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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON D.C.  20549
                                 FORM 10-KSB


       X    Annual report under Section 13 or 15(d) of the Securities
      ---   Exchange Act of 1934 (Fee required) for fiscal year ended December
            31, 1997

      ---   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, 1997. $ 5,266,200.

     As of March 1, 1998, the Corporation had 858,526 shares of common stock
outstanding.  The aggregate market value of voting stock held by
non-affiliates of the Corporation was $1,320,000, based on the most recent
sale at $2.75 per share on February 2, 1998.

     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, 1997 are incorporated by reference in Part I Item 3 and
Part II Item 6.


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<TABLE>
<CAPTION>
                      FORM 10-KSB CROSS REFERENCE INDEX

<S>           <C>                                                          <C>
                                                                           PAGE
                                                                           ----
PART I
------
ITEM 1        Business                                                        3
ITEM 2        Properties                                                     15
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                    40
                Independent Auditors' Report on the Financial
                  Statements                                               FS 1
                Consolidated Balance Sheets at December 31, 1997
                  and 1996                                                 FS 2
                Consolidated Statements of Operations for each of
                  the three years in the period ended
                  December 31, 1997                                        FS 3
                Consolidated Statements of Changes in Stockholders'
                  Equity for each of the three years in the period
                  ended December 31, 1997                                  FS 4
                Consolidated Statements of Cash Flows for each of
                  the three years in the period ended
                  December 31, 1997                                      FS 5-6
                Notes to Consolidated Financial Statements              FS 7-30
ITEM 8        Changes in and Disagreements with Accountants and
                Financial Disclosure                                         40

PART III
--------
ITEM 9        Directors, Executive Officers, Promoters and
                Control Persons: Compliance with Section 16(a) of
                the Exchange Act                                             41
ITEM 10       Executive Compensation                                         42
ITEM 11       Security Ownership of Certain Beneficial Owners
                and Management                                               45
ITEM 12       Certain Relationships and Related Transactions                 47
ITEM 13       Exhibits and Reports                                           48
              Signatures                                                     49
</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.
Its 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, 1997 the Bank's had total assets, deposits and
shareholders' equity of approximately $46,108,000, $39,239,300 and
$3,004,400, respectively.

EMPLOYEES

     At December 31, 1997 the Northern California Bancorp, Inc. and its
subsidiary Monterey County Bank employed a total of 31 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


PAGE 4


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offices, and night depository facilities for customer convenience.  The Bank
offers safe deposit 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.

     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


PAGE 6


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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 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.


PAGE 7

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     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.

     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


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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 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.


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     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, 1997, 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 recapitalization of the BIF.  On November 15, 1995, the FDIC voted to
drop its premiums for most well capitalized banks to zero (with a minimum
$2,000. per year paid in any event).  The Bank has been eligible for the
minimum payment since January 1, 1996.  Other banks will be charged
risk-based premiums up to $.27 per $100 of deposits.  On May 6, 1997, the
FDIC voted to retain the existing risk-based premiums for the second
semiannual period of 1997.

     The FDIC Board of Directors voted, on May 20, 1997, to collect on behalf
of the Financing Corporation (FICO) assessments sufficient to meet the
funding requirements of the FICO for the remainder of 1997.  The FICO rate on
BIF-assessable deposits will be 1.26 basis points, on an annual basis.

     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


PAGE 11


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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 asses the impact such likely increased
competition will have on the Bank' 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 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.


PAGE 12
<PAGE>

     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 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


PAGE 13

<PAGE>

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.

     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)


PAGE 14


<PAGE>

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.

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


PAGE 15


<PAGE>

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 November of 1996 the Bank learned that Watsonville Federal Savings
and Loan Association (WFS) was changing its name to Monterey Bay Bank.
Because WFS has several branches in the bank's immediate market area and the
name "Monterey Bay Bank" appears to be confusingly similar to Monterey
County Bank's name, the Bank's management was concerned that the Bank's
marketing program would be jeopardized and that the public would not relate
the Bank's advertising and civic contributions to it.  Following discussions,
WFS refused to abandon the "Monterey Bay Bank" name and Monterey County
Bank filed a civil law suit against WFS and its holding company Monterey Bay
Bancorp which seeks to enjoin the use of the "Monterey Bay Bank" name on
the grounds that the use of the name unfairly infringes on the Bank's name
and will damage the Bank.  Monterey County Bank's law suit also seeks
monetary damages arising from any use of the "Monterey Bay Bank" name.
While the full impact to Monterey County Bank from the use of the "Monterey
Bay Bank" name is not yet known, the Bank's suit seeks one million dollars
($1,000,000.00) in compensatory damages.  Monterey County Bank's management
is firmly committed to protecting its trade name by prosecuting the suit to
conclusion and has spent seventy-five thousand dollars ($75,000.00) to date
in pursuing the suit.

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

     The following proposal was present to shareholders at the Corporations
annual shareholders' meeting held May 16, 1997.

Proposal Number 1:  Election of Directors

<TABLE>
<CAPTION>
                                   Number of          Number of
                                  Affirmative            Votes
                                     Votes             Withheld
                                  -----------         ----------
<S>                               <C>                 <C>
Charles T. Chrietzberg, Jr.         588,768             32,942
Sandra G. Chrietzberg               586,984             34,726
Peter J. Coniglio                   619,175              2,535
Carla S. Hudson                     619,175              2,535
John M. Lotz                        619,175              2,535
</TABLE>


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 600 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 three shareholders, repurchased
20,939 shares of common stock at $3.00 per share.  These transactions
occurred during the third quarter of 1997.

     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, 1995 to December 31, 1997.

<TABLE>
<CAPTION>

     Quarter/Year                       Price            Volume(1)
------------------------            -------------        ---------
<S>                                 <C>                  <C>
1st quarter of 1995                      2.75               20,565
2nd quarter of 1995                      2.75                2,592
3rd quarter of 1995                      2.75                1,000
4th quarter of 1995                      2.75                5,885

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
</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, 1997, the Bank
had $152,600 in retained earnings.  Cash dividends may also be paid out of
net income for a bank's last preceding fiscal year upon the prior approval of
the Superintendent in an amount not exceeding the greater of the: (I)
retained earnings of a bank; (ii) net income of a bank for its last fiscal
year; or (iii) net income of a bank for its current fiscal year.  If the
Superintendent finds that the stockholder's equity of a bank is not adequate,
or that payment of a dividend would be unsafe or unsound, the Superintendent
may order the Bank not to pay a dividend to the Bank's shareholders, even if
it meets the standards set forth in the California Financial Code.  With the
approval of the Superintendent, the Bank could pay up to $237,600 in
dividends to the Corporation as of the date hereof.  However, Management of
the Corporation does not anticipate that it will seek such approval during
1998.

     In December 1997 and 1996 The Corporation paid cash dividends of  $.12
and $.11  per share, respectively.  The Bank paid dividends totaling
$170,000.00 and $150,000.00 to the Corporation during 1997 and 1996.

     In December 1995 the Bank paid a $.10 per share cash dividend.


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 $225,900 in 1997,
$213,400 in 1996 and $278,000 in 1995.  The basic earnings per share for each
of the last three years was $.26, $.24 and $.32 respectively.  The diluted
earnings per share for the same time periods were $.22, $.21 and $.27,
respectively.  Return on average shareholders' equity was 7.34%, 7.25% and
9.57% in 1997, 1996 and 1995, respectively.  The Bank's return on average
assets was .54%, .56% and .79% in 1997, 1996 and 1995, respectively.

    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 decrease in earnings during 1996 was largely due to a $88,600
increase in total operating expenses, a $30,800 increase in provision for
income taxes and a $51,600 decrease in other operating income.  These factors
were partially offset by a $38,500 increase in net interest income and a
$67,500 decrease in the provision for loan losses.

    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,
                                                              -----------------------------------------------------
                                                                1997       1996       1995       1994       1993
                                                              ---------  ---------  ---------  ---------  ---------
<S>                                                           <C>        <C>        <C>        <C>        <C>
                                                                   (Dollars in thousands except per share data)
Summary of Operating Results:
Total interest income                                             3,399      3,140      2,952      2,734      2,604
Total interest expense                                            1,447      1,334      1,183        933        920
                                                              ---------  ---------  ---------  ---------  ---------
Net interest income                                               1,952      1,807      1,768      1,801      1,684
Provision for possible
  loan losses                                                       120         53        120         30        122
                                                              ---------  ---------  ---------  ---------  ---------
Net interest income after
  provision for loan loss                                         1,832      1,754      1,648      1,771      1,562
Total other income                                                1,074        983      1,035      1,036      1,216
Total other expense                                               2,505      2,444      2,356      2,570      2,637
                                                              ---------  ---------  ---------  ---------  ---------
Income (loss) before taxes                                          402        293        327        236        142
Provision for income tax                                            176         80         49        (21)       (90)
                                                              ---------  ---------  ---------  ---------  ---------
Net income (loss)                                                   226        213        278        257        232
Per Common Share Data:
Net income (1)                                                     0.26       0.24       0.32       0.29       0.26
Primary net income(2)                                              0.22       0.21       0.27       0.25       0.22
Book value, end of period                                          3.53       3.30       3.16       2.94       2.75
Avg shares outstanding (3)                                      868,248    879,465    879,465    879,465    879,465
Balance Sheet Data:
Total loans, net of unearned income(4)                           25,606     25,310     22,494     23,918     25,042
Total assets                                                     46,113     40,799     36,658     33,787     33,583
Total deposits                                                   39,206     36,167     31,188     28,782     27,671
Stockholders' equity                                              3,031      2,898      2,776      2,584      2,423

</TABLE>

PAGE 20

<PAGE>
<TABLE>
<CAPTION>
                                                                   As of and for the Years Ended December 31,
                                                              -----------------------------------------------------
                                                                1997       1996       1995       1994       1993
                                                              ---------  ---------  ---------  ---------  ---------
<S>                                                           <C>        <C>        <C>        <C>        <C>
Selected Financial Ratios (5):
Return on average assets                                          0.54%      0.56%      0.79%      0.75%      0.72%
Return on average
   stockholders' equity                                           7.34%      7.25%      9.57%      9.85%      9.69%
Net interest spread                                               4.74%      4.91%      5.24%      5.59%      5.34%
Net interest margin                                               5.42%      5.54%      5.86%      6.08%      5.85%
Avg shareholders' equity
   to average assets                                              7.37%      7.72%      8.24%      7.57%      7.38%
Primary capital to assets
   at end of period                                               7.85%      7.68%      8.14%      8.31%      7.91%
Total loans to total deposits
   at end of period                                              65.31%     69.98%     72.12%     83.10%     91.42%
Allowance to total loans
   at end of period                                               1.00%      1.00%      1.00%      1.01%      1.01%
Nonperforming loans to total
   loans at end of period                                         0.81%      1.13%      0.14%      0.84%      0.80%
Net charge-offs to average loans                                  0.40%      0.10%      0.59%      0.16%      0.44%
</TABLE>

(1)   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 was 1,034,574, 1,022,402,
      1,044,684, 1,012,773 and 1,034,972, in 1997, 1996, 1995, 1994, and
      1993, respectively.

(2)  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
      868,248 for 1997 and 879,465 for 1996, 1995, 1994 and 1993.

(3)   Weighted average common shares.

(4)   Includes loans being held for sale.

(5)   Averages are of daily balances.

PAGE 21



<PAGE>

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
                           1997       1996       1995              1997/96      1996/95
                        --------------------------------        -----------   ----------
                                                           Amt       %        Amt        %
                                                (Dollars in thousands)
<S>                        <C>        <C>        <C>        <C>      <C>       <C>     <C>
Interest Income            3,399      3,140      2,952      259      8.25      188      6.37
Interest Expense           1,447      1,334      1,183      113      8.49      151     12.76

                          -------    -------    -------   ----------------    --------------

Net Interest Income         1,952     1,806      1,769      146      8.08       37      2.09

</TABLE>


     Net interest income increased $146,000 (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 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.

     Net interest income increased $38,500 (2.14%) from 1995 to 1996.  Average
interest bearing assets increased 8.32%, while the average rate earned decreased
15 basis points, resulting in an increase of $188,800 in total interest income.
Partially offsetting the increase in interest income was an increase of
$150,300 in interest expense, the net result of a 8.45% increase in average
interest bearing liabilities and an 18 basis points decrease in the average rate
paid.

     The following table shows the components of the Bank's net interest income,
setting forth, for each of the three years ended December 31, 1997, 1996 and
1995 (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

PAGE 22

<PAGE>

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>
                                   1997                       1996                         1995
                       -------------------------   -------------------------   -------------------------
                                   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             24       1     4.36        71        5      7.67      240       24    10.00
Invest securities        4,498     347     7.70      1,51        9      5.91    1,189       76     6.39
Federal funds sold       5,432     296     5.45      6,46      341      5.27    5,094      279     5.48
                      -------------------------   -------------------------   -------------------------

Total investments       9,953      643     6.46     8,050      436     5.42      6,523      379     5.81

Loans
 Real estate           14,648    1,503    10.26    13,138    1,368    10.41     12,661    1,371    10.83
 Installment              491      601     2.16       686       80    11.70        994      112    11.27
 Commercial            10,902    1,193    10.95    10,823    1,256    11.61     10,008    1,090    10.89
                      -------------------------   -------------------------     -------------------------

Total loans            26,042    2,756    10.58    24,647    2,704    10.97     23,663    2,573    10.87

Total Interest
 earning assets        35,995   3,399      9.44    32,697    3,140     9.60     30,186    2,952      9.78
                      -------------------------   -------------------------     -------------------------

Interest Bearing
 Liabilities:
Int-bearing demand      5,308     74       1.39     4,534      64      1.40      4,538       61       1.34
Money market savings   1,958      47       2.39     1,911      45      2.34      1,864       42       2.25
Savings deposits       2,184      48       2.21     2,541      70      2.76      2,812       81       2.88
Time deposits > $100M  7,056     408       5.78     5,693      38      5.92      5,019       30       6.02
Time deposits < $100M 12,112     744       6.15    11,774     735      6.24      9,814      605       6.16

Other Borrowing        2,162     126       5.82     1,790      83      4.62      2,000       92       4.60
                      -------------------------   -------------------------     -------------------------

Total interest
 bearing liabilities  30,779   1,447       4.70    28,249   1,334      4.72     26,047    1,183       4.54
                     --------------------------   -------------------------      -------------------------


Net interest income            1,952                        1,807                         1,769
Net interest spread                        4.74                        4.88                           5.24
Net yield on interest
 earning assets                            5.42                        5.53                           5.86

</TABLE>
PAGE 23



<PAGE>

INTEREST SPREAD ANALYSIS (Continued):

<TABLE>
<CAPTION>

                                           1997 VS 1996            1996 VS 1995
                                        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                       (4)    (1)      (4)      (17)     (2)   (19)
Invest securities                     176     81      257        21      (7)    14
Federal funds sold                    (54)     9      (45)       75     (13)    62
                                     -----------------------   ----------------------
Total investments                     103    104      208        89     (32)    57

Loans
  Real estate                         157    (23)     135        52     (55)    (3)
  Installment                         (23)     2      (21)      (35)      3    (32)
  Commercial                            9    (72)     (63)       89      78    166
                                     -----------------------   ----------------------
  Total loans                         153   (102)      51       107      24    131

Total Interest Earning Assets         317    (58)     259       246     (59)   187

Interest Bearing
Deposits:

Int-bearing demand                     11     (1)      10        (0)      3      3
Money market savings                    1      1        2         1       2      3
Savings deposits                      (10)   (12)     (22)       (8)     (3)   (11)
Time deposits GREATER THAN $100M       80    (10)      70        41      (5)    36
Time deposits LESS THAN $100M          21    (12)      10       121       9    130
Other Borrowing                        17     26       43       (10)      0     (9)
                                     -----------------------   ----------------------

Total interest bearing deposits       119     (6)     114       100      51    151
                                     -----------------------   ----------------------
                                     -----------------------   ----------------------
Net change in net interest            197    (52)     146       146    (109)    36
</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 all estimated credit losses in light of
all known relevant factors.  At the end of 1997, 1996 and 1995, the Bank's
allowance stood at 1.04 percent, 1.01 percent and 1.00 percent of gross
loans, respectively. Provisions were made to the allowance for loan losses in
1997, 1996 and 1995 of $120,000, $52,500, and $120,000, respectively.  Loans
charged off totaled $106,200 in 1997, $44,400 in 1996 and $159,600 in 1995.
Recoveries for these same periods were $1,800, $20,700 and $20,000.


PAGE 25

<PAGE>

      The Bank's non performing (delinquent 90 days or more and non-accrual)
loans as a percentage of total loans was .81 percent and 1.13 percent and .14
percent as of the end of 1997, 1996 and 1995, 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,
                                         1997       1996       1995
                                        -----      ------     ------
                                           (Dollars in thousands)
<S>                                    <C>         <C>        <C>
Service charges on deposit accounts       328        372        339
Other service charges, commissions
   commissions and fees                   421        353        310
Income from sales and servicing of
   SBA loans                              324        259        386
Gain (Loss) on sale of other
   real estate                              0          0          0
                                        -----      ------     ------
Total non-interest Income                1074        983       1035
</TABLE>

     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.

     Total non-interest income decreased $51,600 (4.99%) in 1996 when
compared with 1995.  Income from sales and servicing SBA Loans decreased
$127,100 (32.93%) in 1996 due to a decline in the average dollar amount of
loans funded and sold. This decrease was partially offset by increases in
service charges on deposit accounts of $32,700 (9.46%) and other operating


PAGE 26

<PAGE>

income of $42,800 (13.81%).  The largest increase in other operating income
was a $39,000 (16.60%) increase in merchant credit card processing.

     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 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                    1997           1996           1995
                                ------------   ------------   ------------
<S>                              <C>            <C>            <C>
SBA loans authorized             $3,551,800     $1,937,000     $3,170,000
                                ------------   ------------   ------------
                                ------------   ------------   ------------

SBA loans sold                   $2,524,100     $1,842,800     $2,582,000
                                ------------   ------------   ------------
                                ------------   ------------   ------------
</TABLE>

SUMMARY OF INCOME FROM SALES AND
  SERVICING OF SBA LOANS
--------------------------------
<TABLE>
<S>                               <C>            <C>            <C>
Income from premium               $ 178,400      $ 138,600      $ 230,100

Income from servicing               170,000        165,000        190,700

Less origination expense            (24,000)       (44,700)       (34,500)
                                ------------   ------------   ------------
Total income from sales and
  servicing of SBA loans          $ 324,400      $ 258,900      $ 386,300
                                ------------   ------------   ------------
                                ------------   ------------   ------------
</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,
                                      -------------------------------
                                       1997         1996       1995
                                      ------       ------     -------
                                          (DOLLARS IN THOUSANDS)
<S>                                   <C>          <C>        <C>

Salaries and benefits                  1,405        1,362       1,237
Occupancy and equipment expense          251          256         263
Professional fees                         85          121         115
Data Processing                          172          149         141
Other expenses                           591          556         600
                                       -----        -----       -----
    Total other Expenses               2,505        2,444       2,356

</TABLE>


    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.  Salary expense for 1995 increased $56,000, as a
result of employee merit pay increases and an addition to staff resulting
from the opening of a Loan Production Office.

    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. In 1995 occupancy expense decreased $298,000 as a
result of the relocation of the main office from a leased facility at 665
Munras Avenue to the Bank owned facility at 601 Munras Avenue.  Management
negotiated the early termination of the 665 Munras Avenue lease effective
February 1, 1995.  Early termination of the lease, due to expire April 30,
1995, expedited decreased occupancy expense beginning in February rather than
May.

    Data processing expenses increased $23,600 in 1997, 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
over the preceding two years.

    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.  Professional fees
increased $48,000 in 1995 primarily due to costs associated with a third
party compliance review and the formation of an Employee Stock Ownership Plan.


PAGE 28

<PAGE>


    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:

<TABLE>
<CAPTION>
                     1997           1996          1995
                   --------       --------       -------
<S>                <C>            <C>            <C>
Current
      State        $171,300        $78,500       $50,700
      Federal        57,400         35,600        51,800

Deferred
      Federal       (31,400)       (34,000)      (42,600)
      State         (21,700)          (100)      (10,700)
                   --------        -------       -------
                   $175,600        $80,000       $49,200
                   --------        -------       -------
                   --------        -------       -------
</TABLE>

PAGE 29

<PAGE>

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

<TABLE>
<CAPTION>
                                           1997           1996            1995
                                          ------         -------        -------
<S>                                       <C>            <C>            <C>
Statutory federal tax rate                 34.0%           34.0%          34.0%
State franchise                            10.8            11.3           11.3
Expiration of general business credits       --              --            3.7
Utilization of general business credits    (1.1)          (10.8)          (9.7)
Utilization of net operating loss
   carry forwards to reduce tax              --             --           (14.0)
Decrease in deferred tax asset
   valuation allowance                       --            (7.2)          (6.6)
                                          -----           -----          -----
Effective tax rates                        43.7%           27.3%         (15.0)%
                                          -----           -----          -----
                                          -----           -----          -----

</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>
                                1997              1996
                              ---------         --------
<S>                           <C>               <C>
Deferred tax asset
   Federal                     $161,600         $183,300
   State                         66,700           65,700
                               --------         --------
Net deferred tax asset         $228,300         $249,000
</TABLE>

    The components of the net deferred tax asset, included in other assets,
are as follows:

<TABLE>
<CAPTION>

                                                1997          1996
                                              --------     ---------
<S>                                           <C>          <C>
Deferred tax asset
   Accrual to cash adjustments                 193,900      $144,100
   Investments:
      Net urealized (gain) loss on
      securities available for sale            (59,800)           --

   Charitable contribution carry forward            --         4,300
   Allowance for loan losses                    74,900        62,400
   General business credit carry forward            --        18,800
   Depreciation                                 19,300        19,400
                                              --------      --------
     Net deferred tax asset                   $228,300      $249,000
</TABLE>

PAGE 30


<PAGE>

    Management has evaluated the deferred tax asset recognized under
Statement 109.  As of December 31, 1997 and 1996 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 72.35% of
average earning assets, and 62.32% of average total assets during 1997,
compared with 75.38% and 64.62%, respectively during 1996.  In 1997, average
loans increased 5.66% from $24,647,000 in 1996 to $26,042,000.  Average real
estate loans increased $1,510,000 (11.50%), average commercial loans
increased $79,000 (.73%); while installment loans decreased $195,000 (28.37%).

    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.

    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.


PAGE 31

<PAGE>

    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.

<TABLE>
<CAPTION>

                                                       Years Ended December 31,
                                        ------------------------------------------------------
                                          1997        1996        1995       1994        1993
                                        ------------------------------------------------------
                                                       (Dollars in thousands)
<S>                                     <C>         <C>           <C>       <C>         <C>
Commercial and industrial                10,843      10,120       10,059       9,083     9,289
Real estate, construction                   347          --           --          --       791
Real estate, mortgage                    13,921      14,336       11,246      13,528    13,761
Installment                                 520         583          888       1,241     1,133
Government guaranteed loans purchased       284         307          328         343       363
                                        ------------------------------------------------------
                                         25,914      25,346       22,521      24,195    25,336
Less:
Allowance for possible loan losses         (269)       (254)        (225)       (245)     (255)
Deferred origination fees, net              (40)        (37)         (27)        (32)      (40)
                                        ------------------------------------------------------
                                         25,606      25,056       22,270      23,918    25,042
                                        ------------------------------------------------------
                                        ------------------------------------------------------
</TABLE>

PAGE 32


<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,
                            -----------------------------------------------
                              1997          1996        1995     1994      1993
                            --------      -------     -------   ------    -------
                                          (Dollars in thousands)
<S>                         <C>           <C>         <C>       <C>       <C>
Accruing,
PAST DUE 90 DAYS OR MORE:

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

NON-ACCRUAL LOANS:
Real Estate                        0            0         0          0        0
Commercial                        55           35        31        170      189
Installment                       21           23         0         33       14
                                ----         ----      ----       ----     ----
  Total non-accrual               76           58        31        203      203
  Total non-performing           210          281        31        203      203

Total loans end of period     25,914       25,346    22,521     24,195   25,336
 Ratio of non-performing
  loans to total loans at
  end of period                0.81%        1.11%     0.14%      0.84%    0.80%

</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 33


<PAGE>


SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
                                            For the Years ended December 31,
                                  -----------------------------------------------------
                                   1997        1996        1995      1994         1993
                                  ------      ------      ------    ------       ------
<S>                               <C>         <C>         <C>       <C>          <C>
                                                  (Dollars in thousands)
Average loans outstanding         26,042      24,647      26,663     24,631      24,867

Allowance, beginning
   of period                         254         225         245        255         242
Loans charged off during
   period:
   Commercial                        101          39         147         41          47
   Installment                         5           5          12          4          18
   Real Estate                         0           0           0          0          62
   Other                               0           1           0          0           0
                                  ------      ------      ------     -----       ------
   Total charge offs                 106          45         159         45         127
Recoveries during period:
   Commercial                          1           8          13          2           9
   Installment                         1          13           6          4           9
   Other                               0           0           0          0           0
                                  ------      ------      ------     -----       ------
   Total recoveries                    2          21          19          6          18
Net Loans charged off
   during the period                 104          24         140         39         109
Additions to allowance for
   possible loan losses              120          53         120         30         122
Allowance, end of period             269         254         225        246         255
Ratio of net loans charged
   off to average Loans
   outstanding during the period   0.40%       0.10%       0.53%      0.16%       0.44%
Ratio of allowance to total
   at end of period                1.04%       1.01%       1.00%      1.01%       1.01%

</TABLE>

PAGE 34
<PAGE>

FUNDING SOURCES

     Average deposits increased 9.86% to $36,085,000 in 1997 from $32,848,000 in
1996.  In 1997 the mix of deposits changed as average certificates of deposit
increased 9.70%, average demand deposits increased 16.89%; while average
interest checking, money market and savings accounts as a group decreased 5.16%.
Average certificates of deposit represented 53.12% of average deposits in 1997
compared with 53.19% in 1996.  Average interest checking, money market and
savings accounts as a group were 26.19% of average deposits in 1997 compared
with 27.36% in 1996.  Average demand deposits represented 20.69% of average
deposits in 1997 compared with 19.45% in 1996.

     The Bank has a line of credit from the Federal Home Loan Bank of San
Francisco with a maximum borrowing limit on December 31, 1997 of $4,565,000.
The line of credit is secured by certain of the Bank's real estate secured
loans.  At December 31, 1997 the Bank had three $1,000,000 advances which bear
interest at 4.88%, 6.53% and 6.81%, respectively.  The advances mature in
October 1998, June 2000 and June 2004, respectively.  Management believes that
these advances provide funds of medium duration at a lower cost than comparable
deposits.  The Bank did not utilize any short term borrowings in 1997, 1996 or
1995.


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, 1997,
stockholders' equity was $3,030,200 versus $2,898,200  at December 31, 1996.
The Corporation paid cash dividends of $.12 and $.11 per share in 1997 and 1996,
respectively.  The Bank paid cash dividends totaling $170,000 and $150,000 to
the Corporation in 1997 and 1996, and a cash dividend of $0.10 per share in
1995.

     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 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

PAGE 35

<PAGE>

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 10.26% and 10.36% at December 31,
1997 and 1996, respectively, and a total risk-based capital ratio of 11.20% and
11.37% at December 31, 1997 and 1996, 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 6.63% and 6.40% at December 31, 1997 and 1996,
respectively (calculated under regulatory accounting principles).

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 line of credit
from the Federal Home Loan Bank of San Francisco of approximately $4,565,000
respectively 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, 1997, 1996 and 1995 was 23.46 percent, 30.27
percent, and 30.82 percent respectively, while its average loan to deposit ratio
for such years was 72.17 percent and 75.03 percent and 78.86 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 36

<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 monthly basis through the use
of a model which calculates the effect on earnings of changes in rates.  The
primary tool of management for quantifying interest rate exposure is an Earnings
Change Ratio (ECR) analysis.  The ECR analysis provides a display of the balance
sheet gap, weighted by the appropriate rate sensitivity factor, to define the
impact on the income statement from a 100 basis-point change in the National
Prime rate.  The analysis assumes an immediate and parallel change in all rates,
and calculates the effect of the change for the next twelve-month period.

     The ECR for each rate sensitive asset and liability is developed based on
the relationship of the average yield on the product to the average national
prime rate, and average balances subject to repricing in the next twelve month.
The balance sheet gap is adjusted by weighting each line item based on its
anticipated rate sensitivity (ECR).  The model provides an indication of the
effect on income over the next twelve months, for both an increase or decrease
of 100 basis points in the national prime rate.

PAGE 37

<PAGE>

     The following table sets forth the results of the interest rate risk
analysis at December 31, 1997.

<TABLE>
<CAPTION>

                                  One Year               One Year                    One Year
                                  Balance     Earnings     Income        Earnings     Income
                                   Sheet      Change     Statement       Change      Statement
                                    Gap       Ratio         Gap           Ratio        Gap
                                ----------  -----------  ----------     ----------    ----------
                                                      (Dollars in thousands)
<S>                              <C>         <C>         <C>             <C>          <C>
RATE SENSITIVE ASSETS

  DUE FROM BANKS-TIME               100          49%             49           49%            49
  LOANS:
Fixed rate less than 1 year       2,846          82%          2,345           82%         2,345

Floating rate less than 1 year   11,546          91%         10,492           91%        10,492

  SECURITIES:
Fed Funds Sold & Repos            7,290         100%          7,290          100%         7,290
Fixed Rate Securities
  Maturities less than 1 year       500          68%            342           68%           342
Fixed Rate Securities
  Callable less than 1 year       2,500          91%          2,277            0%             0
                               --------                     -------                    --------
Total Rate Sensitive Assets      24,781                      22,795                      20,518

RATE SENSITIVE LIABILITIES
Savings                           2,145          10%            215           15%           322
Money Market Checking             5,779          10%            578           15%           867
Money Market Savings               1,705          10%            170           15%           256
CDs greater than $100,000         6,018          79%          4,741           79%         4,741
CDs less than $100,000            7,787          80%          6,215           80%         6,215
Other Borrowing                   1,000          43%            427           43%           427
                               --------                    --------                    --------
Total Rate Sensitive
  Liabilities                    24,434                   12,345                         12,827

RATE SENSITIVITY GAP                348                   10,449                          7,691

TOTAL ASSETS                     46,156                   46,156                         46,156

GAP AS A PERCENTAGE
  OF TOTAL ASSETS                  0.75%                   22.64%                         16.66%

Estimated change in income                               (104.49)                         79.61

</TABLE>


     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, 1997 and 1996:

<TABLE>
<CAPTION>
                                         INVESTMENT PORTFOLIO MIX
                                          (Dollars in thousands)
                                         1997                1996
                                   -----------------   ------------------
                                    Book      Market    Book      Market
                                    value     value     value     value

<S>                                  <C>       <C>       <C>       <C>
Available for sale:
Federal Home Loan Bank Stock         330       330       300       300
Pacific Coast Bankers'
  Bank Stock                         150       150       ---       ---
                                   -----     -----     -----     -----

Total                                480       480       300       300
                                   -----     -----     -----     -----
                                   -----     -----     -----     -----
Held to maturity:
U.S. Treasury securities             500       501       500       500
U.S. Government Agencies           4,995     5,000     2,001     2,000
                                   -----     -----     -----     -----
Total                              5,495     5,501     2,501     2,500
                                   -----     -----     -----     -----
                                   -----     -----     -----     -----
</TABLE>

    The following table summarizes the maturity of the Bank's investment
securities at December 31, 1997:

<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>
U.S. Treasury securities                      500       ---        ---       ---     500

U.S. Government Agencies                      ---         0      1,495     3,500   4,995

Federal Home Loan Stock                       330       ---        ---       ---     330
Pacific Coast Bankers' Bank                   150       ---        ---       ---     150
                                          -------   -------   --------   -------   -----

Total                                         980         0      1,495     3,500   5,976
                                          -------   -------   --------   -------   -----
                                          -------   -------   --------   -------   -----
</TABLE>


PAGE 39

<PAGE>

ITEM 7. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>

     <S>                                                                 <C>
     Independent Auditors' Report on the Financial Statements            1

     Consolidated Balance Sheets at December 31, 1997 and 1996           2

     Consolidated Statements of Operations for each of the three years
     in the period ended December 31, 1997                               3

     Consolidated Statements of Changes in Stockholders' Equity for
     each of the three years in the period ended December 31, 1997       4

     Consolidated Statements of Cash Flows for each of the three years
     in the period ended December 31, 1997                             5-6

     Notes to Consolidated Financial Statements                       7-30

</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 1997, 1996 or 1995.

                                       PART III

PAGE 40

<PAGE>

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.          56              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                54              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.              68              Partner - Hudson, Martin, Ferrante & Street, Monterey
 Director since 1976

Carla S. Hudson, CPA                 44              Partner - Huey and Hudson, Certified Public Accountants
 Director since 1994

John M. Lotz                         56              President and Chief Executive Officer, of Couroc of Monterey
 Director since 1991                                 since 1996.  Real estate developer, Chairman of the Board &
                                                     Chief Executive Officer of The Monterey Bay Company since 1991.

Kevin N. Quinn                       56              Senior Vice President, Chief Lending Officer of Monterey
 Senior Vice President,                              County Bank since 1994, Vice President, Lending of
 Chief Lending Officer                               Monterey County Bank since 1/89.

Bruce N. Warner                      50              Senior Vice President, Chief Financial Officer and Chief
 Senior Vice President,                              Operating Officer of Monterey County Bank since 1993;
 Chief Financial Officer                             Vice President and Cashier of Houston National Bank,
 and Chief Operating Officer                         Houston, Texas, 1988 - 1992.

</TABLE>

PAGE 41

<PAGE>

<TABLE>

<S>                                  <C>             <C>

Andre G. Herrera                     33              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                   60              Vice President, Loan Administration, Monterey County
 Vice President                                      Bank since 1988.

</TABLE>

     Directors of the Corporation serve in similar capacities with the Bank.
Executive officers of the Bank (except for Mr. Quinn 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 1997.

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 1997.

<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.   1997   $150,938  $160,000   $5,197 (1)    None          None         $7,530 (2)
 Chairman, President & CEO    1996    154,039   103,000    3,972 (1)    None          None         11,776 (2)
                              1995    164,360   130,000    3,555 (1)    None          None         16,088 (2)

</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 42

<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 #)
----                    ---         -------                             --------   --------  --------
<C>                <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 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

PAGE 43

<PAGE>

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 1997, 1996 and 1995 was $7,530,
$11,776 and $16,088, 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' 1987 Amended Stock Option Plan to the
named executive officer during the year ended December 31, 1997.

                          Option/SAR Grants in Last Fiscal Year

<TABLE>
<CAPTION>

                                 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>
Kevin N. Quinn                    2,000                6.67%               2.75             5/1/02
Bruce N. Warner                  10,000               33.33%               2.75             5/1/02
Andre G. Herrera                  5,000               16.67%               2.75             5/1/02
Mary Ellen Stanton                5,000               16.67%               2.75             5/1/02


</TABLE>

PAGE 44



<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 1997, 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, 1997 and the value of
such options based on the last transaction in 1997, which the Corporation has
knowledge of, and certain information concerning unexercised options under
the 11987 Amended Stock Option Plan.

               Aggregated Option/Sar Exercises in Last Fiscal Year
                            and FY-End Options/Sar Values

<TABLE>
<CAPTION>
                                                                                           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        60,000         None         33,000         None
Kevin N. Quinn                 None         None         7,000         None          1,250         None
Bruce N. Warner                None         None        15,000         None          1,250         None
Andre G. Herrera               None         None        10,000         None          1,250         None
Mary Ellen Stanton             None         None        15,000         None          2,500         None


</TABLE>

    In 1997, 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.        387,102(1)             42.14
P.O. Box 1344
Carmel, CA  93921

David S. Lewis, Trust              110,000                 12.81
30500 Aurora del Mar
Carmel, CA  93923

</TABLE>

(1) Includes 60,000 shares subject to employee stock options and 11,437
    shares held beneficially for Mr. Chrietzberg and Mrs. Chrietzberg in
    Individual Retirement Accounts where voting power is shared with the
    custodian of the account.  Also includes 350 shares held by Mrs.
    Chrietzberg and included pursuant to California community property laws.
    250,000 shares of the Common Stock owned by Mr. Chrietzberg are pledged
    to secure a loan from an unaffiliated bank.

PAGE 45

<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.        387,102(1)(2)(3)    42.14%      60,000         38.10%
Sandra G. Chrietzberg              387,102(2)(3)       42.14%      60,000         38.10%
Peter J. Coniglio                   36,725(4)(5)        4.20%      15,000          2.47%
Carla S. Hudson                     11,603(6)           1.34%       7,500          0.48%
John M. Lotz                        12,500(7)           1.44%      10,000          0.29%
All directors & executive
officers as a Group               517,023(8)           51.80%                     43.97%

</TABLE>

(1)  Includes 60,000 shares subject to his employee stock options.  250,000
     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 11,437 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 15,000 shares subject to the respective director's stock options.
     Of the remaining shares 16,475 are held in a family trust controlled by
     Mr. Coniglio, as to which he has sole voting and investment power, while
     5,250 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 7,500 shares subject to the respective director's stock options.
     The remaining shares are held jointly with family members, other than
     1,000 shares held in a corporate pension, as to which Ms. Hudson has
     voting and investment power.


PAGE 46

<PAGE>

(7)  Includes 10,000 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 47,000 shares subject to
     options held by executive officers who are not also directors.

     250,000 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. Loans to such borrowers as of December 31, 1997 amounted
to approximately $254,036 as makers and/or endorsers.  The total of such
loans represents approximately 8.38% of the Bank's total capital accounts.
Outstanding as of MaximumDecember 31, 1997

<TABLE>
<CAPTION>
                                                               Outstanding as of
                                            Maximum            December 31, 1997
                                    ------------------------ -----------------------
                                                 Percent of             Percent of
                                                   Equity                 Equity
      Name                           Amount        Capital   Amount       Capital
---------------------------        --------      ----------  -------    ---------
<S>                                <C>           <C>         <C>        <C>
Charles T. Chrietzberg, Jr.          11,363         0.39%          0         --
Peter J. Coniglio                    95,750         3.16%     85,750       2.83%
Carla S. Hudson                      48,896         1.44%     38,983       1.29%
John M. Lotz                        185,760         6.41%    123,270       4.07%
David Lewis                         362,185        12.04%          0         --

Directors, Principal                962,164        33.20%    254,036       8.38%
Shareholder, and
Officers as a Group
(8 in number)

</TABLE>

    During 1997, 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 $33,102.  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 47

<PAGE>

Item 13. EXHIBITS AND REPORTS

A. EXHIBITS

Item            Description
----            -----------
2             Plan of Merger and Meger 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)1987 Amended Stock Option Plan and Stock Option Agreements
              Filed as exhibit to form 10-KSB dated December 31, 1995
              (2)Employment Contract of Charles T. Chrietzberg,
              Jr., dated May 14, 1997
              (3)Deferred Compensation Agreement, dated December 31, 1993.
              Filed as exhibit to Form 10-KSB dated December 31, 1995.

   11         Statement Reference Computation of Per Share Earnings

   21         Subsidiaries


B. REPORTS

    None

PAGE 48









<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: 3-19-98                     By:/s/ Charles T. Chrietzberg, Jr.
      -------                        --------------------------------
                                         Charles T. Chrietzberg, Jr.
                                         Chief Executive Officer
                                         and President

Date: 3/19/98                     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.

<TABLE>
<CAPTION>

Name                                   Position                           Date
----                                   --------                           ----
<S>                                    <C>                                <C>
/s/ Charles T. Chrietzberg, Jr.                                           3/19/98
-------------------------------                                           -------
Charles T. Chrietzberg, Jr.
Director


/s/ Sandra G. Chrietzberg                                                 3/19/98
-------------------------------                                           -------
Sandra G. Chrietzberg
Director


/s/ Peter J. Coniglio                                                     3/19/98
-------------------------------                                           -------
Peter J. Coniglio
Director


/s/ Carla S. Hudson                                                       3/13/98
-------------------------------                                           -------
Carla S. Hudson
Director


/s/ John M. Lotz                                                          3/19/98
-------------------------------                                           -------
John M. Lotz
Director

</TABLE>

PAGE 49

<PAGE>




                       NORTHERN CALIFORNIA BANCORP, INC.
                                AND SUBSIDIARY

                         CONSOLIDATED FINANCIAL REPORT

                    YEARS ENDED DECEMBER 31, 1997 AND 1996





<PAGE>


                               TABLE OF CONTENTS

                                                              PAGE
                                                              ----
INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL
 STATEMENTS                                                     1

FINANCIAL STATEMENTS
 Consolidated Balance Sheets                                    2
 Consolidated Statements of Operations                          3
 Consolidated Statements of Stockholders' Equity                4
 Consolidated Statements of Cash Flows                        5-6
 Notes to Consolidated Financial Statements                  7-30



<PAGE>

                                 [LETTERHEAD]



                         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,
1997 and 1996 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, 1997.  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, 1997 and
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.

                                       /s/   HUTCHINSON AND BLOODGOOD LLP

January 29, 1998

                                      -1-



<PAGE>
                  NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS
                           December 31, 1997 and 1996

<TABLE>
<CAPTION>
                        ASSETS                            1997          1996
                        ------                            ----          ----
<S>                                                 <C>            <C>
Cash and due from banks (Note 2)                    $  11,060,600  $  9,820,100
Time deposits with other financial institutions           100,000           -
Investment securities, available for sale (Note 3)        480,200       299,800
Investment securities, held to maturity (Note 3)        5,495,300     2,500,200
Loans, held for sale                                      543,400       414,500
Loans, net (Note 5)                                    25,062,100    24,641,500
Bank premises and equipment, net (Note 6)               1,898,900     1,664,200
Interest receivable and other assets                    1,472,100     1,458,800
                                                    ------------- -------------
  Total assets                                      $  46,112,600 $  40,799,100
                                                    ------------- -------------
                                                    ------------- -------------

        LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
 Demand                                              $  8,734,200  $  7,572,300
 Interest-bearing transaction                           7,483,900     6,792,200
 Savings                                                2,145,300     2,598,700
 Time                                                  12,742,700    12,723,200
 Time in denominations of $100,000 or more              8,099,500     6,480,700
                                                    ------------- -------------
  Total deposits                                       39,205,600    36,167,100

Federal Home Loan Bank borrowed funds (Note 7)          3,000,000     1,000,000
Interest payable and other liabilities                    876,800       734,100
                                                    ------------- -------------
  Total liabilities                                    43,082,400    37,901,200
                                                    ------------- -------------
Commitments (Note 9)

Stockholders' equity (Notes 10, 11, and 12)
 Common stock, no stated par value, authorized:
2,500,000 shares issued and outstanding: 858,526
in 1997 and 879,465 in 1996                             2,716,800     2,779,600
                                                    ------------- -------------
Retained earnings                                         313,400       118,300

 Total stockholders' equity                             3,030,200     2,897,900
                                                    ------------- -------------
 Total liabilities and stockholders' equity         $  46,112,600 $  40,799,100
                                                    ------------- -------------
                                                    ------------- -------------
</TABLE>


           See accompanying notes to consolidated financial statements.

                                       -2-


<PAGE>

                    NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF OPERATIONS
                   Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
                                                          1997           1996          1995
<S>                                                  <C>            <C>           <C>
Interest income
 Loans                                               $  2,755,700   $  2,676,800  $  2,546,400
 Time deposits with financial institutions                  1,000          5,400        23,700
 Investment securities                                    346,500        117,500       102,100
 Federal funds sold                                       295,900        340,700       279,400
                                                     ------------   ------------  ------------
   Total interest income                                3,399,100      3,140,400     2,951,600
                                                     ------------   ------------  ------------
Interest expense
 Interest-bearing transaction accounts                    120,500        108,300       103,400
 Savings and time deposit accounts                        797,900        810,800       700,200
 Time deposits in denominations of $100,00 or more        402,900        331,800       288,000
 Federal Home Loan Bank                                   125,900         82,700        91,700
                                                     ------------   ------------  ------------
   Total interest expense                               1,447,200      1,333,600     1,183,300
                                                     ------------   ------------  ------------
  Net interest income                                   1,951,900      1,806,800     1,768,300
Provision for loan losses (Note 5)                        120,000         52,500       120,000
  Net interest income after provision for loan losses   1,831,900      1,754,300     1,648,300
Other income
 Service charges on deposit accounts                      328,400        371,700       338,500
 Income from sales and servicing of SBA loans (Note 4)    324,400        258,900       386,300
 Other income                                             421,300        352,700       309,700
                                                     ------------   ------------  ------------
  Total other income                                    1,074,100        983,300     1,034,500
                                                     ------------   ------------  ------------
Operating expense
 Salaries and employee benefits                         1,405,100      1,362,400     1,236,800
 Occupancy and equipment expense                          251,000        256,000       262,900
 Professional fees                                         85,400        120,800       115,200
 Data processing                                          172,300        148,700       141,200
 Other general and administrative                         590,700        556,300       599,500
                                                     ------------   ------------  ------------
  Total operating expenses                              2,504,500      2,444,200     2,355,600
                                                     ------------   ------------  ------------
Income before tax provision                               401,500        293,400       327,200
Income tax provision (Note 8)                             175,600         80,000        49,200
                                                     ------------   ------------  ------------
Net Income                                             $  225,900     $  213,400    $  278,000
                                                     ------------   ------------  ------------
                                                     ------------   ------------  ------------

Earnings per common share
 Basic                                                    $  0.26        $  0.24       $  0.32
 Diluted                                                  $  0.22        $  0.21       $  0.27

</TABLE>


                 See accompanying notes to consolidated financial statements.

                                          -3-


<PAGE>

                       NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

<TABLE>
Caption
                                                                                                  Net Unrealized
                                                                                    Retained      Gain (Loss) on
                                                                                    Earnings   Investment Securities
                                                              Common stock        (Accumulated  Available for Sale
                                                          Shares        Amount       Deficit)    and Other Assets    Total
<S>                                                       <C>       <C>            <C>               <C>          <C>
Balances, December 31, 1994                               879,465   $  2,779,600   $  (188,500)      $  (7,500)   $  2,583,600
 Net income                                                     -              -        278,000              -         278,000
 Payment of common stock dividend ($.10 per share)              -              -       (87,900)              -         (87,900)
 Change in net unrealized loss on securities
  available for sale, after tax effects (Note 3)                -              -              -          1,800           1,800
                                                          -------      ---------     ----------      ---------     -----------
Balances, December 31, 1995                               879,465      2,779,600          1,600         (5,700)      2,775,500
                                                          -------      ---------     ----------      ---------     -----------
 Net income                                                     -              -        213,400              -         213,400
 Payment of common stock dividend ($.11 per share)              -              -       (96,700)              -         (96,700)
 Change in net unrealized loss on securities
  available for sale, after tax effects (Note 3)                -              -              -          5,700           5,700
                                                          -------      ---------     ----------      ---------     -----------
Balances, December 31, 1996                               879,465      2,779,600        118,300              -       2,897,900
                                                          -------      ---------     ----------      ---------     -----------
 Net income                                                     -              -        225,900              -         225,900
                                                          -------      ---------     ----------      ---------     -----------
 Payment of common stock dividend ($.12 per share)              -              -      (103,000)              -        (103,000)
 Repurchase of common stock                              (20,939)       (62,800)              -              -         (62,800)
 Change in net unrealized gain on other assets
  -Servicing financial asset, after tax effects                 -              -              -         16,700          16,700
 Cumulative effect of change in accounting
  principle, after tax effects (Note 12)                        -              -              -         55,500          55,500
                                                          -------      ---------     ----------      ---------     -----------
Balances, December 31, 1997                               858,526      2,716,800     $  241,200      $  72,200     $ 3,030,200
                                                          -------      ---------     ----------      ---------     -----------
                                                          -------      ---------     ----------      ---------     -----------
</TABLE>



                   See accompanying notes to consolidated financial statements.

                                                -4-
<PAGE>


              NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                   CONSOLIDATED STATEMENTS OF CASH FLOWS
              Years Ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>


                                                            1997           1996          1995
<S>                                                     <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                            $  225,900     $  213,400    $  278,000
  Adjustments to reconcile net income to net cash
    provided by operating activities:
  Depreciation and amortization expense                    135,200        118,400       108,800
  Amortization of premiums on investment securities         (2,500)        53,200         5,200
  Provision for loan losses                                120,000         52,500       120,000
  Amortization of deferred servicing premium                19,100         31,700        24,700
  Amortization of deferred gains on SBA loans               (4,400)        (4,800)       (4,500)
  Increase (decrease) in accrued expenses                  173,900        (65,900)      152,700
  (Increase) decrease in other assets                      124,500       (165,600)     (144,500)
  Increase in deferred tax asset                           (53,100)       (34,100)      (53,300)
  Increase (decrease) in interest payable                  (39,000)        58,300       119,700
  Increase in interest receivable                          (16,900)       (38,600)      (29,500)
                                                        -----------     ----------    ----------
    Net cash provided by operating activities              682,700        218,500       577,300
                                                        ----------      ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from maturity of time deposits                       --         99,000       198,000
  Purchase of time deposits                               (100,000)            --            --
  Proceeds from maturity of investment securities        2,500,000        697,100       593,200
  Principal payments on investment securities                   --         78,600       196,000
  Purchase of investment securities                     (5,675,500)    (2,559,200)     (629,700)
  Net (increase) decrease in loans                        (540,600)    (3,215,000)    2,314,100
  (Increase) decrease in loans held for sale              (128,900)       375,900      (505,700)
  Proceeds from sale of equipment                               --         12,700         2,600
  Additions to Bank premises and equipment                (369,900)       (99,000)     (280,200)
                                                        ----------     -----------    ----------
  Net cash from (used by) investing activities          (4,314,900)    (4,609,900)    1,888,300
                                                        ----------     -----------    ----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in deposits                               3,038,500      4,979,300     2,406,100
  Advance (repayment) of Federal Home Loan Bank
   advance                                               2,000,000     (1,000,000)           --
  Repurchase of common stock                               (62,800)            --            --
  Cash dividends paid on common stock                     (103,000)       (96,700)      (87,900)
                                                        ----------     ----------     ----------
  Net cash provided by financing activities              4,872,700      3,882,600     2,318,200
                                                        ----------     ----------     ----------

  Net increase (decrease) in cash and cash
   equivalents                                           1,240,500       (508,800)    4,783,800

CASH AND CASH EQUIVALENTS, BEGINNING                     9,820,100     10,328,900     5,545,100
                                                        ----------     ----------     ----------

CASH AND CASH EQUIVALENTS, ENDING                    $  11,060,600   $  9,820,100  $  10,328,900
                                                        ----------     ----------     ----------
                                                        ----------     ----------     ----------
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      -5-


<PAGE>

                NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Years Ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>
                                                         1997           1996          1995
<S>                                                  <C>            <C>           <C>
OTHER CASH FLOW INFORMATION

Interest paid                                        $  1,360,300   $  1,281,100  $  1,063,600
                                                     ------------   ------------  -----------
Interest received                                    $  3,202,600   $  3,140,400  $  2,922,100
                                                     ------------   ------------  ------------
Income taxes paid                                    $    175,600   $    153,400  $     43,300
                                                     ------------   ------------  ------------
</TABLE>

























           See accompanying notes to consolidated financial statements.

                                     - 6 -

<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

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 Corporation 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 1996 and 1995
          consolidated financial statements to conform to the 1997
          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.

                                       -7-

<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

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 as a separate component of stockholders' equity, net of
          income tax effects. 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 Corporation 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 Corporation
          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 Corporation and the
          rate paid by the Corporation to the purchaser (excess servicing
          fee).  In calculating the gain, the Corporation assumes that the
          loans sold will be outstanding for one-half of their contractual
          lives.

          The Corporation'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.

                                       -8-

<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          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.

          LOANS AND LOAN FEES

          The Corporation 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 unadvanced 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 Corporation's allowance for losses on loans and other
          real estate owned.

                                       -9-


<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          ALLOWANCE FOR LOAN LOSSES (CONCLUDED)

          Such agencies may require the Corporation 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.

          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 Corporation does not
          separately identify individual consumer loans for impairment
          disclosure.

          LOAN SERVICING

          Effective January 1, 1995, the Corporation prospectively 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

                                     -10-


<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          LOAN SERVICING (CONCLUDED)

          The Corporation 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.  The effect of adopting SFAS No. 122 is not
          significant.

          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.

                                     -11-


<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          STOCK COMPENSATION PLANS

          In October 1995, the Financial Accounting Standards Board ("FASB")
          issued 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.

          EARNINGS PER SHARE

          In February 1997, FASB issued SFAS No. 128, "Earnings per Share"
          which requires that earnings per share be calculated on a basic and
          a dilutive basis.  Basic earnings per share represents income
          available to common stock 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
          conversion. 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 assumed conversion
          of outstanding dilutive stock options would increase the shares
          outstanding but would not require an adjustment to income as a
          result of the conversion.  The Statement is effective for interim
          and annual periods ending after December 15, 1997, and requires the
          restatement of all prior-period earnings per share data presented.
          Accordingly, the Corporation has restated all earnings per share
          data presented herein.

                                     -12-


<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          RECENT ACCOUNTING PRONOUNCEMENTS

          In June 1997, the FASB issued SFAS No. 130, "Reporting
          Comprehensive Income," effective for fiscal years beginning after
          December 15, 1997.  Accounting principles generally require that
          recognized revenue, expenses, gains, and losses be included in net
          income.  Certain FASB statements, however, require entities to
          report specific changes in assets and liabilities, such as
          unrealized gains and losses on available-for-sale securities, as a
          separate component of the equity section of the balance sheet.
          Such items, along with net income, are components of comprehensive
          income.  SFAS No. 130 requires that all items of comprehensive
          income be reported in a financial statement that is displayed with
          the same prominence as other financial statements. Additionally,
          SFAS No. 130 requires that the accumulated balance of other
          comprehensive income be displayed separately in from the retained
          earnings and additional paid-in capital in the equity section of
          the balance sheet.  The Corporation will adopt these disclosure
          requirements beginning in the first quarter of 1998.

NOTE 2.   CASH AND DUE FROM BANKS

          Aggregate reserves (in the form of cash and deposits with the
          Federal Reserve Bank) of $219,000 were maintained to satisfy
          federal regulatory requirements at December 31, 1997.

                                     -13-

<PAGE>

              NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

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, 1997
                                                       -----------------------------------------------------------
<S>                                                     <C>               <C>             <C>            <C>
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>

<TABLE>
<CAPTION>
                                                                             DECEMBER 31, 1996
                                                       ------------------------------------------------------------
<S>                                                    <C>               <C>             <C>            <C>
Securities Available for Sale
-----------------------------
  Federal Home Loan Bank                               $  299,800        $     -         $    -         $  299,800
                                                       ----------        ----------      ----------     ----------
                                                       ----------        ----------      ----------     ----------
Securities Held to Maturity
----------------------------
  U.S. Treasury securities                             $  499,600        $     -         $    -         $  499,600
  U.S. Government agencies                              2,000,600              -                700      1,999,900
                                                       ----------        ----------      ----------     ----------
      Total securities held to
           maturity                                    $2,500,200        $     -         $      700     $2,499,500
                                                       ----------        ----------      ----------     ----------
                                                       ----------        ----------      ----------     ----------

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

</TABLE>

                                     -14-

<PAGE>

            NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
NOTE 3.   INVESTMENT SECURITIES (CONTINUED)
          The amortized cost and fair value of debt securities by contractual
          maturity at December 31, 1997 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.

                                                                    AMORTIZED       FAIR
                                                                      COST          VALUE
           <S>                                                      <C>             <C>
           Due in one year or less                                  $  499,900    $  500,600
           Due between one and five years                                  -             -
           Due between five and ten years                            1,500,500     1,510,900
           Due after ten years                                       3,494,900     3,489,200
                                                                    ----------    ----------
                                                                    $5,495,300    $5,500,700
                                                                    ----------    ----------
                                                                    ----------    ----------
</TABLE>

          Proceeds from maturity of investment securities during 1997 were
          $2,500,000, with no gain or loss realized.  There was a gain
          realized from the sale of investments in 1996 of $5,700.

NOTE 4.   SALES AND SERVICING OF SBA LOANS

          A summary of the activity of SBA loans follows:
<TABLE>
<CAPTION>
                                                                        YEARS ENDED DECEMBER 31,
                                                                   1997           1996          1995
           <S>                                                  <C>            <C>           <C>
           SBA loans authorized                                 $3,551,800     $1,937,000    $3,170,000
                                                                ----------     ----------    ----------
                                                                ----------     ----------    ----------
           SBA loans sold                                       $2,524,100     $1,842,800    $2,582,000
                                                                ----------     ----------    ----------
                                                                ----------     ----------    ----------
</TABLE>
A summary of income from SBA loans sold is as follows:
<TABLE>
<CAPTION>
                                                                        YEARS ENDED DECEMBER 31,
                                                                   1997           1996          1995
           <S>                                                  <C>             <C>          <C>
           Income from premiums                                 $ 178,400       $ 138,600    $ 230,100
           Income from servicing                                  170,000         165,000      190,700
           Less loan origination expense                          (24,000)        (44,700)     (34,500)
                                                                ----------      ----------   ----------
              Total SBA sales and service income                $ 324,400       $ 258,900    $ 386,300
                                                                ----------      ----------   ----------
                                                                ----------      ----------   ----------
</TABLE>
                                     -15-
<PAGE>
             NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

NOTE 5.   LOANS AND ALLOWANCE FOR LOAN LOSSES
          A summary of the balances of loans follows:
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                     1997                   1996
          <S>                                                     <C>                   <C>
          Commercial and industrial                               $10,299,500           $9,705,400
          Construction                                                346,500                   -
          Real estate, mortgage                                    13,920,900           14,335,900
          Installment                                                 519,900              583,200
          Government guaranteed loans purchased                       284,000              307,300
                                                                   ----------           ----------
                                                                   25,370,800           24,931,800
          Less allowance for loan losses                             (269,100)            (253,500)
          Less deferred origination fees, net                         (39,600)             (36,800)
                                                                   ----------           ----------
                                                                  $25,062,100           $24,641,500
                                                                  -----------           -----------
</TABLE>
          The maturities of total loans follows:
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                     1997                   1996
          <S>                                                     <C>                   <C>
          Loans with a fixed rate:
            Due within one year                                   $ 2,907,400           $ 3,309,800
            Due one to five years                                   5,909,400             4,651,600
            Due over five years                                     3,667,900             4,326,100
                                                                  -----------           -----------
                                                                   12,484,700            12,287,500
          Loans with a variable rate                               12,886,100            12,644,300
                                                                  -----------           -----------
          Total loans                                             $25,370,800           $24,931,800
                                                                  -----------           -----------
                                                                  -----------           -----------
</TABLE>
          An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                                                     1997         1996         1995
          <S>                                                     <C>           <C>          <C>
          Begining balance                                        $ 253,500     $ 224,800    $ 244,900
          Recoveries                                                  1,800        20,700       19,500
          Loans charged off                                        (106,200)      (44,500)    (159,600)
          Provision for loan losses                                 120,000        52,500      120,000
                                                                  ----------    ----------   ----------
            Ending balance                                        $ 269,100     $ 253,500    $ 224,800
                                                                  ----------    ----------   ----------
                                                                  ----------    ----------   ----------
</TABLE>
                                     -16-




<PAGE>

                NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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


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

          As of December 31, 1997 and 1996, the recorded investment in
          impaired loans totaled $283,000 and $486,300 with corresponding
          valuation allowances of $32,200 and $39,200, respectively.  No
          additional amounts are committed to be advanced in connection with
          impaired loans.

          For the years ended December 31, 1997 and 1996, the average
          recorded investment in impaired loans amounted to approximately
          $463,500 and $486,200, respectively.  Non-accrual loans totaled
          $75,900 and $58,100 at December 31, 1997 and 1996, respectively.
          If interest on non-accrual loans had been accrued, such income
          would have approximated $11,000 and $8,500 for 1997 and 1996,
          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
                                                           1997           1996      USEFUL LIVES
<S>                                                   <C>            <C>             <C>
         Building and land                            $   915,400    $   915,400      40 years
         Building improvements                            338,600        341,700      40 years
         Leasehold improvements                           479,700        246,000     Lease term
         Furniture and equipment                        1,620,800      1,482,300     3-8 years
                                                      -----------    -----------
                                                        3,354,500      2,985,400
         Accumulated depreciation                      (1,455,600)    (1,321,200)
                                                      -----------    -----------
                                                      $ 1,898,900    $ 1,664,200
                                                      -----------    -----------
                                                      -----------    -----------
</TABLE>

          Depreciation expense of $135,200, $118,400, and $108,800 was
          included in occupancy and equipment expense for the years ended
          1997, 1996, and 1995, respectively.

NOTE 7.   SHORT-TERM BORROWINGS

          The Corporation entered into an advance and security agreement with
          the Federal Home Loan Bank of San Francisco on January 21, 1993.
          At December 31, 1997 the Corporation has three $1,000,000 advances
          which bear interest at 4.88%, 6.53%, and 6.81%, respectively. The
          advances are secured by pledged loan principal in the amount of
          $5,240,000.  The advances mature in October 1998, June 2000, and
          June 2004, respectively.


                                        -17-
<PAGE>

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,
                                                          1997           1996           1995
<S>                                                    <C>             <C>           <C>
          Current tax provision:
            Federal                                     $ 171,300      $  78,500     $  51,800
            State                                          57,400         35,600        50,700
                                                        ---------      ---------     ---------
                                                          228,700        114,100       102,500
                                                        ---------      ---------     ---------

          Deferred tax benefit:
            Federal                                       (31,400)       (34,000)      (42,600)
            State                                         (21,700)          (100)      (10,700)
                                                        ---------      ---------     ---------
                                                          (53,100)       (34,100)      (53,300)
                                                        ---------      ---------     ---------
                                                        $ 175,600      $  80,000     $  49,200
                                                        ---------      ---------     ---------
                                                        ---------      ---------     ---------
</TABLE>

          The reasons for the differences between the statutory federal
          income tax rate and the effective tax rates are summarized as
          follows:

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                               1997      1996     1995
<S>                                                            <C>       <C>      <C>
         Statutory federal tax rate                            34.0%     34.0%    34.0%
         State franchise                                       10.8      11.3     11.3
         Utilization of general business credits               (1.1)    (10.8)    (9.7)
         Utilization of net operating loss carryforwards
           to reduce tax                                        -         -      (14.0)
         Decrease in deferred tax asset valuation
           allowance                                            -        (7.2)    (6.6)
                                                               ----      ----     ----
              Effective tax rates                              43.7%     27.3%    15.0%
                                                               ----      ----     ----
                                                               ----      ----     ----
</TABLE>


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

                                        -18-
<PAGE>


NOTE 8.   INCOME TAXES (CONTINUED)

          The components of the net deferred tax asset, included in other
          assets, are as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           1997          1996
<S>                                                     <C>           <C>
          Deferred tax asset
            Federal                                     $ 161,600     $ 183,300
            State                                          66,700        65,700
                                                        ---------     ---------
          Net deferred tax asset                        $ 228,300     $ 249,000
                                                        ---------     ---------
                                                        ---------     ---------
</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,
                                                           1997          1996
<S>                                                     <C>           <C>
        Deferred tax asset
          Accrual to cash adjustments                   $ 193,900     $ 144,100
          Investments:
            Net unrealized gain on securities
              available for sale                         (59,800)           -
          Charitable contribution carryforward                  -         4,300
          Allowance for loan losses                        74,900        62,400
          General business credit carryforward                  -        18,800
          Depreciation                                     19,300        19,400
                                                        ---------     ---------
            Net deferred tax asset                      $ 228,300     $ 249,000
                                                        ---------     ---------
                                                        ---------     ---------
</TABLE>

          As of December 31, 1997 and 1996 management expects all temporary
          differences to be offset against future taxable income, and no
          valuation reserve was deemed necessary.

                                        -19-
<PAGE>


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 Corporation 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 Corporation 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 $75,000, $59,000,
          and $103,500 in 1997, 1996, and 1995, respectively.

          At December 31, 1997, approximate future minimum rental
          commitments for all noncancelable operating leases are as follows:

                       1998                   $ 104,200
                       1999                     107,200
                       2000                      97,000
                       2001                     101,700
                       2002                      87,100
                     Thereafter                 252,800
                                              ---------
                                              $ 750,000
                                              ---------
                                              ---------


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, 1997 and 1996, such commitments to extend credit
          were approximately $5,093,000 and $4,568,000, respectively of
          undisbursed lines of credit and undisbursed loans in process.


                                        -20-
<PAGE>

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, 1997 and 1996, that the
          Corporation and the Bank met all capital adequacy requirements to
          which they are subject.

          As of December 31, 1997, 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, 1997 and 1996 are also presented in the tables.






                                       -21-

<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

NOTE 10.  STOCKHOLDERS' EQUITY (CONTINUED)

<TABLE>
<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 data 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>

<TABLE>
<CAPTION>
                                                                              DECEMBER 31, 1996

                                                                                              Minimum To Be Well
                                                                            Minimum            Capitalized Under
                                                                            Capital            Prompt Corrective
                                                      Actual              Requirement          Action Provisions
                                               --------------------  ---------------------   --------------------
                                                Amount      Ratio      Amount       Ratio      Amount       Ratio
                                                               (All data in thousands)

<S>                                           <C>           <C>        <C>          <C>       <C>           <C>
Total Capital to Risk Weighted Assets:
  Consolidated                                $  2,845      11.4%      $ 2,002       8.0%     $ 2,503       10.0%
  Monterey County Bank                           2,822      11.3%        2,202       8.0%       2,502       10.0%

Tier 1 Capital to Risk Weighted Assets:
  Consolidated                                   2,592      10.4%        1,001       4.0%       1,502        6.0%
  Monterey County Bank                           2,568      10.3%        1,001       4.0%       1,502        6.0%

Tier 1 Capital to Average Assets:
  Consolidated                                   2,592       6.4%        1,491       4.0%       1,863        5.0%
  Monterey County Bank                           2,568       6.3%        1,489       4.0%       1,861        5.0%

</TABLE>


                                           -22-



<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

NOTE 11.  STOCK OPTIONS

          On June 14, 1989, the amended 1987 Stock Option Plan was approved
          by the shareholders.  The Plan was approved by the State Banking
          Department and a Stock Option Permit was issued on October 2, 1989.
           Under the Plan, options may be granted to officers, key employees,
          and directors at prices not lower than 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 extending from 90 days to 10 years from the date of grant.
          The maximum number of shares available for issuance under the Plan
          is 30% of the Corporation's issued and outstanding shares, or
          257,600 shares.  The Corporation may not issue an option to any
          individual if the issuance, when added to the aggregate outstanding
          amount of options previously issued to the individual, would exceed
          10% (85,800 shares) of the number of shares outstanding at the time
          of the issuance of the option.  The exercise price may not be less
          than 100% of the fair market value of the shares 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.

          At December 31, 1997, the Corporation has a stock-based
          compensation plan which is described below.  The Corporation
          applies APB Opinion 25 and related interpretations in accounting
          for the plan.  Accordingly, no compensation cost has been
          recognized.  Compensation costs for the Corporation's stock-based
          compensation plan are to be determined based on the fair value at
          the grant dates for awards under those plans consistent with the
          method prescribed by SFAS No. 123.  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,
                                                           1997          1996
          <S>                                                    <C>           <C>
          Net income:
               As reported                                       $  225,900    $  213,400
               Pro forma                                            208,000       213,400

          Earnings per share
               As reported                                       $     0.26    $     0.24
               Pro forma                                               0.23          0.24

          Earnings per share, assuming dilution for
           stock options:
               As reported                                       $     0.22    $     0.21
               Pro forma                                               0.20          0.21

          </TABLE>

                                     -23-


<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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


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 1997 and 1996, respectively:
          risk-free interest rates of 6.21 and 6.29 percent; dividend yield
          of 4.0 percent; expected option life of 6 years; and volatility of
          30 percent.

          At December 31, 1997, options for the purchase of 157,500 shares of
          the Holding Corporation's common stock were outstanding and
          exercisable at prices ranging from $2.20 to $2.75. 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, 1995               162,500      $2.00 - $2.75       4.6 Years
            Granted                                           -
            Cancelled                                   (20,000)          $2.50
                                                       --------
          Outstanding at December 31, 1996              142,500       $2.20 - $2.75       3.0 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
                                                       --------
                                                       --------
          </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 of Liabilities," changed the
          accounting treatment of U.S. Small Business Administration (SBA)
          loans sold in the secondary market.  Financial statements for 1996
          or 1995 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.

                                     -24-


<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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


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>
               <CAPTION>
                 <S>                                               <C>
                 Balance as of December 31, 1995                    $ 1,452,200
                 New loans                                                7,200
                 Repayments                                            (622,100)
                                                                    -----------
               Balance as of December 31, 1996                      $   837,300
                 New loans                                              232,100
                 Repayments                                            (815,400)
                                                                    -----------
               Balance as of December 31, 1997                      $   254,000
                                                                    -----------
                                                                    -----------
          </TABLE>

          Related party deposits totaled approximately $155,100 and $78,400
          at December 31, 1997 and 1996, 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 1997,
          1996, or 1995.

          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 $9,500 of
          their income.  Under the provisions of the plan, the Bank's
          contribution policy is discretionary.  No contributions were made
          by the Bank in 1997, 1996, or 1995.

                                     -25-


<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

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.

                                     -26-


<PAGE>

               NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

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.

                                     -27-

<PAGE>

                 NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

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, 1997 and
          1996 are as follows:

<TABLE>
Caption>

                                                                         DECEMBER 31,
                                                                 1997                         1996
                                                        Carrying        Fair        Carrying         Fair
                                                         Amount         Value         Amount         Value
                                                      ------------   -----------   ------------   ------------
           <S>                                        <C>            <S>           <S>            <C>
           Financial Assets
             Cash and cash equivalents                $11,060,600    $11,060,600    $ 9,820,100   $ 9,820,100
             Time deposits                                100,000        100,000              -           -
             Investment securities,
               available for sale                         480,200        480,200        299,800       299,800
             Investment securities,
               held to maturity                         5,495,300      5,500,700      2,500,200     2,499,500
             Loans, held for sale                         543,400        543,400        414,500       414,500
             Loans, net                                25,062,100     25,028,000     24,641,500    24,771,600
             Accrued interest receivable                  259,500        259,500        242,600       242,600

           Financial Liabilities
             Deposits                                  39,205,600     38,902,600     36,167,100    36,220,700
             Long-term debt                             3,000,000      2,718,200      1,000,000       998,100
             Accrued interest payable                     355,900        355,900        394,900       394,900

</TABLE>

NOTE 17.  TRADE NAME INFRINGEMENT SUIT

          In November of 1996 the Bank learned that Watsonville Federal
          Savings and Loan Association (WFS) was changing its name to
          Monterey Bay Bank.  Because WFS has several branches in the bank's
          immediate market area and the name "Monterey Bay Bank" is
          confusingly similar to Monterey County Bank's name, the Bank's
          management was concerned that the Bank's marketing program would be
          jeopardized and that the public would not relate the Bank's
          advertising and civic contributions to it.  Following discussions,
          WFS refused to abandon the "Monterey Bay Bank" name and Monterey
          County Bank filed a civil lawsuit against WFS and its holding
          Corporation Monterey Bay Bancorp which seeks to enjoin the use of
          the "Monterey Bay Bank" name on the grounds that the use of that
          name unfairly infringes on the Bank's name and will damage the
          Bank.  Monterey County Bank's lawsuit also seeks monetary damages
          arising from any use of the "Monterey Bay Bank" name.


                                      - 28 -
<PAGE>

                 NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

NOTE 17.  TRADE NAME INFRINGEMENT SUIT (CONTINUED)

          While the full impact to Monterey County Bank from the use of the
          "Monterey Bay Bank" name is not yet known, the Bank's suit seeks
          one million dollars ($1,000,000) in compensatory damages.  Monterey
          County Bank's management is firmly committed to protecting its
          trade name by prosecuting the suit to conclusion and has spent
          seventy-five thousand dollars ($75,000) to date in pursuing the
          suit. A trial date has been set for August 1998, however, no
          estimate can be made of the amount of damages that will actually be
          received.

NOTE 18.  BUSINESS COMBINATION

          On December 29, 1995, the Corporation acquired Monterey County Bank
          in a business combination accounted for as a pooling of interests.
          Monterey County Bank, which engages in commercial banking
          activities, became a wholly owned subsidiary of the Corporation
          through the exchange of 879,465 shares of the Corporation's common
          stock for all of the outstanding stock of Monterey County Bank.
          The Corporations financial statements for 1995 are based on the
          assumption that the companies were combined for the full year, and
          financial statements of prior years have been restated to give
          effect to the combination.

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, 1997 and
          1996:

<TABLE>
<CAPTION>

                  BALANCE SHEETS
                                                           1997           1996
        <S>                                            <C>            <C>
        Assets
          Cash account and due from Banks              $   35,200     $  40,000
          Organization costs                                4,600         6,100
          Prepaid expense                                       -         4,400
          Investment in common stock of
            Monterey County Bank                        3,004,400     2,864,600
                                                       ----------    ----------
                                                       $3,044,200    $2,915,100
                                                       ----------    ----------
                                                       ----------    ----------
        Liabilities and Shareholders' Equity
          Accounts payable and accrued expenses        $    1,500    $     700
          Dividend payable                                 12,500        16,500
          Stockholders' Equity                          3,030,200     2,897,900
                                                       ----------    ----------
                                                     $  3,044,200  $  2,915,100
                                                       ----------    ----------
                                                       ----------    ----------
</TABLE>


                                      - 29 -
<PAGE>

                 NORTHERN CALIFORNIA BANCORP, INC. AND SUBSIDIARY

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

NOTE 19.  NORTHERN CALIFORNIA BANCORP, INC. (PARENT CORPORATION ONLY)

<TABLE>
<CAPTION>
                           Statements of Income
                                                                   1997          1996
         <S>                                                    <C>           <C>
         Equity in income of subsidiary                         $  237,600    $  233,400
         Operating expenses                                         16,100        18,900
         Applicable taxes (benefit)                                 (4,400)        1,100
                                                                ----------    ----------
         Net income                                             $  225,900    $  213,400
                                                                ----------    ----------
                                                                ----------    ----------

                       Statements of Cash Flows
                                                                  1997            1996
         <S>                                                    <C>           <C>
         Cash flows from operating activities:
           Net Income                                           $  225,900     $ 213,400
           Adjustments to reconcile net income to
             net cash provided by operating activities:
           Equity in undistributed income of
             Monterey County Bank                                 (237,600)     (233,400)
           Decrease in other assets                                  5,900        29,700
           Increase in accrued expenses                                700       (39,500)
           Increase in other liabilities                            (3,900)       16,500
                                                                ----------    ----------
                                                                    (9,000)      (13,300)
                                                                ----------    ----------
           Cash flows from financing activities:
             Cash dividends received from subsidiary               170,000       150,000
             Cash dividends paid on common stock                  (103,000)      (96,700)
             Stock repurchase                                      (62,800)            -
                                                                ----------    ----------
                                                                     4,200        53,300
                                                                ----------    ----------
         Net increase in cash and cash equivalents                  (4,800)       40,000
         Cash and cash equivalents, beginning of year               40,000             -
                                                                ----------    ----------
         Cash and cash equivalents, end of year                  $  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.

                                       - 30 -