<PAGE>

                      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 fiscal year ended DECEMBER 31, 1998 

     / /    Transition report under Section 13 or 15(d) of the Securities 
            Exchange Act of 1934 (No fee required) for the period from 
            ______________ to ______________

                           Commission File Number 0-27666

                         NORTHERN CALIFORNIA BANCORP, INC.
                   ----------------------------------------------
                   (Name of Small Business Issuer in its Charter)

                      Incorporated in the State of California       
                   IRS Employer Identification Number 77-0421107
                  Address:  601 Munras Avenue, Monterey, CA  93940
                             Telephone: (408) 649-4600

Securities registered under Section 12(b) of the Exchange Act:   None
Securities registered under Section 12(g) of the Exchange Act:   Common Stock

     Check whether the issuer: (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Securities 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 there is no 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   /X/

     Revenues for the year ended December 31, 1998.    $ 4,907,400.

     As of March 1, 1999, the Corporation had 940,322 shares of common stock 
outstanding.  The aggregate market value of voting stock held by 
non-affiliates of the Corporation was $1,567,600, based on the most recent 
sale at $3.00 per share on January 25, 1999.

     The following documents are incorporated by reference to the parts 
indicated of this Form 10-KSB:

     1.   Portions of the Independent Auditor's Report for the fiscal year 
ended December 31, 1998 are incorporated by reference in Part I Item 3 and 
Part II Item 6.

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                        FORM 10-KSB CROSS REFERENCE INDEX
<TABLE>
<CAPTION>
                                                                                           PAGE
<S>            <C>                                                                         <C>
PART I
------
ITEM 1         Business                                                                      3
ITEM 2         Properties                                                                   16
ITEM 3         Legal Proceedings                                                            16
ITEM 4         Submission of Matters to a Vote of Security Holders                          16

PART II
-------
ITEM 5         Market for the Corporation's Common Stock and Related
                  Stockholder Matters                                                       17
ITEM 6         Management's Discussion and Analysis of Financial Condition                    
                  and Results of Operations                                                 19
ITEM 7         Financial Statements and Supplementary Data                                  41
                     Independent Auditors' Report on the Financial Statements             FS 1
                     Consolidated Balance Sheets at December 31, 1998 and 1997            FS 2
                     Consolidated Statements of Operations for each of the three years        
                         in the period ended December 31, 1998                          FS 3-4
                     Consolidated Statements of Changes in Stockholders' Equity for           
                         each of the three years in the period ended December 31, 1998    FS 5
                     Consolidated Statements of Cash Flows for each of the three years        
                         in the period ended December 31, 1998                          FS 6-7
                     Notes to Consolidated Financial Statements                        FS 8-31
ITEM 8         Changes in and Disagreements with Accountants and Financial Disclosure       41

PART III
--------
ITEM 9         Directors, Executive Officers, Promoters and Control Persons: Compliance
                  with Section 16(a) of the Exchange Act                                    42
ITEM 10        Executive Compensation                                                       43
ITEM 11        Security Ownership of Certain Beneficial Owners and Management               46
ITEM 12        Certain Relationships and Related Transactions                               48
ITEM 13        Exhibits and Reports                                                         49
               Signatures                                                                   50
</TABLE>

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                                       PART I

ITEM 1. BUSINESS

GENERAL

     Northern California Bancorp, Inc. (the "Corporation") was incorporated 
on August 29, 1995, as a for-profit corporation under the California 
Corporate laws for the principal purpose of engaging in banking and 
non-banking activities as allowed for a bank holding company.  The 
Corporation owns 100% of Monterey County Bank (the "Bank").  The 
Corporation's sole sources of (unconsolidated) revenues at this time are 
potential dividends, management fees and tax equalization payments, if any, 
from the Bank.  While these sources cannot be assured, and may be limited, 
the Corporation has no direct cash needs other than limited expenses related 
to corporate and regulatory compliance.

     Compliance with environmental laws has not had a material impact on the 
operations of the Bank or the Corporation, although the Bank faces potential 
liability or losses if its borrowers fail to comply with such laws and the 
Bank acquires contaminated properties in foreclosure.

BANK SUBSIDIARY

     Monterey County Bank, an independent, California chartered commercial 
banking corporation was chartered by the State of California on July 30, 
1976. The Bank's customer base includes individuals, small and medium sized 
businesses and a variety of government agencies with residences, offices or 
other relationships located in or about the city and county of Monterey, 
California, including the cities of Carmel and Pacific Grove.  The Bank 
offers its customers a wide variety of the normal personal, consumer and 
commercial services expected of a locally owned, independently operated bank. 
The Bank's deposits are insured by the FDIC, and, as such, the Bank is 
subject to regulations by that federal agency and to periodic audits of its 
operations and documentary compliance by FDIC personnel.  As a state 
chartered bank, which is not a member of the Federal Reserve System, it is 
also regulated and periodically examined by the California State Banking 
Department.  

     The Bank's activities are conducted at its principal offices, 601 Munras 
Ave., Monterey, California and at its two branch offices in Carmel and 
Pacific Grove, California. 

     At December 31, 1998 the Bank had total assets, deposits and 
shareholders' equity of approximately $51,140,300, $42,938,800 and 
$3,391,100, respectively.

EMPLOYEES

     At December 31, 1998 the Northern California Bancorp, Inc. and its 
subsidiary Monterey County Bank employed a total of 33 full time equivalent 
persons.

PAGE 3

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COMPETITION

     All phases of the Bank's business have been, since inception, and will 
continue to be subject to significant competitive forces.  Although the Bank 
has increasing recognition in its primary service area and Monterey County, 
it nevertheless has to compete with other independent local banking 
institutions, including commercial banks and savings and loan associations, 
as well as branch offices of regional commercial banks, some of which have 
assets, capital and lending limits substantially larger than the Bank, as 
well as wider geographic markets, more support services and larger media 
advertising capabilities.  The Bank will also compete with respect to its 
lending activities, as well as in attracting demand deposits, with savings 
banks, savings and loan associations, insurance companies, regulated small 
loan companies and credit unions, as well as securities brokerage offices 
which can issue commercial paper and other securities (such as shares in 
money market funds).

     Among the advantages such institutions have over the Bank are their 
ability to finance wide ranging advertising campaigns and to allocate their 
investment assets to regions of highest yields and demand.  Many institutions 
offer certain services, such as trust services and international banking, 
which the Bank does not currently offer or plan to offer.  By virtue of their 
greater total capital, such institutions have substantially higher lending 
limits than the Bank (legal lending limits to an individual customer being 
limited to a percentage of a bank's total capital accounts).  These 
competitors may intensify their advertising and marketing activities to 
counter any efforts by the Bank to further attract new business as a 
commercial bank.  In addition, as a result of legislation enacted earlier in 
the decade, there is increased competition between banks, savings and loan 
associations and credit unions for the deposit and loan business of 
individuals.  These activities may hinder the Bank's ability to capture a 
significant market share.

     To compete with the financial institutions in its primary service area, 
the Bank intends to use the flexibility which its independent status will 
permit. Its activities in this regard include an ability and intention to 
respond quickly to changes in the interest rates paid on time and savings 
deposits and charged on loans, and to charges imposed on depository accounts, 
so as to remain competitive in the market place.  It also will continue to 
emphasize specialized services for the small business person and 
professional, and personal contacts by the Bank's officers, directors and 
employees.  If there are customers whose loan demands exceed the Bank's 
lending limits, the Bank has the ability to arrange for such loans on a 
participation basis with other financial institutions.  No assurance can be 
given, however, that the Bank's efforts to compete with other financial 
institutions in its primary service area will be successful.

     The Bank provides a range of competitive retail and commercial banking 
services.  The deposit services offered include various types of personal and 
business checking accounts, savings accounts, money market investment 
accounts, certificates of deposit, and retirement accounts.  Lending services 
include consumer loans, various type of mortgage loans for residential and 
commercial real estate, personal lines of credit, home equity loans, real 
estate construction, accounts receivable financing, commercial loans to small 
and medium size businesses and professionals.  The Bank also provides 
drive-through facilities, at its Monterey and Carmel offices, and night 
depository facilities for customer convenience.  The Bank offers safe deposit 

PAGE 4

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box facilities, cashiers' checks, travelers checks, U.S. Savings Bonds, and 
wire transfers.  The Bank does not provide trust services.

     While the Bank has the authority to engage in a wide range of banking 
activities, and offers most of the types of banking services of a commercial 
bank, over the past three years it has derived much of its profitability and 
differentiated itself from its competitors through (i) commercial and real 
estate loans guaranteed by the Small Business Administration ("SBA"); and 
(ii) credit card depository services for merchants.

     The Bank depends largely 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 the 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 are subject to the influence 
of domestic and foreign economic conditions, including inflation, recession 
and unemployment.

     Monetary and fiscal policies of the federal government and the policies 
of regulatory agencies, particularly the Federal Reserve Board, also impact 
on the Bank's business.  The Federal Reserve Board implements national 
monetary policies (with objectives such as curbing inflation and combating 
recession) by its open-market operations in U.S. Government securities, by 
adjusting the required level of reserves for financial intermediaries subject 
to its reserve requirements and by varying the discount rates applicable to 
borrowings by depository institutions.  The actions of the Federal Reserve 
Board 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.

SUPERVISION AND REGULATION

THE CORPORATION

     Future offers or sales of the stock of the Corporation will be subject 
to the registration requirements of the Securities Act of 1933, and 
qualification under the California Corporate Securities Act of 1968, and 
possibly other state Blue Sky laws, (unless an exemption is available), 
although the Bank's Common Stock is exempt from such requirements. 

     On December 29, 1995, after receipt of appropriate approvals, and/or 
passage of notice periods without objection, from the California 
Superintendent of Banks, the Federal Deposit Insurance Corporation, the Board 
of Governors of the Federal Reserve System and the shareholders of the Bank, 
the Corporation acquired the Bank through a reverse triangular merger (the 
"Merger").  As a result, by operation of law, each outstanding share of 
common stock of the Bank prior to the Merger was converted into a share of 
common stock of the Corporation, while the Corporation became the sole owner 
of the newly issued shares of common stock of the Bank.

PAGE 5

<PAGE>

     The Bank Holding Company Act of 1956, as amended, places the Corporation 
under the supervision of the Board of Governors of the Federal Reserve System 
(the "FRB"). The Corporation must generally obtain the approval of the FRB 
before acquiring all or substantially all of the assets of any bank, or 
ownership or control of any voting securities of any bank if, after giving 
effect to such acquisition, the Corporation would own or control more than 5% 
of the voting shares of such bank. An application for such approval with 
respect to the acquisition of the Bank has been prepared. 

     A bank holding company is generally prohibited from engaging in, or 
acquiring direct or indirect control of more than 5% of the voting shares of 
any company engaged in non-banking activities unless the FRB, by order or 
regulation, has found such activities to be so closely related to banking or 
managing or controlling banks as to be a proper incident thereto. In making 
such determinations, the FRB considers whether the performance of such 
activities by a bank holding company would offer advantages to the public 
which outweigh possible adverse effects.

     The FRB's Regulation "Y" sets out the non-banking activities which are 
permissible for bank holding companies under the law, subject to the FRB's 
approval in individual cases.  Most of these activities are now permitted for 
California banks that are well-capitalized.   The Corporation and its 
subsidiaries will also be subject to certain restrictions with respect to 
engaging in the underwriting, public sale and distribution of securities.  
Bills have been introduced in Congress that may eliminate the barrier between 
commercial banking and investment banking, commerce or insurance, or some 
combination thereof.  In many of the legislative proposals, in order to 
protect the relevant deposit funds, certain activities within a holding 
company system would only be permitted to be engaged in by non-bank 
subsidiaries of the holding company. Management cannot predict whether any 
such proposals or legislation will be adopted or what the effect, if adopted, 
they will have on the Bank or Corporation.

     The Corporation will be required to file reports with the FRB and 
provide such additional information as the FRB may require. The FRB will also 
have the authority to examine the Corporation and each of its subsidiaries 
with the cost thereof to be borne by the Corporation.  Under California 
banking law, the Corporation and its subsidiaries are also subject to 
examination by, and may be required to file reports with, the Superintendent.

     The Corporation and any subsidiaries which it may acquire or organize 
after the reorganization will be deemed affiliates of the Bank within the 
meaning of the Federal Reserve Act.  Pursuant thereto, loans by the Bank to 
affiliates, investments by the Bank in affiliates' stock, and taking 
affiliates' stock by the Bank as collateral for loans to any borrower will be 
limited to 10% of the Bank's capital, in the case of any one affiliate, and 
will be limited to 20% of the Bank's capital, in the case of all affiliates.  
Federal and State law place other limitations on transactions between the 
Bank and its affiliates designed to ensure that the Bank receives treatment 
in such transactions comparable to that available from unaffiliated third 
parties.

PAGE 6

<PAGE>

     The Corporation and its subsidiaries are prohibited from engaging in 
certain tie-in arrangements in connection with any extension of credit, sale 
or lease of property or furnishing of services.  For example, with certain 
exceptions, the Bank may not condition an extension of credit on a customer's 
obtaining other services provided by it, the Corporation or any other 
subsidiary, or on a promise from its customer not to obtain other services 
from a competitor.

SUBSIDIARY BANK

     Both federal and state law provide extensive regulation of the banking 
business.  State and federal statutes and regulations apply to many aspects 
of the Bank's operations, including minimum capital requirements, reserves 
against deposits, interest rates payable on deposits, loans, investments, 
mergers and acquisitions, borrowings, dividends and locations of branch 
offices. The California Superintendent of Banks and the FDIC provide primary 
supervision, periodic examination and regulation of the Bank.

     The FDIC, through its Bank Insurance Fund (the "BIF") insures the Bank's 
deposits, currently up to a maximum of $100,000 per depositor.  For this 
protection, the Bank, like all insured banks, pays a semi-annual statutory 
assessment and is subject to the rules and regulations of the FDIC.  Although 
the Bank is not a member of the Federal Reserve System, certain regulations 
of the Federal Reserve Board also apply to its operations. 

     California law restricts the amount available for cash dividends by 
state-chartered banks to the lesser of retained earnings or the bank's net 
income for its last three fiscal years (less any distributions to 
stockholders made during such period).  Cash dividends may also be paid in an 
amount not exceeding the net income for such bank's last preceding fiscal 
year after obtaining the prior approval of the Superintendent.  The FDIC also 
has authority to prohibit the Bank from engaging in unsafe or unsound 
practices.  The FDIC can use this power, under certain circumstances, to 
restrict or prohibit a bank from paying dividends.

     Federal law imposes restrictions on banks with regard to transactions 
with affiliates, including any extensions of credit to, or the issuance of a 
guarantee or letter of credit on behalf of, its affiliates, as well as the 
purchase of or investments in stock or other securities thereof, or the 
taking of such securities as collateral for loans, and the purchase of assets 
of from affiliates.  These restrictions have the effect of preventing 
affiliates (such as the Corporation) from borrowing from the Bank unless the 
loans are secured by marketable obligations of designated amounts.  Secured 
loans and investments by the Bank are limited to 10% of the Bank's capital 
and surplus (as defined by federal regulations) in the case of any one 
affiliate, and 20% thereof in the case of all affiliates.  California law 
also imposes certain restrictions with respect to transactions involving 
other controlling persons of the Bank.

     From time to time, legislation is enacted which has the effect of 
increasing the cost of doing business, limiting or expanding permissible 
activities or affecting the competitive balance between banks and other 
financial intermediaries.  Proposals to change the laws and regulations 
governing the operations and taxation of banks, bank holding companies and 
other financial intermediaries are frequently made in Congress, in the 
California legislature and before various 

PAGE 7

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bank regulatory and other professional agencies. The Bank cannot predict 
what, if any legislation or regulations will be enacted, or the impact 
thereof on its business and profitability.

     CAPITAL STANDARDS

     Government agencies have traditionally regulated bank capital through 
explicit and implicit guidelines and rules.  State law requires "adequate" 
capital, without objective definition.  Federal law and regulations require 
minimum levels of risk-based and so-called "Leverage" capital.

     FDIC guidelines implement the risk-based capital requirements. The 
guidelines establish a systematic analytical framework that makes regulatory 
capital requirements more sensitive to differences in risk profiles (using 
the rough measures set forth therein) among banking organizations, take 
certain off-balance sheet items into account in assessing capital adequacy 
and minimize disincentives to holding liquid, low-risk assets. Under these 
guidelines, assets and credit equivalent amounts of off-balance sheet items, 
such as letters of credit and outstanding loan commitments, are assigned to 
one of several risk categories, which range from 0% for risk-free assets, 
such as cash and certain U.S. government securities, to 100% for relatively 
high-risk assets, such as loans and investments in fixed assets, premises and 
other real estate owned. The aggregate dollar amount of each category is then 
multiplied by the risk-weight associated with that category. The resulting 
weighted values from each of the risk categories are then added together to 
determine the total risk-weighted assets.

     The guidelines require a minimum ratio of qualifying total capital to 
risk-weighted assets of 8%, of which at least 4% must consist of Tier I 
capital. Higher risk-based ratios are required to be considered "well 
capitalized" under prompt corrective action provisions.

     A banking organization's qualifying total capital consists of two 
components: Tier I capital (core capital) and Tier 2 capital (supplementary 
capital).  Tier I capital consists primarily of common stock, related surplus 
and retained earnings, qualifying noncumulative perpetual preferred stock and 
minority interests in the equity accounts of consolidated subsidiaries. 
Intangibles, such as goodwill, are generally deducted from Tier 1 capital; 
however, purchased mortgage servicing rights and purchased credit card 
relationships may be included, subject to certain limitations. At least 50% 
of the banking organization's total regulatory capital must consist of Tier 1 
capital.

     Tier 2 capital may consist of (i) the allowance for loan and lease 
losses in an amount up to 1.25% of risk-weighted assets; (ii) cumulative 
perpetual preferred stock and long-term preferred stock and related surplus; 
(iii) hybrid capital instruments (instruments with characteristics of both 
debt and equity), perpetual debt and mandatory convertible debt securities; 
and (iv) eligible term subordinated debt and intermediate-term preferred 
stock with an original maturity of five years or more, including related 
surplus, in an amount up to 50% of Tier 1 capital. The inclusion of the 
foregoing elements of Tier 2 capital are subject to certain requirements and 
limitations of the federal banking agencies.

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     The FDIC imposes a minimum leverage ratio of Tier I capital to average 
total assets of 3% for the highest rated banks, and 4% for all other banks. 
Institutions experiencing or anticipating significant growth or those with 
other than minimum risk profiles are expected to maintain capital at least 
100-200 basis points above the minimum level.

     In addition, the Federal Reserve Board and the FDIC have issued or 
proposed rules to take account of interest rate risk, concentration of credit 
risk and the risks of nontraditional activities in calculating risk-based 
capital.

     For capital adequacy purposes, deferred tax assets that can be realized 
from taxes paid in prior carry-back years, and from the future reversal of 
temporary differences, are generally unlimited.  However, deferred tax assets 
that can only be realized through future taxable earnings, including the 
implementation of a tax planning strategy, count toward regulatory capital 
purposes only up to the lesser of (i) the amount that can be realized within 
one year of the quarter-end report date or (ii) 10% of Tier I capital.  The 
amount of deferred taxes in excess of this limit, if any, would be deducted 
from Tier I capital and total assets in regulatory capital calculations.

     A banking organization's risk-based capital ratios are obtained by 
dividing its qualifying capital by its total risk adjusted assets, including 
dollar equivalents for certain off-balance sheet assets. 

     Effective January 17, 1995, the federal banking agencies issued a final 
rule relating to capital standards and the risks arising from the 
concentration of credit and nontraditional activities.  Institutions which 
have significant amounts of their assets concentrated in high risk loans or 
nontraditional banking activities and who fail to adequately manage these 
risks, will be required to set aside capital in excess of the regulatory 
minimums.  The federal banking agencies have not imposed any quantitative 
assessment for determining when these risks are significant, but have 
identified these issues as important factors they will review in assessing an 
individual bank's capital adequacy. Management of the Company does not 
believe that the Bank's assets and activities, as currently structured, would 
lead the FDIC to require additional capital under this rule.

     In December 1993, the federal banking agencies issued an interagency 
policy statement on the allowance for loan and lease losses (the "ALLL") 
which calls for the maintenance of the ALLL at a level at least equal to the 
"estimated credit losses" in the bank's loan portfolio.  "Estimated credit 
losses" are defined as "an estimate of the current amount of the loan and 
lease portfolio (net of unearned income) that is not likely to be collected; 
that is, net charge-offs that are likely to be realized for a loan or pool of 
loans given facts and circumstances as of the evaluation date."   The policy 
statement also suggests that a test of reasonableness be applied to the ALLL, 
which test is satisfied if the ALLL equals or exceeds the sum of (a) assets 
classified loss; (b) 50% of assets classified doubtful; (c) 15% of assets 
classified substandard; and (d) estimated credit losses on other assets over 
the upcoming twelve months. The Bank believes that its ALLL exceeds the 
amounts that would be required under the terms of this policy statement and 
under such test of reasonableness. However, this a very subjective matter, 
and the Bank 

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cannot assure that any bank examiner would agree with its evaluation, or that 
losses ultimately incurred from the Bank's portfolio would not exceed the 
amounts so provided.

     Future changes in regulations or practices could further reduce the 
amount of capital recognized for purposes of capital adequacy.  Such a change 
could affect the ability of the Bank to grow and could restrict the amount of 
profits, if any, available for the payment of dividends.  

     PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS

     Under Section 38 of the FDIA, as added by the Federal Deposit Insurance 
Corporation Improvement Act of 1991 ("FDICIA"), each federal banking agency 
is required to implement a system of prompt corrective action for 
institutions which it regulates.  The federal banking agencies have 
promulgated substantially similar regulations to implement this system of 
prompt corrective action.  Under the regulations, an institution shall 
generally be deemed to be: (i) "well capitalized" if it has a total 
risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital 
ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more 
and is not subject to specified requirements to meet and maintain a specific 
capital level for any capital measure; (ii) "adequately capitalized" if it 
has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based 
capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or 
more (3.0% under certain circumstances) and does not meet the definition of 
"well capitalized;" (iii) "undercapitalized" if it has a total risk-based 
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that 
is less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% 
(3.0% under certain circumstances); (iv) "significantly undercapitalized" if 
it has a total risk-based capital ratio that is less than 6.0%, a Tier I 
risk-based capital ratio that is less than 3.0% or a Tier I leverage capital 
ratio that is less than 3.0%; and (v) "critically undercapitalized" if it has 
a ratio of tangible equity to total assets that is equal to or less than 2.0%.

     Section 38 of the FDIA and the implementing regulations also provide 
that a federal banking agency may, after notice and an opportunity for a 
hearing, reclassify a well capitalized institution as adequately capitalized 
and may require an adequately capitalized institution or an undercapitalized 
institution to comply with supervisory actions as if it were in the next 
lower category if the institution is in an unsafe or unsound condition or 
engaging in an unsafe or unsound practice.  (The FDIC may not, however, 
reclassify a significantly undercapitalized institution as critically 
undercapitalized.)

     An institution generally must file a written capital restoration plan 
which meets specified requirements, as well as a performance guaranty by each 
company that controls the institution, with the appropriate federal banking 
agency within 45 days of the date that the institution receives notice or is 
deemed to have notice that it is undercapitalized, significantly 
undercapitalized or critically undercapitalized.  Immediately upon becoming 
undercapitalized, an institution shall become subject to the provisions of 
Section 38 of the FDIA, which sets forth various mandatory and discretionary 
restrictions on its operations.

     At December 31, 1998, the Bank met the tests to be categorized as "well 
capitalized" under the prompt corrective action regulations of the FDIC. 

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     SAFETY AND SOUNDNESS STANDARDS

     Federal law requires the federal banking regulatory agencies to prescribe,
by regulation, standards for all insured depository institutions relating to:
(i) internal controls, information systems and internal audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate risk exposure;
(v) asset growth; and (vi) compensation, fees and benefits.  The federal banking
agencies recently adopted final regulations and Interagency Guidelines
Prescribing Standards for Safety and Soundness ("Guidelines") to implement
safety and soundness standards required by the FDIA.  The Guidelines set forth
the safety and soundness standards that the federal banking agencies use to
identify and address problems at insured depository institutions before capital
becomes impaired.  The agencies also proposed asset quality and earnings
standards which, if adopted in final, would be added to the Guidelines.  Under
the final regulations, if the FDIC determines that the Bank fails to meet any
standard prescribed by the Guidelines, the agency may require the Bank to submit
to the agency an acceptable plan to achieve compliance with the standard, as
required by the FDIA.  The final regulations establish deadlines for the
submission and review of such safety and soundness compliance plans.


     PREMIUMS FOR DEPOSIT INSURANCE 

     The FDIC adopted regulations implementing a risk-based premium system
required by federal law.  Under the regulations which cover the assessment
periods commencing on and after January 1, 1994, insured depository institutions
are required to pay insurance premiums within a range of 23 cents per $100 of
deposits to 31 cents per $100 of deposits depending on their risk
classification.  The FDIC, effective September 30, 1995, lowered assessments
from their rates of $.23 to $.31 per $100 of insured deposits to rates of $.04
to $.31, depending on the health of the bank, as a result of the
re-capitalization of the BIF.  The FDIC may alter the existing assessment rate
structure for deposit insurance and may change the base assessment rate
(currently, 4 to 31 basis points per year) by rulemaking with notice and
comment.  Without notice or comment, the FDIC may increase or decrease the
current rate schedule uniformly by as much as 5 basis points, as deemed
necessary to maintain the target designated reserve ratio 1.25 percent (fund
balance to estimated insured deposits).  The insured deposit rates for 1998 
were $.00 to $.27, these rates are projected to continue through the first half
of 1999. 

     The Financing Corporation (FICO), established by the Competitive Equality
Banking Act of 1987, is a mixed-ownership government corporation whose sole
purpose was to function as the financing vehicle for the Federal Savings & Loan
Insurance Corporation (FSLIC).  Effective December 12, 1991, as provided by the
Resolution Trust Corporation Refinancing, Restructuring and Improvement Act of
1991, the FICO's ability to issue new debt was terminated.  Outstanding FICO
bonds, which are 30-year non-callable bonds with a principal amount of
approximately $8.1 billion, mature in 2017 through 2019.

     The FICO has assessment authority, separate from the FDIC's authority to
assess risk-based premiums for deposit insurance, to collect funds from
FDIC-insured institutions sufficient to pay interest on FICO bonds.  The FDIC
acts as collection agent for the FICO.  The Deposit 

PAGE 11
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Insurance Funds Act of 1996 (DIFA) authorized the FICO to assess both Bank 
Insurance Fund (BIF) and Savings Association Insurance Fund (SAIF) insured 
deposits, and required the BIF rate to equal one-fifth the SAIF rate through 
the year 1999, or until the insurance funds are merged, whichever occurs 
first.  Thereafter, BIF and SAIF insured deposits will be assessed at the 
same rate by FICO.

     The FICO assessment rate is adjusted quarterly to reflect changes in the
assessment basis of the respective funds based on quarterly Call Report and
Thrift Financial Report submissions.  The FICO quarterly rates for 1998 were
1.256, 1.244, 1.22 and 1.164.  The FICO quarterly rate for the first quarter of
1999 is 1.22. 


     INTERSTATE BANKING AND BRANCHING

     On September 29, 1994, the President signed into law the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act"). 
Under the Interstate Act, beginning one year after the date of enactment, a bank
holding company that is adequately capitalized and managed may obtain regulatory
approval to acquire an existing bank located in another state without regard to
state law.  A bank holding company would not be permitted to make such an
acquisition if, upon consummation, it would control (a) more than 10% of the
total amount of deposits of insured depository institutions in the United States
or (b) 30% or more of the deposits in the state in which the bank is located.  A
state may limit the percentage of total deposits that may be held in that state
by any one bank or bank holding company if application  of such limitation does
not discriminate against out-of-state banks.  An out-of-state bank holding
company may not acquire a state bank in existence for less than a minimum length
of time that may be prescribed by state law except that a state may not impose
more than a five year existence requirement. 

     The Interstate Act also permits, beginning June 1, 1997, mergers of insured
banks located in different states and conversion of the branches of the acquired
bank into branches of the resulting bank.  Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other states by that
state's banks.  The same concentration limits discussed in the preceding
paragraph apply.  The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the laws
of that state, subject to the same requirement and conditions as for a merger
transaction.  

     The Interstate Act is likely to increase competition in the Bank's 
market areas especially from larger financial institutions and their holding 
companies. It is difficult to assess the impact such likely increased 
competition will have on the Bank's operations.  

     On October 2, 1995, the "California Interstate Banking and Branching Act of
1995" (the "1995 Act") became effective.  The 1995 Acts generally allows
out-of-state banks to enter California by merging with, or purchasing, a
California bank or industrial loan company which is at least five years old. 
Also, the 1995 Act repeals the California Interstate (National) Banking Act 

PAGE 12
<PAGE>

of 1986, which previously regulated the acquisition of California banks by 
out-of-state bank holding companies.  In addition, the 1995 Act permits 
California state banks, with the approval of the Superintendent of Banks, to 
establish agency relationships with FDIC-insured banks and savings 
associations. Finally, the 1995 Act provides for regulatory relief, including 
(i) authorization for the Superintendent to exempt banks from the requirement 
of obtaining approval before establishing or relocating a branch office or 
place of business, (ii) repeal of the requirement of directors' oaths 
(Financial Code Section 682), and (iii) repeal of the aggregate limit on real 
estate loans (Financial Code Section 1230).

     COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS

     The Bank is subject to certain fair lending requirements, reporting 
obligations involving home mortgage lending operations and Community 
Reinvestment Act (the "CRA").  The CRA generally requires the federal banking 
agencies to evaluate the record of financial institutions in meeting the 
credit needs of their local community, including low and moderate income 
neighborhoods. In addition to substantial penalties and corrective measures 
that may be required for a violation of certain fair lending laws, the 
federal banking agencies may take compliance with such laws and CRA into 
account when regulating and supervising other activities.  

     In May, 1995, the federal banking agencies issued final regulations which
change the manner in which they measure a bank's compliance with its CRA
obligations.  The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institutions' actual lending service and
investment performance rather than the extent to which the institution conducts
needs assessments, documents community outreach or complies with other
procedural requirements.  In March 1994, the Federal Interagency Task Force on
Fair Lending issued a policy statement on discrimination in lending.  The policy
statement describes the three methods that federal agencies will use to prove
discrimination: overt evidence of discrimination, evidence of disparate
treatment and evidence of disparate impact.  Management of the Bank believes
that the Bank is in substantial compliance with all requirements under these
provisions.  Following the Bank's most recent CRA examination, the Bank's rating
was "satisfactory".


     OTHER REGULATIONS AND POLICIES

     The federal regulatory agencies have adopted regulations that implement
Section 304 of FDICIA which requires federal banking agencies to adopt uniform
regulations prescribing standards for real estate lending.  Each insured
depository institution must adopt and maintain a comprehensive written real
estate lending policy, developed in conformance with prescribed guidelines, and
each agency has specified loan-to-value limits in guidelines concerning various
categories of real estate loans.  

     Section 24 of the Federal Deposit Insurance Act (the "FDIA"), as amended by
the FDICIA, generally limits the activities and equity investments of
FDIC-insured, state-chartered banks to those that are permissible for national
banks.  Under regulations dealing with equity 

PAGE 13
<PAGE>

investments, an insured state bank generally may not directly or indirectly 
acquire or retain any equity investment of a type, or in an amount, that is 
not permissible for a national bank.  An insured state bank is not prohibited 
from, among other things, (i) acquiring or retaining a majority interest in a 
subsidiary, (ii) investing as a limited partner in a partnership the sole 
purpose of which is direct or indirect investment in the acquisition, 
rehabilitation or new construction of a qualified housing project, provided 
that such limited partnership investments may not exceed 2% of the bank's 
total assets, (iii) acquiring up to 10% of the voting stock of a company that 
solely provides or reinsures directors', trustees' and officers' liability 
insurance coverage or bankers' blanket bond group insurance coverage for 
insured depository institutions, and (iv) acquiring or retaining the voting 
shares of a depository institution if certain requirements are met.

     FDIC regulations implementing Section 24 of the FDIA provide that an
insured state-chartered bank may not, directly, or indirectly through a
subsidiary, engage as "principal" in any activity that is not permissible for a
national bank unless the FDIC has determined that such activities would pose no
risk to the insurance fund of which it is a member and the bank is in compliance
with applicable regulatory capital requirements.  Any insured state-chartered
bank directly or indirectly engaged in any activity that is not permitted for a
national bank must cease the impermissible activity.

     REGULATORY ENFORCEMENT POWERS 

     Commercial banking organizations, such as the Bank, may be subject to
enforcement actions by the FDIC and the Superintendent for engaging in unsafe or
unsound practices in the conduct of 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.  Enforcement actions may include the
imposition of a conservator or receiver, the issuance of a cease-and-desist
order that can be judicially enforced, the termination of insurance of deposits,
the imposition of civil money penalties, the issuance of directives to increase
capital, the issuance of formal and informal agreements, the issuance of removal
and prohibition orders against institution-affiliated parties and the imposition
of restrictions and sanctions under the prompt corrective action provisions of
the FDICIA.  

     CALIFORNIA AND FEDERAL BANKING LAW

     The Federal Change in Bank Control Act of 1978 prohibits a person or
group of persons "acting in concert" from acquiring "control" of a bank or
holding company unless the appropriate federal regulatory agency has been given
60 days' prior written notice of such proposed acquisition and, within that time
period, has not issued a notice disapproving the proposed acquisition or
extending for up to another 30 days the period during which such a disapproval
may be issued. An acquisition may be made prior to the expiration of the
disapproval period if the agency issues written notice of its intent not to
disapprove the action.  The acquisition of more than 10% of a class of voting
stock of a bank (or holding company) with a class of securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended (such as the
Common Stock), is generally presumed, subject to rebuttal. to constitute the
acquisition of control.

PAGE 14
<PAGE>

     Under the California Financial Code, no person shall, directly or
indirectly, acquire control of a California licensed bank or a bank holding
company unless the Superintendent has approved such acquisition of control.  A
person would be deemed to have acquired control of the Corporation under this
state law if such person, directly or indirectly, has the power (i) to vote 25%
or more of the voting power of the Corporation or (ii) to direct or cause the
direction of the management and policies of the Corporation.  For purposes of
this law, a person who directly or indirectly owns or controls 10% or more of
the Common Stock would be presumed to control the Corporation, subject to
rebuttal.
       
     In addition, any "company" would be required to obtain the approval of
the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"), before acquiring 25% (5% in the case of an acquirer that is, or is
deemed to be, a bank holding company) or more of the outstanding Common Stock
of, or such lesser number of shares as constitute control over, the Bank or the
Corporation.  

     The Community Reinvestment Act of 1977 ("CRA") and the related Regulations
of the Comptroller of the Currency, the Board of Governors of the Federal
Reserve and the Federal Deposit Insurance Corporation ("FDIC") are intended to
encourage regulated financial institutions to help meet the credit needs of
their local community or communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of such financial
institutions.  The CRA and such regulations provide that the appropriate
regulatory authority will assess the records of regulated financial institutions
in satisfying their continuing and affirmative obligations to help meet the
credit needs of their local communities as part of their regulatory examination
of the institution.  The results of such examinations are made public and are
taken into account upon the filing of any application to establish a domestic
branch, to merge or to acquire the assets or assume the liabilities of a bank. 
In the case of a bank holding company, the CRA performance record of the
subsidiary bank(s) involved in the transaction is reviewed in connection with
the filing of an application to acquire ownership or control of shares or assets
of a bank or to merge with any other bank holding company.  An unsatisfactory
record can substantially delay or block the transaction.

RESEARCH

     Neither the Corporation nor the Bank makes any material expenditures for
research and development.

PAGE 15
<PAGE>
     

DEPENDENCE UPON A SINGLE CUSTOMER

     Neither the Corporation nor the Bank is dependent upon a single customer or
very few customers.  The Bank's business is concentrated in, and largely
dependent upon the strength of the local economy in, the Monterey Peninsula area
of Northern California.  The local economy is affected by both national trends
and by local factors.  Tourism and the activities at the former Fort Ord
military base are among the major contributors to the local economy.  The
opening of the California State University at Monterey Bay on the former Fort
Ord military base may lessen the impact of the base closure.  

ITEM 2. PROPERTIES

     The main office of the Bank, which also serves as the principal office of
the Corporation, is located at 601 Munras Ave., Monterey, California 93940. 
This facility contains a lobby, executive and customer service offices, teller
stations, safe deposit boxes and related non-vault area, vault, operations area,
lounge and miscellaneous areas.  A drive-through facility and adequate paved
parking are also on the premises.  Both the land and all improvements thereto
are owned by the Bank.  The Bank currently operates two branch offices in Carmel
and Pacific Grove, California, both within approximately 10 miles from the
Bank's main office.  The land and improvements dedicated to the Carmel and
Pacific Grove branch offices are leased.  See Footnote 9 to the Corporation's
financial statements included herewith.

     Generally, neither the Bank nor the Corporation may invest in equity
interests in real estate, except for the direct use of the Bank or the
Corporation in their business.  The Bank makes and/or purchases loans secured by
real estate, subject to normal banking practices, its own policies and the
restrictions described above under Item 1.

ITEM 3. LEGAL PROCEEDINGS

     In May 1998 Monterey County Bank entered into a settlement agreement with
Monterey Bay Bank, whereby Monterey County Bank agreed to terminate its trade
name infringement litigation against Monterey Bay Bank.  Under the terms of the
settlement Monterey County Bank received a lump sum payment in the amount of
$117,100.

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

     None submitted.









PAGE 16
<PAGE>

                                      PART II

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

     Neither the Corporation's, which is held by approximately 550 persons, nor
the Bank's, stock has ever been actively traded.  To the Corporation's knowledge
no brokers have handled trades in the Bank's stock during the past four years,
and there are no published "bid/asked" quotes for such stock or the stock of the
Corporation.  During the same period, no broker acted as a market maker for the
Corporation or Bank's Common Stock.  Accordingly, the market price data
contained herein does not represent the value which would be assigned in an
efficient market.  The Common Stock is not listed on any securities exchange or
quoted on the National Association of Securities Dealers Automated System.

     The Corporation, at the request of a shareholder, repurchased 3,482 shares
of common stock at $3.00 per share.  These transactions occurred during the
fourth quarter of 1998.

     The following table sets forth, according to information known to the
Corporation, the price paid per share in, and volume of, transactions in the
Bank's stock during the quarters ended March 31, 1996 to December 31, 1998.

<TABLE>
<CAPTION>
                          Quarter/Year                          Price                        Volume(1)
              -------------------------------------       -----------------              ------------------
<S>                                                           <C>                                <C>
                     1st quarter of 1996                         2.75                            6,720
                     2nd quarter of 1996                      2.50/2.75                          1,285
                     3rd quarter of 1996                         2.75                              210
                     4th quarter of 1996                         2.75                            1,574

                     1st quarter of 1997                      2.50/2.75                          1,772
                     2nd quarter of 1997                         2.75                              210
                     3rd quarter of 1997                      2.75/3.00                         22,144
                     4th quarter of 1997                         2.75                              762

                     1st quarter of 1998                         2.75                              787
                     2nd quarter of 1998                         3.00                              300
                     3rd quarter of 1998                         ---                                 0
                     4th quarter of 1998                      2.75/3.00                          6,328
</TABLE>

(1)  For the period presented, the information indicated may not include
     information on shares which may have been traded directly by shareholders
     or through dealers.

PAGE 17
<PAGE>

     The principal source of cash flow of the Corporation, including cash flow
to pay dividends on its stock or principal and interest on debt, is dividends
from the Bank.  There are statutory and regulatory limitations on the payment of
dividends by the Bank to the Corporation, as well as by the Corporation to its
shareholders.

     If in the opinion of the applicable federal and/or state regulatory
authority, a depository institution or holding company is engaged in or is about
to engage in an unsafe or unsound practice (which, depending on the financial
condition of the depository institution or holding company, could include the
payment of dividends), such authority may require, after notice and hear (except
in the case of an emergency proceeding where there in no notice or hearing),
that such institution or holding company cease and desist from such practice. 
Moreover, the Federal Reserve and the FDIC have issued policy statements which
provide that bank holding companies and insured depository institutions
generally should only pay dividends out of current operating earnings.

     Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), an FDIC insured depository institution may not pay any dividend if
payment would cause it to become undercapitalized or once it is
undercapitalized.

     The Bank's payment of dividends, as a California chartered commercial
banking corporation, is regulated by the California Financial Code.  Under the
California Financial Code, funds available for cash dividend payments by the
Bank are restricted to the lessor of: (i) retained earnings; or (ii) the Bank's
net income for its last three fiscal years (less any distributions to the
stockholders made during such period).  As of December 31, 1998, the Bank had
$588,000 in retained earnings.  The Bank's net income for the last three fiscal
years less distributions to stockholders was $586,400.

          In December 1998 the corporation paid a ten (10) percent stock
dividend.  In December 1997 and 1996 the Corporation paid cash dividends of 
$.12 and $.11 per share, respectively.  The Bank paid dividends totaling
$50,000.00, $170,000.00 and $150,000.00 to the Corporation during 1998, 1997 and
1996, respectively.





PAGE 18
<PAGE>
               

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                
          CONDITION AND RESULTS OF OPERATION

OVERVIEW

     The following discussion reviews and analyzes the operating results and
financial condition of the Corporation, focusing on the Bank.  It should be read
in conjunction with the financial statements and the other financial data
presented elsewhere herein.  The Corporation had no activities other than its
organization during 1995.

     Net income for each of the last three years was $464,200 in 1998, $225,900
in 1997, and $213,400 in 1996.  The primary net income per share for each of the
last three years was $.49, $.24, and $.22 respectively.  The diluted net income
per share for the same time periods were $.42, $.20 and $.19, respectively. 
Return on average shareholders' equity was 14.43%, 7.34% and 7.25% in 1998, 1997
and 1996, respectively.  Return on average assets was .97%, .54%, and .56% in
1998, 1997 and 1996, respectively.  

     The increase in earnings for 1998 was due to an increase of $191,700
in net interest income after provision for loan losses, an increase of $76,400
in other income; an increase of $78,800 in operating expenses, a decrease of
$101,700 in income taxes and an extraordinary item, litigation settlement, of
$64,400 net of income tax expense of $52,700.

     The increase in earnings for 1997 was due to an increase of $77,600 in net
interest income after provision for loan losses, an increase of $90,800 in other
income; partially offset by a $60,300 increase in operating expenses and an
increase of $95,600 in income taxes.

     The following table provides a summary of the income statement,
balance sheet, and selected ratios for the last five years.  A more detailed
analysis of each component of net income is included under the appropriate
captions, which follows.






PAGE 19
<PAGE>
<TABLE>
<CAPTION>
                                                     As of and for the years Ended December 31,
                                                     ------------------------------------------
                                              1998            1997          1996            1995             1994
                                          --------------   -----------  -------------   -------------    --------------
<S>                                       <C>              <C>          <C>             <C>              <C>           
                                                        (Dollars in thousands except per share data)
Summary of Operating Results:

Total interest income                              3,757        3,399          3,140            2,952            2,734
Total interest expense                             1,603        1,447          1,334            1,183              933
                                            -------------  -----------  -------------  ---------------   --------------
Net interest income                                2,154        1,952          1,807            1,768            1,801

Provision for possible
   loan losses                                       130          120             53              120               30
                                            -------------  -----------  -------------  ---------------   --------------
Net interest income after
   provision for loan loss                         2,024        1,832          1,754            1,648            1,771

Total other income                                 1,152        1,074            983            1,035            1,036
Total other expense                                2,585        2,505          2,444            2,356            2,570
                                            -------------  -----------  -------------  ---------------   --------------

Income (loss) before taxes                           591          402            293              327              236
Provision for income tax                             127          176             80               49             (21)
                                            -------------  -----------  -------------  ---------------   --------------

Net income (loss)                                    464          226            213              278              257

Per Common Share Data:

Basic Earnings
Income before
extraordinary item (1)                              0.42         0.24           0.22             0.29             0.27
Extraordinary item (1)                              0.07          ---            ---              ---              ---
                                            -------------  -----------  -------------  ---------------   --------------
Net Income (1)                                      0.49         0.24           0.22             0.29             0.27

Diluted Earnings
Income before                                                                           
extraordinary item (2)                              0.36         0.20           0.19             0.25             0.24
Extraordinary item (2)                              0.06          ---            ---              ---              ---
                                            -------------  -----------  -------------  ---------------   --------------
Net income (2)                                      0.42         0.20           0.19             0.25             0.24

Book value, end of period                           3.65         3.21           3.00             2.88             2.68
Avg shares outstanding (3)                       942,984      955,878        964,743          964,743          964,743

Balance Sheet Data:

Total loans, net of
   unearned income (4)                            28,250       25,606         25,310           22,494           23,918
Total assets                                      51,103       46,113         40,799           36,658           33,787
Total deposits                                    42,852       39,206         36,167           31,188           28,782
Stockholders' equity                               3,435        3,031          2,898            2,776            2,584
</TABLE>

PAGE 20

<PAGE>
<TABLE>
<CAPTION>
                                                              As of and for the Years Ended December 31,
                                                              ------------------------------------------
                                                    1998           1997            1996            1995         1994
                                                  ----------    -----------      ----------     -----------    --------
<S>                                               <C>           <C>              <C>            <C>            <C>     
Selected Financial Ratios (5):

Return on average assets                              0.97%          0.54%            0.56%          0.79%       0.75%
Return on average
   stockholders' equity                              14.43%          7.34%            7.25%          9.57%       9.85%
Net interest spread                                   4.45%          4.74%            4.91%          5.24%       5.59%

Net interest margin                                   5.20%          5.42%            5.54%          5.86%       6.08%

Avg shareholders' equity
   to average assets                                  6.73%          7.37%            7.72%          8.24%       7.57%

Primary capital to assets
   at end of period                                   7.32%          7.85%            7.68%          8.14%       8.31%

Total loans to total deposits
   at end of period                                  65.92%         65.31%           65.31%         69.98%      83.10%

Allowance to total loans
   at end of period                                   1.18%          1.04%            1.01%          1.00%       1.01%

Nonperforming loans to total
   loans at end of period                             0.42%          0.81%            1.11%          0.14%       0.84%

Net charge-offs to
   average loans                                      0.23%          0.40%            0.10%          0.59%       0.16%
</TABLE>

(1)  Primary earnings (loss) per share amounts were computed on the basis of the
     weighted average number of shares of common stock during the year.  The
     weighted average number of shares used for this computation was 868,453,
     for 1998, 881,405 for 1997 and 890,212 for 1996, 1995, and 1994.

(2)  Fully diluted earnings (loss) per share amounts were computed on the basis
     of the weighted average number of shares of common stock and common stock
     equivalents outstanding during the year.  Common stock equivalents include
     employee stock options.  The weighted average number of shares used for
     this computation 

PAGE 21

<PAGE>

     was 1,108,686, 1,121,983, 1,109,455, 1,131,997 and 1,050,926, in 1998, 
     1997, 1996, 1995 and 1994, respectively.

(3)  Weighted average common shares.

(4)  Includes loans being held for sale.

(5)  Averages are of daily balances.

NET INTEREST INCOME

     Net interest income, the difference between (a) interest and fees earned 
on interest-earning assets and (b) interest paid on interest-bearing 
liabilities, is the most significant component of the Bank's earnings.  
Changes in net interest income from period to period result from increases or 
decreases in the average balances of interest earning assets portfolio, the 
availability of particular sources of funds and changes in prevailing 
interest rates.

     The following table summarizes the Bank's net interest income.  It is 
not presented on a tax equivalent basis, as the Bank 's tax-exempt interest 
income is insignificant.
<TABLE>
<CAPTION>
                                               Years Ended                         Increase (Decrease)
                                               December 31,                         From Prior Year
                                          1998      1997       1996                1998/97              1997/96
                                       ---------------------------------    ------------------   -------------------
                                                                            Amt           %          Amt       %    
                                                              (Dollars in thousands)                                
<S>                                    <C>         <C>         <C>         <C>          <C>      <C>         <C>    
Interest Income                            3,757      3,399       3,140      358        10.53        259      8.25
Interest Expense                           1,603      1,447       1,334      156        10.77        113      8.49
                                       ----------  ---------   ---------  --------------------   ------------------
Net Interest Income                        2,154      1,952       1,806      202        10.35        146      8.08
</TABLE>

     Net interest income increased $202,000 (10.35%) from 1997 to 1998.  
Average interest bearing assets increased 15.15%, while the average rate 
earned decreased 38 basis points, resulting in an increase of $357,800 in 
total interest income.  Interest expense increased $156,100 the result of a 
12.98% increase in average interest bearing liabilities and a 9 basis points 
decrease in the average rate paid.  Average interest rates on loans increased 
20 basis points.  Of the $5,453,000 increase in earning assets $4,078,000 
(74.8%) was in investment securities that provide a lower yield, average 
yield on investments was 5.71 percent, than loans which had an average yield 
of 10.78 percent in 1998. 

     Net interest income increased $145,100 (8.08%) from 1996 to 1997.  
Average interest bearing assets increased 10.09%, while the average rate 
earned decreased 16 basis points, resulting in an increase of $258,700 in 
total interest income.  Interest expense increased $113,600 the result of a 
8.96% increase in average interest bearing liabilities and an 2 basis points 
decrease in the average rate paid.  Average interest rates on loans decreased 
39 basis points, due primarily 

PAGE 22

<PAGE>

to competitive pressures.  Over half (57.7%) of the $3,300,000 increase in 
earning assets was in investment securities which provide a lower yield, 
average yield on investments was 6.46 percent, lower than loans which had an 
average yield of 10.58 percent in 1997.

     The following table shows the components of the Bank's net interest 
income, setting forth, for each of the three years ended December 31, 1998, 
1997 and 1996 (i) average assets, liabilities and investments, (ii) interest 
income earned on interest-earning assets and interest expense paid on 
interest-bearing liabilities, (iii) average yields earned on interest-earning 
assets and average rates paid on interest-bearing liabilities, (iv) the net 
interest spread (i.e., the average yield earned on interest-earning assets 
less the average rate paid on interest-bearing liabilities) and (v) the net 
interest yield on average interest-earning assets (i. e., net interest income 
divided by average interest-earning assets).  Yields are not computed on a 
tax-equivalent basis. Non-accrual loans and overdrafts are included in 
average loan balances.  Average loans are presented net of unearned income.

INTEREST SPREAD ANALYSIS:
<TABLE>
<CAPTION>
                                             1998                         1997                         1996
                                  ---------------------------   --------------------------  ---------------------------
                                               Int    Avg                 Int      Avg                 Int      Avg
                                      Avg     Earn     %          Avg     Earn      %         Avg      Earn      %
                                      Bal     Paid    Rate        Bal     Paid     Rate       Bal      Paid     Rate
                                  ---------------------------   --------------------------  ---------------------------
                                                                 (Dollars in thousands)
<S>                                 <C>       <C>     <C>          <C>    <C>      <C>       <C>       <C>     <C>     
Interest Earning Assets:
Int-bearing deposits
  at other banks                         100     6    5.98             24      1     4.36          71      5      7.67
Invest securities                      8,160   478    5.86          4,498    347     7.70       1,519     90      5.91
Federal funds sold                     5,771   317    5.49          5,432    296     5.45       6,460    341      5.27
                                    -----------------------        -----------------------   --------------------------
Total investments                     14,031   801    5.71          9,953    643     6.46       8,050    436      5.42

Loans
  Real estate                         14,641 1,516   10.36         14,648  1,503    10.26      13,138  1,368     10.41
  Installment                            508    61   11.96            491     60    12.16         686     80     11.70
  Commercial                          12,268 1,378   11.24         10,902  1,193    10.95      10,823   1256     11.61
                                    -----------------------        -----------------------   --------------------------
Total loans                           27,417 2,955   10.78         26,042  2,756    10.58      24,647  2,704     10.97
Total Interest
  earning assets                      41,449 3,757    9.06         35,995  3,399     9.44      32,697  3,140      9.60
                                    -----------------------        -----------------------   --------------------------
                                    -----------------------        -----------------------   --------------------------
Interest Bearing Liabilities:
Int-bearing demand                     6,206    73    1.17          5,308     74     1.39       4,534     64      1.40
Money market savings                   1,623    38    2.31          1,958     47     2.39       1,911     45      2.34
Savings deposits                       2,846    63    2.22          2,184     48     2.21       2,541     70      2.76
Time deposits > $100M                  8,042   471    5.86          7,056    408     5.78       5,698    338      5.92
Time deposits < $100M                 12,049   713    5.92         12,112    744     6.15      11,774    735      6.24
Other Borrowing                        4,008   246    6.13          2,162    126     5.82       1,790     83      4.62
                                    -----------------------        -----------------------   --------------------------
Total interest

PAGE 23

<PAGE>

  bearing liabilities                 34,773 1,603    4.61         30,779  1,447     4.70      28,249  1,334      4.72
                                    -----------------------        -----------------------   --------------------------
                                    -----------------------        -----------------------   --------------------------
Net interest income                          2,154                         1,952                       1,807
Net interest spread                                   4.45                           4.74                         4.88
Net yield on interest
  earning assets                                      5.20                           5.42                         5.53
</TABLE>

INTEREST SPREAD ANALYSIS (Continued):
<TABLE>
<CAPTION>
                                                           1998 vs 1997                         1997 vs 1996
                                                           ------------                         ------------
                                                        Increase(Decrease)                    Increase(Decrease)
                                                           Due to changes                        Due to Changes         
                                                ----------------------------------      --------------------------------
                                                   Avg        Avg                          Avg       Avg
                                                  Volume      Rate       Total            Volume     Rate       Total
                                                ----------------------------------      --------------------------------
                                                                      (Dollars in thousands)
<S>                                             <C>           <C>        <C>            <C>          <C>        <C>     
Interest Earning Assets:
Int-bearing deposits
  at other banks                                          3        2           5            (4)      (1)        (4)
Invest securities                                       282     (150)        132           176       81        257
Federal funds sold                                       18        3          21           (54)       9        (45)
                                                 --------------------------------      --------------------------------

Total investments                                       264     (106)        158           103      104        208

Loans
  Real estate                                            (1)      15          14           157      (23)       135
  Installment                                             2       (1)          1           (23)       2        (21)
  Commercial                                            150       35         185             9      (72)       (63)
                                                 --------------------------------      --------------------------------

  Total loans                                           146       54         200           153     (102)        51

Total Interest Earning Assets                           515     (156)        359           317      (58)       259

Interest Bearing Deposits:

Int-bearing demand                                       12      (13)         (1)           11       (1)        10
Money market savings                                     (8)      (1)         (9)            1        1          2
Savings deposits                                         15        0          15           (10)     (12)       (22)
Time deposits > $100M                                    57        6          63            80      (10)        70
Time deposits < $100M                                    (4)     (28)        (32)           21      (12)        10
Other Borrowing                                         108       12         120            17       26         43
                                                 --------------------------------      --------------------------------

Total interest bearing deposits                         188      (32)        156           119       (6)       114
                                                 --------------------------------      --------------------------------
                                                 --------------------------------      --------------------------------
Net change in net interest                              327     (124)        203           197      (52)       146
</TABLE>

PAGE 24
<PAGE>

PROVISION AND ALLOWANCE FOR LOAN LOSSES

     The provision for loan losses is an expense charged against operating 
income and added to the allowance for loan losses.  The allowance for loan 
losses represents amounts which have been set aside for the specific purpose 
of absorbing losses which may occur in the Bank's loan portfolio.

     The allowance for loan losses reflects management's ongoing evaluation 
of the risks inherent in the loan portfolio, both generally and with respect 
to specific loans, the state of the economy, and the level of net loan losses 
experienced in the past.  Management and the Board of Directors review the 
results of the State Banking Department and FDIC examinations, independent 
accountants' observations, and the Bank 's internal review as additional 
indicators to determine if the amount in the allowance for loan losses is 
adequate to protect against estimated future losses.  It is the Bank 's 
current practice, which could change in accordance with the factors mentioned 
above, to maintain an allowance which is at least equal to the sum of the 
following percentage of loan balances by loan category.
<TABLE>
<CAPTION>
                                           Loan Category                      Reserve %
                          <S>                                                 <C>
                          Classified Loans:
                          Loans classified loss                                   100.00%
                          Loans classified doubtful                                50.00%
                          Loans classified substandard
                               Real Estate Secured                                  5.00%
                               Non Real Estate Secured                             20.00%

                          Unclassified Loans:
                          Real Estate - Loan to value 80% or less                   0.10%
                          Real Estate - Loan to value over 80%                      0.50%
                          Loans to Individuals                                      3.00%
                          Commercial                                                3.00%
                          SBA Loans - Unguaranteed portion                          2.00%
                          Unfunded Loan Commitments                                  .25%
                          SBA Loans - Guaranteed portion                            0.00%
                          Cash Secured Loans                                        0.00%
</TABLE>

     Although no assurance can be given that actual losses will not exceed 
the amount provided for in the allowance, Management believes that the 
allowance is adequate to provide for 

PAGE 25

<PAGE>

all estimated credit losses in light of all known relevant factors.  At the 
end of 1998, 1997 and 1996, the Bank's allowance stood at 1.18 percent, 1.04 
percent, and 1.01 percent of gross loans, respectively. Provisions were made 
to the allowance for loan losses in 1998, 1997 and 1996 of $130,000, 
$120,000, and $52,500, respectively.  Loans charged off totaled $75,500 in 
1998, $106,200 in 1997, and $44,400 in 1996.  Recoveries for these same 
periods were $12,600 $1,800, and $20,700.

     The Bank's non performing (delinquent 90 days or more and non-accrual) 
loans as a percentage of total loans was .42 percent .81 percent and 1.11 
percent as of the end of 1998, 1997 and 1996, respectively.  

          Based upon statistics released by Federal and state banking 
authorities regarding banks of similar size or otherwise located in 
California, Management believes that the Bank's ratios of delinquent and non 
performing loans to total loans are far better than average.  Prudent 
collection efforts, and tighter lending controls, are responsible for the 
Bank's strong performance on these measures of credit quality.  However, no 
assurance can be given that the Bank's loan portfolio will continue to 
measure well against its peers on these ratios and quality measures, or that 
losses will not otherwise occur in the future.

NON-INTEREST INCOME

     The following table presents a summary of the Bank's non-interest income:
<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                            1998                1997               1996
                                                        -------------       -------------      --------------
                                                                   (Dollars in thousands)
<S>                                                     <C>                 <C>                <C>           
Service charges on deposit
     accounts                                                    371                 328               372
Other service charges, commissions
     and fees                                                    406                 421               353
Income from sales and servicing
     of SBA loans                                                374                 324               259
                                                         ------------      --------------     -------------

    Total non-interest Income                                  1,151               1,074               983
</TABLE>

     Total non-interest income increased $76,400 (7.11%) in 1998 when 
compared with 1997. Income from sales and servicing of SBA loans increased 
$49,600 and service charges on deposit accounts decreased $42,600; while 
other service charges, commissions and fees decreased $15,800.  Merchant 
credit card processing income decreased by $43,200 during 1998 compared to 
1997.  

PAGE 26

<PAGE>

     Total non-interest income increased $90,700 (9.22%) in 1997 when 
compared with 1996. Income from sales and servicing of SBA loans increased 
$65,500 and other service chanrges, commissions and fees increased $32,000; 
while service charges on deposit accounts decreased $43,300.  Merchant credit 
card processing income increased by $70,700 during 1997 compared to 1996.
     
     The sale of Small Business Administration (SBA) guaranteed loans is a 
significant contributor to the Bank's income.  SBA guaranteed loans yield up 
to 3 3/4% over the New York prime rate, and the guaranteed portions can be 
sold at premiums which vary with market conditions.  SBA loans are guaranteed 
by the full faith of the United States Government from 70 to 80 percent of 
the principal amount.  The guaranteed portion has risks comparable for an 
investor to a U. S. Government security and can usually be sold in the 
secondary financial market, either at a premium or at a yield which allows 
the Bank to maintain a significant spread for itself.

     There can be no assurance that the gains on sale will continue at, or 
above, the levels realized in the past three years.  In addition, increasing 
competition among lenders for qualified SBA borrowers makes it difficult for 
the Bank to continually expand its program in this area, and may limit the 
level of premium that can be earned with regard thereto.  Furthermore, the 
SBA recently began requiring lenders to share a portion of premiums in excess 
of 10% earned on the sale of the guaranteed portions.  

     The following table presents a summary of the activity in SBA loans for 
the years ended 1998, 1997 and 1996:
<TABLE>
<CAPTION>
                                                              1998                 1997                    1996
                                                    -------------------  --------------------   ---------------------
<S>                                                 <C>                  <C>                    <C>
SBA loans authorized                                        $2,458,000            $3,551,800              $1,937,000
                                                    -------------------  --------------------   ---------------------
                                                    -------------------  --------------------   ---------------------
SBA loans sold                                              $2,811,900            $2,524,100              $1,842,800
                                                    -------------------  --------------------   ---------------------
                                                    -------------------  --------------------   ---------------------
SUMMARY OF INCOME FROM SALES AND
   SERVICING OF SBA LOANS

Income from premium                                           $199,200              $178,400                $138,600
Income from servicing                                          176,400               170,000                 165,000
Less loan origination expense                                   (1,600)              (24,000)                (44,700)
                                                     ------------------  --------------------   ---------------------
Total income from sales and
   servicing of SBA loans                                     $374,000              $324,400                $258,900
                                                    -------------------  --------------------   ---------------------
                                                    -------------------  --------------------   ---------------------
</TABLE>

PAGE 27

<PAGE>

NON-INTEREST EXPENSE

     The following table presents a summary of the Bank's other non-interest 
expense:
<TABLE>
<CAPTION>
                                                                     Years  Ended  December 31,                    
                                                            1998               1997               1996
                                                        -------------       ------------       ------------
                                                                      (Dollars in thousands)
<S>                                                     <C>                 <C>                 <C>
Salaries and benefits                                       1,499                 1,405              1,362
Occupancy and equipment expense                               281                   251                256
Professional fees                                             107                    85                121
Data Processing                                               193                   172                149
Other expenses                                                620                   591                556
                                                         ------------       ------------        -----------

    Total other Expenses                                    2,700                 2,505              2,444
</TABLE>

          Salary expense increased $94,000 in 1998 as a result of the 
addition of a Commercial Lending Officer, employee merit increases and bonus 
payments. Salary expense increased $42,700 in 1997 as a result of opening in 
April of the Pacific Grove branch office and employee merit increases.  The 
increase in salary expense of $125,000 in 1996 was due to merit increases, 
additions to staff for the planned opening of the Pacific Grove branch and a 
severance payment to a former officer.  

     Occupancy and equipment expenses increased $30,300 in 1998, with 
increases of $9,300 in maintenance and repairs, $7,400 in depreciation, 
$6,000 and $4,400 in utilities.  In 1997 occupancy and equipment expenses 
decreased $5,000 compared with a decrease of  $6,900 in 1996.  These nominal 
decreases were due to lower depreciation expense.

     Data processing expense increased $20,300 in 1998 as the result of 
increases in the number of accounts and transaction volumes.  In 1997 data 
processing expenses increased $23,600, due to increased number of accounts, 
increased activity, upgraded data communications and a 2.7% cost of living 
increase.  Data processing expenses had remained level in 1996 when compared 
to 1995.

     In 1998 professional fees increased $21,400 when compared to 1997.  The 
Bank  recovered $117,100 in legal fees associated with the Bank's settling 
its name infringement lawsuit against Monterey Bay Bank, this settlement is 
shown as a extraordinary item on the statement of operations.  Professional 
fees decreased $35,400 in 1997 due to a $42,800 decrease in legal fees.  The 
increase of $5,600 in professional fees in 1996 was the net affect of 
audit/accounting fees decreasing $18,700; while legal fees increased $24,300. 
The increase in legal fees was the result of the Bank incurring approximately 
$60,000 in legal fees and other costs associated with the Monterey Bay Bank 
trade name infringement lawsuit.

PAGE 28

<PAGE>

     Other expenses for 1998 totaled $619,600 compared with $590,700 for 
1997. Significant changes occurred in the following categories with in 
increases collection expense ($7,000), poppy account expense ($4,600), 
director fees ($4,700), dues and memberships ($2,500), entertainment and 
meals ($6,400) loan expense ($10,800), messenger and freight ($3,800), 
insurance ($12,000), Year 2000 expense ($28,800)); while decreases occurred 
in advertising ($3,900), business development ($18,700), donations ($8,900) 
FDIC and State assessments ($6,900), SBA loan expense ($22,400), telephone 
($7,300), travel expense ($3,000).

     Other expenses for 1997 totaled $590,700 compared with $556,300 for 
1996. Significant changes occurred in the following categories with increases 
in advertising ($25,500), director fees ($7,100), FDIC and State assessments 
($7,500), security expense ($11,000), loan expense ($3,700), messenger and 
freight ($4,300), postage ($3,600), subscriptions/publications ($5,300) and 
travel expense ($11,800); while decreases occurred in business development 
($24,500), collection expense ($8,800), SBA loan expense ($20,700), 
stationery and supplies expense ($4,800), operating losses ($4,300)

     Other expenses for 1996 totaled $556,300 compared with $599,500 for 
1995. Significant changes occurred in the following categories with decreases 
in FDIC and State assessments ($36,600), miscellaneous expense ($14,700), 
travel ($18,400), operational losses ($5,800), shareholder expense ($4,800) 
and director fees ($3,800); increases in business development ($36,200), 
advertising ($25,800) and stationery/supplies ($8,900). 

INCOME TAXES

     In February 1992, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 109, "Accounting for Income 
Taxes," (Statement 109).  Under the asset and liability method of Statement 
109, deferred tax assets and liabilities are recognized for the future tax 
consequences attributable to differences between the financial statement 
carrying amounts of existing assets and liabilities and their respective tax 
bases.  Deferred tax assets and liabilities are measured using enacted tax 
rates expected to apply to taxable income in the years in which those 
temporary differences are expected to be recovered or settled.  Under 
Statement 109, the effect on deferred tax assets and liabilities of a change 
in tax rates is recognized in income in the period that includes the 
enactment date.  Deferred assets are recognized for deductible temporary 
differences and operating loss and tax credit carry forwards, and then a 
valuation allowance is established to reduce that deferred tax asset if it is 
"more likely than not" that the related tax benefits will not be realized.  
The Bank adopted Statement 109 and has applied the provisions of the 
statement as of January 1, 1992.   

     Allocation of federal and state income taxes between current and 
deferred portions is as follows:

PAGE 29

<PAGE>

<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                                                        1998                   1997                 1996
                                                ----------------------   -------------------   -----------------
<S>                                             <C>                      <C>                   <C>
Current
     Federal                                    $      49,600            $    171,300          $    78,500
     State                                             43,900                  57,400               35,600
                                                ----------------------   -------------------   -----------------
                                                ----------------------   -------------------   -----------------
                                                       93,500                 228,700              114,100
                                                ----------------------   -------------------   -----------------

Deferred
     Federal                                          (16,800)                (31,400)             (34,000)
     State                                             (2,800)                (21,700)                (100)
                                                ----------------------   -------------------   -----------------
                                                ----------------------   -------------------   -----------------
                                                      (19,600)                (53,100)             (34,100)
                                                ----------------------   -------------------   -----------------
                                                $      73,900            $    175,600          $    80,000
                                                ----------------------   -------------------   -----------------
                                                ----------------------   -------------------   -----------------
</TABLE>

         A reconciliation of the statutory federal income tax rate and the 
effective tax rate on (loss) income follows:
<TABLE>
<CAPTION>

                                                         1998                 1997                 1996
                                                    ------------------    ------------------   ------------------
<S>                                                 <C>                   <C>                  <C>
Statutory federal tax rate                                   34.0  %              34.0  %              34.0  %
State franchise                                               7.2                 10.8                 11.3
Municipal bond income                                       (25.6)                 ---                  ---
Utilization of general business credits                       ---                 (1.1)               (10.8)
Decrease in deferred tax asset
     valuation allowance                                      ---                  ---                 (7.2)
                                                    ------------------    ------------------   ------------------
Effective tax rates                                          15.6 %               43.7 %               27.3 %
                                                    ------------------    ------------------   ------------------
                                                    ------------------    ------------------   ------------------
</TABLE>

         The Corporation has applied all unused general business tax credit 
carryforwards for financial reporting and income tax purposes.

         The components of the net deferred tax asset, included in other 
assets, are as follows:
<TABLE>
<CAPTION>
                                                              1998                    1997
                                                        ------------------       ----------------
<S>                                                     <C>                      <C>      
           
Deferred tax asset
  Federal                                                 $       173,800           $    161,600
  State                                                            58,200                 66,700
                                                          ----------------          -------------
Net deferred tax asset                                    $       232,000           $    228,300
</TABLE>

PAGE 30

<PAGE>

The components of the net deferred tax asset, included in other assets, are 
as follows:
<TABLE>
<CAPTION>
                                                                  1998                 1997
                                                             ---------------      ---------------
<S>                                                          <C>                  <C>
Deferred tax asset
     Accrual to cash adjustments                                   142,600        $     216,600
     Investments:
       Net unrealized (gain) loss on
          securities available for sale                            (17,000)             (59,800)
     State franchise tax                                            29,600              (22,700)
     Allowance for loan losses                                      94,200               74,900
     Depreciation                                                  (17,400)              19,300
                                                             ---------------      ---------------
          Net deferred tax asset                                   232,000              228,300
</TABLE>

     Management has evaluated the deferred tax asset recognized under 
Statement 109.  As of December 31, 1998 and 1997 management expects all 
temporary differences to be offset against future taxable income, and no 
valuation allowance was deemed necessary.  
     
LOANS

     Loans, the largest component of earning assets, represented 66.15% of 
average earning assets, and 53.10% of average total assets during 1998, 
compared with 72.35% and 62.32%, respectively during 1997.  In 1998, average 
loans increased 5.28% from $26,042,000 in 1997 to $27,417,000. Average 
commercial loans increased $1,366,000 (12.53%) and installment loans 
increased $16,000 (3.35%) while average real estate loans decreased $7,000 
(.05%).
     
     Loan policies and procedures provide the overall direction to the 
administration of the loan portfolio.  The Bank's loan underwriting process 
is intended to encourage sound and consistent credit decisions are made.  
Emphasis is placed upon credit quality, the borrower's ability to repay 
through cash flow, secondary, and (occasionally, tertiary) repayment sources, 
and the value of collateral. 

     The Bank's commercial and industrial loans are generally made for the 
purpose of providing working capital, financing the purchase of equipment or 
inventory, and other business purposes. Such loans generally have maturities 
ranging from one year to several years.  Short-term business loans are 
generally intended to finance current transactions and typically provide for 
monthly interest payments with principal being payable at maturity or at 
90-day intervals. Term loans (usually for a term of two to five years) 
normally provide for monthly installments of principal and interest.  The 
Bank from time to time utilizes accounts receivable and inventory as security 
for loans.

PAGE 31

<PAGE>

     The Bank is the recognized leader for Small Business Administration 
lending in Monterey County, and holds SBA's coveted Preferred Lender Status.  
Generally, SBA loans are guaranteed by the SBA for 70 to 80 percent of their 
principal amount, which can be retained in portfolio or sold to investors.  
Such loans are made at floating interest rates, but generally for longer 
terms (up to 25 years) than are available on a conventional basis to small 
businesses.  The unguaranteed portion of the loans, although generally 
supported by collateral, is considered to be more risky than conventional 
commercial loans because they may be based upon credit standards the Bank 
would not otherwise apply, such as lower cash flow coverage, or longer 
repayment terms.

     The Bank's real estate loan portfolio consists both of real estate 
construction loans and real estate mortgage loans.  The Bank has initiated a 
program to generate more commercial and industrial real estate loans, which 
generally yield higher returns than normal commercial loans.  The Bank has 
also developed a broker program for generating residential real estate loans. 
The Bank does not make real estate development loans.  Real estate construction
loans are made for a much shorter term, and often at higher interest rates, 
than conventional single-family residential real estate loans.  The cost of 
administering such loans is often higher than for other real estate loans, as 
principal is drawn on periodically as construction progresses.
     
     The Bank also makes real estate loans secured by a first deed of trust 
on single family residential properties and commercial and industrial real 
estate. California commercial banks are permitted, depending on the type and 
maturity of the loan, to lend up to 90 percent of the fair market value of 
real property (or more if the loan is insured either by private mortgage 
insurers or governmental agencies).  In certain instances, the appraised 
value may exceed the actual amount which could be realized on foreclosure, or 
declines in market value subsequent to making the loan can impair the Bank's 
security.

     Consumer loans are made for the purpose of financing the purchase of 
various types of consumer goods, home improvement loans, auto loans and other 
personal loans.  Consumer installment loans generally provide for monthly 
payments of principal and interest, at a fixed rate.  Most of the Bank's 
consumer installment loans are generally secured by the personal property 
being purchased.  The Bank generally makes consumer loans to those customers 
with a prior banking relationship with the Bank.

     The following table presents the composition of the loan portfolio, 
including loans held for sale, at December 31 for the last five years.

PAGE 32

<PAGE>
<TABLE>
<CAPTION>

                                                                            Years Ended December 31,                

                                                        1998           1997         1996          1995          1994
                                                     --------------------------------------------------------------------
                                                                             (Dollars in thousands)
<S>                                                  <C>               <C>          <C>           <C>            <C>   
Commercial and industrial                                 12,084        10,843       10,120       10,059          9,083
Real estate, construction                                    356           347        ---           ---            ---
Real estate, mortgage                                     15,294        13,921       14,336       11,246         13,528
Installment                                                  390           520          583          888          1,241
Government guaranteed
     loans purchased                                         159           284          307          328            343
                                                     -------------------------------------------------------------------
                                                          28,282        25,914       25,346       22,521         24,195
Less:
    Allowance for possible loan losses                      (336)         (269)        (254)        (225)          (245)
    Deferred origination fees, net                           (32)          (40)         (37)         (27)           (32)
                                                     -------------------------------------------------------------------

     Net Loans                                            27,914        25,606       25,056       22,270         23,918
                                                     -------------------------------------------------------------------
                                                     -------------------------------------------------------------------
</TABLE>

PAGE 33

<PAGE>

NON-PERFORMING AND NON-ACCRUAL LOANS

     The Bank's present policy is to cease accruing interest on loans which are
past due as to principal or interest 90 days or more, except for loans which are
well secured or when collection of interest and principal is deemed likely. 
When a loan is placed on non-accrual, previously accrued and unpaid interest is
generally reversed out of income unless adequate collateral from which to
collect the principal of, and interest on, the loan appears to be available.


     The following table presents information with respect to loans which, as of
the dates indicated, were past due 90 days or more or were placed on non-accrual
status (referred to collectively as "non-performing loans"):

<TABLE>
<CAPTION>
                                                                         As of December 31,  
                                                  ---------------------------------------------------------------
                                                   1998          1997           1996          1995          1994
                                                  ------        ------         ------        ------        ------
                                                                       (Dollars in thousands)
<S>                                               <C>           <C>            <C>           <C>           <C>
Accruing, past due 90 days or more:

Real Estate                                           63           134            209             0             0
Commercial                                             0             0             14             0             0
Installment                                            0             0              0             0             0
                                                  ------        ------         ------        ------        ------
    Total accruing                                    63           134            223             0             0

Nonaccrual Loans:

Real Estate                                            0             0              0             0             0
Commercial                                            57            55             35            31           170
Installment                                            0            21             23             0            33
                                                  ------        ------         ------        ------        ------
    Total non-accrual                                 57            76             58            31           203

    Total non-performing                             120           210            281            31           203

Total loans end of period                         28,282        25,914         25,346        22,521        24,195

Ratio of non-performing loans
    to total loans at end of period                 0.42          0.81           1.11          0.14          0.84%
</TABLE>

         The low level of non-performing loans is the result of underwriting 
criteria intended to be conservative, frequent review of new and delinquent 
loans and a firm collection policy (with the assistance of outside legal 
counsel).  The Bank does not have any foreign loans or loans for highly 
leveraged transactions.

PAGE 34
<PAGE>

SUMMARY OF LOAN LOSS EXPERIENCE

<TABLE>
<CAPTION>
                                                                      For the Years ended December 31,
                                                      ---------------------------------------------------------------
                                                       1998          1997           1996          1995          1994
                                                      ------        ------         ------        ------        ------
                                                                           (Dollars in thousands)
<S>                                                   <C>           <C>            <C>           <C>           <C>
Average loans
    outstanding                                       27,414        26,042         24,647        26,663        24,631

Allowance, beginning
    of period                                            269           254            225           245           255

Loans charged off during period:
    Commercial                                            69           101             39           147            41
    Installment                                            5             5              5            12             4
    Real Estate                                            2             0              0             0             0
    Other                                                  0             0              1             0             0
                                                      ------        ------         ------        ------        ------
    Total charged off                                     75           106             45           159            45

Recoveries during period:
    Commercial                                            12             1              8            13             2
    Installment                                            1             1             13             6             4
    Other                                                  0             0              0             0             0
                                                      ------        ------         ------        ------        ------
    Total recoveries                                      13             2             21            19             6

Net Loans charged off
    during the period                                     63           104             24           140            39

Additions to allowance for
    possible loan losses                                 130           120             53           120            30

Allowance, end of period                                 336           269            254           225           246

Ratio of net loans charged
    off to average Loans
    outstanding during the
    period                                             0.23%         0.40%          0.10%         0.53%           0.16%

Ratio of allowance to total
    at end of period                                   1.18%         1.04%          1.01%         1.00%           1.01%
</TABLE>

PAGE 35
<PAGE>

FUNDING SOURCES

     Average deposits increased 10.73% to $39,958,000 in 1998 from $36,085,000
in 1997.  In 1998 the mix of deposits changed as average certificates of deposit
increased 4.82%, average demand deposits increased 23.09% and average interest
checking, money market and savings accounts as a group increased 12.96%. 
Average certificates of deposit represented 50.28% of average deposits in 1998
compared with 53.12% in 1997.  Average interest checking, money market and
savings accounts as a group were 26.72% of average deposits in 1998 compared
with 26.19% in 1997.  Average demand deposits represented 23.01% of average
deposits in 1998 compared with 20.69% in 1997.

     The Bank has a lines of credit from the Federal Home Loan Bank of San
Francisco with a maximum borrowing limit on December 31, 1998 of $4,605,000 and
a $1,000,000 unsecured federal funds purchased line from the Pacific Coast
Bankers' Bank.  The Federal Home Loan Bank line of credit is secured by certain
of the Bank's real estate secured loans and investment securities.  At December
31, 1998 the Bank had four $1,000,000 advances which bear interest at 6.53%,
4.83%, 6.81% and 6.36%, respectively.  The advances mature in June 2000, October
2003, June 2004 and January 2028, respectively.  Management believes that these
advances provide funds at a lower cost than comparable deposits.  The Bank did
not utilize any short term borrowings in 1998, 1997 or 1996.


CAPITAL RESOURCES

     The Corporation maintains capital to comply with legal requirements, to
provide a margin of safety for its depositors and stockholders, and to provide
for future growth and the ability to pay dividends.  At December 31, 1998,
stockholders' equity was $3,434,600 versus $3,030,200  at December 31, 1997. 
The Corporation issued a 10% stock dividend in 1998 and paid cash dividends of
$.12 and $.11 per share in 1997 and 1996, respectively.  The Bank paid cash
dividends totaling $50,000, $170,000 and $150,000 to the Corporation in 1998,
1997 and 1996, respectively.

     The FDIC and Federal Reserve Board have adopted capital adequacy 
guidelines for use in their examination and regulation of banks and bank 
holding companies. If the capital of a bank or bank holding company falls 
below the minimum levels established by these guidelines, it may be denied 
approval to acquire or establish additional banks or non-bank businesses, or 
the FDIC or Federal Reserve Board may take other administrative actions.  The 
guidelines employ two measures of capital:  (1) risk-based capital and (2) 
leverage capital.

     In general, the risk-based capital guidelines provide detailed definitions
of which obligations will be treated as capital, and assign different weights to
various assets and off-balance sheet items, depending upon the perceived degree
of credit risk associated with each asset.  Each asset is assigned to one of
four risk-weighted categories.  For example, 0 percent for cash and
unconditionally guaranteed government securities; 20 percent for deposits with
other banks and fed funds; 50 percent for state bonds and certain residential
real estate loans; and 100 percent for 

PAGE 36
<PAGE>

commercial loans and other assets. Capital is categorized as either Tier 1 
capital, consisting of common stock and retained earnings (or deficit), or 
Tier 2 capital, which includes limited-life preferred stock and allowance for 
loan losses (subject to certain limitations). The guidelines also define and 
set minimum capital requirements (risk-based capital ratios) which increased 
over a transition period ended December 31, 1992.  Under the final 1992 
rules, all banks were required to maintain Tier 1 capital of at least 4 
percent and total capital of 8.0% of risk-adjusted assets. The Corporation 
had a Tier 1 capital ratio of 10.00% and 10.26% at December 31, 1998 and 
1997, respectively, and a total risk-based capital ratio of 10.90% and 11.20% 
at December 31, 1998 and 1997, respectively. 

     The leverage capital ratio guidelines require a minimum leverage capital
ratio of 3% of Tier 1 capital to total assets less goodwill.  The Corporation
had a leverage capital ratio of 7.60% and 6.63% at December 31, 1998 and 1997,
respectively.

LIQUIDITY

     Liquidity represents a bank's ability to provide sufficient cash flows or
cash resources in a manner that enables it to meet obligations in a timely
fashion and adequately provides for anticipated future cash needs.  For the
Bank, liquidity considerations involve the capacity to meet expected and
potential requirements of depositors seeking access to balances and to provide
for the credit demands of borrowing customers.  In the ordinary course of the
Bank's business, funds are generated from the repayment of loans, maturities
within the investment securities portfolio and the acquisition of deposit
balances and short-term borrowings.  In addition, the Bank has a lines of credit
from the Federal Home Loan Bank of San Francisco of approximately $4,605,000 and
a $1,000,000 federal funds line of credit with the Pacific Coast Bankers' Bank
to meet temporary liquidity requirements.

     As a matter of policy, the Bank seeks to maintain a level of liquid assets,
including marketable investment securities, equal to a least 15 percent of total
assets ("primary liquidity"), while maintaining sources of secondary liquidity
(borrowing lines from other institutions) equal to at least an additional 10
percent of assets.  In addition, it seeks to generally limit loans to not more
than 90 percent of deposits.  Within these ratios, the Bank generally has excess
funds available to sell as federal funds on a daily basis, and is able to fund
its own liquidity needs without the need of short-term borrowing.  The Bank's
primary liquidity at December 31, 1998, 1997 and 1996 was 23.92 percent, 23.46
percent, and 30.27 percent respectively, while its average loan to deposit ratio
for such years was 68.61 percent, 72.17 percent and 75.03 percent respectively.

     Brokered deposits are deposit instruments, such as certificates of deposit,
deposit notes, bank investment contracts and certain municipal investment
contracts that are issued through brokers and dealers who then offer and/or sell
these deposit instruments to one or more investors.  Additionally, deposits on
which a financial institution pays an interest rate significantly higher than
prevailing rates are considered to be brokered deposits.  Federal law and
regulation restricts banks from soliciting or accepting brokered deposits,
unless the bank is well capitalized under Federal guidelines.  The Bank does not
have any brokered deposits. 

PAGE 37
<PAGE>

     Management of interest rate sensitivity (asset/liability management)
involves matching and repricing rates of interest-earning assets with
interest-bearing liabilities in a manner designed to optimize net interest
income within the constraints imposed by regulatory authorities, liquidity
determinations and capital considerations.  The Bank instituted formal
asset/liability policies at the end of 1989.

     The purpose for asset/liability management is to provide stable net
interest income growth by protecting the Bank's earnings from undue interest
rate risk.  The Bank expects to generate earnings from increasing loan volume,
appropriate loan pricing and expense control and not from trying to accurately
forecast interest rates.  Another important function of asset/liability
management is managing the risk/return relationships between interest rate risk,
liquidity, market risk and capital adequacy.  The Bank gives priority to
liquidity concerns followed by capital adequacy, then interest rate risk and
market risk in the investment portfolio.  The policy of the Bank will be to
control the exposure of the Bank's earnings to changing interest rates by
generally maintaining a position within a narrow range around an "earnings
neutral position." An earnings neutral position is defined as the mix of assets
and liabilities that generate a net interest margin that is not affected by
interest rate changes.  However, Management does not believe that the Bank can
maintain a totally earnings neutral position.  Further, the actual timing of
repricing of assets and liabilities does not always correspond to the timing
assumed by the Bank for analytical purposes.  Therefore, changes in market rates
of interest will generally impact on the Bank's net interest income and net
interest margin for long or short periods of time.

     The Bank monitors its interest rate risk on a quarterly basis through the
use of a model which calculates the effect on earnings of changes in the fed
funds rate.  The model converts a fed funds rate change into rate changes for
each major class of asset and liability, then simulates the bank's net interest
margin based on the bank's actual repricing over a one year period, assuming
that maturities are reinvested in instruments identical to those maturing during
the period.  At December 31, 1998 the affect of a 2% increase in the fed funds
rate, expressed as a percentage of equity, was a positive 7.1%, while a 2%
decrease in the fed funds rate was a negative 7.3% of equity. 

     The Corporation has no sources of revenues or liquidity other than
dividends, tax equalization payments or management fees from the Bank.  The
ability of the Bank to pay such items to the Corporation is subject to
limitations under state and Federal law.



PAGE 38
<PAGE>

INVESTMENT SECURITIES

     The following table sets forth the book and market value of the Bank's
investment securities as of December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                    INVESTMENT PORTFOLIO MIX
                                                                      (Dollars in thousands)
                                                                 1998                       1997 
                                                          -----------------------------------------------
                                                          Book         Market       Book           Market
                                                          value         value       value          value
<S>                                                       <C>           <C>         <C>            <C>
Available for sale:
Federal Home Loan Bank Stock                                541           541         330            330
Pacific Coast Bankers'
     Bank Stock                                             150           150         150            150
                                                          -----         -----       -----          -----

Total                                                       691           691         480            480
                                                          -----         -----       -----          -----
                                                          -----         -----       -----          -----

Held to maturity:
U.S. Treasury securities                                    ---           ---         500            501
State and Local Agencies                                  4,765         4,788         ---            ---
U.S. Government Agencies                                  1,501         1,517       4,995          5,000
                                                          -----         -----       -----          -----

Total                                                     6,265         6,305       5,495          5,501
                                                          -----         -----       -----          -----
                                                          -----         -----       -----          -----
</TABLE>

         The following table summarizes the maturity of the Bank's investment
securities at December 31, 1998:

<TABLE>
<CAPTION>
                                                                INVESTMENT PORTFOLIO MATURITIES
                                                                     (Dollars in thousands)
                                                              over 1         over 5
                                                 1 year        thru           thru        over 10
                                                 or less      5 years        10 years       years         Total
                                                 -------      -------        --------       -----         -----
<S>                                              <C>           <C>            <C>           <C>           <C>
State and Local Agencies                           ---           ---            500         1,000         1,500

U.S. Government Agencies                           ---           ---            ---         4,765         4,765

Federal Home Loan Bank Stock                       541           ---            ---           ---           541
Pacific Coast Bankers' Bank Stock                  150           ---            ---           ---           150
                                                 -----         -----          -----         -----         -----
Total                                              691             0            500         5,765         6,956
                                                 -----         -----          -----         -----         -----
                                                 -----         -----          -----         -----         -----
</TABLE>

PAGE 39
<PAGE>

YEAR 2000

     As we approach the year 2000 we are addressing a critical issue 
concerning computer systems, both hardware operating systems and software 
programs.  The issue involves the ability of systems to recognize date values 
on and after January 1, 2000.  Many operating systems and software programs 
were written to recognize two digit year date values, i.e. 98 in the year 
field represents 1998. As a result some systems and programs may recognize 00 
in a date field as the year 1900 rather than 2000.  This issue affects all 
users of computer systems, not just financial institutions.

     The Company has established a plan of action designed to ascertain the 
actions necessary to address the "Year 2000" issue.  The Company has 
completed testing of the hardware and operating systems under its direct 
control; two older personal computers failed the tests and have been 
replaced.  The testing of mission critical systems provided by outside 
service providers is scheduled to be completed by second quarter of 1999.  
The Company continues developing and reviewing contingency plans for mission 
critical systems.  All current and prospective borrowers, who may be impacted 
by the Year 2000 problem, have been/will be asked to complete a questionnaire 
regarding their Year 2000 readiness.  In addition, efforts are being made to 
increase the awareness level of all customers through direct mailings and 
messages printed on bank statements and notice forms.  The Company's Year 
2000 expense in 1998 was $28,800, and $38,400 has been budgeted for 1999. 

     Even with all of the Company's preparation, there can be no assurance that
problems will not arise which could have an adverse impact due to the
complexities involved in resolving the Year 2000 problem and the fact that
systems of other companies which the Company may rely on must corrected be in a
timely manner.  Delays or failures in correcting Year 2000 system problems of
other companies could have an adverse impact upon the Company and its ability to
mitigate the risk of adverse impact of Year 2000 problems for its customers.  






PAGE 40
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

        The following consolidated financial statements included in the
Consolidated Financial Report issued by Hutchinson and Bloodgood LLP, Certified
Public Accountants at the pages indicated are incorporated herein by reference:


<TABLE>
<S>                                                                                      <C>
        Independent Auditors' Report on the Financial Statements                            1
     
        Consolidated Balance Sheets at December 31, 1998 and 1997                           2

        Consolidated Statements of Operations for each of the three years
        in the period ended December 31, 1998                                             3-4

        Consolidated Statements of Changes in Stockholders' Equity for
        each of the three years in the period ended December 31, 1998                       5

        Consolidated Statements of Cash Flows for each of the three years
        in the period ended December 31, 1998                                             6-7

        Notes to Consolidated Financial Statements                                       8-31
</TABLE>


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND 
          FINANCIAL DISCLOSURE

        The Company had no disagreements with its independent accountants on any
matter of accounting principles, practices or financial statement disclosure
during 1998, 1997 or 1996.






PAGE 41
<PAGE>

                                      PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     The name, age, title and five-year business background of each director, 
executive officer and significant employee of the Corporation (including the 
Bank) as of December 31, 1996, are as follows:

<TABLE>
<CAPTION>
Name & Position with Bank                      Age   Principal Occupation During Past Five Years
-------------------------                      ---   -----------------------------------------------------------
<S>                                            <C>   <C>
Charles T. Chrietzberg, Jr.                     57   Chairman of the Board & Chief Executive Officer of
  Director since 1985,                               Monterey County Bank since 3/87
  Chairman of the Board, President
  & Chief Executive Officer

Sandra G. Chrietzberg                           55   Formerly President and CEO Queen of Chardonnay, Inc.,
   Director, 1988 to 1994 and                        dba La Reina Winery 8/84-12/93
   since 1995

Peter J. Coniglio, Esq.                         69   Partner - Hudson, Martin, Ferrante & Street, Monterey
  Director since 1976

Carla S. Hudson, CPA                            45   Partner - Huey and Hudson, Certified Public Accountants
  Director since 1994

John M. Lotz                                    57   President and Chief Executive Officer, of Couroc of Monterey
  Director since 1991                                since 1996.  Real estate developer 1991 - 1996.

Ronald J. Keenan                                55   Vice President, Chief Lending Officer of Monterey County
  Senior Vice President,                             Bank since 1998, Vice President Union Bank of California
  Chief Lending Officer                              from 6/98 to 10/98, Retail Management from 1/93 to 6/98.

Bruce N. Warner                                 51   Senior Vice President, Chief Financial Officer and Chief
  Senior Vice President,                             Operating Officer of Monterey County Bank since 1993;
  Chief Financial Officer
  and Chief Operating Officer

PAGE 42

<PAGE>

Andre G. Herrera                                34   Vice President, Corporate Secretary of Monterey County
  Vice President,                                    Bank since 1/96; Vice President, Manager Management
  Corporate Secretary                                Information Systems and Merchant Services since 2/94,
                                                     Assistant Vice President, Merchant Services 2/93,
                                                     Merchant Services Representative 1/92.

Mary Ellen Stanton                              61   Senior Vice President, Loan Administration, Monterey County
  Senior Vice President                              Since 10/98.
                                                     Vice President, Loan Administration, Monterey County
                                                     Bank 10/88.
</TABLE>

     Directors of the Corporation serve in similar capacities with the Bank. 
Executive officers of the Bank (except for Mr. Keenan and Mrs. Stanton) serve 
in similar capacities with the Corporation, although the limited operations 
of the Corporation do not require significant amounts of their time.  There 
are no family relationships among the persons listed above, except that Mr. 
and Mrs. Chrietzberg are spouses and Mr. Herrera is Mr. and Mrs. 
Chrietzberg's son-in-law.

     Based solely upon a review of the relevant forms furnished to the Bank 
and the Corporation, except as disclosed below, the Corporation believes that 
all officers, directors and principal shareholders filed appropriate forms as 
required by Section 16(a) of the Exchange Act, and related regulations, 
during 1998.

ITEM 10. EXECUTIVE COMPENSATION

     The following tables sets forth certain information regarding the 
compensation paid to the only executive officer of the Corporation/Bank whose 
salary and bonus exceeded $100,000 for 1998.
<TABLE>
<CAPTION>
                                            Annual Compensation                    Long Term Compensation Awards
                                       -----------------------------------   -----------------------------------------
                                                                 Other        Restricted   Securities         All     
                                                                 Annual         Stock      Underlying        Other    
Name & Principal Position        Year    Salary     Bonus     Compensation      Award     Options/SARs    Compensation
-----------------------------------------------------------------------------------------------------------------------------
<S>                              <C>     <C>        <C>       <C>             <C>         <C>             <C>          
Charles T. Chrietzberg, Jr.      1998    $156,020   $160,000      $5,343 (1)     None        25,000          $2,199 (2)
Chairman, President & CEO        1997     150,938   $160,000      $5,197 (1)     None         None           $7,530 (2)
                                 1995     164,360    130,000       3,555 (1)     None         None           16,088 (2)

Bruce N. Warner                  1998      74,254     28,358        None         None         5,000            None
Senior Vice President,           1997      67,268     18,020        None         None        10,000            None
Chief Financial Officer,         1996      61,147     15,000        None         None         None             None
Chief Operating Officer
</TABLE>
(1)  Represents personal use of company automobile and insurance premiums on
     life insurance policy as described below.
(2)  Represents the expense accrued in the Salary Continuation Plan as more
     fully described in the Long Term Incentive Plan Table.

PAGE 43

<PAGE>

     Until June 1, 1990 the Bank furnished certain executive officers with a 
taxable car allowance.  The Bank discontinued car allowances on June 1, 1990 
and purchased a bank owned automobile for the use of its Chief Executive 
Officer (the value of his personal use of the automobile is included above).  
The Bank furnishes, on a non-discriminatory basis, to the employees: (i) 
insurance benefits; and  (ii) other benefits.  The value of these benefits 
(excluding non-discriminatory plan benefits) was less than the lesser of 
$25,000 or ten percent of the compensation shown above for the respective 
persons or group, and is not included in the table.

     The Board of Directors authorized the Bank to enter into a three year 
employment contract with Mr. Chrietzberg, effective January 1, 1997.  It 
provides for a base salary of $150,000 per year, a Bank furnished automobile 
or automobile allowance, and a bonus based on profits.  The minimum bonus, 
not to exceed $160,000 annually, will equal $10,000 for each 0.1 percent that 
the Bank's profits exceed 0.8 percent return on average assets plus $10,000 
for each 1 percent that the Bank's return on equity exceeds 9.0 percent.  
Under the terms of the contract, if Mr. Chrietzberg is terminated other than 
for cause (as defined in the contract), he is entitled to severance 
compensation for his monthly salary plus a pro rated incentive bonus for the 
lesser of 24 months or the remaining term of his contract (which ends in 
December, 1999); however, if the termination follows within six (6) months 
after a change in control transaction (as defined in the contract), he is 
entitled to such severance compensation for the greater of 24 months or the 
remainder of the term of the contract.  In addition, the Bank provides Mr. 
Chrietzberg with insurance on his life, owned by the Bank but payable to his 
beneficiary, in the amount of $1,000,000 in excess of the amounts provided on 
a non-discriminatory basis to other employees.  Mr. Chrietzberg's beneficiary 
has agreed to reimburse the Bank out of the proceeds of such policy an amount 
equal to the greater of the cash value of such policy at the time of Mr. 
Chrietzberg's death, or the amount of premiums paid by the Bank.

     The following tables set forth certain information regarding the long 
term incentive plans provided for Mr. Chrietzberg.
<TABLE>
<CAPTION>
                                            Performance or                     Estimated Future Payouts under 
                  Number of                 Other Period                         Non-Stock Price-Based Plans  
                  Shares, Units             Until                             --------------------------------
                  or Other Rights           Maturation or                       Threshold  Target     Maximum 
Name                  (#)                   Payment                             ($ or #)  ($ or #)    ($ or #)
----                  ---                   -------                             --------  --------    --------
<S>               <C>                       <C>                                <C>        <C>         <C>     
Charles T.          Salary                  Retirement at age 65, subject        None        None      75,000/yr.
Chrietzberg, Jr.    Continuation            to provisions for earlier payout                             15 years
                    Agreement               described below
</TABLE>

     In December, 1993, the Board of Directors approved a Salary Continuation 
Agreement for the benefit of Mr. Chrietzberg that provided for payments of 
$75,000 per year, for 15 years, if he remains with the Bank until normal 
retirement, commencing age 65.  After consideration of the impact of such an 
agreement on the Bank's income, the Bank amended the Agreement to provide for 
one half the original benefit amounts, but adopted Surviving Income 
Agreements which 

PAGE 44

<PAGE>

provide benefits upon the death of the executive to his beneficiary in a 
single payment, in an amount equal to the retirement benefit.  The Salary 
Continuation Agreement provides for lesser payments in the event of early 
retirement, generally designated to coincide with increases in the 
anticipated surrender value for the life insurance policies described below.  
The Bank's obligations under the Salary Continuation Agreement are not 
secured by any segregated amounts, but are informally funded by the purchase 
of single-premium life insurance policies.  The salary continuation expense 
accrued in 1998, 1997 and 1996 was $2,199, $7,530 and $11,776, respectively.  
Based upon the current projected earnings of the insurance used to fund the 
Bank's obligations under the Agreement, and the anticipated salary 
continuation expense to be booked, net of tax benefits, the Bank anticipates 
(based upon current tax laws and assumptions regarding the yield on 
alternative investment(s) that the cost of the benefits to be provided under 
the agreement will not have a material adverse impact on the Bank's net 
income after taxes in the future, although no assurance can be given in this 
regard.  Additionally, since the Surviving Income Agreement has been adopted 
to provide part of the benefits upon the death of the executive, the total 
amount of payout can not be precisely determined.  However, the information 
represents the best estimate of Management based on the terms of the plan.

     The following table sets forth certain information concerning the grant 
of stock options under the Corporation's 1998 Amended Stock Option Plan to 
the named executive officer during the year ended December 31, 1998.
<TABLE>
<CAPTION>
                       Option/SAR Grants in Last fiscal Year

                                    Number of               Percent of
                                   Securities             total options/
                                   Underlying              SARs granted            Exercise or
                                  Options/Sars             to employees            base price         Expiration
            Name                   granted (#)            in fiscal year             ($/Sh)              date
-----------------------------  --------------------   -----------------------   ------------------  ----------------
<S>                            <C>                    <C>                       <C>                 <C>             
Charles T. Chrietzberg, Jr.          25,000                   39.68%                  3.30              10/1/03
Kevin N. Quinn                        5,000                    7.94%                  3.00              10/1/03
Bruce N. Warner                       5,000                    7.94%                  3.00              10/1/03
Andre G. Herrera                      5,000                    7.94%                  3.00              10/1/03
Mary Ellen Stanton                    5,000                    7.94%                  3.00              10/1/03
</TABLE>

PAGE 45

<PAGE>

     The following table sets forth the number of shares of Common Stock 
acquired by each of the named executive officers upon exercise of stock 
options during 1998, the net value realized upon exercise, the number of 
shares of common Stock represented by outstanding stock options held by each 
of the named executive officers as of December 31, 1998 and the value of  
such options based on the last transaction in 1998, which the Corporation has 
knowledge of, and certain information concerning unexercised options under 
the 1998 Stock Option Plan. 
<TABLE>
<CAPTION>
                 Aggregated Option/Sar Exercises in Last Fiscal Year
                            and FY-End Options/Sar Values

                                                                                                Value of
                                                               Number of                       Unexercised
                                                              Unexercised                     in-the-Money
                             Shares                          Options/SARs at                 Options/SARs at
                           Acquired on       Value              FY-End(#)                      FY-End ($)
         Name              Exercise (#)   Received ($)   Exercisable  Unexercisable    Exercisable  Unexercisable
-----------------------    -----------    ------------   -----------  -------------    -----------  -------------
<S>                        <C>            <C>            <C>          <C>              <C>          <C>
Charles T. Chrietzberg, Jr.  None            None          93,500         None           66,000         None
Kevin N. Quinn               None            None           7,700         None            2,585         None
Bruce N. Warner              None            None          22,000         None           11,000         None
Mary Ellen Stanton           None            None          16,500         None            8,250         None
Andre G. Herrera             None            None          16,500         None            8,250         None
</TABLE>

     In 1998, each director received a standard fee of $500 per regular board 
meeting attended and $150 for each committee meeting attended.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     To the knowledge of the management of the Company, the following 
shareholders own more than five percent (5%) of the outstanding common stock 
of the Company, its only class of voting securities.
<TABLE>
<CAPTION>
                                                    Amount and Nature of         Percent of
  Name and Address                                  Beneficial Ownership           Class
  ----------------                                  --------------------           ------
<S>                                                 <C>                          <C>
Charles T. Chrietzberg, Jr.                              453,311 (1)                43.85
P.O. Box 1344
Carmel, CA  93921

David S. Lewis, Trust                                    121,000                    12.87
30500 Aurora del Mar
Carmel, CA  93923
</TABLE>

(1)  Includes 93,500 shares subject to employee stock options and 12,580 shares
     held beneficially for Mr. Chrietzberg and Mrs. Chrietzberg in Individual
     Retirement Accounts where voting power is shared with the custodian of the
     account.  275,000 shares of the Common Stock owned by Mr. Chrietzberg are
     pledged to secure a loan from an unaffiliated bank. 

PAGE 46

<PAGE>

     The following table sets forth similar information regarding the 
beneficial ownership, both by numerical holding and percentage interest of 
each of the Company's directors and all of its directors and executive 
officers as a group. All addresses are in care of the Corporation at 601 
Munras Ave. Monterey, CA 93940.
<TABLE>
<CAPTION>
                                                                                    Shares Subject   Percent of
                                               Amt. & Nature           Percent of      to Purchase    Class w/o
           Name and Address                    Ben. Ownership            Class          Option      Option Shares
-----------------------------------------------------------------------------------------------------------------
<S>                                            <C>                      <C>         <C>              <C>
Charles T. Chrietzberg, Jr.                     453,311 (1)(2)(3)        43.85%          93,500        38.26%

Sandra G. Chrietzberg                           453,311 (2)(3)           43.85%          93,500        38.26%

Peter J. Coniglio                                45,897 (4)(5)            4.77%          22,000         2.54%

Carla S. Hudson                                  18,263 (6)               1.91%          13,750         0.48%

John M. Lotz                                     19,250 (7)               2.01%          16,500         0.29%

All directors & executive
officers as a Group                             623,516 (8)              54.38%         206,250        44.37%
</TABLE>

(1)  Includes 93,500 shares subject to his employee stock options.  275,000
     shares of the common Stock owned by Mr. Chrietzberg are pledged to secure a
     loan from an unaffiliated bank.

(2)  The shares include an aggregate of 12,580 shares held beneficially by Mr.
     Chrietzberg and Mrs. Chrietzberg in Individual Retirement Accounts, where
     voting power is also shared with the custodian of the account.

(3)  Includes shares of spouse pursuant to California's community property laws.

(4)  Sole voting power.

(5)  Includes 22,000 shares subject to the respective director's stock options.
     Of the remaining shares 18,122 are held in a family trust controlled by Mr.
     Coniglio, as to which he has sole voting and investment power, while 5,775
     shares are held by Hudson, Martin, Ferrante & Street, a partnership of
     which Mr. Coniglio is the managing partner, with voting and investment
     power.

(6)  Includes 13,750 shares subject to the respective director's stock options. 
     The remaining shares are held jointly with family members, other than 1,100
     shares held in a corporate pension, as to which Ms. Hudson has voting and
     investment power.

(7)  Includes 16,500 shares subject to the respective director's stock options. 
     The remaining shares are held jointly with family members, with shared
     voting and investment power.

(8)  Includes all options included above, plus 60,500 shares subject to options
     held by executive officers who are not also directors.

PAGE 47

<PAGE>

     275,000 shares of the common stock owned by Mr. Chrietzberg are pledged 
to secure a loan from an unaffiliated bank.  Should he default under such 
credit, the shares could be acquired by the lender, or sold pursuant to 
applicable terms of the Uniform Commercial Code, in a transaction that could 
result in a change of control of the Corporation.  Such transaction may 
require approval under provisions of Federal and California change in bank 
control laws.  

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Bank has had, and expects to have in the future, banking 
transactions in the ordinary course of its business with directors, officers, 
principal shareholders and their associates.  Management of the Bank believes 
that these transactions have been (and those in the future are intended to 
be) on substantially the same terms, including interest rates, collateral and 
repayment terms on extensions of credit, as those prevailing at the same time 
for comparable transactions with others and did not involve more than the 
normal risk of collectibility or present other unfavorable features.  
Management does not believe that any such loans are outside the ordinary 
course of business. The following table sets forth information on extensions 
of credit to directors and to directors, principal shareholders and officers.
<TABLE>
<CAPTION>
                                                                                       Outstanding as of
                                                          Maximum                      December 31, 1998
                                                          -------                      -----------------
                                                                Percent of                       Percent of
                                                                  Equity                           Equity
                  Name                            Amount          Capital          Amount          Capital
------------------------------------------      -----------   --------------     ----------    ---------------
<S>                                             <C>           <C>                <C>           <C>           
Peter J. Coniglio                                  90,725         2.96%                  0          0.00%
Carla S. Hudson                                    56,000         1.63%             56,000          1.63%
John M. Lotz                                      119,307         3.66%            108,298          3.15%

Directors, Principal                              271,793         8.87%            167,742          4.88%
Shareholders, and Officers
as a Group (8 in number)
</TABLE>

     During 1998, the law firm of Hudson, Martin, Ferrante & Street, of which 
Mr. Peter J. Coniglio is a partner, performed legal services for the Bank, 
for which the Bank paid $3,045.  The Board of Directors has determined that 
it obtained those legal services at no less favorable rates than could have 
been obtained from a non-affiliated law firm.

PAGE 48

<PAGE>

ITEM 13. EXHIBITS AND REPORTS

A.   EXHIBITS
<TABLE>
<CAPTION>
Item             Description
----             -----------
<S>              <C>
        2        Plan of Merger and Merger Agreement, Monterey County Bank with Monterey
                 County Merger Corporation un the Charter of Monterey County Bank under
                 the Title of Monterey County Bank, joined in by Northern California Bancorp,
                 Inc. dated November 1, 1995.
                 Filed as exhibit to Form 10-KSB dated December 31, 1995.
        3 (i)    Articles of Incorporation
                 Filed as exhibit to Form 10-KSB dated December 31, 1995.
        3 (ii)   Bylaws
                 Filed as exhibit to Form 10-KSB dated December 31, 1995.
       10 (i) D  Lease agreement Carmel Branch Office
                 Filed as exhibit to Form 10-KSB dated December 31, 1995.
       10 (ii) A (1)  Employment Contract of Charles T. Chrietzberg, Jr., dated May 14, 1997
                 Filed as exhibit to Form 10-KSB Dated December 31, 1997
                 (2)  Deferred Compensation Agreement, dated December 31, 1993.
                 Filed as exhibit to Form 10-KSB Dated December 31, 1995.
                 (3)  Northern California Bancorp, Inc. 1998 Stock Option Plan and Stock Option 
                      Agreements
       11        Statement Reference Computation of Per Share Earnings
       21        Subsidiaries
</TABLE>

B.   REPORTS

       None

PAGE 49

<PAGE>

                                  SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant 
caused this report to be signed on its behalf by the undersigned, thereunto 
duly authorized.

                              NORTHERN CALIFORNIA BANCORP, INC.

Date:     MARCH 18, 1999      By:  /s/ CHARLES T. CHRIETZBERG, JR.
                                 ---------------------------------------------
                                   Charles T. Chrietzberg, Jr.
                                   Chief Executive Officer
                                   and President

Date:     MARCH 18, 1999      By:  /s/ BRUCE N. WARNER                        
                                 ---------------------------------------------
                                   Bruce N. Warner
                                   Chief Financial Officer
                                   and Principal Accounting Officer

In accordance with the Exchange Act, this report has been signed by the 
following persons on behalf of the registrant and in the capacities and on 
the dates indicated.

Name                               Position                 Date
----                               --------                 ----

/s/ CHARLES T. CHRIETZBERG, JR.                        March 18, 1999
-----------------------------------                         
Charles T. Chrietzberg, Jr.                                 
Director                                                    
                                                            
/s/ SANDRA G. CHRIETZBERG                              March 18, 1999
-----------------------------------                         
Sandra G. Chrietzberg                                       
Director                                                    
                                                            
/s/ PETER J. CONIGLIO                                  March 18, 1999 
-----------------------------------                         
Peter J. Coniglio                                           
Director                                                    
                                                            
/s/ CARLA S. HUDSON                                    March 18, 1999 
-----------------------------------                         
Carla S. Hudson                                             
Director                                                    
                                                            
/s/ JOHN M. LOTZ                                       March 18, 1999 
-----------------------------------
John M. Lotz                       
Director

PAGE 50


<PAGE>




                                       
                       NORTHERN CALIFORNIA BANCORP, INC.
                                AND SUBSIDIARY
                                       
                         CONSOLIDATED FINANCIAL REPORT

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<PAGE>
                                       
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           PAGE
<S>                                                                        <C>
INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL
  STATEMENTS                                                                 1


FINANCIAL STATEMENTS

  Consolidated Balance Sheets                                                2
  Consolidated Statements of Operations                                    3-4
  Consolidated Statements of Stockholders' Equity                            5
  Consolidated Statements of Cash Flows                                    6-7
  Notes to Consolidated Financial Statements                              8-31
</TABLE>

<PAGE>
                                       
                         [HUTCHINSON AND BLOODGOOD LLP]


                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors
Northern California Bancorp, Inc.
Monterey, California

We have audited the accompanying consolidated balance sheets of Northern 
California Bancorp, Inc. and its wholly owned subsidiary, as of December 31, 
1998 and 1997 and the related consolidated statements of operations, changes 
in stockholders' equity, and cash flows for each of the years in the 
three-year period ended December 31, 1998.  These consolidated financial 
statements are the representation 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 generally accepted auditing 
standards.  Those standards require that we plan and perform the audits to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Northern 
California Bancorp, Inc. and its wholly owned subsidiary, as of December 31, 
1998 and 1997, and the results of their operations and their cash flows for 
each of the years in the three-year period ended December 31, 1998 in 
conformity with generally accepted accounting principles.


                                       /s/ Hutchinson and Bloodgood LLP


January 25, 1999

<PAGE>
                                       
                        NORTHERN CALIFORNIA BANCORP, INC.
                                 AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS
                          DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                                  1998               1997
                             ASSETS
<S>                                                                                           <C>                <C>
Cash and due from banks (Note 2)                                                              $ 12,429,900       $ 11,060,600
Time deposits with other financial institutions                                                    100,000            100,000
Investment securities, available for sale (Note 3)                                                 690,500            480,200
Investment securities, held to maturity (Note 3)                                                 6,265,000          5,495,300
Loans, held for sale                                                                               951,600            543,400
Loans, net (Note 5 and 13)                                                                      26,962,200         25,062,100
Bank premises and equipment, net (Note 6)                                                        1,868,600          1,898,900
Interest receivable and other assets                                                             1,835,600          1,472,100
                                                                                              ------------       ------------
                       Total assets                                                           $ 51,103,400       $ 46,112,600
                                                                                              ------------       ------------
                                                                                              ------------       ------------

              LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
  Demand                                                                                      $  9,897,400       $  8,734,200
  Interest-bearing transaction                                                                   8,960,400          7,483,900
  Savings                                                                                        3,605,100          2,145,300
  Time                                                                                          12,355,300         12,742,700
  Time in denominations of $100,000 or more                                                      8,033,500          8,099,500
                                                                                              ------------       ------------

    Total deposits                                                                              42,851,700         39,205,600

Federal Home Loan Bank borrowed funds (Note 7)                                                   4,000,000          3,000,000
Interest payable and other liabilities                                                             817,100            876,800
                                                                                              ------------       ------------

    Total liabilities                                                                           47,668,800         43,082,400
                                                                                              ------------       ------------

Commitments (Note 9 and 10)

Stockholders' equity (Notes 10, 12, and 14)
  Common stock, no stated par value, authorized: 2,500,000 shares
    issued and outstanding: 940,322 in 1998 and 858,526 in 1997                                  2,962,200          2,716,800
  Retained earnings                                                                                504,400            296,700
  Accumulated other comprehensive income                                                           (32,000)            16,700
                                                                                              ------------       ------------

    Total stockholders' equity                                                                   3,434,600          3,030,200
                                                                                              ------------       ------------

    Total liabilities and stockholders' equity                                                $ 51,103,400       $ 46,112,600
                                                                                              ------------       ------------
                                                                                              ------------       ------------
</TABLE>

         The notes to consolidated financial statements are an integral
                           part of these statements.



                                      -2-

<PAGE>
                                       
                        NORTHERN CALIFORNIA BANCORP, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
                                                                             1998               1997               1996
<S>                                                                      <C>                <C>                <C>
Interest income
  Loans                                                                  $ 2,940,300        $ 2,755,700        $ 2,676,800
  Time deposits with financial institutions                                    6,000              1,000              5,400
  Investment securities                                                      496,500            346,500            117,500
  Federal funds sold                                                         314,100            295,900            340,700
                                                                         -----------        -----------        -----------
    Total interest income                                                  3,756,900          3,399,100          3,140,400
                                                                         -----------        -----------        -----------
Interest expense
  Interest-bearing transaction accounts                                      110,300            120,500            108,300
  Savings and time deposit accounts                                          778,700            797,900            810,800
  Time deposits in denominations of $100,000 or more                         468,700            402,900            331,800
  Federal Home Loan Bank                                                     245,600            125,900             82,700
                                                                         -----------        -----------        -----------
    Total interest expense                                                 1,603,300          1,447,200          1,333,600
                                                                         -----------        -----------        -----------
    Net interest income                                                                                 
                                                                           2,153,600          1,951,900          1,806,800
Provision for loan losses (Note 5)                                           130,000            120,000             52,500
                                                                         -----------        -----------        -----------
    Net interest income, after provision for loan losses                   2,023,600          1,831,900          1,754,300
                                                                         -----------        -----------        -----------
Other income
  Service charges on deposit accounts                                        371,000            328,400            371,700
  Income from sales and servicing of SBA loans (Note 4)                      374,000            324,400            258,900
  Other income                                                               405,500            421,300            352,700
                                                                         -----------        -----------        -----------
    Total other income                                                     1,150,500          1,074,100            983,300
                                                                         -----------        -----------        -----------
Operating expense
  Salaries and employee benefits                                           1,499,100          1,405,100          1,362,400
  Occupancy and equipment expense                                            281,300            251,000            256,000
  Professional fees                                                          107,800             85,400            120,800
  Data processing                                                            192,600            172,300            148,700
  Other general and administrative                                           619,600            590,700            556,300
                                                                         -----------        -----------        -----------
    Total operating expenses                                               2,700,400          2,504,500          2,444,200
                                                                         -----------        -----------        -----------
Income before tax provision                                                  473,700            401,500            293,400
  Income tax provision (Note 8)                                               73,900            175,600             80,000
                                                                         -----------        -----------        -----------
Income before extraordinary item                                             399,800            225,900            213,400
  Extraordinary item - litigation settlement
    (net of income tax expense of $52,700), (Note 17)                         64,400                 --                 --
                                                                         -----------        -----------        -----------

Net Income                                                               $   464,200        $   225,900        $   213,400
                                                                         -----------        -----------        -----------
                                                                         -----------        -----------        -----------
</TABLE>
                                       
                                  (Continued)



         The notes to consolidated financial statements are an integral
                           part of these statements.



                                      -3-

<PAGE>

                        NORTHERN CALIFORNIA BANCORP, INC.
                                 AND SUBSIDIARY

               CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
                 YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
                                                                          1998               1997              1996
<S>                                                                   <C>                <C>                <C>
Earnings per common share (Note 11)

  Basic
    Income before extraordinary item                                  $      0.42        $      0.24        $      0.22
    Extraordinary item                                                       0.07                 --                 --
                                                                      -----------        -----------        -----------
    Net income                                                        $      0.49        $      0.24        $      0.22
                                                                      -----------        -----------        -----------
                                                                      -----------        -----------        -----------

  Diluted
    Income before extraordinary item                                  $      0.36        $      0.20        $      0.19
    Extraordinary item                                                       0.06                 --                 --
                                                                      -----------        -----------        -----------
    Net income                                                                                              
                                                                      $      0.42        $      0.20        $      0.19
                                                                      -----------        -----------        -----------
                                                                      -----------        -----------        -----------
</TABLE>



     The notes to consolidated financial statements are an integral part of 
                                  these statements.



                                      -4-

<PAGE>
                                       
                        NORTHERN CALIFORNIA BANCORP, INC.
                                 AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                                ACCUMULATED
                                                                                                   OTHER
                                             NUMBER OF         COMMON         RETAINED         COMPREHENSIVE
                                              SHARES           STOCK          EARNINGS            INCOME              TOTAL
                                             ---------      -----------      ---------         -------------      -----------
<S>                                          <C>            <C>              <C>               <C>                <C>
Balance at December 31, 1995                  879,465       $ 2,779,600      $   1,600         $     (5,700)      $ 2,775,500
                                                 
  Comprehensive income:
    Net income for the year                        --                --        213,400                   --           213,400
    Change in net unrealized gain
      on securities and other assets
      net of tax effects                           --                --             --                5,700             5,700
                                                                                                                  -----------
        Total comprehensive income                                                                                    219,100
                                                                                                                  -----------

  Cash dividends ($.11 per share)                  --                --        (96,700)                  --           (96,700)
                                             ---------      -----------      ---------         -------------      -----------

Balance at December 31, 1996                  879,465         2,779,600        118,300                   --         2,897,900
                                                                                                                  -----------
  Comprehensive income:
    Net income for the year                        --                --        225,900                   --           225,900
    Change in net unrealized gain
      on securities and other assets
      net of tax effects                           --                --             --               16,700            16,700
                                                                                                                  -----------
        Total comprehensive income                                                                                    242,600
                                                                                                                  -----------
  Cumulative effect of change in
    accounting principle                           --                --         55,500                   --            55,500
  Cash dividends ($.12 per share)                  --                --       (103,000)                  --          (103,000)
  Repurchase of common stock                  (20,939)          (62,800)            --                   --           (62,800)
                                             ---------      -----------      ---------         -------------      -----------
Balance at December 31, 1997                  858,526         2,716,800        296,700               16,700         3,030,200
                                                                                                                  -----------

  Comprehensive income:
    Net income for the year                        --                --        464,200                   --           464,200
    Change in net unrealized gain
      on securities and other assets
      net of tax effects                           --                --             --              (48,700)          (48,700)
                                                                                                                  -----------
        Total comprehensive income                                                                                    415,500
                                                                                                                  -----------
  10% common stock dividend                    85,278           255,800       (256,500)                  --              (700)
  Repurchase of common stock                   (3,482)          (10,400)            --                   --           (10,400)
                                             ---------      -----------      ---------         -------------      -----------
Balance at December 31, 1998                  940,322       $ 2,962,200      $ 504,400         $    (32,000)      $ 3,434,600
                                             ---------      -----------      ---------         -------------      -----------
                                             ---------      -----------      ---------         -------------      -----------
</TABLE>

           The notes to the consolidated financial statements are an
                      integral part of these statements.

                                      -5-

<PAGE>
                                       
                NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
                                                                                1998               1997               1996
<S>                                                                         <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                $    464,200       $    225,900       $   213,400

  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation and amortization expense                                        139,100            135,200           118,400
    Amortization of premiums (discounts) on investment securities                 (2,300)            (2,500)           53,200
    Provision for loan losses                                                    130,000            120,000            52,500
    Amortization of deferred servicing premium                                    13,200             19,100            31,700
    Amortization of deferred gains on SBA loans                                   (4,200)            (4,400)           (4,800)
    Increase (decrease) in other liabilities                                     (81,100)           173,900           (65,900)
    (Increase) decrease in other assets                                         (373,100)           124,500          (165,600)
    Increase in deferred tax asset                                               (19,600)           (53,100)          (34,100)
    Increase (decrease) in interest payable                                       25,600            (39,000)           58,300
    Increase in interest receivable                                              (28,200)           (16,900)          (38,600)
                                                                            ------------       ------------       -----------
  Net cash provided by operating activities                                      263,600            682,700           218,500
                                                                            ------------       ------------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from maturity of time deposits                                             --                 --            99,000
  Purchase of time deposits                                                           --           (100,000)               --
  Proceeds from maturity of investment securities                              3,995,000          2,500,000           697,100
  Principal payments on investment securities                                         --                 --            78,600
  Purchase of investment securities                                           (4,977,300)        (5,675,500)       (2,559,200)
  Net increase in loans                                                       (2,030,100)          (540,600)       (3,215,000)
  (Increase) decrease in loans held for sale                                    (408,200)          (128,900)          375,900
                                                                                      --                 --            12,700
  Additions to Bank premises and equipment                                      (108,700)          (369,900)          (99,000)
                                                                            ------------       ------------       -----------
    Net cash used by investing activities                                     (3,529,300)        (4,314,900)       (4,609,900)
                                                                            ------------       ------------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in deposits                                                     3,646,100          3,038,500         4,979,300
  Advance (repayment) of Federal Home Loan Bank advance                        1,000,000          2,000,000        (1,000,000)
  Repurchase of common stock                                                     (10,400)           (62,800)               --
  Cash dividends paid on common stock                                               (700)          (103,000)          (96,700)
                                                                            ------------       ------------       -----------
    Net cash provided by financing activities                                  4,635,000          4,872,700         3,882,600
                                                                            ------------       ------------       -----------

    Net increase (decrease) in cash and cash equivalents                       1,369,300          1,240,500          (508,800)

CASH AND CASH EQUIVALENTS, BEGINNING                                          11,060,600          9,820,100        10,328,900
                                                                            ------------       ------------       -----------

CASH AND CASH EQUIVALENTS, ENDING                                           $ 12,429,900       $ 11,060,600       $ 9,820,100
                                                                            ------------       ------------       -----------
                                                                            ------------       ------------       -----------
</TABLE>
                                       
              The notes to consolidated financial statements are an
                       integral part of these statements.



                                      -6-

<PAGE>
                                       
                NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996


<TABLE>
<CAPTION>
                                                           1998               1997               1996
<S>                                                    <C>                <C>                <C>
OTHER CASH FLOW INFORMATION

  Interest paid                                        $  1,421,600       $  1,360,300       $  1,281,100
                                                       ------------       ------------       ------------
                                                       ------------       ------------       ------------

  Income taxes paid                                    $    241,500       $     70,000       $    153,400
                                                       ------------       ------------       ------------
                                                       ------------       ------------       ------------
</TABLE>




                                       
              The notes to consolidated financial statements are an
                       integral part of these statements.



                                      -7-

<PAGE>
                                       
               NORTHERN CALIFORNIA BANCORP, INC., AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED DECEMBER 31, 1998 AND 1997


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

          BASIS OF PRESENTATION AND CONSOLIDATION

          The consolidated financial statements include the accounts of Northern
          California Bancorp, Inc. (the "Corporation") and its wholly-owned
          subsidiary, Monterey County Bank (the "Bank").  All significant
          intercompany balances and transactions have been eliminated in
          consolidation.

          USE OF ESTIMATES

          In preparing consolidated financial statements in conformity with
          generally accepted accounting principles, management is required to
          make estimates and assumptions that affect the reported amounts of
          assets and liabilities as of the date of the balance sheet and
          reported amounts of revenues and expenses during the reporting period.
          Actual results could differ from those estimates.  Material estimates
          that are particularly susceptible to significant change in the near
          term relate to the determination of the allowance for loan losses, the
          valuation of foreclosed real estate, and the valuation of deferred tax
          assets.

          BUSINESS

          The Bank provides a variety of financial services to individuals and
          small businesses through its three offices on the Monterey Peninsula. 
          Its primary deposit products are demand and term certificate accounts.
          Its primary lending products are residential, commercial, and SBA
          loans.

          RECLASSIFICATION

          Certain amounts have been reclassified in the 1997 and 1996
          consolidated financial statements to conform to the 1998 presentation.

          CASH AND CASH EQUIVALENTS

          Cash and cash equivalents include amounts due from banks and federal
          funds sold on a daily basis.

          INTEREST-BEARING DEPOSITS IN BANKS

          Interest-bearing deposits in banks mature within one year and are
          carried at cost.



                                      -8-

<PAGE>
                                       
               NORTHERN CALIFORNIA BANCORP, INC., AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED DECEMBER 31, 1998 AND 1997


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          INVESTMENT SECURITIES

          Investments in debt securities that management has the positive intent
          and ability to hold to maturity are classified as "held to maturity"
          and reflected at cost, adjusted for amortization of premiums and
          accretion of discounts, which are recognized as adjustments to
          interest income.  Other marketable securities are classified as
          "available for sale" and are reflected at fair value, with unrealized
          gains and losses excluded from earnings and reported in other
          comprehensive income.  Federal Home Loan Bank and Pacific Coast
          Bankers' Bank stocks are reflected at cost.  Gains and losses on
          disposition are generally recognized on the trade date, based on the
          net proceeds and the adjusted carrying amount of the securities sold
          using the specific identification method.

          SALES AND SERVICING OF SBA LOANS

          The Bank originates loans to customers under the Small Business
          Administration (SBA) program that generally provides for SBA
          guarantees of 70% to 80% of each loan.  The Bank generally sells the
          guaranteed portion of each loan to a third party and retains only the
          unguaranteed portion in its own portfolio.  A gain is recognized on
          these loans through collection on sale of a premium over the adjusted
          carrying value, or through retention of an ongoing rate differential
          less a normal service fee between the rate paid by the borrower to the
          Bank and the rate paid by the Bank to the purchaser (excess servicing
          fee).  In calculating the gain, the Bank assumes that the loans sold
          will be outstanding for one-half of their contractual lives.

          The Bank's investment in an SBA loan is allocated among the retained
          portion of the loan, excess servicing retained, and the sold portion
          of the loan, based on the relative fair market value of each portion
          at the time of loan origination, adjusted for payments and other
          activities.  Because the portion retained does not carry an SBA
          guarantee, part of the gain recognized on the sold portion of the loan
          is deferred and amortized as a yield enhancement on the retained
          portion of the loan.  Excess servicing fees are reflected as an asset
          which is amortized over an assumed half life; in the event future
          prepayments are significant and future expected cash flows are
          inadequate to cover the unamortized excess servicing asset, additional
          amortization is recognized.

          LOANS HELD FOR SALE

          Loans held for sale consist of the portion of loans which are
          guaranteed by the SBA and are carried at the lower of cost or market. 
          Market value for loans guaranteed by the SBA is generally determined
          based on the price at which the loans were committed to be sold on the
          trade date.  Direct loan origination costs are recorded at settlement
          as an adjustment to gain or loss on sale.



                                      -9-

<PAGE>
                                       
               NORTHERN CALIFORNIA BANCORP, INC., AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED DECEMBER 31, 1998 AND 1997


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          LOANS AND LOAN FEES

          The Bank grants mortgage, commercial, and consumer loans to customers.
          A substantial portion of the loan portfolio is represented by mortgage
          loans on the Monterey Peninsula.  The ability of the Bank's debtors to
          honor their contracts is dependent upon the real estate and general
          economic sectors in the area.

          Loans, as reported, have been reduced by undisbursed loan funds, net
          deferred loan fees, and the allowance for loan losses.

          Loan fees, net of direct origination costs, are deferred on all loans
          and recognized over the expected life of the related loans as an
          adjustment of yield.

          ALLOWANCE FOR LOAN LOSSES

          The allowance for loan losses is established through a provision for
          loan losses charged to earnings and is maintained at a level
          considered adequate to provide for reasonably foreseeable loan losses.

          The provision and the level of the allowance are evaluated on a
          regular basis by management and are based upon management's periodic
          review of the collectibility of the loans in light of historical
          experience, known and inherent risks in the nature and volume of the
          loan portfolio, adverse situations that may affect the borrower's
          ability to repay, estimated value of any underlying collateral, and
          prevailing economic conditions.  This evaluation is inherently
          subjective as it requires estimates that are susceptible to
          significant change.  In addition, various regulatory agencies, as an
          integral part of their examination process, periodically review the
          Bank's allowance for losses on loans and other real estate owned.

          Such agencies may require the Bank to recognize additions to the
          allowance based on their judgment of information available to them at
          the time of their examination.  Ultimately, losses may vary from
          current estimates and future additions to the allowance may be
          necessary.

          Loan losses are charged against the allowance when management believes
          the collectibility of the loan balance is unlikely.  Subsequent
          recoveries, if any, are credited to the allowance.



                                      -10-

<PAGE>
                                       
               NORTHERN CALIFORNIA BANCORP, INC., AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED DECEMBER 31, 1998 AND 1997


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          ALLOWANCE FOR LOAN LOSSES (CONCLUDED)

          A loan is considered impaired when, based on current information and
          events, it is probable that a creditor will be unable to collect the
          scheduled payments of principal or interest when due according to the
          contractual terms of the loan agreement.  Factors considered by
          management in determining impairment include payment status,
          collateral value, and the probability of collecting scheduled
          principal and interest payments when due.  Loans that experience
          insignificant payment delays and payment shortfalls generally are not
          classified as impaired. Management determines the significance of
          payment delays and payment shortfalls on a case-by-case basis, taking
          into consideration all of the circumstances surrounding the loan and
          the borrower, including the length of the delay, the reasons for the
          delay, the borrower's prior payment record, and the amount of the
          shortfall in relation to the principal and interest owed.  Impairment
          is measured on a loan by loan basis by either the present value of
          expected future cash flows discounted at the loan's effective interest
          rate, the loan's obtainable market price, or the fair value of the
          collateral if the loan is collateral dependent.  Substantially all of
          the Bank's loans which have been identified as impaired have been
          measured by the fair value of existing collateral.

          Large groups of smaller balance homogeneous loans are collectively
          evaluated for impairment.  Accordingly, the Bank does not separately
          identify individual consumer loans for impairment disclosure.

          LOAN SERVICING

          The Bank has adopted Statement of Financial Accounting Standards
          ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights," as
          superseded by SFAS No. 125, "Accounting for Transfers and Servicing of
          Financial Assets and Extinguishments of Liabilities," whereby rights
          to service mortgage loans for others are capitalized as separate
          assets, whether acquired through purchase or origination, if such
          loans are sold or securitized with servicing rights retained. 
          Accordingly, the total cost of the mortgage loan is allocated to the
          related servicing right and to the loan based on the relative fair
          values if it is practicable to estimate those fair values.

          The Bank estimates fair value based on the present value of estimated
          expected future cash flows using prepayment speeds and discount rates
          commensurate with the risks involved, and servicing costs determined
          on an incremental cost basis.  Prior to the adoption of SFAS No. 122,
          the capitalization of originated mortgage servicing rights was not
          allowed under generally accepted accounting principles.  



                                      -11-

<PAGE>
                                       
               NORTHERN CALIFORNIA BANCORP, INC., AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED DECEMBER 31, 1998 AND 1997


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          LOAN SERVICING (CONCLUDED)

          Capitalized mortgage servicing rights are amortized to servicing
          revenue in proportion to, and over the period of, estimated net
          servicing revenues.  Impairment of mortgage servicing rights is
          assessed based on the fair value of those rights.  For purposes of
          measuring impairment, the rights are stratified based on the following
          predominant risk characteristics of the underlying loans: loan type,
          size, note rate, date of origination, term, and geographic location. 
          Impairment is recognized through a valuation allowance for an
          individual stratum, to the extent that fair value is less than the
          capitalized amount for the stratum.

          BANKING PREMISES AND EQUIPMENT

          Land is carried at cost.  Buildings and equipment are carried at cost,
          less accumulated depreciation computed on the straight-line method
          over the estimated useful lives of the assets.

          It is general practice to charge the cost of maintenance and repairs
          to earnings when incurred; major expenditures for betterments are
          capitalized and depreciated.

          INCOME TAXES

          Deferred tax assets and liabilities are reflected at currently enacted
          income tax rates applicable to the period in which the deferred tax
          assets or liabilities are expected to be realized or settled.  As
          changes in tax laws or rates are enacted, deferred tax assets and
          liabilities are adjusted accordingly through the provision for income
          taxes.  The Bank's base amount of its federal income tax reserve for
          loan losses is a permanent difference for which there is no
          recognition of a deferred tax liability.  However, the loan loss
          allowance maintained for financial reporting purposes is a temporary
          difference with allowable recognition of a related deferred tax asset,
          if it is deemed realizable.



                                      -12-

<PAGE>
                                       
               NORTHERN CALIFORNIA BANCORP, INC., AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED DECEMBER 31, 1998 AND 1997


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          STOCK COMPENSATION PLANS

          The Statement of Financial Accounting Standards ("SFAS") No. 123,
          "Accounting for Stock-Based Compensation."  This Statement encourages
          all entities to adopt a fair value based method of accounting for
          employee stock compensation plans, whereby compensation cost is
          measured at the grant date based on the value of the award and is
          recognized over the service period, which is usually the vesting
          period.  However, it also allows an entity to continue to measure
          compensation cost for those plans using the intrinsic value based
          method of accounting prescribed by APB Opinion No. 25, "Accounting for
          Stock Issued to Employees," whereby compensation cost is the excess,
          if any, of the quoted market price of the stock at the grant date (or
          other measurement date) over the amount an employee must pay to
          acquire the stock.  Stock options issued under the Corporation's stock
          option plan have no intrinsic value at the grant date, and under
          Opinion No. 25 no compensation cost is recognized for them.  Under the
          Corporation's employee stock purchase plan, compensation cost is
          recognized to the extent that the quoted market price of the stock on
          the date of grant exceeds the amount that the employee is required to
          pay.  The Corporation has elected to continue with the accounting
          methodology in Opinion No. 25 and, as a result, must make pro forma
          disclosures of net income, earnings per share, and other disclosures,
          as if the fair value based method of accounting had been applied.  The
          pro forma disclosures include the effects of all awards granted on or
          after January 1, 1995.  (See Note 11.)

          EARNINGS PER SHARE

          Basic earnings per share represents income available to common
          shareholders divided by the weighted-average number of common shares
          outstanding during the period.  Diluted earnings per share reflects
          additional common shares that would have been outstanding if dilutive
          potential common shares had been issued, as well as any adjustment to
          income that would result from the assumed issuance.  Potential common
          shares that may be issued by the Corporation relate solely to
          outstanding stock options, and are determined using the treasury stock
          method. The weighted average number of shares used in the computation
          of basic earnings per share was 942,984 for 1998, 955,878 for 1997 and
          964,743 for 1996.  The weighted average number of shares used in the
          computation of earnings per share assuming dilution of stock options
          was 1,108,686 for 1998, 1,121,983 for 1997 and 1,109,455 for 1996. 
          The 10% stock dividend was retroactively reflected in the 1997 and
          1996 weighted shares.



                                      -13-

<PAGE>
                                       
               NORTHERN CALIFORNIA BANCORP, INC., AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED DECEMBER 31, 1998 AND 1997


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          COMPREHENSIVE INCOME

          The Bank adopted SFAS No. 130, "Reporting Comprehensive Income," as of
          January 1, 1998.  Accounting principles generally require that
          recognized revenue, expenses, gains, and losses be included in net
          income. Although certain changes in assets and liabilities, such as
          unrealized gains and losses on available-for-sale securities, are
          reported as a separate component of the equity section of the balance
          sheet, such items along with net income, are components of
          comprehensive income.  The adoption of SFAS No.130 had no effect on
          the Bank's net income or shareholders' equity.

<TABLE>
<CAPTION>
                                                                            1998              1997            1996
                                                                          --------          --------        --------
<S>                                                                       <C>               <C>             <C>
          Unrealized holding gains (losses) on available-for-sale
            securities                                                    $(88,500)         $ 30,400        $ 10,400
          Tax effect                                                        39,800           (13,700)         (4,700)
                                                                          --------          --------        --------

          Net-of-tax amount                                               $(48,700)         $ 16,700        $  5,700
                                                                          --------          --------        --------
                                                                          --------          --------        --------
</TABLE>


NOTE 2.   CASH AND DUE FROM BANKS

          Aggregate reserves (in the form of cash and deposits with the Federal
          Reserve Bank) of $221,000 were maintained to satisfy federal
          regulatory requirements at December 31, 1998.



                                      -14-

<PAGE>
                                       
               NORTHERN CALIFORNIA BANCORP, INC., AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED DECEMBER 31, 1998 AND 1997


NOTE 3.   INVESTMENT SECURITIES

          The amortized cost and fair value of investment securities, with gross
          unrealized gains and losses, follows:

<TABLE>
<CAPTION>
                                                                                  GROSS             GROSS         
                                                            AMORTIZED          UNREALIZED        UNREALIZED             FAIR
                                                               COST               GAINS             LOSSES             VALUE

                                                           --------------------------DECEMBER 31, 1998------------------------
              <S>                                          <C>                 <C>               <C>               <C>
              SECURITIES AVAILABLE FOR SALE
                Federal Home Loan Bank                     $   540,600         $        -        $        -        $   540,600
                Pacific Coast Banker's
                  Bank Stock                                   149,900                  -                 -            149,900
                                                           -----------         ----------        ----------        -----------

                    Total securities available
                      for sale                             $   690,500         $        -        $        -        $   690,500
                                                           -----------         ----------        ----------        -----------
                                                           -----------         ----------        ----------        -----------

              SECURITIES HELD TO MATURITY
                State and Local agencies                   $ 4,764,800         $   23,200        $        -        $ 4,788,000
                U.S. Government agencies                     1,500,200             17,100                 -          1,517,300
                                                           -----------         ----------        ----------        -----------
                    Total securities held to
                      maturity                             $ 6,265,000         $   40,300        $        -        $ 6,305,300
                                                           -----------         ----------        ----------        -----------
                                                           -----------         ----------        ----------        -----------

                                                           --------------------------DECEMBER 31, 1997------------------------
              SECURITIES AVAILABLE FOR SALE
                Federal Home Loan Bank                     $   330,300         $        -        $        -        $   330,300
                Pacific Coast Banker's
                  Bank Stock                                   149,900                  -                 -            149,900
                                                           -----------         ----------        ----------        -----------
                    Total securities available
                      for sale                             $   480,200         $        -        $        -        $   480,200
                                                           -----------         ----------        ----------        -----------
                                                           -----------         ----------        ----------        -----------

        SECURITIES HELD TO MATURITY
          U.S. Treasury securities                         $   499,900         $      700        $        -        $   500,600
          U.S. Government agencies                           4,995,400              4,700                 -          5,000,100
                                                           -----------         ----------        ----------        -----------

                    Total securities held to
                      maturity                             $ 5,495,300         $    5,400        $        -        $ 5,500,700
                                                           -----------         ----------        ----------        -----------
                                                           -----------         ----------        ----------        -----------
</TABLE>


                                      -15-

<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
                        YEARS ENDED DECEMBER 31, 1998 AND 1997     

NOTE 3.   INVESTMENT SECURITIES (CONTINUED)

          The Bank's investment in Federal Home Loan Bank stock is required as
          part of a borrowing agreement.  The stock will be redeemed at par
          value.

          The amortized cost and fair value of debt securities by contractual
          maturity at December 31, 1998 are shown below.  Expected maturities
          will differ from contractual maturities because borrowers may have the
          right to call or prepay obligations with or without call or prepayment
          penalties.
<TABLE>
<CAPTION>
                                                                   AMORTIZED              FAIR
                                                                     COST                 VALUE
                  <S>                                        <C>                  <C>
                  Due in one year or less                          $         -          $         -
                  Due between one and five years                             -                    -
                  Due between five and ten years                       500,500              508,600
                  Due after ten years                                5,764,500            5,796,700
                                                             ------------------   ------------------
                                                                   $ 6,265,000          $ 6,305,300
                                                             ------------------   ------------------
                                                             ------------------   ------------------
</TABLE>

          Proceeds from maturity of investment securities during 1998 were
          $3,995,000, with no gain or loss realized.  There was no gain or loss
          realized from the sale of investments in 1997 and 1996. 

Note 4.   SALES AND SERVICING OF SBA LOANS

          A summary of the activity of SBA loans follows:
<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                               1998           1997           1996
             <S>                                          <C>            <C>            <C>
             SBA loans authorized                           $2,458,000     $3,551,800     $1,937,000
                                                          -------------  -------------  -------------
                                                          -------------  -------------  -------------
                                                         
             SBA loans sold                                 $2,811,900     $2,524,100     $1,842,800
                                                          -------------  -------------  -------------
                                                          -------------  -------------  -------------
</TABLE>

A summary of income from SBA loans sold is as follows:
<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                                      1998           1997           1996
          <S>                                                    <C>            <C>
          Income from premiums                                      $ 199,200      $ 178,400      $ 138,600
          Income from servicing                                       176,400        170,000        165,000
          Less loan origination expense                                (1,600)       (24,000)       (44,700)
                                                                 -------------  -------------  -------------
               Total SBA sales and service income                   $ 374,000      $ 324,400      $ 258,900
                                                                 -------------  -------------  -------------
                                                                 -------------  -------------  -------------
</TABLE>

                                       -16-

<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
                        YEARS ENDED DECEMBER 31, 1998 AND 1997     

NOTE 5.   LOANS AND ALLOWANCE FOR LOAN LOSSES

          A summary of the balances of loans follows:
<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                                  1998            1997
                    <S>                                                       <C>              <C>
                    Commercial and industrial                                  $11,131,900     $10,299,500
                    Construction                                                   355,600         346,500
                    Real estate, mortgage                                       15,294,100      13,920,900
                    Installment                                                    389,900         519,900
                    Government guaranteed loans purchased                          158,800         284,000
                                                                              -------------    ------------
                                                                                27,330,300      25,370,800
                    Less allowance for loan losses                                (336,200)       (269,100)
                    Less deferred origination fees, net                            (31,900)        (39,600)
                                                                              -------------    ------------
                                                                               $26,962,200     $25,062,100
                                                                              -------------    ------------
                                                                              -------------    ------------

          The maturities of total loans follows:
<CAPTION>
                                                                                      DECEMBER 31,
                                                                                  1998            1997
                    <S>                                                        <C>             <C>
                    Loans with a fixed rate:                          
                      Due within one year                                      $ 1,919,000     $ 2,907,400
                      Due one to five years                                      8,307,200       5,909,400
                      Due over five years                                        2,516,500       3,667,900
                                                                               ------------    ------------
                                                                                12,742,700      12,484,700
                    Loans with a variable rate                                  14,587,600      12,886,100
                                                                               ------------    ------------
                                                                      
                    Total loans                                                $27,330,300     $25,370,800
                                                                               ------------    ------------
                                                                               ------------    ------------
</TABLE>

                                       -17-
<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
                        YEARS ENDED DECEMBER 31, 1998 AND 1997     

NOTE 5.   LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

          An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                          1998           1997           1996
                <S>                                     <C>           <C>            <C>
                Beginning balance                       $ 269,100     $ 253,500      $ 224,800
                Recoveries                                 12,600         1,800         20,700
                Loans charged off                         (75,500)     (106,200)       (44,500)
                Provision for loan losses                 130,000       120,000         52,500
                                                       -----------   -----------    -----------
                
                  Ending balance                        $ 336,200     $ 269,100      $ 253,500
                                                       -----------   -----------    -----------
                                                       -----------   -----------    -----------
</TABLE>
          As of December 31, 1998 and 1997, the recorded investment in impaired
          loans totaled $180,100 and $283,000 with corresponding valuation
          allowances of $17,800 and $32,200, respectively.  No additional
          amounts are committed to be advanced in connection with impaired
          loans.

          For the years ended December 31, 1998 and 1997, the average recorded
          investment in impaired loans amounted to approximately $262,200 and
          $463,500, respectively.  Non-accrual loans totaled $57,100 and $75,900
          at December 31, 1998 and 1997, respectively.  If interest on
          non-accrual loans had been accrued, such income would have
          approximated $8,000 and $11,000 for 1998 and 1997, respectively.

Note 6.   BANKING PREMISES AND EQUIPMENT

          A summary of the cost and accumulated depreciation of banking premises
          and equipment and their estimated useful lives follows:
<TABLE>
<CAPTION>
                                                                          DECEMBER 31,              ESTIMATED
                                                                       1998          1997          USEFUL LIVES
                <S>                                                <C>           <C>
                Building and land                                    $ 915,400     $ 915,400        40 years
                Building improvements                                  338,600       338,600        40 years
                Leasehold improvements                                 469,800       479,700       Lease term
                Furniture and equipment                              1,391,800     1,620,800       3-8 years
                                                                   ------------  ------------
                                                                     3,115,600     3,354,500
                Accumulated depreciation                            (1,247,000)   (1,455,600)
                                                                   ------------  ------------
                
                                                                    $1,868,600    $1,898,900
                                                                   ------------  ------------
                                                                   ------------  ------------
</TABLE>

          Depreciation expense of $139,100, $135,200, and $118,400 was included
          in occupancy and equipment expense for the years ended 1998, 1997, and
          1996, respectively.

                                       -18-
<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
                        YEARS ENDED DECEMBER 31, 1998 AND 1997     

Note 7.   FEDERAL HOME LOAN BANK BORROWINGS

          The Bank entered into an advance and security agreement with the
          Federal Home Loan Bank of San Francisco on January 21, 1993.  At
          December 31, 1998 the Bank has four $1,000,000 advances which bear
          interest at 6.53%, 4.83%, 6.81%, and 6.36%, respectively. The advances
          are secured by pledged loan principal in the amount of $4,491,300 and
          investment securities totaling $1,500,000.  The advances mature in
          June 2000, October 2003, June 2004 and January 2028 respectively.

Note 8.   INCOME TAXES

          Allocation of federal and state income taxes between current and
          deferred portions is as follows:
<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                           1998        1997       1996
                   <S>                                   <C>        <C>         <C>
                   Current tax provision:
                     Federal                             $ 49,600   $ 171,300   $ 78,500
                     State                                 43,900      57,400     35,600
                                                         ---------  ----------  ---------
                                                           93,500     228,700    114,100
                                                         ---------  ----------  ---------
                   Deferred tax benefit:
                     Federal                              (16,800)    (31,400)   (34,000)
                     State                                 (2,800)    (21,700)      (100)
                                                         ---------  ----------  ---------
                                                          (19,600)    (53,100)   (34,100)
                                                         ---------  ----------  ---------
                                                         $ 73,900   $ 175,600   $ 80,000
                                                         ---------  ----------  ---------
                                                         ---------  ----------  ---------
</TABLE>
          The reasons for the differences between the statutory federal income
          tax rate and the effective tax rates are summarized as follows:
<TABLE>
<CAPTION>
                                                              1998       1997       1996
               <S>                                            <C>        <C>        <C>
               Statutory federal tax rate                      34.0%      34.0%      34.0%
               State taxes, net of federal tax benefit          7.2        7.2        7.5
               Municipal bond income                          (25.6)         -          -
               Utilization of general business credits            -       (1.1)      (7.0)
               Decrease in deferred tax asset valuation
                 allowance                                                           (7.2)
               Other, net                                         -        3.6          -
                                                             -------    -------    -------
                    Effective tax rates                       15.6%      43.7%      27.3%
                                                             -------    -------    -------
                                                             -------    -------    -------
</TABLE>

                                       -19-

<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
                        YEARS ENDED DECEMBER 31, 1998 AND 1997     

NOTE 8.   INCOME TAXES (CONTINUED)

          In addition, the Corporation has applied all unused general business
          tax credit carryforwards for financial reporting and income tax
          purposes.

          The components of the net deferred tax asset, included in other
          assets, are as follows:
<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                                         1998                      1997
                       <S>                                       <C>                       <C>
                       Deferred tax asset
                         Federal                                        $ 173,800                 $ 161,600
                         State                                             58,200                    66,700
                                                                 ----------------------    ---------------------
                       Net deferred tax asset                           $ 232,000                 $ 228,300
                                                                 ----------------------    ---------------------
                                                                 ----------------------    ---------------------
</TABLE>

     The tax effects of each type of income and expense item that give rise 
to deferred taxes are as follows:
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                        1998                      1997
                       <S>                                      <C>                       <C>             
                       Deferred tax assets (liabilities)
                         Accrual to cash adjustments                   $ 142,600                 $ 216,600
                         Investments:
                           Net unrealized gain on securities
                             available for sale                          (17,000)                  (59,800)
                         State franchise tax                              29,600                   (22,700)
                         Allowance for loan losses                        94,200                    74,900
                         Depreciation                                    (17,400)                   19,300
                                                                ----------------------    ---------------------
                           Net deferred tax asset                      $ 232,000                 $ 228,300
                                                                ----------------------    ---------------------
                                                                ----------------------    ---------------------
</TABLE>
          As of December 31, 1998 and 1997 management expects all temporary
          differences to be offset against future taxable income, and no
          valuation reserve was deemed necessary.

                                       -20-

<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
                        YEARS ENDED DECEMBER 31, 1998 AND 1997     

NOTE 9.   COMMITMENTS AND CONTINGENCIES

          In the normal course of business, there are outstanding commitments
          and contingencies which are not reflected in the consolidated
          financial statements.

OPERATING LEASE COMMITMENTS

          The Bank leases its branch buildings in Carmel and Pacific Grove.  The
          Carmel building has a twenty-five year lease which commenced in March
          1981 and may be adjusted annually for changes in the Consumer Price
          Index.  The Pacific Grove building has a five year lease with five,
          five year options and commenced in April 1997.  The Bank also leases
          certain equipment used in the normal course of business.

          Rent expense for operating leases is included in occupancy and
          equipment expense and amounted to approximately $83,800, $75,000, and
          $59,000 in 1998, 1997, and 1996, respectively.

          At December 31, 1998, approximate future minimum rental commitments
          for all noncancelable operating leases are as follows:
<TABLE>
                                        <S>                   <C>               
                                           1999                        $ 100,400
                                           2000                           96,400
                                           2001                          101,700
                                           2002                           87,100
                                           2003                           79,800
                                        Thereafter                       168,500
                                                             --------------------
                                                                       $ 633,900
                                                             --------------------
                                                             --------------------
</TABLE>
          LOAN COMMITMENTS

          The Bank is a party to financial instruments with off-balance-sheet
          risk in the normal course of business to meet the financing needs of
          its customers.  These financial instruments include commitments to
          extend credit.  Such commitments involve, to varying degrees, elements
          of credit and interest rate risk in excess of the amount recognized in
          the consolidated balance sheets.

          The Bank's exposure to credit loss is represented by the contractual
          amount of these commitments.  The Bank uses the same credit policies
          in making commitments as it does for on-balance-sheet instruments.

          At December 31, 1998 and 1997, such commitments to extend credit were
          approximately $5,007,200 and $5,093,000, respectively of undisbursed
          lines of credit and undisbursed loans in process.

                                       -21-
<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
                        YEARS ENDED DECEMBER 31, 1998 AND 1997     

NOTE 10.  STOCKHOLDERS' EQUITY

          MINIMUM REGULATORY REQUIREMENTS

          The Corporation (on a consolidated basis) and the Bank are subject to
          various regulatory capital requirements administered by the federal
          banking agencies.  Failure to meet minimum capital requirements can
          initiate certain mandatory and possibly additional discretionary
          actions by regulators that, if undertaken, could have a direct
          material effect on the Corporation's and Bank's financial statements. 
          Under capital adequacy guidelines and the regulatory framework for
          prompt corrective action, the Corporation and the Bank must meet
          specific capital guidelines that involve quantitative measures of
          their assets, liabilities, and certain off-balance-sheet items as
          calculated under regulatory accounting practices.  The capital amounts
          and classifications are also subject to qualitative judgements by the
          regulators about components, risk weightings, and other factors.

          Quantitative measures established by regulation to ensure capital
          adequacy require the Corporation and the Bank to maintain minimum
          amounts and ratios (set forth in the following table) of total and
          Tier 1 capital (as defined) to average assets (as defined). 
          Management believes, as of December 31, 1998 and 1997, that the
          Corporation and the Bank met all capital adequacy requirements to
          which they are subject.

          As of December 31, 1998, the most recent notification from the Federal
          Deposit Insurance Corporation categorized the Corporation and the Bank
          as well capitalized under the regulatory framework for prompt
          corrective action.  To be categorized as well capitalized, they must
          maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
          leverage ratios as set forth in the following tables.  There are no
          conditions or events since the notifications that management believes
          have changed the Corporation's or Bank's category.  The Corporation's
          and the Bank's actual capital amounts and ratios as of December 31,
          1998 and 1997 are also presented in the tables.

                                       -22-
<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
                        YEARS ENDED DECEMBER 31, 1998 AND 1997     

NOTE 10.  STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
                                                           DECEMBER 31, 1998
                                                                                                               Minimum To Be Well
                                                                                       Minimum                 Capitalized Under
                                                                                       Capital                 Prompt Corrective
                                                            Actual                   Requirement               Action Provisions
                                                     -------------------         -------------------         ---------------------
                                                     Amount        Ratio          Amount       Ratio          Amount      Ratio
                                                                               (All dollars in thousands)
        <S>                                          <C>           <C>           <C>           <C>             <C>        <C>  
        Total Capital to Risk Weighted Assets:
          Consolidated                               $ 3,747       10.9%         $ 2,740        8.0%         $ 3,425      10.0%
          Monterey County Bank                         3,687       10.8%           2,739        8.0%           3,424      10.0%
        
        Tier 1 Capital to Risk Weighted Assets:
          Consolidated                                 3,411       10.0%           1,370        4.0%           2,055       6.0%
          Monterey County Bank                         3,351        9.8%           1,370        4.0%           2,055       6.0%
        
        Tier 1 Capital to Average Assets:
          Consolidated                                 3,411        7.6%           1,912        4.0%           2,389       5.0%
          Monterey County Bank                         3,351        7.5%           1,911        4.0%           2,389       5.0%
<CAPTION>
                                                           DECEMBER 31, 1997
                                                                                                               Minimum To Be Well
                                                                                       Minimum                 Capitalized Under
                                                                                       Capital                 Prompt Corrective
                                                            Actual                   Requirement               Action Provisions
                                                     -------------------         -------------------         ---------------------
                                                     Amount        Ratio          Amount       Ratio          Amount      Ratio
                                                                               (All dollars in thousands)
        <S>                                          <C>           <C>           <C>           <C>             <C>        <C>  
        Total Capital to Risk Weighted Assets: 
          Consolidated                             $ 3,228       11.2%         $ 2,307        8.0%          $ 2,883         10.0%
          Monterey County Bank                       3,147       10.9%           2,306        8.0%            2,883         10.0%
        
        Tier 1 Capital to Risk Weighted Assets:
          Consolidated                               2,958       10.3%           1,153        4.0%            1,730          6.0%
          Monterey County Bank                       2,877       10.0%           1,153        4.0%            1,730          6.0%
        
        Tier 1 Capital to Average Assets:
          Consolidated                               2,958        6.6%           1,784        4.0%            2,230          5.0%
          Monterey County Bank                       2,877        6.5%           1,784        4.0%            2,230          5.0%
</TABLE>

                                       -23-

<PAGE>


                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        YEARS ENDED DECEMBER 31, 1998 AND 1997

NOTE 11.  STOCK OPTIONS AND STOCK DIVIDENDS

          On June 12, 1998, the 1998 Stock Option Plan was approved by the
          shareholders. Under the Plan, options may be granted to officers, key
          employees, and directors of the Corporation and its subsidiaries, so
          long as a majority of the equity interests of such subsidiaries are
          owned by the Corporation.  Incentive Stock Options may be granted at
          prices not lower than 100% of the fair market value of the common
          stock on the date of grant. However, an incentive stock option granted
          to an individual owning 10% or more of the Corporation's stock after
          such grant must have an exercise price of at least 110% of such fair
          market value and an exercise period of not more than five years. 
          Non-qualified stock options may be granted at prices not lower than
          85% of the fair market value of the common stock on the date of grant.
          The Board of Directors is authorized to determine when options become
          exercisable within a period not extending 10 years from the date of
          grant.  The maximum number of shares available for issuance under the
          Plan is 250,000 shares.

          The Corporation applies APB Opinion 25 and related interpretations in
          accounting for the plan.  Accordingly, no compensation cost has been
          recognized.  Had compensation cost for the Corporation's stock-based
          compensation plan been determined based on the fair value at the grant
          date for awards under the plan consistent with the method prescribed
          by SFAS No. 123, the Corporation's net income and earnings per share
          would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                               DECEMBER 31,   
                                                               1998                1997                1996                  
<S>                                                         <C>                 <C>                 <C>
          Net income:
               As reported                                  $464,200            $225,900            $213,400
               Pro forma                                     450,700             208,000             213,400
          
          Earnings per share
               As reported                                  $   0.49            $   0.24            $   0.22
               Pro forma                                        0.48                0.22                0.22
          
          Earnings per share,
             assuming dilution for stock options:
               As reported                                  $   0.42            $   0.20            $   0.19
               Pro forma                                        0.41                0.19                0.19
</TABLE>


                                            -24-
<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        YEARS ENDED DECEMBER 31, 1998 AND 1997

NOTE 11.  STOCK OPTIONS (CONTINUED)

          The fair value of these options was estimated at grant date using a
          Black-Scholes option pricing model with the following weighed-average
          assumptions for 1998 and 1997: risk-free interest rates of 6.21
          percent; dividend yield of 4.4 percent; expected option life of 6
          years; and volatility of 30 percent.

          At December 31, 1998, options for the purchase of 240,350 shares of
          the Holding Corporation's common stock were outstanding and
          exercisable at prices ranging from $2.00 to $3.00. The status of all
          optioned shares is as follows:

<TABLE>
<CAPTION>
                                                                                                       Weighted Average
                                                                                                          Remaining
                                                                    Shares           Price Range       Contractual Life
<S>                                                                <C>              <C>                   <C>
          Outstanding at December 31, 1996                         142,500          $2.20 - $2.75         3.63 Years
            Granted                                                 40,000              $2.75
            Cancelled                                              (25,000)             $2.20
                                                                   ------- 
         
          Outstanding at December 31, 1997                         157,500          $2.20 - $2.75          3.2 Years
            Granted                                                 99,850          $2.73 - $3.00
            Cancelled                                              (17,000)         $2.50 - $2.75
                                                                   ------- 
         
          Outstanding at December 31, 1998                         240,350          $2.00 - $3.00          3.6 Years
                                                                   ------- 
                                                                   ------- 
</TABLE>

NOTE 12.  CHANGE IN ACCOUNTING PRINCIPLE

          Effective January 1, 1997 accounting pronouncement SFAS No. 125
          "Accounting for Transfers and Servicing of Financial Assets and
          Extinguishments of Liabilities" changed the accounting treatment of
          U.S. Small Business Administration (SBA) loans sold in the secondary
          market.  Financial statements for 1996 have not been restated, and the
          cumulative effect of the change of $55,500 is shown as a one time
          credit to equity in the 1997 financial statement, with no effect on
          net income.

                                        -25-
<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        YEARS ENDED DECEMBER 31, 1998 AND 1997

NOTE 13.  RELATED PARTY TRANSACTIONS

          The Corporation has, and expects to have in the future, banking
          transactions in the ordinary course of its business with directors,
          officers, principal shareholders, and their associates.  These
          transactions, including loans and deposits, are granted on
          substantially the same terms, including interest rates and collateral
          on loans, as those prevailing at the same time for comparable
          transactions with others and do not involve more than the normal risk
          of collectibility or present other unfavorable features.

          Aggregate loan transactions with related parties are approximately as
          follows:

<TABLE>
<S>                                                                          <C>
                 Balance as of December 31, 1996                             $ 837,300
                   New loans                                                   232,100
                   Repayments                                                 (815,400)
                                                                             ---------
                 
                 Balance as of December 31, 1997                             $ 254,000
                   New loans                                                    41,600
                   Repayments                                                 (128,800)
                                                                             ---------
                 
                 Balance as of December 31, 1998                             $ 166,800
                                                                             ---------
                                                                             ---------
</TABLE>

          Related party deposits totaled approximately $142,000 and $155,100 at
          December 31, 1998 and 1997, respectively.

NOTE 14.  EMPLOYEE BENEFIT PLANS

          During 1995, the Corporation established an employee stock ownership
          plan (ESOP) to invest in the Corporation's common stock for the
          benefit of eligible employees.  The Corporation's contribution to the
          plan is determined by the Board of Directors. Shares in the plan
          generally vest after seven years.  The Corporation did not make a
          contribution to the ESOP trust in 1998, 1997, or 1996.

          The Bank has a salary reduction plan under Section 401(K) of the
          Internal Revenue Code.  The plan covers substantially all full-time
          employees who have completed one year of service with the Bank. 
          Employees are allowed to defer up to a maximum of 15% or $10,000 of
          their income.  Under the provisions of the plan, the Bank's
          contribution policy is discretionary. No contributions were made by
          the Bank in 1998, 1997 or 1996.

                                      -26-
<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        YEARS ENDED DECEMBER 31, 1998 AND 1997

NOTE 15.  REGULATORY MATTERS

          The Corporation is subject to regulation by the Board of Governors of
          the Federal Reserve System under the Bank Holding Corporation Act. 
          The Bank is subject to regulation, supervision, and regular
          examination by the Superintendent and the FDIC.  The regulations of
          these agencies affect most aspects of the Corporation's business and
          prescribe permissible types of loans and investments, the amount of
          required reserves, requirements for branch offices, the permissible
          scope of the Corporation's activities and various other requirements. 
          The Corporation is also subject to certain regulations of the Federal
          Reserve Bank dealing primarily with check clearing activities,
          establishment of banking reserves, Truth-in-Lending (Regulation Z) ,
          and Equal Credit opportunity (Regulation B).

NOTE 16.  FAIR VALUE OF FINANCIAL INSTRUMENTS

          SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
          requires disclosure of estimated fair values of all financial
          instruments where it is practicable to estimate such values.  In cases
          where quoted market prices are not available, fair values are based on
          estimates using present value or other valuation techniques.  Those
          techniques are significantly affected by the assumptions used,
          including the discount rate and estimates of future cash flows. 
          Accordingly, the derived fair value estimates cannot be substantiated
          by comparison to independent markets and, in many cases, could not be
          realized in immediate settlement of the instrument.  Statement No. 107
          excludes certain financial instruments and all nonfinancial
          instruments from its disclosure requirements.  Accordingly, the
          aggregate fair value amounts presented do not represent the underlying
          value of the Corporation.

          The following methods and assumptions were used by the Corporation in
          estimating fair value disclosures for financial instruments:
     
               CASH AND CASH EQUIVALENTS: The carrying amounts of cash and
               short-term instruments approximate fair values.
     
               INVESTMENT SECURITIES: Fair values for investment securities,
               excluding Federal Home Loan Bank stock, are based on quoted
               market prices.  The carrying value of Federal Home Loan Bank
               stock approximates fair value based on the redemption provisions
               of the Federal Home Loan Bank of San Francisco.

                                        -27-
<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        YEARS ENDED DECEMBER 31, 1998 AND 1997


NOTE 16.  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) 
     
          LOANS:  For variable-rate loans that reprice frequently and with no
          significant change in credit risk, fair values are based on carrying
          values.  The fair value of performing fixed rate loans is estimated by
          discounting future cash flows using the Corporation's current offering
          rate for loans with similar characteristics.  The fair value of
          performing adjustable rate loans is considered to be the same as book
          value.  The fair value of nonperforming loans is estimated at the fair
          value of the related collateral or, when, in management's opinion,
          foreclosure upon the collateral is unlikely, by discounting future
          cash flows using rates which take into account management's estimate
          of credit risk.
     
          COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT: The
          Corporation does not generally enter into long-term fixed rate
          commitments or letters of credit.  These commitments are generally at
          prices which are currently prevailing rates.  These rates are
          generally variable and, therefore, there is no interest rate exposure.
          Accordingly, the fair market value of these instruments is equal to
          the carrying value amount of their net deferred fees.  The net
          deferred fees associated with these instruments are not material.  The
          Corporation has no unusual credit risk associated with these
          instruments.
     
          DEPOSIT LIABILITIES: The fair values disclosed for demand deposits
          (e.g., interest and non-interest checking, savings, and certain types
          of money market accounts) are, by definition, equal to the amount
          payable on demand at the reporting date (i.e., their carrying
          amounts).  Fair values for fixed-rate certificates of deposit are
          estimated using a discounted cash flow calculation that applies
          interest rates currently being offered on certificates to a schedule
          of aggregated expected monthly maturities on time deposits.
     
          ACCRUED INTEREST: The carrying amounts of accrued interest approximate
          fair value.
     
          SHORT-TERM BORROWINGS: The carrying amounts of federal funds
          purchased, borrowings under repurchase agreements, and other
          short-term borrowings maturing within ninety days approximate their
          fair values.  Fair values of other short-term borrowings are estimated
          using discounted cash flow analyses based on the Corporation's current
          incremental borrowing rates for similar types of borrowing
          arrangements.

                                       -28-
<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        YEARS ENDED DECEMBER 31, 1998 AND 1997

NOTE 16.  FAIR VALUE OF FINANCIAL STATEMENTS (CONTINUED)

          The estimated fair values, and related carrying amounts, of the
          Corporation's financial instruments as of December 31, 1998 and 1997
          are as follows:

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                    1998                                  1997
                                                        Carrying             Fair              Carrying           Fair
                                                         Amount              Value              Amount            Value
                                                      -----------        -----------         -----------       -----------
<S>                                                   <C>                <C>                 <C>
                 Financial Assets
                   Cash and cash equivalents          $12,469,900        $12,469,900         $11,060,600       $11,060,600
                   Time deposits                          100,000            100,000             100,000           100,000
                   Investment securities,
                     available for sale                   690,500            690,500             480,200           480,200
                   Investment securities,
                     held to maturity                   6,265,000          6,305,300           5,495,300         5,500,700
                   Loans, held for sale                   951,600            951,600             543,400           543,400
                   Loans, net                          26,962,200         27,198,300          25,062,100        25,028,000
                   Accrued interest receivable            287,700            287,700             259,500           259,500
          
                 Financial Liabilities
                   Deposits                            42,938,800         43,065,600          39,205,600        38,902,600
                   Long-term debt                       4,000,000          4,135,300           3,000,000         2,718,200
                   Accrued interest payable               355,900            355,900             355,900           355,900
</TABLE>

NOTE 17.  EXTRAORDINARY ITEM - LITIGATION SETTLEMENT

          In May 1998 Monterey County Bank entered into a settlement agreement
          with Monterey Bay Bank, whereby Monterey County Bank agreed to
          terminate its trade name infringement litigation against Monterey Bay
          Bank.  Under the terms of the settlement Monterey County Bank received
          a lump sum payment in the amount of $117,100.

                                          -29-
<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        YEARS ENDED DECEMBER 31, 1998 AND 1997


NOTE 18.  NORTHERN CALIFORNIA BANCORP, INC. (PARENT CORPORATION ONLY)

          The following are the financial statements of Northern California
          Bancorp, Inc. (parent Corporation only) as of December 31, 1998 and
          1997:



                                         BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                    1998                      1997
<S>                                                              <C>                       <C>
            Assets
              Cash account and due from Banks                    $   47,100                $   35,200
              Organization costs                                      3,100                     4,600
              Investment in common stock of
                Monterey County Bank                              3,391,100                 3,004,400
                                                                 ----------                ----------
                                                                 $3,441,300                $3,044,200
                                                                 ----------                ----------
                                                                 ----------                ----------
            Liabilities and Shareholders' Equity
              Accounts payable and accrued expenses              $      800                $    1,500
              Dividend payable                                        5,900                    12,500
              Stockholders' Equity                                3,434,600                 3,030,200
                                                                 ----------                ----------

                                                                 $3,441,300                $3,044,200
                                                                 ----------                ----------
                                                                 ----------                ----------
</TABLE>

                                       -30-
<PAGE>

                   NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        YEARS ENDED DECEMBER 31, 1998 AND 1997

NOTE 18.  NORTHERN CALIFORNIA BANCORP, INC. (PARENT CORPORATION ONLY)


<TABLE>
<CAPTION>
                          STATEMENTS OF INCOME
                                                                         1998             1997              1996
<S>                                                                   <C>              <C>
          Equity in income of subsidiary                              $ 485,300        $ 237,600          $ 233,400
          Operating expenses                                             29,700           16,100             18,900
          Applicable taxes (benefit)                                     (8,600)          (4,400)             1,100
                                                                      ---------        ---------          ---------

          Net income                                                  $ 464,200        $ 225,900          $ 213,400
                                                                      ---------        ---------          ---------
                                                                      ---------        ---------          ---------

                        STATEMENTS OF CASH FLOWS
                                                                         1998             1997              1996
        Cash flows from operating activities:
          Net Income                                                  $ 464,200        $ 225,900          $ 213,400
          Adjustments to reconcile net income to
            net cash provided by operating activities:
          Equity in undistributed income of
            Monterey County Bank                                       (485,300)        (237,600)          (233,400)
          Decrease in other assets                                        1,500            5,900             29,700
          (Increase) decrease in accrued expenses                          (700)             700            (39,500)
          (Increase) decrease in other liabilities                       (6,700)          (3,900)            16,500
                                                                      ---------        ---------          ---------
                                                                        (27,000)          (9,000)           (13,300)
                                                                      ---------        ---------          ---------
        Cash flows from financing activities:
          Cash dividends received from subsidiary                        50,000          170,000            150,000
          Cash dividends paid on common stock                              (700)        (103,000)           (96,700)
          Stock repurchase                                              (10,400)         (62,800)                 -
                                                                      ---------        ---------          ---------
                                                                         38,900            4,200             53,300
                                                                      ---------        ---------          ---------
        Net increase in cash and cash equivalents                        11,900           (4,800)            40,000

        Cash and cash equivalents, beginning of year                     35,200           40,000                  -
                                                                      ---------        ---------          ---------
        Cash and cash equivalents, end of year                        $  47,100        $  35,200          $  40,000
                                                                      ---------        ---------          ---------
                                                                      ---------        ---------          ---------
</TABLE>

        The ability of the Corporation to pay dividends will largely 
        depend upon the dividends paid to it by the Bank.  There are legal
        limitations on the ability of the Bank to provide funds to the
        Corporation in the form of loans, advances, or dividends.

                                        -31-