    -------     -------     -------    -------
           Total available for sale    35,696        393         (66)     36,023     36,023
                                      -------    -------     -------     -------    -------
Total investment securities           $41,751    $   419     $   (66)    $42,104    $42,078
                                      =======    =======     =======     =======    =======
</TABLE>

                                       31
<PAGE>
The  following  table shows the  amortized  cost and  approximate  fair value of
investment  securities  by  contractual  maturity at December  31, 1999  (dollar
amounts in thousands):

                                     Held to Maturity       Available for Sale
                                    -------------------     -------------------
                                   Amortized     Fair      Amortized     Fair
                                     Cost        Value       Cost        Value

Within one year                                             $16,853     $16,844
After one but within five years     $ 2,000     $ 1,979      13,082      12,594
Over five years                                               5,069       4,680
                                    -------     -------     -------     -------
Total                               $ 2,000     $ 1,979     $35,004     $34,118
                                    =======     =======     =======     =======

The Bank carries its Federal Reserve Bank stock and Federal Home Loan Bank stock
as other assets.  These securities are not covered by the provisions of SFAS No.
115 and are recorded at historical  cost.  The total  carrying value at December
31, 1998 and 1999 was $709,000 and $791,000, respectively.

The  mortgage-backed  securities  held at  December  31, 1998 were issued by the
Federal  National  Mortgage  Association  and the  Federal  Home  Loan  Mortgage
Corporation.

The Bank has purchased U.S.  government  agency securities  totaling  $2,000,000
that  contain  certain  issuer call option  features.  These  securities  have a
weighted  average yield of 6.21% and may be called if interest  rates fall below
certain  levels.  If these  securities are called the Company may not be able to
reinvest the proceeds to obtain the same weighted average yield.

Securities with an amortized cost of approximately $3,345,000 as of December 31,
1998,  and  $8,062,000  as of December  31,  1999,  were pledged to secure other
borrowings.

In 1999,  proceeds  from the sale of  investment  securities  available for sale
totaled $23,164,000. Realized net gains on these sales totaled $13,000. In 1998,
proceeds  from  sale  of  investment   securities  available  for  sale  totaled
$1,206,000,  and the realized net gains totaled $53,000.  No sales of investment
securities occurred during 1997.

                                       32
<PAGE>
3. LOANS AND ALLOWANCE FOR POSSIBLE CREDIT LOSSES

Loans at December 31, consisted of the following (dollar amounts in thousands):

                                                          1998          1999

Commercial                                              $  22,504     $  23,413
Real estate:
  Commercial                                               72,605        83,737
  Construction                                              9,619        23,546
  Land                                                      2,592         4,440
Home equity                                                 1,703         1,289
Loans to consumers and individuals                          2,085         1,672
                                                        ---------     ---------
           Total                                          111,109       138,097

Deferred loan fees                                            (33)         (131)
Allowance for possible credit losses                       (1,117)       (1,492)
                                                        ---------     ---------
Total                                                   $ 109,958     $ 136,474
                                                        =========     =========

The Company is  principally  engaged in commercial  banking in the San Francisco
Bay Area of California and the Greater Los Angeles Area.  The Company  primarily
grants  commercial  loans,  the  majority  of which are  secured  by  commercial
properties.  Although the Company has a  diversified  portfolio,  a  substantial
portion of its debtors'  ability to honor their  contracts is dependent upon the
economic sector of Northern California, including the real estate markets of the
San Francisco Bay Area.  Approximately  51% of the Company's loans have interest
rates that are variable and tied to the prime rate,  whereas the  remaining  are
fixed rate loans.

Following is a schedule of the  activity in the  allowance  for possible  credit
losses on loans for the years ended December 31  (dollar amounts in thousands):

                                                 1997        1998        1999

Balances, January 1                             $   944     $ 1,007     $ 1,117
Provision for possible credit losses                120         153         365
Loans charged-off                                  (108)        (53)        (62)
Recoveries                                           51          10          72
                                                -------     -------     -------
Total                                           $ 1,007     $ 1,117     $ 1,492
                                                =======     =======     =======


At December  31,  1998 and 1999,  the  Company  had  nonperforming  loans in the
amounts of $967,000 and  $1,747,000,  respectively.  Interest income foregone on
nonperforming  loans totaled  $6,000,  $34,000,  and $66,000 for the years ended
December 31, 1997, 1998 and 1999,  respectively.  Interest income  recognized on
the nonperforming loans approximated $3,000,  $68,000, and $89,000 for the years
ended  December  31,  1997,  1998 and 1999,  respectively.  For the years  ended
December 31, 1998 and 1999,  the average  recorded  investment in  nonperforming
loans was approximately $968,000 and $1,621,000, respectively.

At December 31, 1999, the  nonperforming  loans  included two  nonaccrual  loans
totaling  $1,707,000  and one loan 90 days or more past due and  still  accruing
totaling $40,000. These loans are well secured and in the process of collection.

                                       33
<PAGE>
At December 31, 1998 and 1999, the Company had loans identified as impaired,  in
the  aggregate  amounts of $967,000 and  $1,747,000,  respectively.  The Company
provided no specific  allowance for possible  credit losses at December 31, 1998
and 1999 for these impaired loans since they were adequately collateralized.

4. PREMISES AND EQUIPMENT

The components of premises and equipment at December 31, are as follows  (dollar
amounts in thousands):

                                                            1998         1999

Leasehold improvements                                     $ 2,074      $ 2,494
Furniture and equipment                                      2,293        2,574
Automobiles                                                    196          274
Construction in progress                                         1
                                                           -------      -------
           Total                                             4,564        5,342
Less accumulated depreciation and amortization              (2,133)      (2,551)
                                                           -------      -------
Premises and equipment, net                                $ 2,431      $ 2,791
                                                           =======      =======

The amount of depreciation and  amortization  was $451,000 in 1999,  $433,000 in
1998 and $333,000 in 1997.

5. DEPOSITS

The aggregate amount of short-term jumbo CD's, each with a minimum  denomination
of $100,000,  was  approximately  $11,922,000  and $13,714,000 in 1998 and 1999,
respectively.

At December 31, 1999, the scheduled maturities of CDs are as follows:

     2000                                        $ 22,290
     2001                                             938
     2002                                             281
     2003                                             100
     2004                                             110
                                                 --------
          Total                                  $ 23,718
                                                 ========

                                       34
<PAGE>
6. INCOME TAXES

The  components of the provision  (benefit) for income taxes for the years ended
December 31 are as follows (dollar amounts in thousands):

                                                    1997      1998       1999

Current payable (benefit):
  Federal                                          $   672   $   867    $ 1,245
  State                                                243       292        409
                                                   -------   -------    -------
           Total current payable (benefit)             915     1,159      1,654

Deferred:
  Federal                                               17       (37)       (15)
  State                                                 11         5         (2)
                                                   -------   -------    -------
           Total deferred                               28       (32)       (17)
                                                   -------   -------    -------
Total                                              $   943   $ 1,127    $ 1,637
                                                   =======   =======    =======

A  reconciliation  of the statutory  federal income tax rates with the Company's
effective income tax rates is as follows:

                                                    1997      1998       1999

Statutory federal tax rate                            34.0%     34.0%      34.0%
State income taxes, net of federal income
  tax benefit                                          7.1       7.1        7.1
Municipal interest                                    (0.1)     (0.1)      (0.2)
Other                                                  0.1                  0.3
                                                   -------   -------    -------
Effective tax rate                                    41.1%     41.0%      41.2%
                                                   =======   =======    =======

                                       35
<PAGE>
Deferred  income taxes  reflect the impact of  "temporary  differences"  between
amounts of assets and  liabilities  for  financial  reporting  purposes and such
amounts as measured by tax laws.  Temporary  differences and carryforwards which
give rise to deferred tax assets and  liabilities are as follows (dollar amounts
in thousands):

                                                                  December 31
                                                               -----------------
                                                                1998       1999

Deferred tax assets:
  Net operating loss carryforwards                             $  294     $  259
  Reserves not currently deductible                               397        542
  Unrealized loss on securities available for sale                           368
  State income taxes                                               72        108
  Other                                                           102         15
                                                               ------     ------
           Total                                                  865      1,292

Deferred tax liabilities:
  Tax over book depreciation                                      182        223
  Unrealized gain on securities available for sale                136
                                                               ------     ------
           Total                                                  318        223
                                                               ------     ------
Net deferred tax asset                                         $  547     $1,069
                                                               ======     ======

The Company has acquired net operating loss carryforwards  ("NOL") in connection
with the  acquisition  of the Bank of Hayward in 1994.  The  utilization of NOLs
acquired  through  acquisition is limited by certain state and federal tax laws.
The Company has determined that the annual  limitation on its ability to utilize
NOLs is $78,130 for the  fifteen-year  period.  The following table presents the
NOLs (after limitation) at December 31, 1999, by expiration date:

     Expiration Date                             Federal Amount     State Amount

     December 31, 2004                               $ 276
     December 31, 2005                                 126
     December 31, 2006                                  11
     December 31, 2007                                 180
     December 31, 2008                                  78
     December 31, 2009                                                 $ 283

The  Company  reduced  its 1999  federal  and state  current  tax  liability  by
approximately  $27,000  and  $9,000  respectively  by  utilizing  $78,130 in net
operating loss carryforwards.

                                       36
<PAGE>
7. RELATED PARTY TRANSACTIONS

In the  ordinary  course of  business,  the Company has made loans and  advances
under lines of credit to directors and their related  interests.  All such loans
and advances were made under terms that are consistent with the Company's normal
lending policies.

At December 31, 1999,  loans  outstanding to related parties were $3,394,000 and
loan commitments to related parties amounted to $3,874,000.

8. STOCK OPTION PLAN

1989 Stock Option Plan

Under the Company's 1989 Stock Option Plan (the "1989 Plan"), a total of 499,284
stock options were authorized for grant.  The 1989 Plan terminated  according to
its terms in December 1999.  Options granted pursuant to the 1989 Plan generally
had lives of 10 years from the date of grant,  subject to earlier  expiration in
certain cases, such as termination of the grantee's employment.

1999 Stock Option Plan

On  May  19,  1999,  the  Company's  shareholders  approved  the  MCB  Financial
Corporation  1999 Stock  Option  Plan (the  "Plan").  The Plan was  designed  to
replace the 1989 Plan which terminated in December 1999.

The Plan authorizes the Company to grant options that qualify as incentive stock
options ("ISO") under the Internal Revenue Code of 1986 and  nonqualified  stock
options ("NQSO") to officers and employees of the Company. Nonemployee directors
are eligible to receive only NQSOs.

The Plan has set aside 415,485 authorized, but unissued, shares of the Company's
common stock for grant at not less than the fair market  value of the  Company's
common stock on the date the option is granted.  The term of the options may not
exceed 10 years from the date of grant,  and the options  generally  vest over a
four year period.

                                       37
<PAGE>
The following is a summary of changes in options outstanding:

                                                                        Weighted
                                                               Number   Average
                                                                 of     Exercise
                                                               Shares    Price
                                                              --------   -----
Outstanding at January 1, 1997
  (292,259 exercisable at a weighted average price of $4.12)   346,242   $4.09
Granted (weighted average fair value of $2.96)                  22,317    6.82
Exercised                                                      (78,862)   4.07
Canceled                                                        (4,627)   4.75
                                                              --------   -----
Outstanding at December 31, 1997
  (234,817 exercisable at a weighted average price of $4.18)   285,070    4.30
Granted (weighted average fair value of $4.39)                  10,762    9.72
Exercised                                                      (27,779)   4.17
                                                              --------   -----
Outstanding at December 31, 1998
  (227,533 exercisable at a weighted average price of $4.26)   268,053    4.52
Granted (weighted average fair value of $3.96)                  87,147    7.59
Exercised                                                      (80,797)   4.48
Canceled                                                        (7,560)   7.27
                                                              --------   -----
Outstanding at December 31, 1999                               266,843   $5.46
                                                              ========   =====

Additional  information regarding options outstanding as of December 31, 1999 is
as follows:

<TABLE>
<CAPTION>
                  Options Outstanding                                 Options Exercisable
---------------------------------------------------------------   ----------------------------
                                    Remaining       Weighted                      Weighted
    Range of           Number      Contractual      Average         Number         Average
 Exercise Prices     Outstanding   Life (Yrs.)   Exercise Price   Exercisable   Exercise Price
-----------------    -----------   -----------   --------------   -----------   --------------
<S>                   <C>             <C>           <C>             <C>            <C>
$ 3.24 -- $ 3.98       127,031         3.3           $ 3.85          123,327        $ 3.86
  4.10 --   6.79        40,850         4.1             4.72           34,968          4.54
  7.27 --   7.62        88,200         9.1             7.60           18,480          7.59
  9.05 --  11.50        10,762         8.6             9.73            4,305          9.73
                      --------                                      --------
$ 3.24 -- $11.50       266,843         5.6           $ 5.46          181,080        $ 4.51
                      ========                                      ========
</TABLE>

At December 31, 1999, 383,985 options were available for future grants under the
Plan.

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

                                       38
<PAGE>
Statement of Financial  Accounting Standards No. 123, Accounting for Stock-Based
Compensation,  (SFAS 123)  requires the  disclosure  of pro forma 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
transferable  options without vesting  restrictions,  which significantly differ
from the Company's  stock option  awards.  These models also require  subjective
assumptions,  including  future  stock price  volatility  and  expected  time to
exercise, which greatly affect the calculated values. The Company's calculations
were made  using the  Black-Scholes  option  pricing  model  with the  following
weighted average  assumptions:  expected life, 36 months following full vesting;
stock  volatility,  42% in 1999, 34% in 1998 and 25% in 1997; risk free interest
rates,  6.3% in 1999, 4.7% in 1998 and 6.5% in 1997;  dividend yield of 0.48% in
1999 and no dividend yield during 1998 and 1997. The Company's  calculations are
based on a multiple option valuation  approach and forfeitures are recognized as
they  occur.  If the  computed  fair  values of the 1995 - 1999  awards had been
amortized to expense over the vesting period of the awards, pro forma net income
would  have been as  follows  (dollar  amounts  in  thousands,  except per share
amounts):

                                                     Years Ended December 31,

                                                    1997       1998       1999
                                                   ------     ------     ------
Net Income:
   As reported                                     $1,350     $1,621     $2,333
   Pro forma                                        1,329      1,594      2,266
Basic earnings per share:
   As reported                                     $ 0.64     $ 0.75     $ 1.12
   Pro forma                                         0.63       0.74       1.09
Diluted earnings per share:
   As reported                                     $ 0.61     $ 0.70     $ 1.07
   Pro forma                                         0.60       0.70       1.04

9. COMMITMENTS AND CONTINGENCIES

The Bank leases its  premises  under  noncancelable  operating  leases  expiring
through June 30, 2014.  Future minimum lease  commitments  are $713,000 in 2000,
$542,000 in 2001,  $539,000 in 2002,  $551,000  in 2003,  $511,000 in 2004,  and
$3,380,000, thereafter.

Rental expense for premises under operating leases included in occupancy expense
was $676,000, $583,000 and $506,000 in 1999, 1998 and 1997, respectively.

There are various legal actions pending against the Company and the Bank arising
from the normal course of business. Management, upon the advice of legal counsel
handling  such actions,  believes that the ultimate  resolution of these actions
will  not have a  material  effect  on the  financial  position  or  results  of
operations of the Company.

                                       39
<PAGE>
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is a party to various  financial  instruments with on-balance sheet and
off-balance  sheet risk in the normal  course of business to meet the  financing
needs of its  customers.  Financial  instruments  include  commitments to extend
credit,  standby  letters-of-credit and financial guarantees.  Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amounts  recognized in the balance sheet.  The contract  amounts of those
instruments reflect the extent of involvement the Bank has in particular classes
of financial instruments.

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and standby
letters-of-credit  and financial  guarantees is represented  by the  contractual
amount of those  instruments.  The Bank uses the same credit  policies in making
commitments  and  conditional  obligations  as  it  does  for  on-balance  sheet
instruments.  The Bank  controls the credit risk of these  transactions  through
credit approvals, credit limits and monitoring procedures.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent  future  cash   requirements.   The  Bank  evaluates  each  customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,  if
deemed necessary by the Bank upon extension of credit,  is based on management's
credit evaluation of the counterparty.  Collateral held varies,  but may include
marketable  securities,  accounts  receivable,  inventory,  property,  plant and
equipment.

Standby  letters-of-credit  and  financial  guarantees  are written  conditional
commitments  issued by the Bank to guarantee the  performance of a customer to a
third party. Those guarantees are primarily issued to support public and private
borrowing  arrangements.  Most  guarantees  extend  for less than five years and
expire  in   decreasing   amounts.   The  credit   risk   involved   in  issuing
letters-of-credit  is  essentially  the same as that involved in extending  loan
facilities to customers.


The following table summarizes these financial instruments and other commitments
and contingent liabilities at December 31 (dollar amounts in thousands):

                                                              1998        1999

Financial instruments whose credit risk is
  represented by contract amounts:
    Commitments to extend credit - loans                    $ 26,612    $ 33,750
    Standby letters-of-credit and financial guarantees           621         495
                                                            --------    --------
Total                                                       $ 27,233    $ 34,245
                                                            ========    ========

                                       40
<PAGE>
11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value amounts of financial  instruments  have been determined
using the available market information and appropriate  valuation  methodologies
consistent with the requirements of SFAS No. 107,  Disclosures  about Fair Value
of Financial Instruments. However, considerable judgment is necessarily required
to interpret  market data to develop the  estimates of fair value.  Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the
bank could realize in a current  market  exchange.  The use of different  market
assumptions  and/or  estimation  methodologies may have a material effect on the
estimated fair value amounts.

Dollar amounts in thousands                                 December 31, 1999
                                                          ---------------------
                                                          Carrying    Estimated
                                                           Amount     Fair Value

Financial assets:
  Cash and due from banks                                 $  6,556     $  6,556
  Federal funds sold                                        10,400       10,400
  Interest-bearing deposits with banks                         286          286
  Available for sale securities                             34,118       34,118
  Held to maturity securities                                2,000        1,979
  Loans, net                                               136,474      135,489
Financial liabilities:
  Noninterest-bearing deposits                              41,011       41,011
  Interest-bearing deposits                                138,773      138,718
  Other borrowings                                             750          750

                                                            December 31, 1998
                                                          ---------------------
                                                          Carrying    Estimated
                                                           Amount     Fair Value

Financial assets:
  Cash and due from banks                                 $  8,804     $  8,804
  Federal funds sold                                         3,200        3,200
  Interest-bearing deposits with banks                         286          286
  Available for sale securities                             36,023       36,023
  Held to maturity securities                                6,055        6,081
  Loans, net                                               109,958      109,029
Financial liabilities:
  Noninterest-bearing deposits                              38,788       38,788
  Interest-bearing deposits                                116,116      116,326
  Other borrowings                                             356          356

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instrument:

Short-Term  Financial  Assets - This category  includes cash and due from banks,
federal funds sold and  interest-bearing  deposits with banks.  Because of their
relatively short  maturities,  the fair value of these financial  instruments is
considered to be equal to book value.

Available-For-Sale and Held-To-Maturity Securities - Fair value is quoted market
price,  if available.  If a quoted market price is not available,  fair value is
estimated using quoted market prices for similar instruments.

                                       41
<PAGE>
Loans - The fair  value of  floating  rate loans is deemed to  approximate  book
value. The fair value of all other performing loans is determined by discounting
expected  future cash flows using the current rates at which similar loans would
be made to borrowers  with  similar  credit  ratings and for the same  remaining
maturities.

In  addition to the above,  the  allowance  for credit  losses is  considered  a
reasonable  adjustment for credit risk relating to the entire credit  portfolio,
including obligations to extent credit and other off-balance-sheet transactions.

Deposits - The fair value of demand,  savings and money market deposits is equal
to the  amount  payable  on demand at the  reporting  date.  For other  types of
deposits  with  fixed  maturities,   fair  value  is  estimated  by  discounting
contractual  cash flows at interest  rates  currently  being offered on deposits
with similar characteristics and maturities.  A fair value for the deposits base
is not practicable.

Other  Borrowings  - The fair value of the other  borrowings  is  determined  by
discounting  contractual cash flows at current market interest rates for similar
instruments.

Off-Balance-Sheet Financial Instruments - The Company has not estimated the fair
value of  off-balance-sheet  commitments  to extend credit,  standby  letters of
credit  and  financial  guarantees.  Because  of  the  uncertainty  involved  in
attempting to assess the likelihood and timing of a commitment being drawn upon,
coupled  with the lack of an  established  market and the wide  diversity of fee
structures,  the  Company  does not  believe  it is  practicable  to  provide  a
meaningful estimate of fair value.

The fair value  estimates  presented  herein are based on pertinent  information
available to  management  as of December 31, 1999.  Although  management  is not
aware of any factors that would  significantly  affect the estimated  fair value
amounts,  such  amounts have not been  comprehensively  revalued for purposes of
these financial statements since that date and, therefore,  current estimates of
fair  value  may  differ   significantly  from  the  amounts  presented  herein.
Management does not intend to dispose of a significant  portion of its financial
instruments.

12. REGULATORY MATTERS

The  Company  and Bank are  subject  to  various  regulations  issued by Federal
banking  agencies,  including  minimum  capital  requirements.  Failure  to meet
minimum  regulatory capital  requirements  could result in regulators  requiring
prompt  corrective  action to be taken which could have a material effect on the
financial  statements.  As of  December  31,  1999,  both the  Company  and Bank
exceeded the capital adequacy requirements for a well capitalized institution.

Under  capital  adequacy  guidelines  and the  regulatory  framework  for prompt
corrective  action,  the Company and Bank must meet specific capital  guidelines
that  involve  quantitative   measures  of  the  Company's  and  Bank's  assets,
liabilities,  and certain off-balance-sheet items as calculated under regulatory
accounting   practices.   The   Company's   and  Bank's   capital   amounts  and
classifications  are also subject to  qualitative  judgements by the  regulators
about components, risk weightings, and other factors.

Quantitative  measures  established by  regulations  to ensure capital  adequacy
require the Company and 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 1 capital (as
defined) to average assets (as defined).

                                       42
<PAGE>
As of  December  31,  1999 and  1998,  the  most  recent  notification  from the
regulators  categorized  the  Bank  as well  capitalized  under  the  regulatory
framework for prompt  corrective  action.  To be categorized as well capitalized
the Bank must maintain minimum total risk-based,  tier 1 risk-based,  and tier 1
leverage  ratios as set forth in the table.  There are no  conditions  or events
since that notification that management  believes have changed the institution's
category.

The  Company and Bank's  actual  capital  amounts and ratios are also  presented
below (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                                For Capital       Required to be
                                                Actual       Adequacy Purposes   Well Capitalized
-------------------------------------------------------------------------------------------------
1999                                       Amount    Ratio    Amount    Ratio    Amount    Ratio
-------------------------------------------------------------------------------------------------
<S>                                       <C>        <C>     <C>        <C>      <C>       <C>
Total Capital (to risk weighted assets)
   Company                                $ 16,190   10.9%   $ 11,865    8.0%        n/a
   Bank                                     15,419   10.4%     11,863    8.0%    $14,829    10.0%

Tier 1 Capital (to risk weighted assets)
   Company                                  14,698    9.9%      5,932    4.0%        n/a
   Bank                                     13,927    9.4%      5,932    4.0%      8,897     6.0%

Tier 1 Capital (to average assets)
   Company                                  14,698    7.4%      7,976    4.0%        n/a
   Bank                                     13,927    7.0%      7,976    4.0%      9,970     5.0%


                                                                For Capital       Required to be
                                                Actual       Adequacy Purposes   Well Capitalized
-------------------------------------------------------------------------------------------------
1998                                       Amount    Ratio    Amount    Ratio    Amount    Ratio
-------------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets)
   Company                                $ 13,728   11.1%   $  9,918    8.0%        n/a
   Bank                                     13,359   10.8%      9,911    8.0%    $12,388    10.0%

Tier 1 Capital (to risk weighted assets)
   Company                                  12,611   10.2%      4,959    4.0%        n/a
   Bank                                     12,242    9.9%      4,955    4.0%      7,433     6.0%

Tier 1 Capital (to average assets)
   Company                                  12,611    7.3%      6,870    4.0%        n/a
   Bank                                     12,242    7.1%      6,866    4.0%      8,583     5.0%
</TABLE>

Management  believes,  as of December 31, 1999,  that the Bank meets all capital
requirements to which it is subject.

The Bank is subject to certain  restrictions  on the amount of dividends that it
may declare without prior  regulatory  approval.  At December 31, 1999, the Bank
had available $4,032,000 for the payment of dividends. The Bank paid $500,000 in
dividends during 1998, and $750,000 in dividends to the Company during 1999.

                                       43
<PAGE>
The Bank is subject to  certain  restrictions  under the  Federal  Reserve  Act,
including restrictions on the extension of credit to affiliates.  In particular,
the  Company is  prohibited  from  borrowing  from the Bank unless the loans are
secured by specified types of collateral.  Such secured loans and other advances
from the Bank are  limited  to 10% of the Bank's  shareholders'  equity on a per
affiliate basis. There were no such extensions of credit by the Bank in 1998 and
1999.

13. EMPLOYEE BENEFIT PLANS

In 1999,  the Company  established  an Employee  Stock  Ownership Plan (ESOP) to
provide  an  ownership  interest  in the  Company  and  retirement  benefits  to
substantially all full-time employees. The amount of the annual contributions is
at the discretion of the Board of Directors.  The Company contributed $90,000 in
1999.  During 1999, the ESOP purchased 6,000 shares of Company stock in the open
market.

The Company has a Deferred  Compensation  Plan for Executives.  Participation in
the Plan is limited  to a select  group of  management  and other  employees  as
determined by the Board of Directors.  Under the terms of the Plan, participants
may defer a portion of their cash  compensation and receive minimum 50% matching
contributions from the Company,  which vest over the employee's  remaining years
of employment to retirement.  The Company has guaranteed  participants a certain
minimum   return  on  their   contributions   and  on  the  Company's   matching
contributions.  Contributions  made by the Company for the years ended  December
31, 1999, 1998 and 1997 were $43,000, $39,000, and $12,000, respectively.

The Company also has a defined  contribution plan covering all eligible salaried
employees.  Employees may, up to prescribed limits,  contribute to the plan. The
Company may also elect to make discretionary  contributions to the plan based on
the Company's earnings.  No contributions were made by the Company in 1999, 1998
or 1997.

14. EARNINGS PER SHARE

The following table  reconciles the numerators and the denominators of the basic
and  diluted  per  share  computations  in  accordance  with  SFAS  No.  128 (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                          ---------------------------------------------------------------------------------------------------------
                                        1997                                 1998                                1999
                          ---------------------------------------------------------------------------------------------------------
                          Income       Shares     Per Share    Income       Shares     Per Share   Income       Shares     Per Share
                        (Numerator) (Denominator)   Amount   (Numerator) (Denominator)   Amount  (Numerator) (Denominator)   Amount
                         ---------   -----------    ------    ---------   -----------    ------   ---------   -----------    ------
<S>                      <C>         <C>            <C>       <C>         <C>            <C>      <C>         <C>            <C>
Basic EPS
Income available to       $ 1,350       2,114       $ 0.64     $ 1,621       2,158       $ 0.75    $ 2,333       2,075       $ 1.12
  common shareholders
Effect of Dilutive
  Securities
Stock options                              96                                  146                                 107
                          ---------------------------------------------------------------------------------------------------------
Diluted EPS
Income available to
  common shareholders
  plus assumed
  conversions             $ 1,350       2,210       $ 0.61     $ 1,621       2,304       $ 0.70    $ 2,333       2,182       $ 1.07
                          =========================================================================================================
</TABLE>

                                       44
<PAGE>
15. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

     The condensed financial  information for MCB Financial  Corporation (parent
company only) at December 31, 1998 and 1999,  and the results of its  operations
and cash flows for the years  then  ended,  is  summarized  as  follows  (dollar
amounts in thousands):

                                                             1998        1999

Financial Condition:

Assets:
    Cash and due from banks                                $    264    $    702
    Investment in the Bank                                   12,713      13,625
    Other                                                       105          70
                                                           --------    --------
Total                                                      $ 13,082    $ 14,397
                                                           ========    ========
Liabilities and shareholders' equity:
  Shareholders' equity:
    Common stock                                           $  9,578    $ 10,068
    Unrealized gain (loss) on investment securities
      available for sale - net                                  191        (518)
    Retained earnings                                         3,313       4,847
                                                           --------    --------
           Total shareholders' equity                        13,082      14,397
                                                           --------    --------
Total                                                      $ 13,082    $ 14,397
                                                           ========    ========


                                                             1998        1999

Results of Operations:

Dividend income from Bank                                  $    500    $    750
Income - interest from loans                                      5
Income - interest from investments                               26          28
Income - miscellaneous                                            1
Expenses - general and administrative                           140         102
                                                           --------    --------
Income (loss) before equity in net income of the Bank           392         676
Equity in undistributed net income of the Bank                1,176       1,620
                                                           --------    --------
Income before income tax provision                            1,568       2,296
Income tax benefit                                               53          37
                                                           --------    --------
Net income                                                 $  1,621    $  2,333
                                                           ========    ========

                                       45
<PAGE>
                                                             1998        1999

Cash Flows:

Cash flows from operating activities:
  Net income                                               $  1,621    $  2,333
  Reconciliation to cash used in operating activities:
    (Increase) in equity in undistributed net income
       of Bank                                               (1,675)     (2,371)
    Amortization                                                 11
    Decrease in other assets                                     29          53
    Decrease in accrued interest payable
       and other liabilities                                     (1)
                                                           --------    --------
    Cash (used in) provided by operating activities             (15)         15

Cash flows from investing activities:
  Dividend received from Bank                                   500         750
  Net (increase) decrease in loans held for investment          (92)         92
                                                           --------    --------
    Cash provided by investing activities                       408         842

Cash flows from financing activities:
  Cash dividends paid                                                       (40)
  Cash payment for fractional shares resulting
    from stock dividend                                                      (2)
  Proceeds from the exercise of stock options                   115         362
  Purchases of common stock                                    (847)       (739)
                                                           --------    --------
    Cash used in financing activities                          (732)       (419)

Net (decrease) increase in cash and equivalents                (339)        438
Cash and equivalents:
  Beginning of period                                           603         264
                                                           --------    --------

  End of period                                            $    264    $    702
                                                           ========    ========

                                       46
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of MCB Financial Corporation:

We have audited the  accompanying  consolidated  balance sheets of MCB Financial
Corporation and subsidiary (the "Company") as of December 31, 1998 and 1999, and
the related consolidated statements of operations, comprehensive income, changes
in  shareholders'  equity,  and cash  flows for each of the  three  years in the
period ended December 31, 1999. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of MCB Financial  Corporation and its
subsidiary as of December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three  years in the period  ended  December
31, 1999 in conformity  with  accounting  principles  generally  accepted in the
United States of America.

/s/ Deloitte & Touche LLP

San Francisco, California
January 14, 2000

                                       47
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
        Financial Disclosure.

     None.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.

The information required to be furnished pursuant to this item will be set forth
under the  captions  "Election of  Directors"  and  "Executive  Officers" in the
registrant's  proxy  statement  (the  "Proxy  Statement")  to  be  furnished  to
stockholders  in connection  with the  solicitation  of proxies by The Company's
Board of Directors for use at the 2000 Annual Meeting of Shareholders to be held
on May 17, 2000, and is incorporated herein by reference.

Item 10. Executive Compensation

The information required to be furnished pursuant to this item will be set forth
under the caption "Executive  Compensation of The Company and Metro Commerce" of
the Proxy Statement, and is incorporated herein by reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

The information required to be furnished pursuant to this item will be set forth
under the  captions  "Security  Ownership  of  Certain  Beneficial  Owners"  and
"Security  Ownership of Management" of the Proxy Statement,  and is incorporated
herein by reference.

Item 12. Certain Relationships and Related Transactions.

The information required to be furnished pursuant to this item will be set forth
under the caption "Certain  Relationships and Related Transactions Regarding The
Company and Metro Commerce" of the Proxy Statement,  and is incorporated  herein
by reference.

                                       48
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.

     (a) List of Exhibits:

Exhibits:

(2)        -- Plan of acquisition, reorganization (incorporated by reference to
              the registrant's registration statement on Form S-4 (File No.
              33-76832).

(3)(a)     -- Articles of incorporation (incorporated by reference to the
              registrant's registration statement on Form S-4 (File No.
              33-76832).

(3)(b)     -- By-laws (incorporated by reference to the registrant's
              registration statement on Form S-4 (File No. 33-76832).

(4)        -- Rights Agreement (incorporated by reference from the registrant's
              Form 8-A12G filed with the SEC on January 25, 1999).

(10)(a)(1) -- Stock Option Plan (incorporated by reference to the registrant's
              registration statement on Form S-4 (File No. 33-76832).

(10)(a)(2) -- Deferred Compensation Plan for Executives (incorporated by
              reference to Exhibit (10)(a)(2) to the registrant's Annual Report
              on Form 10-KSB for its fiscal year ended December 31, 1994).

(10)(a)(3) -- 1999 Stock Option Plan (incorporated by reference to Exhibit A of
              registrant's Proxy Statement on Schedule 14A filed with the SEC on
              April 27, 1999).

(10)(a)(4) -- Employee Stock Ownership Plan

(10)(b)    -- Leases

       (10)(b)(1) -- San Rafael  Office  Lease  (incorporated  by  reference  to
                     Exhibit  (10)(b)(1)  to the  registrant's  Annual Report on
                     Form 10-KSB for its fiscal year ended December 31, 1994).

       (10)(b)(2) -- South San Francisco Office Lease (incorporated by reference
                     to Exhibit (10)(b)(2) to the registrant's  Annual Report on
                     Form 10-KSB for its fiscal year ended December 31, 1994).

       (10)(b)(3) -- Hayward Office Lease  (incorporated by reference to Exhibit
                     (10)(b)(3) to the registrant's Annual Report on Form 10-KSB
                     for its fiscal year ended December 31, 1994).

       (10)(b)(4) -- Upland Office Lease  (incorporated  by reference to Exhibit
                     (10)(b)(4) to the registrant's Annual Report on Form 10-KSB
                     for its fiscal year ended December 31, 1994).

       (10)(b)(5)  --  San  Francisco  Office  Lease  (353  Sacramento   Street)
                     (incorporated  by  reference to Exhibit  (10)(b)(5)  to the
                     registrant's  Annual  Report on Form  10-KSB for its fiscal
                     year ended December 31, 1997).

       (10)(b)(6) -- Petaluma Office Lease (incorporated by reference to Exhibit
                     (10)(b)(6) to the registrant's Annual Report on Form 10-KSB
                     for its fiscal year ended December 31, 1998).

       (10)(b)(7) -- San Franciso Office Lease (650 Townsend Street)

(11)       -- Statement re: computation of per share earnings (the information
              required to be furnished pursuant to this exhibit is contained in
              the Consolidated Financial Statements and the Notes to
              Consolidated Financial Statements)

(21)       -- Subsidiaries of the small business issuer (the information
              required to be furnished pursuant to this exhibit is contained in
              the Notes to Consolidated Financial Statements)

(27)       -- Financial Data Schedule

     (b) Reports on Form 8-K. The Company filed the following Current Reports on
Form 8-K:

     None

                                       49
<PAGE>
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, on the 24th day of March,
2000.

                                        By /s/ Charles O. Hall
                                           -------------------------------------
                                           Charles O. Hall
                                           President and Chief Executive Officer
                                           (Principal Executive Officer);
                                           Director


                                        By /s/ Patrick E. Phelan
                                           -------------------------------------
                                           Patrick E. Phelan
                                           Chief Financial Officer
                                           (Principal Financial Officer)
                                           (Principal Accounting Officer)

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 indicated on the 24th day of March, 2000.

Name                                 Title
----                                 -----

/s/ John Cavallucci                  Chairman; Director
---------------------------
John Cavallucci


/s/ Charles O. Hall                  Director
---------------------------
Charles O. Hall


/s/ Timothy J. Jorstad               Director
---------------------------
Timothy J. Jorstad


/s/ Catherine H. Munson              Director
---------------------------
Catherine H. Munson


/s/ Gary T. Ragghianti               Vice Chairman; Director
---------------------------
Gary T. Ragghianti


/s/ Michael J. Smith                 Director
---------------------------
Michael J. Smith


/s/ Edward P. Tarrant                Director
---------------------------
Edward P. Tarrant


/s/ Randall J. Verrue                Director
---------------------------
Randall J. Verrue

                                       51