<PAGE>
 
================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                     For the Quarter Ended March 31, 1999
                                        

                        Commission File Number: 0-11223

                           PROFESSIONAL BANCORP, INC.
             (Exact name of registrant as specified in its charter)



              Pennsylvania                             95-3701137
     (State or other jurisdiction of                (I.R.S. Employer
      incorporation or organization)                 Identification No.)


              606 Broadway
        Santa Monica, California                          90401
  (Address of principal executive offices)              (Zip Code)


      Registrant's telephone number, including area code:  (310) 458-1521


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes   X    No
                                         ---      ---


As of April 30,1999, 2,015,007 shares of the Registrant's $0.008 par value
common stock were outstanding.
<PAGE>
 
                          PROFESSIONAL BANCORP, INC.
                                     INDEX


<TABLE>
<CAPTION>
                                                                                   PAGE
                                                                                   ----
PART I.   FINANCIAL INFORMATION                        
      <S>      <C>                                                                 <C> 
      Item 1   Financial Statements

               Consolidated Statements of Financial Condition as of
               March 31, 1999 and December 31, 1998                                  3
 
               Consolidated Statements of Operations and Comprehensive Income
               for the three months ended March 31, 1999 and 1998                    4
 
               Consolidated Statements of Cash Flows for the three months
               ended March 31, 1999 and 1998                                         5
 
               Notes to Consolidated Financial Statements                            6
 
      Item 2   Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                             7
 
PART II.  OTHER INFORMATION

      Item 6   Exhibits and Reports on Form 8-K                                     20


SIGNATURES                                                                          21
</TABLE> 

                                       2
<PAGE>
 
PART I -  FINANCIAL INFORMATION

ITEM I -  FINANCIAL STATEMENTS
 
                   PROFESSIONAL BANCORP, INC. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                     March 31,          December 31,
                                                                                       1999                1998
                                                                                       ----                ----
                                                                                    (Unaudited)
<S>                                                                                 <C>                 <C> 
Assets
Cash and due from banks:
     Noninterest-bearing                                                            $ 23,634,480        $ 20,992,183
     Interest-bearing                                                                  1,748,323             572,519
Federal funds sold                                                                    11,900,000          10,400,000
                                                                                    ------------        ------------
Cash and cash equivalents                                                             37,282,803          31,964,702

Securities available-for-sale (cost of $52,348,000 and
     $81,369,000 in 1999 and 1998, respectively)                                      51,555,380          80,891,072
Securities held-to-maturity (fair value of $22,009,000
     and $24,135,000 in 1999 and 1998, respectively)                                  22,019,378          24,080,592
Loans (net of allowance for loan losses of $2,360,000
     and $2,200,000 in 1999 and 1998, respectively)                                  131,245,653         115,518,693
Premises and equipment, net                                                            1,390,863           1,390,128
Deferred tax asset                                                                     1,380,029           1,242,748
Accrued interest receivable and other assets                                           4,358,067           4,613,504
                                                                                    ------------        ------------
                                                                                    $249,232,173        $259,701,439
                                                                                    ============        ============

Liabilities and Shareholders' Equity
Liabilities
Deposits:
     Demand, noninterest-bearing                                                    $ 99,091,935        $109,421,629
     Demand, interest-bearing                                                         14,415,909          16,710,541
     Savings and money market                                                         73,868,384          75,500,642
     Time deposits                                                                    32,775,304          28,947,934
                                                                                    ------------        ------------
Total deposits                                                                       220,151,532         230,580,746

Convertible notes                                                                        879,000           1,116,000
Accrued interest payable and other liabilities                                         2,509,238           2,683,582
                                                                                    ------------        ------------
Total liabilities                                                                    223,539,770         234,380,328
                                                                                    ------------        ------------

Commitments and contingent liabilities

Shareholders' equity:
Common stock, $.008 par value; 12,500,000 shares
     authorized; 2,064,710 and 2,064,710 issued
     and 2,015,007 and 1,996,344 outstanding in 1999 and 1998, respectively               16,676              16,526
Additional paid-in-capital                                                            21,088,441          20,873,603
Retained earnings                                                                      5,574,817           5,239,275
Treasury stock, at cost (69,467 shares in both 1999 and 1998)                           (537,251)           (537,251)
Unrealized loss on securities available-for-sale, net of taxes                          (450,280)           (271,042)
                                                                                    ------------        ------------
Total shareholders' equity                                                            25,692,403          25,321,111
                                                                                    ------------        ------------
                                                                                    $249,232,173        $259,701,439
                                                                                    ============        ============
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
 
                      PROFESSIONAL BANCORP AND SUBSIDIARY
        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
           
                                              
<TABLE>
<CAPTION>                                                                                     Three Months Ended
(Unaudited)                                                                                        March 31,
                                                                                           1999               1998
                                                                                       -----------------------------------
<S>                                                                                    <C>                      <C>
Interest income
Loans                                                                                      $  2,884,346       $  2,475,744
Securities                                                                                    1,321,744          1,285,175
Federal funds sold and securities purchased
     under agreements to resell                                                                  83,386            246,920
Interest-bearing deposits in other banks                                                         31,467              1,546
                                                                                           ------------       ------------
Total interest income                                                                         4,320,943          4,009,385
                                                                                           ------------       ------------

Interest expense
Deposits                                                                                        723,844            790,094
Convertible notes                                                                                16,547            108,189
Federal funds purchased and securities
     sold under agreements to repurchase                                                        108,737              3,055
                                                                                           ------------       ------------
Total interest expense                                                                          849,128            901,338
                                                                                           ------------       ------------
Net interest income                                                                           3,471,815          3,108,047
Provision for loan losses                                                                       125,000                  -
                                                                                           ------------       ------------
Net interest income after provision
   for loan losses                                                                            3,346,815          3,108,047
                                                                                           ------------       ------------
Other operating income
Net gain (loss) on sale securities available-for-sale                                            35,344                  -
Merchant discount                                                                                61,512             58,684
Mortgage brokering fees                                                                          54,786             13,946
Service charges on deposits                                                                     229,067            256,947
Other income                                                                                    135,435            137,358
                                                                                           ------------       ------------
Total other operating income                                                                    516,144            466,935
                                                                                           ------------       ------------
Other operating expenses
Salaries and employee benefits                                                                1,705,445          1,537,855
Occupancy                                                                                       386,991            348,571
Furniture and equipment                                                                         208,959            190,472
Meetings and business development                                                                72,991             32,075
Donations                                                                                        23,781             36,936
Other promotion                                                                                  69,772             67,938
Legal fees                                                                                       91,635             92,346
Audit, accounting and examinations                                                               42,990             43,540
Professional services                                                                           308,442            357,014
Strategic planning and other outside consulting                                                   6,230             53,915
Office supplies                                                                                  63,199             66,013
Telephone                                                                                        62,350             68,667
Postage                                                                                          35,585             41,002
Messenger service                                                                                 6,041              9,218
FDIC assessment                                                                                   6,403              6,153
Other assessments                                                                                43,672             43,181
Imprinted checks                                                                                  5,627             12,743
Other expense                                                                                   153,999            125,008
                                                                                           ------------       ------------
Total other operating expenses                                                                3,294,112          3,132,647
                                                                                           ------------       ------------
Earnings before taxes                                                                           568,847            442,335
Provision for income taxes                                                                      233,304            138,000
                                                                                           ------------       ------------
Net earnings                                                                               $    335,543       $    304,335

Other comprehensive income (loss):
Unrealized gain (loss) on available for sale securities, net of tax of                        ($200,259)      $    198,698
$137,280 and $138,962 for 1999 and 1998, respectively.
Reclassification adjustment, net of tax of $14,548.                                        $     21,021                  -
                                                                                           ------------       ------------
Comprehensive income (loss)                                                                $    156,305       $    503,033
                                                                                           ============       ============
Earnings per share
    Basic                                                                                         $0.17              $0.22
    Diluted                                                                                       $0.16              $0.17
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
 
                  PROFESSIONAL BANCORP, INC.  AND SUBSIDAIRY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
(Unaudited)                                                                                   Three Months Ended March 31,
                                                                                               1999              1998
                                                                                               ----              ----
<S>                                                                                          <C>                <C>
Cash flows from operating activities:                                                       
   Net earnings                                                                              $    335,543       $    304,335
   Adjustments to reconcile net earnings to net                                             
    cash provided by operating activities:                                                  
     Depreciation and amortization                                                                112,706            142,425
     Provision for loan losses                                                                    125,000                  -
     (Gain) loss on sales of securities available-for-sale                                        (35,344)                 -
     Amortization of convertible note expense                                                       4,807             24,959
     Decrease (increase) in deferred tax asset                                                   (137,281)          (214,292)
     Decrease in accrued interest receivable and other assets                                     365,896            144,786
     Increase in accrued interest payable and other liabilities                                  (174,344)          (280,737)
     Net amortization of premiums and discounts                                             
        on securities held-to-maturity                                                             64,854             77,409
     Net amortization of premiums and discounts                                             
        on securities available-for-sale                                                           90,538             71,647
                                                                                             ------------       ------------
   Net cash provided by operating activities                                                      416,832            270,532
                                                                                             ------------       ------------
Cash flows from investing activities:                                                       
  Proceeds from:                                                                            
    Maturities of securities held-to-maturity                                                     250,000          1,537,903
    Maturities of securities available-for-sale                                                         -          2,119,408
    Sales of securities available-for-sale                                                     25,591,731                  -
  Principal payments and maturities of:                                                     
    Mortgage-backed securities held-to-maturity                                                 1,746,360            943,926
    Mortgage-backed securities available-for-sale                                               3,871,492          2,646,830
  Purchases of securities available-for-sale                                                     (499,243)                 -
  Net (increase) decrease in loans                                                            (15,851,960)         4,990,021
  Purchase of bank premises and equipment, net                                                   (113,439)          (115,516)
                                                                                             ------------       ------------
  Net cash provided (used) by investing activities                                             14,994,941         12,122,572
                                                                                             ------------       ------------
Cash flows from financing activities:                                                       
  Net decrease in demand deposits and savings accounts                                        (14,256,584)       (14,121,145)
  Net increase in time deposits                                                                 3,827,370          5,413,641
  Proceeds from exercise of stock options                                                               -          3,794,363
                                                                                             ------------       ------------
Net cash used in financing activities                                                         (10,429,214)        (4,913,141)
                                                                                             ------------       ------------
Net decrease in cash and cash equivalents                                                       5,318,102          7,479,963
                                                                                             ------------       ------------
Cash and cash equivalents, beginning of period                                                 31,964,702         54,339,670
                                                                                             ------------       ------------
Cash and cash equivalents, end of period                                                     $ 37,282,804       $ 61,819,633
                                                                                             ============       ============
Supplemental disclosure of cash flow information -                                          
     Cash paid during the period for:                                                       
     Interest                                                                                $  3,639,185       $  1,048,454
     Income taxes                                                                            $    145,000       $      2,000
Supplemental disclosure of noncash items:                                                   
     Decrease (increase) in unrealized losses on securities available for sale securities,   
      net of tax                                                                             $   (179,238)      $    198,698
     Conversion of notes                                                                          214,988       $    165,271
     Tax benefit on stock options exercised                                                             -       $    560,384
 
 
 </TABLE>
        See accompanying notes to consolidated financial statements.

                                       5
<PAGE>
 
                   PROFESSIONAL BANCORP, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        


Note 1 - BASIS OF PRESENTATION

     The unaudited consolidated financial statements included herein have been
prepared by Professional Bancorp, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission.  In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the results of operations for the periods covered
have been made.  Certain information and note disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.  Management believes that the disclosures are adequate to make the
information presented not misleading.

     The financial position at March 31, 1999, and the results of operations for
the three months ended March 31, 1999 are not necessarily indicative of the
results of operations that may be expected for the year ending December 31,
1999.  These unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles on a basis
consistent with the Company's audited financial statements, and these interim
financial statements should be read in conjunction with the Company's audited
financial statements and notes thereto included in the Company's Form 10-K for
the year ended December 31, 1998.
 

Note 2 - Adoption of New Accounting Standards

     As of December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128), and has
restated all prior period earnings per share data.  SFAS No. 128 replaces
primary EPS with basic EPS and fully diluted EPS with diluted EPS.  Basic EPS
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period.  Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted from issuance of common stock that then shared in
earnings.

     The Company adopted, effective January 1, 1998, Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130).
SFAS No. 130 requires companies to report comprehensive income and its
components in a financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in-
capital.  Comprehensive income includes all changes in equity during a period
except those resulting from investments by stockholders and distributions to
stockholders.  For the three months ended March 31, 1999 and 1998, net earnings
totaled $335,543 and $304,335, other comprehensive income totaled ($179,238) and
$198,698 and total comprehensive income totaled $156,305 and $503,033,
respectively.

                                       6
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS


Financial Condition

     Professional Bancorp, Inc. (the "Company"), holding company for First
Professional Bank, N.A. (the "Bank"), recorded net earnings of $335,543 or $0.17
per share for the first quarter of 1999, compared with net earnings of $304,335
or $0.22 per share for the first quarter of 1998. The Company had total assets
of $249,232,000 at March 31, 1999, compared to $259,701,000 at December 31,
1998.


Loans

     The following table sets forth the amount of loans outstanding by category
and the percentage of each category to the total loan portfolio.
<TABLE>
<CAPTION>
 
                                                   March 31, 1999                      December 31, 1999
                                                   -----------------------------------------------------
(in thousands)                                   Amount       % of Total               Amount      % of Total
                                                 ------       ----------               ------      ----------  
<S>                                              <C>          <C>                     <C>          <C>
Commercial                                       $103,554          77.4%              $ 93,952         79.7%
Real estate secured commercial                     18,378          13.7                 11,698           9.9
                                                 --------      --------               --------      --------
                                                  121,932          91.1                105,650          89.6
Equity lines of credit                              5,605           4.2                  5,931           5.0
Other lines of credit                               4,795           3.6                  4,817           4.1
Installment                                         1,486           1.1                  1,482           1.3
Lease financing                                         -             -                     32             -
                                                 --------      --------               --------      --------
         Gross loans                              133,818        100.0%                117,912         100.0%
                                                 --------                             --------
Less:
     Allowance for loan losses                      2,360                                2,200
     Deferred loan fees, net                          212                                  193
                                                 --------                             --------
         Net loans                               $131,246                             $115,519
                                                 ========                             ========
</TABLE>

     In accordance with management's credit administration and regulatory
policy, loans are placed on nonaccrual status when the collection of principal
or interest is questionable. Generally, this means that loans are placed on
nonaccrual status when interest is 90 days or more past due, unless the loan is
well secured and in the process of collection or in the process of renewal.
Nonperforming loans and nonperforming assets do not include accruing loans 90
days or more past due where loan quality is not impaired, but rather the renewal
in process is pending receipt of the borrower's updated financial information.

     Credit administrative policies discourage the use of "short-term"
extensions while awaiting receipt of updated financial packages from borrowers.
The policy is aimed at facilitating timely credit renewals.  However, as a
result of this policy, aggregate "past due" volumes will not necessarily be
correlative to absolute asset quality measurement.

                                       7
<PAGE>
 
     The following table sets forth information about nonperforming assets
(which include nonaccrual loans, other real estate owned and other repossessed
assets), accruing loans 90 days or more past due, and certain ratios.


<TABLE>
<CAPTION>
                                                                   March 31,                 December 31,
(in thousands)                                                       1999                        1998
                                                                     ----                        ----       
<S>                                                                <C>                       <C>
Nonperforming loans                                                   $2,423                      $1,359
Other real estate owned (OREO)                                             
Other repossessed assets                                                 272                         272
                                                                      ------                      ------
     Total nonperforming assets                                       $2,695                      $1,631
                                                                      ======                      ======
                                                                      
Accruing loans 90 days or more past due                               $1,540                      $  100
                                                                      ======                      ======
                                                                      
Nonperforming loans to total loans(1)                                  1.81%                       1.15%
Nonperforming assets(1)                                               
     to total loans                                                    2.01%                       1.38%
     to total loans, OREO and repossessed assets                       2.01%                       1.38%
     to total assets                                                   1.08%                       0.63%
</TABLE>

     (1) Nonperforming loans and nonperforming assets do not include accruing
loans 90 days or more past due.

     The total accrued interest on loans 90 days or more past due and still
accruing was approximately $43,000 at March 31, 1999, and the Company had no
accrued interest due on loans 90 days past due at December 31, 1998.  The
$1,540,000 in accruing loans over 90 days or more past due and still accruing as
of March 31, 1999 were all in the process of being renewed, paid off or the
credit quality was not impaired. As a result of the Company's practice to
discourage "short-term" extensions, these loans are carried as "past due" to
ensure proper underwriting and administrative controls.

     The Company maintains the allowance for loan losses at a level considered
adequate by management to provide for potential loan losses. While the Company's
policy is to charge-off in the current period those loans for which a loss is
considered probable, there also exists the risk of future losses which cannot be
precisely quantified or attributed to particular loans.  Reasonable estimates of
these future amounts are included in the allowance for loan losses.

                                       8
<PAGE>
 
     The following table provides a summary of the Company's allowance for loan
losses and charge-off and recovery activity during the three months ended March
31, 1999, the year ended December 31, 1998, and the three months ended March 31,
1998:

<TABLE>
<CAPTION>
                                                                                  Period Ended
                                                                                  ------------
                                                        March 31,                   December 31,                   March 31,
(in thousands)                                            1999                         1998                          1998
                                                          ----                         ----                          ----
<S>                                                     <C>                         <C>                            <C>
Balance at beginning of period                          $  2,200                      $  1,802                      $  1,802
Provision for loan losses                                    125                           406                             -
                                                        --------                      --------                      --------
                                                           2,325                         2,208                         1,802
                                                        --------                      --------                      --------
Loan charge-offs                                              15                           269                            50
Recoveries on loans previously charged-off                   (50)                         (261)                          (73)
                                                        --------                      --------                      --------
   Net charge-offs (recoveries)                              (35)                            8                           (23)
                                                        --------                      --------                      --------
Balance at end of period                                $  2,360                      $  2,200                      $  1,825
                                                        ========                      ========                      ========
                                             
Loans outstanding at end of period                      $133,818                      $117,912                      $100,857
Average loans outstanding during period                  125,538                       103,548                       102,640
                                             
Net charge-offs (recoveries) to average loans             -0.03%                         0.01%                        -0.09%
outstanding                                  
Allowance for loan losses:                   
                                             
     to total loans                                         1.76                          1.87                          1.81
     to nonperforming loans/(1)/                           97.40                        161.88                        316.29
     to nonperforming assets/(1)/                          87.57                        134.89                        214.96
 
</TABLE>
/(1)/  Nonperforming loans and nonperforming assets do not include accruing
       loans 90 days or more past due.

     Management considers a loan to be impaired when, based upon available
information and current events, it believes that it is probable the Company will
be unable to collect all amounts due on a timely basis in accordance with the
contractual terms of the loan agreement.  Impairment of a loan is measured by
the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's observable market price, or the fair value
of the collateral if the loan is collateral dependent.  Impairment is recognized
by the establishment of a valuation allowance equal to the excess of the
Company's recorded investment in the loan over its measured value.

     The Company had $2,742,000 in impaired loans as of March 31,1999.  The
carrying value of impaired loans for which there is a related allowance for loan
losses was $260,000, with the amount of specific allowance for loan losses
allocated to these loans of $123,000.  There was $2,389,000 in impaired loans
for which there were a general allowance allocated consistent with the Company's
allowance for loan loss methodology.  The average recorded investment in
impaired loans during the first three months of 1999 was approximately
$2,289,000 and income recorded utilizing the cash basis and accrual basis method
of accounting was $54,000.  Impaired loans at March 31, 1999, included
$2,423,000 of nonaccrual loans. Included in impaired loans as of March 31, 1999
were $487,000 of troubled debt restructured loans, $123,000 of which, were on
nonaccrual and the remaining $364,000 were in compliance with the modified
terms.

     The Company had approximately $1,836,000 in impaired loans as of December
31, 1998. The carrying value of impaired loans for which there is a related
allowance for loan losses was $153,000, with the amount of specific allowance
for loan losses allocated to these loans of $41,000. There were $1,683,000 in
impaired loans for which there was no related specific allowance for loans
losses. However, general allowance consistent with the level of allowance for
similar loans with similar risk characteristics were maintained for impaired
loans without specific allowance. The average recorded investment in impaired
loans during 1998 was $1,131,085. Impaired loans at December 31, 1998 included
$1,359,000 of nonaccrual loans. Included in impaired loans as of December 31,
1998 were $614,000 of troubled debt restructured loans, $341,000 of which were
on nonaccrual and the remaining $273,000 were in compliance with the modified
terms.

                                       9
<PAGE>
 
     The Company had $907,000 in impaired loans as of March 31, 1998.  The
carrying value of impaired loans for which there is a related allowance for loan
losses was $213,000, with the amount of specific allowance for loan losses
allocated to these loans of $80,000.  There were $694,000 in impaired loans for
which there was a general allowance allocated consistent with the Company's
allowance for loan loss methodology.  The average recorded investment in
impaired loans during the first three months of 1998 was approximately
$1,053,000 and income recorded utilizing the cash basis and accrual basis method
of accounting was $22,000.  Nonaccrual loans at March 31, 1998, included
$577,000 of the impaired loans. Included in impaired loans as of March 31, 1998
were $408,000 of restructured loans, $78,000 of which, were on nonaccrual and
the remaining $329,000 were in compliance with the modified terms.


Investment Securities

     The following table sets forth the amortized cost and fair value of
securities available-for-sale as of March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
                                                                               March 31, 1999

                                                   -------------------------------------------------------------------------
                                                                           Gross                Gross       
                                                    Amortized           Unrealized           Unrealized              Fair
(in thousands)                                        Cost                 Gain                 Loss                 Value
                                                      ----                 ----                 ----                 -----        
                                                                                                        
<S>                                                 <C>                 <C>                  <C>                    <C>
U.S. Government securities                           $     -                 $  -                 $  -              $     -
U.S. Government agency and                                                                              
   mortgage-backed securities                         39,710                   16                  630               39,096
Small Business Administration securities                 779                    -                   13                  766
Municipal securities                                   2,551                    2                   14                2,539
Federal Reserve Bank Stock                               439                    -                    -                  439
Collateralized mortgage obligations                    8,870                   11                  166                8,715
                                                     -------                 ----                 ----              -------
        Total                                        $52,349                 $ 29                 $823              $51,555
                                                     =======                 ====                 ====              =======
                                                                                                        
                                                                               December 31, 1998
                                                   -------------------------------------------------------------------------
                                                                          Gross                Gross       
                                                    Amortized           Unrealized           Unrealized              Fair
(in thousands)                                        Cost                 Gain                 Loss                 Value
                                                      ----                 ----                 ----                 -----       
                                                                                                        
U.S. Government securities                           $     -                 $  -                 $  -              $     -
U.S. Government agency and                                                                              
   mortgage-backed securities                         68,487                  153                  514               68,126
Small Business Administration securities                 858                    1                    7                  852
Municipal securities                                   2,551                    3                    8                2,546
Federal Reserve Bank Stock                               439                    -                    -                  439
Collateralized mortgage obligations                    9,034                    -                  106                8,928
                                                     -------                 ----                 ----              -------
        Total                                        $81,369                 $157                 $635              $80,891
                                                     =======                 ====                 ====              =======
</TABLE>
                                                                                

                                       10
<PAGE>
 
     The amortized cost and fair value of securities held-to-maturity as of
March 31, 1999, and December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                                        March 31, 1999
                                         --------------------------------------------------------------------------
                                                                 Gross                 Gross       
                                            Amortized          Unrealized           Unrealized              Fair
(in thousands)                                Cost                Gain                 Loss                Value
                                             -----                ----                 ----                -----       
                                                                                                   
<S>                                         <C>                <C>                  <C>                   <C>
U.S. Government securities                     $ 3,041             $ 86                  $  -             $ 3,127
U.S. Government agency securities                2,000                5                     -               2,005
U.S. Government agency                                                                             
   mortgage-backed securities                   16,978                2                   101              16,879
                                               -------             ----                  ----             -------
        Total                                  $22,019             $ 93                  $101             $22,011
                                               =======             ====                  ====             =======
                                                                                                   
                                                                      December 31, 1998
                                         --------------------------------------------------------------------------
                                                                 Gross                 Gross       
                                            Amortized          Unrealized           Unrealized              Fair
(in thousands)                                Cost                Gain                 Loss                Value
                                              ----                ----                 ----                -----      
                                                                                                   
U.S. Government securities                     $ 3,043              $151                 $  -             $ 3,194
U.S. Government agency securities                2,250                21                    -               2,271
U.S. Government agency                               -                 -                    -                   -
   mortgage-backed securities                   18,788                 1                  119              18,670
                                               -------              ----                 ----             -------
        Total                                  $24,081              $173                 $119             $24,135
                                               =======              ====                 ====             =======
</TABLE>
                                                                                

     During the three months ended March 31, 1999 and the twelve months ended
December 31, 1998, securities available-for-sale were sold for aggregate
proceeds of $25,556,000 and $15,337,000, respectively.  These sales resulted in
gross realized gains and losses of $89,000 and ($54,000) for the three months
ended March 31, 1999 and $12,000 and ($18,000) for the twelve months period
ended December 31, 1998.

Deposits

     Total deposits at March 31, 1999 were $220,152,000, a decrease of
$10,429,000 or 4.5% from $230,581,000 at December 31, 1998. The Company attracts
deposits primarily from individuals and businesses related to the health care
services industry, as well as other professionals and professional services
firms. The Company has no brokered deposits and the Company's practice is to not
purchase brokered deposits. 

                                       11
<PAGE>
 
     The following table sets forth the amount of deposits by category and the
percentage of each category to total deposits as of March 31, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
 
                                                     March 31, 1999                            December 31, 1998
(in thousands)                                  Amount          % of Total                  Amount          % of Total
                                                ------          ----------                  ------          ----------    
                                   
<S>                                            <C>              <C>                        <C>              <C>
Demand, noninterest-bearing                    $ 99,092             45.01%                 $109,422             47.46%
Demand, interest-bearing                         14,416              6.55                    16,711              7.25
Savings deposits                                 12,091              5.49                    12,553              5.44
Money market deposits                            61,778             28.06                    62,948             27.30
Time deposits under $100,000                      9,263              4.21                     8,625              3.74
Time deposits of $100,000 and over               23,512             10.68                    20,323               .81
                                               --------             -----                  --------             -----
                                               $220,152             100.0%                 $230,581             100.0%
                                               ========             =====                  ========             =====
</TABLE>
                                                                                
     Historically, deposit levels increase substantially at year-end as clients
increase cash reserves required for first and second quarter tax payments and
bonuses. In addition, increasing competition for operating cash deposits comes
from broker dealer products and accounts. In order to minimize the effects of
such "disintermediation" from the Company to such accounts, the Company is
currently offering to clientele such accounts through its CNET products. The
CNET product is a money market mutual fund. The goal of the fund is to provide
as high a level of current income as is consistent with preservation of
principal and liquidity. The fund is managed by The Cadre Network Health
Financial Services Liquid Asset Fund, and is not insured by the FDIC and is not
an obligation of, or guaranteed by the Company or its subsidiaries and is
subject to investment risk, including possible loss of principal invested.

Capital

     The Office of the Comptroller of the Currency (the "OCC"), the Bank's
primary regulator, has established minimum leverage ratio guidelines for
national banks. These guidelines provide for a minimum Tier 1 capital leverage
ratio (Tier 1 capital to adjusted average total assets) of 3.0% for national
banks that meet certain specified criteria, including having the highest
regulatory rating. All other national banks will generally be required to
maintain a minimum Tier 1 capital leverage ratio of 3.0% plus an additional
cushion of 100 to 200 basis points. The OCC has not advised the Bank of any
specific minimum Tier 1 capital leverage ratio applicable to it.

     The Federal Reserve Bank, as Bancorp's primary regulator, has similarly
established minimum leverage ratio guidelines for bank holding companies.  These
guidelines also provide for a minimum Tier 1 leverage ratio of 3.0% for bank
holding companies that meet certain specified criteria, including having the
highest regulatory rating.  All other bank holding companies will generally be
required to maintain a minimum Tier 1 capital leverage ratio of 3.0% plus an
additional cushion of 100 to 200 basis points.  The Federal Reserve Bank has not
advised the Bancorp of any specific minimum Tier 1 capital leverage ratio
applicable to it.

     Risk-based capital standards were implemented on December 31, 1992.  Since
December 31, 1992, banking organizations have been expected to meet a minimum
ratio for qualifying total capital to risk-weighted assets of 8.0%, 4.0% of
which must be Tier 1 capital.  A banking organization's risk-based capital
ratios are obtained by dividing its qualifying capital by its total risk-
adjusted assets and risk-weighted off-balance sheet items.

                                       12
<PAGE>
 
     The Federal Deposit Insurance Act of 1991 contains "prompt correction
action" provisions pursuant to which insured depository institutions are to be
classified into one of five categories based primarily upon capital adequacy,
ranging from "well-capitalized" to "critically undercapitalized" and which
require, subject to certain exceptions, the appropriate federal banking agency
to take prompt corrective action with respect to an institution which becomes
"undercapitalized" and to take additional actions if the institution becomes
"significantly undercapitalized" or "critically undercapitalized."

     The following table presents the capital ratios for the Company and the
Bank, compared with the standards for "well-capitalized" depository institutions
(which standards do not apply to bank holding companies) and the minimum
required capital ratios to be deemed "adequately capitalized" under applicable
federal regulations, as of March 31, 1999.

<TABLE>
<CAPTION>
                                                                                            To Be Well    
                                                             For Capital                 Capitalized Under
                                                               Adequacy                  Prompt Corrective
                                      Actual                   Purposes                  Action Provisions
                              ----------------------   --------------------------   --------------------------
(in thousands)                   Amount    Ratio           Amount       Ratio           Amount       Ratio
                                 ------    -----           ------       -----           ------       ----- 
<S>                              <C>       <C>             <C>          <C>             <C>          <C>
Company
Leverage /(1)/                   $26,143  10.17%            $10,280     4.00%            $12,850     5.00%
Tier 1 Risk-Based                 26,143   16.33              6,402      4.00              9,603      6.00
Total Risk-Based                  29,027   18.14             12,804      8.00             16,005     10.00
 
Bank
Leverage                         $22,972   8.95%            $10,263     4.00%            $12,828     5.00%
Tier 1 Risk-Based                 22,972   14.36              6,397      4.00              9,595      6.00
Total Risk-Based                  24,976   15.62             12,794      8.00             15,992     10.00
</TABLE>


/1/  The minimum required by the FRB is 3%; for all but the most highly rated
bank holding companies, the FRB expects a leverage ratio of 3% plus 100 to 200
basis points.

     The Company and the Bank, at March 31,1999, were considered "well-
capitalized" and exceeded all applicable minimum capital requirements.  Capital
requirements of the federal banking regulators, however, could limit the
Company's future growth if the Company were to rely solely on the retention of
earnings to generate additional capital or rapid growth.

     During March 1998, the Company received approximately $3,490,000 in
additional capital due to the exercise of 276,515 in stock options.  On May 29,
1998, the Company gave notice of its' intent to call for partial redemption of
$2,625,000 principal amount of the Professional Bancorp, Inc., 8.50% Convertible
Subordinated Reset Notes due March 1, 2004.  As a result of this call,
approximately $2,552,000 of the notes converted to 200,955 shares of common
stock and $73,000 in notes were redeemed by the June 30, 1998 redemption date.
For the three months ended March 31, 1999, approximately $237,000 of notes were
converted to 18,663 shares of common stock.

Liquidity

     The Company's primary source of liquidity is dividends from the Bank.
Dividends from the Bank to the Company are subject to certain regulatory
restrictions.  Under federal banking law, dividends declared by the Bank in any
calendar year may not, without the approval of the OCC, exceed its net earnings,
as defined, for that year combined with its retained net earnings for the
proceeding two years.  The Company's annual operating expenses and interest
obligations with respect to its convertible notes are approximately $662,000.
However, based upon the above redemption, Bancorp operating expenses will be
reduced by approximately $560,000 on an annual basis.

                                       13
<PAGE>
 
     The Bank's primary sources of liquidity are federal funds sold to other
banks and the investment securities portfolio. For the three months ended March
31,1999, federal funds sold averaged $7,069,000 and compared to $18,368,000 for
the same period in 1998. In addition, securities in the available-for-sale
portfolio can be sold in response to liquidity needs or used as collateral under
reverse repurchase agreements. Securities held-to-maturity are available for
liquidity needs primarily as collateral for reverse repurchase agreements. The
fair value of securities available-for-sale and securities held-to-maturity at
March 31, 1999, were $51,555,000 and $22,001,000, respectively.

     The Bank sells securities under agreements to repurchase.  Securities sold
under repurchase agreements are recorded as short-term obligations.  During the
first three months of 1999, the highest daily outstanding balance and the
average balance of securities sold under agreements to repurchase  were
$25,000,000 and $8,784,000, respectively; the average rate paid was 4.95%.    At
March 31, 1999, there were no securities sold under agreements to repurchase.

Year 2000

The Year 2000 issue presents a very real and significant challenge to the
Company, along with the entire financial services industry. This problem has the
potential to affect a wide range of systems and equipment, including software
and hardware, utilities, communications platforms and devices, and facilities.
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to represent the calendar year.  Software so developed
and not corrected could produce inaccurate or unpredictable results when dates
change in the year 2000. Such occurrences may have a material adverse effect on
the Company's financial condition, results of operations, or business as the
Company, like most financial organizations, is significantly subject to the
potential Year 2000 issues due to the nature of financial information.

While no one can accurately predict what will happen with the date change to the
Year 2000, the Company's management and Board of Directors take the potential
risks seriously, and have been working since early in 1997, and will continue to
work hard, to be prepared for the Year 2000 transition.

There are a number of broad concerns that may affect the Company, our customers,
and business partners. In the event of a Year 2000 failure, the Company could be
adversely impacted in a number of ways.  Internal operations problems and
problems resulting from primary vendors and suppliers inability to perform could
cause increased costs in determining correct results and lost customers
resulting in lost revenue.  Large customers negatively effected by Year 2000
problems could lead to deposit outflows or increased risk of collecting loans.
As part of our efforts to ensure compliance with government regulatory standards
and establish prudent business practices for Year 2000 issues, the Board of
Directors and senior management have previously developed and approved a Year
2000 preparedness plan, which is currently being implemented.  The Company's
Year 2000 risk mitigation program is a dynamic process of reassessment,
evaluation and testing.  As a result, responses may change especially as vendors
and manufacturers find and report Year 2000 product and services issues.  The
following outlines major areas within the plan and provides the status of our
efforts:

Awareness: Our plan provides for a Year 2000 task force which reports at least
quarterly reporting to the Audit Committee and Board of Directors of the
Company.  The task force, which meets monthly, consists of members of senior
management representatives from key areas within the Company.  The task force,
among other roles, monitors and report progress, and provides direction toward
preparation for the Year 2000 date change.

Assessment:  The task force has developed an overall strategy which identifies
and categorizes internal information and operating systems, and external
vendors, customers, auditors and business partners, according to risk of
business disruption. Each operating system, process, vendor, or other business
partner is risk assessed based upon the impact on the Company's business.  High
risk processes and systems have been categorized as "mission critical" and have
been prioritized in our Year 2000 risk mitigation process. Testing plans have
been developed, and we have completed testing all mission critical and many
other identified systems. The testing of substantially all systems is scheduled
to be completed by June 30, 1999. We have identified contingency plans and
alternatives, including
                                       14
<PAGE>
 
replacement or elimination, for mission critical systems and other systems in
the event that such actions become necessary. Also, we have integrated the Year
2000 business risks into our overall bankwide business resumption plans. We will
test mission critical and other systems on an ongoing basis to reasonably
determine that they will continue to operate after the Year 2000.

In addition, as a lending institution, the Company is exposed to potential risk
if it's customers suffer Year 2000 related difficulties. Therefore, we have
developed, and implemented, a process to assess the potential risks to the
Company of both our lending and deposit customer's preparedness for the Year
2000 date change. Also, potential borrower's readiness for Year 2000 is assessed
and included within the credit underwriting and approval process.

Remediation:  The remediation phase includes upgrading or replacing information
or operating systems, vendor certifications, and other associated changes.  We
have begun renovation of systems, including non-information technology systems,
that have been identified as non-compliant to Year 2000, including replacing
some personal computers, or upgrading software and other operating systems.  The
renovation of mission critical systems where indicated is complete. The extent
of our identified renovation needs have been budgeted within our corporate
budgeting process.  The remaining system renovation is anticipated to be
complete by June 30, 1999.

Additionally, we have received vendor responses or certification for all of our
mission critical systems, along with most of our other information and operating
systems.  These responses are monitored continually to determine the vendors'
progress toward preparedness.

Validation/Implementation: As operating systems are validated, upgraded, and
successfully tested the systems are integrated into ongoing operations. As with
any new system, or system change, internal/external users are provided training,
connectivity with other systems is determined and integration into current
processes occurs. Validation and implementation of mission critical systems was
completed by December 31, 1998.  In addition, we have instituted an independent
third party review of our Year 2000 efforts for all mission critical systems.

Significant progress has been accomplished in our efforts to prepare for the
Year 2000-century date change.  All of our mission critical systems have been
tested and none have failed. Additionally, we are 85% complete assessing,
renovating, testing and implementing Year 2000 preparedness for all other
identified systems. Management currently estimates the overall cost of Year 2000
risk mitigation not to exceed $100,000 in operating expenses and $300,000 in
fixed asset purchases of which approximately 75% has been incurred. These costs
are included within our ongoing budget and planning process.

We continue with the execution of our Year 2000 Preparedness Plan and remain on
schedule to meet our internal timeline and regulatory expectations and continue
to project that we will complete renovation and implementation prior to June 30,
1999.  Also, we have developed and presented internal and external awareness
programs, which reinforce the awareness and the need for preparedness to the
Year 2000 problem for the Company's Board of Directors, employees, and our
customers. Based upon the information we have developed through our Year 2000
Preparedness Plan, we have not identified risks associated with the date change
to Year 2000 that will have a material financial impact on the Company.

Results of Operations

   The Company reported consolidated net earnings of $335,543 for the first
quarter of 1999, compared with net earnings of $304,335 for the first quarter of
1998.  Basic and diluted earnings per share for the first quarter of 1999 were
$0.17 and $0.16, respectively, compared to $0.22 basic and $0.17 diluted
earnings per share for the same period in 1998.  Return on average shareholders'
equity for the first quarter of 1999 and 1998, were 5.25% and 7.29%,
respectively.  Additionally, return on average assets for the first quarter of
1999 and 1998, were 0.53% and 0.52%, respectively.

                                       15
<PAGE>
 
                 The improvement in net earnings for the first quarter of 1999
as compared to 1998, are primarily the result of growth in the loan portfolio,
increase in non-interest income and containment of non-interest expense for the
three months ended March 31, 1999.

Net Interest Income

     The Company's earnings depend primarily on net interest income, which is
the difference between the interest and fees earned on loans and investments
less the interest paid on deposits, borrowings and convertible notes. For the
quarter ended March 31, 1999, net interest income increased 11.7% to $3,472,000
from $3,108,000 for the quarter ended March 31, 1998. The increase in net
interest income is primarily the result of a 10.5% or $21,608,000 million
increase in average interest-earning assets, for the three months ended March
31, 1999 as compared to the same period in 1998. For the three months ended
March 31, 1999 and 1998, the net interest margin was 6.18% and 6.11%,
respectively.

                                       16
<PAGE>
 
     The following tables present the distribution of average assets,
liabilities and shareholders' equity as well as the total dollar amount of
interest income from average interest-earning assets and resultant yields, and
the dollar amounts of interest expense and average interest-bearing liabilities,
expressed both in dollars and rates for the three months ended March 31, 1999
and 1998.
<TABLE>
<CAPTION>
 
                                                                           Three Months Ended March 31,
                                                                           ----------------------------
                                                                     1999                                 1998
                                                                     ----                                 ----
                                                        Average     Yield/                   Average     Yield/
(in thousands)                                          Balance      Rate     Interest       Balance      Rate     Interest
                                                       ----------   -------   --------      ----------   -------   --------
<S>                                                    <C>          <C>       <C>           <C>          <C>       <C>    
Assets
Interest-earning assets:
   Securities                                           $ 91,809      5.84%     $1,322       $ 85,079      6.13%     $1,285
   Loans/(1)/                                            127,615      9.17       2,884        102,640      9.78       2,475
   Federal funds sold                                      7,069      4.78          83         18,368      5.45         247
   Interest-earning deposits - banks                       1,400      9.11          31            198      4.10           2
                                                        --------                ------       --------                ------
        Total interest-earning assets                    227,893      7.69       4,321        206,285      7.88       4,009
                                                        --------                ------       --------                ------
Deferred loan fees                                          (204)                                (145)
Allowance for loan losses                                 (1,873)                              (1,808)
Noninterest-earning assets:
   Cash and due from banks                                23,864                               22,716
   Premises and equipment                                  1,440                                1,549
   Accrued interest receivable                             1,321                                    -
   Other assets                                            4,699                                6,566
                                                        --------                             --------
        Total assets                                    $257,141                             $235,163
                                                        ========                             ========
 
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
  Interest-bearing demand deposits                      $ 13,715      0.76%     $   26       $ 13,630      0.94%     $   31
  Savings and money market deposits                       80,617      1.99         396         80,367      2.07         410
  Time deposits under $100,000                             8,699      4.32          93          7,550      4.62          86
  Time deposits of $100,000 and over                      19,776      4.28         209         22,895      4.65         262
   Convertible notes                                         958      7.00          17          5,375      8.15         108
   Repurchase agreements                                   8,784      5.02         109            222      5.58           3
                                                        --------                ------       --------                ------
        Total interest-bearing liabilities               132,550      2.60         849        130,039      2.81         901
                                                        --------                ------       --------                ------
 
Noninterest-bearing liabilities:
   Noninterest-bearing demand deposits                    95,602                               84,719
   Other liabilities                                       3,078                                3,234
   Shareholders' equity                                   25,912                               17,171
                                                        --------                             --------
        Total liabilities and shareholders' equity      $257,141                             $235,163
                                                        ========                             ========
 
Interest income as a percentage of average
   earning assets                                                     7.69%                                7.88%
Interest expense as a percentage of average
   interest-bearing liabilities                                       2.60%                                2.81%
Net interest margin and income                                        6.18%     $3,472                     6.11%     $3,108
                                                                                ======                               ======
</TABLE>

/(1)/  Nonaccrual loans are included in average balances and rate calculations.

                                       17
<PAGE>
 
   The Company's net interest income is affected by changes in the amount and
mix of interest-earning assets and interest-bearing liabilities, referred to as
"volume change."  It is also affected by changes in yields earned on interest-
earning assets and interest rates paid on interest-bearing deposits and other
borrowed funds, referred to as a "rate change."  The following table sets forth
changes in interest income and interest expense for each major category of
interest-earning assets and interest-bearing liabilities, and the amount of
change attributable to volume and rate changes for the three months ended March
31,1999 and 1998.  The changes due to both rate and volume have been allocated
to rate and volume in proportion to the relationship between their absolute
dollar amounts.

<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                                                     March 31, 1999 and 1998
                                                                     -----------------------
(in thousands)                                                Volume            Rate            Total
                                                              ------            ----            -----
<S>                                                           <C>              <C>              <C> 
Increase (decrease) in interest income:
     Securities                                               $  99            $ (62)           $  37
     Loans                                                      572             (163)             409
     Federal funds sold                                        (136)             (27)            (163)
     Interest-bearing deposits - banks                           24                5               29
                                                              -----            -----            -----
                                                                559             (247)             312
                                                              -----            -----            -----
 
Increase (decrease) in interest expense:
     Interest-bearing demand deposits                             -               (6)              (6)
     Savings and money market deposits                            1              (15)             (14)
     Time deposits under $100,000                                13               (6)               7
     Time deposits of $100,000 and over                         (34)             (19)             (53)
     Convertible notes                                          (78)             (14)             (92)
     Repurchase agreements                                      106               (0)             106
                                                              -----            -----            -----
                                                                  8              (60)             (52)
                                                              -----            -----            -----
Increase (decrease) in net interest income                    $ 551            $(187)           $ 364
                                                              =====            =====            =====
</TABLE>
                                                                                
   Interest income represents interest earned on loans, investment securities
and federal funds sold.  Interest income increased 7.8% or $312,000 to
$4,321,000 for the three months ended March 31, 1999 from $4,009,000 for the
same period in 1998. The increase in interest income for the three months ended
March 31, 1999 as compared to the same period in 1998, was primarily the result
of a 16.5% or $409,000 increase in interest income earned on loans, a 2.9% or
$37,000 increase in interest income earned on securities.  These increases were
offset to a lessor extent by a 66.4% or $164,000 decrease in federal funds sold
for the three months ended March 31, 1999 as compared to the same period in
1998.

   Interest expense represents interest paid on deposits, Company borrowings and
convertible notes.  Interest expense for the three months ended March 31, 1999
was $849,000 compared to $901,000 for the same period in 1998, a decrease of
5.8%. The decrease in interest expense for the period ended March 31, 1999 as
compared to the same period in 1998, is primarily related to a $91,000 decrease
in interest expenses on convertible notes. Average convertible notes outstanding
decreased to $958,000 for the three months ended March 31, 1999, from $5,375,000
for the same three month period in 1998. In addition, interest expense was
further impacted by an increase in average repurchase agreements outstanding
during the period ended March 31, 1999 as compared to the same period in 1998.
Interest expense on repurchase agreements increased to $109,000 for the three
months period ended March 31, 1999 from $3,000 for the same period in 1998. The
increase in average repurchase agreements outstanding during the periods
presented, was a result of the growth in the loan portfolio.

                                       18
<PAGE>
 
Provision for Loan Losses

   The provision for loan losses is determined by management based upon the
Company's loan loss experience, the performance of loans in the Company's
portfolio, the quality of loans in the Company's portfolio, evaluation of
collateral for such loans, the economic conditions affecting collectibility of
loans, the prospects and financial condition of the respective borrowers or
guarantors and such other factors which in management's judgment deserve
recognition in the estimation of probable loan losses. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses.  Such agencies may require the Bank to
recognize additions to the allowance or to take charge-offs (reductions in the
allowance) in anticipation of losses.

   The Company recorded provisions for loan losses of $125,000 for the three
months period ended March 31, 1999, compared to zero provisions for loan losses
for the same period in 1998.  The increase in the provision for loan losses in
1999 is in response to growth in the loan portfolio and increases in
nonperforming loans in the first quarter of 1999.  Net charge-offs (recoveries)
to average outstanding loans for the first quarter of 1999 and 1998 were
(0.03%) and (0.09%), respectively.

Other Operating Income

   For the three months ended March 31, 1999, other operating income totaled
$516,000 compared with $467,000 for the same period in 1998.  The increase was
primarily related to a $42,000 increase in mortgage brokering fees and a $35,000
net gain recognized on the sale of securities during the three months ended
March 31, 1999 as compared to no gain recognized during the same period in 1998.

Other Operating Expense

   Other operating expense for the first quarter of 1999, increased to
$3,294,000 for the three months period ended March 31, 1999 from $3,133,000 for
the same period in 1998. The increase primarily occurred in salaries and other
employee benefits and business development expenses, offset to a lessor extent
by decreases in professional services and strategic planning and other outside
consulting expenses.

   Salaries and other employee benefits increased approximately $167,000 to
$1,705,000 for the first quarter of 1999, compared to $1,538,000 for the first
quarter of 1998.  The increase primarily relates to an increased number of
employees as the Company became more fully staffed and increased group insurance
expenses during the quarter ended March 31, 1999 as compared to the same quarter
in 1998.

   Professional services and strategic planning and other outside consulting
decreased 13.6% and 88.4%, respectively, during the three months period ended
March 31, 1999, as compared to the same periods in 1998. The utilization of
services of outside professionals to augment staffing and support service
training has declined as the Company returns to full staffing.

Income Taxes

   For the three months ended March 31, 1999, the provision for income taxes was
$233,000 compared to $138,000 for the same period in 1998.

   Management of the Company is not aware of any trends, events, uncertainties
or recommendations by regulatory authorities that will have or that are
reasonably likely to have a material effect on the liquidity, capital resources
or operations of the Company.

                                       19
<PAGE>
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
         ----------------------------------------------------------

         Interest Rate Sensitivity

         The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including interest rate swaps.  Investment securities
and loans are presented based upon contractual maturity and related weighted
average interest rates by expected maturity dates.  The information is presented
in US dollar equivalents, which is the Company's reporting currency.

<TABLE>
<CAPTION>
                                                                                                      There                  Fair
                                               1999       2000      2001         2002      2003       After       Total      Value
                                              ------     ------    -------      ------    -------    -------     -------    -------
<S>                                           <C>        <C>       <C>          <C>       <C>        <C>         <C>        <C>
                                                                        (U.S. $ equivalent in thousands) 
ASSETS (1)                                                                                                
----------                                                                                                
                                                                                                          
Securities                                                                                                
  U.S. government securities                                                                              
       Fixed                                  $     -    $     -    $1,016     $     -    $ 2,024     $     -    $ 3,040    $ 3,127
           Weighted average interest rate                             6.81%                  5.89%                  6.35%
  U.S. government agency and                                                                               
    mortgage-backed securities                                                                             
       Fixed                                        -          -         -           -      2,000      38,642     40,642     40,194
           Weighted average interest rate                                                    5.65%       6.42%      6.04%
       Variable                                     -          -         -           -          -      18,046     18,046     17,769
           Weighted average interest rate                                                                5.84%      5.84%
Municipal securities                                                                                       
       Fixed                                        -          -         -           -          -       2,551      2,551      2,539
          Weighted average interest rate                                                                 5.72%      5.72%
  Small Business Administration securities                                                                 
       Variable                                     -          -         -           -          -         782        782        769
          Weighted average interest rate                                                                 5.81%      5.81%
  Collateralized mortgage securities                                                                       
       Fixed                                        -          -         -           -          -       7,177      7,177      7,177
          Weighted average interest rate                                                                 5.86%      5.86%
       Variable                                     -          -         -           -          -       1,693      1,693      1,693
          Weighted average interest rate                                                                 5.47%      5.47%
  Federal Reserve Bank Stock                                                                               
       Fixed                                        -          -         -           -          -         439        439        439
          Weighted average interest rate            -          -         -           -          -        6.00%      6.00%
                                                                                                           
Loans                                                                                                      
       Fixed                                    6,900      1,826     2,525       5,164      3,692       5,798     26,007     25,827
          Weighted average interest rate         8.96%      7.09%     8.52%       7.96%      8.40%       7.89%      8.28% 
       Variable                                47,131     12,911     7,605      11,302     16,020      12,842    107,811    107,811
          Weighted average interest rate         8.97%      9.09%     9.05%       9.16%      9.07%       8.61%      8.98% 
</TABLE>
 
                                       20
<PAGE>
 
     The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including rate interest swaps.  Certificates of
deposit and convertible notes are presented based upon contractual maturity and
related weighted average interest rates by expected maturity dates.  For
interest rate swaps and caps, the table present notional amounts and weighted
average interest rates by contractual maturity dates.  The information is
presented in US dollar equivalents, which is the Company's reporting currency.

<TABLE>
<CAPTION>
                                                                                                      There                Fair
                                                    1999       2000      2001     2002      2003      After     Total      Value
                                                   ------     ------    ------   ------    ------    -------   -------    -------
                                                                        (U.S. $ equivalent in thousands)                
<S>                                                <C>        <C>       <C>      <C>       <C>       <C>       <C>        <C>
LIABILITIES (1)                                                                                                         
---------------                                                                                                         
                                                                                                                        
Deposits                                                                                                                
  Noninterest-bearing transaction accounts         $99,092    $    -    $   -    $    -    $    -    $   -     $99,092    $99,092
       Weighted average interest rate                 0.00%        -        -         -         -        -        0.00% 
  Interest-bearing transaction accounts             14,416         -        -         -         -        -      14,416     14,416
       Weighted average interest rate                 0.76%        -        -         -         -        -        0.76% 
  Savings and money market accounts                 73,868         -        -         -         -        -      73,868     73,868
       Weighted average interest rate                 1.99%        -        -         -         -        -        1.99% 
  Certificates of deposit and other time deposits                                                                       
    Fixed                                           31,660     1,115        -         -         -        -      32,775     32,656
       Weighted average interest rate                4.55%     4.02%        -         -         -        -                  
                                                                                                                        
Convertible notes                                        -         -        -         -         -      958         958        875
       Weighted average interest rate                    -         -        -         -         -     7.00%       7.00% 
                                                                                                                        
OFF-BALANCE SHEET ASSETS                                                                                                
------------------------                                                                                                
  Interest rate swaps                               15,000         -        -         -         -        -      15,000     15,000
       Weighted average interest rate - pay           6.60%        -        -         -         -        -        6.60% 
       Weighted average interest rate - receive       5.69%        -        -         -         -        -        5.69% 
</TABLE>

(1)  The Company used certain assumptions to estimate fair values and expected
maturities.  For loans, expected maturities are contractual maturities adjusted
for estimated prepayments of principal based on market indicators.  Investment
securities are at quoted market rates and stated maturities.  For loan fair
value computations, the company used a discounted cashflow model with discount
rates based upon prevailing market rates for similar types of loans,
incorporating adjustments for credit risk.  For deposit liabilities, fair values
were calculated using discounted cashflow models based on market interest rates
for different product types and maturity dates for which the deposits are held.

     Exchange Rate Sensitivity

     All of the Company's derivative financial instruments and other financial
instruments are denominated in US dollars.  The Company does not have,  or
anticipate having, any foreign currency exchange rate exposure.

     Commodity Price Sensitivity

     The Company does not have, or anticipate having, any derivative commodity
instruments.

                                       21
<PAGE>
 
                          PART II - OTHER INFORMATION
                                        

Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits
 
              11   Statement regarding computation of per share earnings

              (b)  Reports on Form 8-K: No reports on Form 8-K were filed for
                   the quarter ended March 31, 1999.


                                      22
<PAGE>
 
                                   SIGNATURES


Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.


                                  PROFESSIONAL BANCORP, INC.
                                  --------------------------
                                  (Registrant)



Date:  May 15, 1999               /s/ Julie P. Thompson
                                  --------------------------------
                                  Julie P. Thompson
                                  Chairman of the Board


Date:  May 15, 1999               /s/ Eric J. Woodstrom
                                  --------------------------------
                                  Acting - Chief Financial Officer


                                      23