<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                                   FORM 10-Q

(Mark one)
(x)     Quarterly report pursuant to Section 13 or 15(d) of the
        Securities Exchange Act of 1934

For the quarterly period ended September 30, 1996 or

( )     Transition report pursuant to Section 13 or 15(d) of the
        Securities Exchange Act of 1934

For the transition period from          to

Commission file number: 0-11090

                             NAPA NATIONAL BANCORP

            (Exact name of registrant as specified in its charter)

         California                                       94-2780134
(State or other jurisdiction of                        I.R.S. Employer
incorporation or organization)                      Identification Number)

                   901 Main Street, Napa, California     94559
              (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:(707) 257-2440

                                Not Applicable
             (Former name, former address and former fiscal year,
                         If changed since last report)

    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 November 1, 1996, the number of shares outstanding of the registrant's
Common Stock, without par value, was 754,500.  Fully dilutive shares outstanding
were 903,300.

                                       1
<PAGE>
 
                                    PART I

                             FINANCIAL INFORMATION

Item 1.

Financial Statements

The following interim consolidated financial statements are unaudited. However,
they reflect all adjustments (which included only normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
financial position, results of operations, and cash flows for the interim
periods presented.

Results for the quarter and nine month period as presented are not necessarily
indicative of results to be expected of the year as a whole.

                                       2
<PAGE>
 
<TABLE>
<CAPTION>
                    NAPA NATIONAL BANCORP AND SUBSIDIARIES
                                  (Unaudited)
                          CONSOLIDATED BALANCE SHEETS
                                   (IN 000S)


                                             September 30,  December 31,
                                                 1996          1995
<S>                                            <C>            <C>

ASSETS
Cash and due from banks                        $  6,881       $  7,106
Federal funds sold                               10,630         14,780
Time deposits with other financial
  institutions                                    4,158          4,356
Investment securities: Held to Maturity           1,723          1,235
Federal Reserve and FHLB Stock                      549            197
Loans, less allowance for loan losses of
  $1,526 and $1,325 at September 30, 1996
  And December 31, 1995                          78,070         73,374
Premises, furniture, fixtures and
  equipment, net                                  2,513          2,489
Accrued interest receivable                         708            666
Other assets                                        994            648

  TOTAL ASSETS                                 $106,226       $104,851

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Non-interest-bearing demand                  $ 21,203       $ 19,068
  Interest-bearing:
   Savings                                       11,760         12,305
   Transaction                                   27,176         28,060
   Time certificates                             37,652         37,319

    Total deposits                               97,791         96,752
Accrued interest payable and other
  liabilities                                       447            652

  TOTAL LIABILITIES                              98,238         97,404

SHAREHOLDERS' EQUITY
Preferred stock, no par value,
  1,000,000 shares authorized; no
  shares outstanding                                  0              0
Common stock, no par value, 20,000,000
  shares authorized; 754,500 shares
  issued and outstanding at September
  30,1996 and December 31, 1995                   6,915          6,915
Retained Earnings                                 1,073            532

  TOTAL SHAREHOLDERS' EQUITY                      7,988          7,447

  TOTAL LIABILITIES AND
   SHAREHOLDERS' EQUITY                        $106,226       $104,851
</TABLE>

                                       3
<PAGE>
 
                    NAPA NATIONAL BANCORP AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)
                   (In 000s, except earnings per share data)
<TABLE>
<CAPTION>
 
                                                Nine Months Ended September 30,
                                                     1996             1995
<S>                                                <C>             <C>
Interest income:
     Interest and fees on loans                    $  6,297        $  5,463
     Interest on federal funds sold                     360             405
     Interest on time deposits with
          other financial institutions                  173             187
     Interest on investment securities                   81              62
          Total interest income                       6,911           6,117
 
Interest expense:
     Interest on deposits                             2,087           1,895
          Total interest expense                      2,087           1,895
 
          Net interest income                         4,824           4,222
 
Provision for loan losses                               308             174
 
Net interest income after provision
     For loan losses                                  4,516           4,048
Non-interest income:
     Service charges on deposit accounts                386             342
     Other customer fees and charges                    221             197
     Mortgage loan origination and
          Service fees                                    5               1
     Other income                                         0              12
          Total non-interest income                     612             552
Non-interest expense:
     Salaries and employee benefits, net              2,043           1,675
     Occupancy                                          345             289
     Furniture, fixtures and equipment                  324             294
     Marketing and business development                 122              82
     Other                                              909             860
          Total non-interest expense                  3,743           3,200
 
Income before income taxes                            1,385           1,400
 
Income taxes                                            561             567
 
Net income                                         $    824        $    833
 
Net income per share                               $   0.91        $   0.95
 
Weighted average common shares
     outstanding used to compute net
     income per share                               903,300         874,300
</TABLE>

                                       4
<PAGE>
 
                    NAPA NATIONAL BANCORP AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)
                   (In 000s, except earnings per share data)
<TABLE>
<CAPTION>
 
                                               Quarter Ended September 30,
                                                   1996           1995
<S>                                              <C>           <C>
Interest income:
     Interest and fees on loans                  $  2,112      $  1,925
     Interest on federal funds sold                   136           138
     Interest on time deposits with
          other financial institutions                 58            64
     Interest on investment securities                 27            22
          Total interest income                  $  2,333      $  2,149
 
Interest expense:
     Interest on deposits                             703           712
          Total interest expense                      703           712
 
          Net interest income                       1,630         1,437
 
Provision for loan losses                             129            50
 
Net interest income after provision
     For loan losses                                1,501         1,387
Non-interest income:
     Service charges on deposit accounts              124           117
     Other customer fees and charges                   74            68
     Mortgage loan origination and
          Service fees                                  3             0
     Other Income                                       0            12
          Total non-interest income                   201           197
Non-interest expense:
     Salaries and employee benefits, net              712           591
     Occupancy                                        120           109
     Furniture, fixtures and equipment                110            99
     Marketing and business development                53            30
     Other                                            297           263
          Total non-interest expense                1,292         1,092
 
Income before income taxes                            410           492
 
Income taxes                                          166           182
 
Net income                                       $    244      $    310
 
Net income per share                             $   0.27      $   0.35
 
Weighted average common shares
     outstanding used to compute net
     income per share                             903,300       874,300
</TABLE>

                                       5
<PAGE>
 
                    NAPA NATIONAL BANCORP AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                  (Unaudited)
                                   (In 000s)
<TABLE>
<CAPTION>

                              Number of
                               Shares        Common     Retained
                             Outstanding     Stock      Earnings      Total

<S>                             <C>          <C>         <C>          <C>
Balance, December 31, 1995      754,500      $6,915      $  532       $7,447

Stock Dividends                                            (283)        (283)

Net Income, September 30, 1996                              824          824

Balance, September 30, 1996     754,500      $6,915      $1,073       $7,988
</TABLE>

                                       6
<PAGE>
 
                    NAPA NATIONAL BANCORP AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                   (In 000s)
                                                           Nine Months
                                                       Ended September 30,
                                                          1996      1995
<TABLE>
<CAPTION>
<S>                                                     <C>       <C>
Cash flows from operating activities:
 Net income                                             $   824   $   833
 Reconciliation of net income to net
   cash provided by operating activities:
   Depreciation on premises and equipment                   325       234
   Amortization of deferred loan fees and
    discounts/premiums on securities                       (396)     (256)
   Provision for loan losses                                308       174
   (Increase) in accrued interest receivable                (42)     (269)
   (Increase) in other assets, net                         (346)     (233)
   (Decrease) in accrued interest
    payable and other liabilities                          (205)     (355)
 
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES            468       128
 
Cash flows from investing activities:
 Loan originations, net of collections                   (4,608)   (7,440)
 Increase in other real estate owned                          0      (678)
 Net decrease in time deposits
  with other financial institutions                         198         1
 Activity in securities held to maturity   
  Purchases                                              (2,725)     (487)
  Maturities                                              2,237       475
 Purchases of FRB and FHLB stock                           (352)      (32)
 Capital expenditures                                      (349)   (1,209)
 
NET CASH USED BY INVESTING ACTIVITIES                    (5,599)   (9,370)
 
Cash flows from financing activities:
 Net increases in deposits                                1,039     8,239
 Cash dividends paid to shareholders                       (283)        0
 
NET CASH PROVIDED BY FINANCING ACTIVITIES                   756     8,239
 
DECREASE IN CASH/CASH EQUIVALENTS                        (4,375)   (1,003)
 
Cash and cash equivalents at beginning
  of period                                              21,886    16,219
 
Cash and cash equivalents at end of
  period                                                $17,511   $15,216
</TABLE>
(Continued on following page)

                                       7
<PAGE>
 
                    NAPA NATIONAL BANCORP AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                  (Unaudited)
                                   (In 000s)

                                              Nine Months
                                          Ended September 30,
                                        1996              1995
<TABLE> 
<CAPTION> 
CASH AND CASH EQUIVALENTS AT September 30
    CONSIST OF:
<S>                                     <C>               <C>   
         Cash and due from banks        $ 6,881           $ 5,426
         Federal funds sold              10,630             9,790

                                        $17,511           $15,216


SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash paid for interest              $ 2,306           $ 1,643
    Cash paid for income taxes          $   815           $ 1,248
</TABLE> 

                                       8
<PAGE>
 
Item 2.


Management's Discussion and Analysis of Financial Condition and Results of
Operation

    The following should be read in conjunction with the unaudited consolidated
financial statements presented elsewhere in this Form 10-Q.  Since Napa National
Bancorp (the Company) is a holding company whose principal asset is, and is
expected to be, the capital stock of Napa National Bank (the Bank), the
following relates principally to the financial condition and results of
operations of the Bank.  All dollar amounts are rounded and expressed in
thousands except earnings per share data.


Summary of Financial Results

    The Company recorded net income of $244, or $0.27 per share for the third
quarter of 1996 as compared to net income of $310, or $0.35 per share for the
same period in 1995.  For the first nine months of 1996, the Company had net
income of $824, or $0.91 per share, as compared to $833, or $0.95 per share for
the first nine months of 1995.  The Company's year to date 1996 net income was
$9 below the results of the same period of 1995 for the following reasons.  Net
interest income for the nine months ending September 30, 1996, was $602, or 14%,
higher than the results for the same period of 1995.  This increase was
partially offset by an increase in the provision for loan losses for the first
three quarters of 1996 of $134, or 77%, over the same period of 1995.
Additionally, the increase in non-interest income of $60, or 11%, over the nine
months of 1995, was offset by a $543, or 17%, increase in non-interest expenses
in 1996 over the same time frame of 1995.  Tax expenses decreased by $6, or 1%,
in 1996 over 1995 totals due to the slightly lower year to date earnings.


Net Interest Income

    The Company's primary source of income is the difference between interest
income and fees derived from earning assets and interest paid on liabilities
incurred for the funding of those assets.  This difference is referred to as
"net interest income".  Net interest income expressed as a percentage of average
total earning assets is referred to as the "net interest margin" or "margin".

    For both the third quarter and first nine months of 1996, net interest
income was $193 and $602, respectively, higher than the same periods of 1995.
These increases were due to growth in earning assets during the prior twelve
months and increases in rates paid on loans and investments during the latter
half of 1995.  These increases were partially offset by growth in interest
bearing deposits.

    For the first nine months of 1996, total average earning assets were
approximately $94,074, an increase of approximately $11,874, or 14%, over total
average earning assets ($82,200) during the same period in 1995.  This increase
in average assets in 1996 as compared to 1995, contributed 

                                       9
<PAGE>
 
significantly to the increase of $184, and $794, in total interest income for
the third quarter and year to date respectively.

    During the third quarter of 1996, total interest expense decreased over the
same period of 1995 by $9.  In March 1995, the Bank offered a limited time, one
year, 7% certificate of deposit product.  This product caused the Bank's cost of
funds to increase dramatically during the next twelve months.  In March 1996,
these higher paying certificate of deposits matured and were replaced with
deposits paying 100 to 200 basis points lower (See "Deposits" herein), thus
immediately bringing down the Bank's overall cost of funds.  This lower cost of
funds was directly responsible for the decrease in total interest expense during
the third quarter of 1996 over the same period of 1995.

    Net interest expense for the first nine months of 1996 was $192 higher than
the same period of 1995.  This increase represents a combination of the higher
cost of funds from the first quarter, coupled with the lower interest rates paid
during the second and third quarters of 1996.  Additionally, total interest
bearing deposits increased during the prior twelve months bringing with it a
natural growth in interest expense. Average interest bearing deposits for the
first nine months of 1996 were $75,954, an increase of $8,322, or 12%, over
1995's average of $67,632.


Provision for Loan Losses

    The provision for loan losses is based upon management's assessment of the
amount that is necessary to maintain the allowance for loan losses at an
adequate level.  As further described in the "Allowance for Loan Losses" herein,
management takes many factors into consideration when determining the provision.
In addition to the factors described in the "Allowance for Loan Losses" section,
management also considers loan portfolio growth in establishing the provision.

    During the third quarter of 1996, the provision was $129 as compared to a
provision of $50 for the same period in 1995. For the first nine months of 1996,
the provision was $308 as compared to a provision of $174 for the same period of
1995. Gross loans totaled $79,596, as of September 30, 1996, an increase of
$8,772 or 12%, over the September 30, 1995, balance of $70,824. The increase in
the provision during the third quarter and first nine months of 1996 over 1995,
was due primarily to an increase in outstanding loan balances and management's
ongoing assessment of the adequacy of the allowance for loan losses (See "Loans
and Nonaccrual Loans" herein).


Non-Interest Income

    Non-interest income consists primarily of service charges on deposit
accounts and fees charged for other banking services.  Non-interest income for
the third quarter of 1996 was $201, $4 or 2%, greater than the third quarter of
1995.  Non-interest income for the first three quarters of 1996 was $612, $60 or
11%, higher than the same period of 1995.  The growth experienced in 1996 can be
attributed to the continued increase in number of deposit accounts subject to
service charges during the period under 

                                       10
<PAGE>
 
review. Additionally, the Bank's merchant card processing program has shown
strong gains throughout 1995 and into 1996 contributing to the growth in non-
interest income during the first three quarters of 1996.


Non-Interest Expense

    For the third quarter of 1996, non-interest expenses increased by $200, or
18%, over the same period of 1995.  Total non-interest expenses for nine months
ending September 30, 1996 were $3,743, representing an increase of $543, or 17%,
over 1995's total of $3,200.  Salaries and employee benefit and marketing and
business development expenses showed the largest dollar increases during the
first nine months of 1996 over the same period in 1995 however, occupancy and
furniture, fixtures and equipment expenses also showed a percentage gain of
approximately 15%.

    Salaries and employee benefits increased by $121, or 20%, in the third
quarter of 1996 as compared to the same period of 1995.  1996 year to date
salary related expenses increase by $369, or 22%, over the first nine months of
1995.  This increase can be primarily attributed to an addition of approximately
nine full time equivalent employees during the previous twelve months.  This
staff increase was a strategic move by management in order to take advantage of
unique marketing opportunities taking place in the Company's service area and
were necessary to maintain an adequate service level given the overall growth
within the Company.  Additionally, annual Company wide salary increases for
1996, which began in March, were approximately 4%.

    Occupancy and furniture, fixtures and equipment expenses increased a
combined total of $22 during the third quarter of 1996 over the same period of
1995.  Expenses for the first nine months of 1996 were $86 higher than the same
period of 1995.  During 1995, the Bank closed and relocated a branch, relocated
its head quarters, moved the bulk of its lending and loan administrative staff,
remodeled its North Napa office and relocated the EDP and Customer Service
Departments.  The bulk of these moves and costs were incurred during the second
and third quarters of 1995.  These moves increased the Company's total occupied
rental space by approximately 7,500 square feet. This increase in square footage
and associated costs, contributed materially to the increase in 1996 verse 1995
totals.

    The Company increased its marketing and business development costs by $30
during the third quarter of 1996 over the same period of 1995.  For the first
nine months of 1996, marketing and business development costs increased by $40
over the nine months of 1995.  This increase in the two time periods under
review is due primarily to a focused and high profile marketing campaign started
late in the first quarter of 1996.

    Other non-interest expense increased by $34 for the third quarter of 1996
over the similar period of 1995.  For the three quarters of 1996 non-interest
expenses increased by $49 over 1995 totals.  The growth in both the third
quarter and year to date is due primarily to the overall growth in the Company
of approximately 12% over the last twelve months.

                                       11
<PAGE>
 
Income Taxes

    Income tax expense was 41% of pre-tax income for the nine months ending
September 30, 1996 and 1995.


Loans and Nonaccrual Loans

    Gross loans totaled $79,596 at September 30, 1996, an increase of $4,897
(7%), and $8,772 (12%) over December 31, 1995 and September 30, 1995,
respectively.  The increase in the Company's loan portfolio over the last twelve
months resulted from new loan generation by the Bank's loan officers, a
concentrated marketing plan, and current changes in the Company's service area.

    As of September 30, 1996, nonperforming loans were $2,531, as compared to
$1,447, at December 31, 1995.  Accruing loans past due 90 days or more were $296
at September 30, 1996 and $0 at December 31, 1995, respectively.

    On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure".  These statements
address the accounting and reporting by creditors for impairment of certain
loans.  A loan is impaired when, based upon current information and events, it
is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement.  Interest income is recognized
on impaired loans in a manner similar to that of all loans.  It is the Company's
policy to place loans that are delinquent 90 days or more as to principal or
interest on a nonaccrual of interest basis unless secured and in the process of
collection, and to reverse from current income accrued but uncollected interest.
Cash payments subsequently received on nonaccrual loans are recognized as income
only where the future collection of principal is considered by management to be
probable.

    At September 30, 1996, the Company had approximately $2,827 in loans
considered to be impaired.  These loans were evaluated for impairment based on
fair value of the underlying collateral and required an allowance for credit
losses measured in accordance with SFAS No. 114 of $515.

    The average recorded investment in the impaired loans during the nine months
ended September 30, 1996, was $1,628: the related amount of interest income
recognized during the period that such loans were impaired was $31, and the
amount of interest income recognized under the cash-basis method of accounting
during the time within the period that the loans were impaired was $24.


Allowance for Loan Losses

    Inherent in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan being made
and the credit-worthiness of the borrower over the term of the loan.  The
Company maintains an allowance for possible loan losses at a level estimated to
be adequate to provide for losses that can be reasonably 

                                       12
<PAGE>
 
anticipated based upon specific loan conditions as determined by management, and
based upon management's assessment of historical loan loss experience,
prevailing economic conditions and other factors. While these factors are
essentially judgmental and may not be reduced to a mathematical formula, it is
management's view that the $1,526 allowance, approximately 1.92% of total loans
outstanding at September 30, 1996, is adequate. At September 30, 1995, the
$1,204 amounted to approximately 1.70% of total loans. There can be no assurance
that in any given period the Bank may not sustain charge-offs which are
substantial in relation to the size of the allowance. The allowance is increased
by charges to the provision for loan losses and reduced by net charge-offs.

    The activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>

                                    1996        1995
<S>                               <C>         <C>

Balance at January 1              $1,325      $1,050
     Provision for loan losses       308         174
     Recoveries                       71           3
     Charge-offs                    (178)        (23)

Balance at September 30           $1,526      $1,204

</TABLE>
Investments

    The Bank's classification of its investment in debt and equity securities
according to the provisions of SFAS 115 are as follows:

             September 30, 1996 - Investment Securities Classified
                  According to the Provisions of SFAS No. 115
<TABLE>
<CAPTION>
 
                                 Gross          Gross
                               Amortized     Unrealized     Unrealized   Fair
                                 Cost           Gains         Losses     Value
<S>                            <C>           <C>            <C>         <C>
 
Held-to-Maturity Securities
U.S. Treasury (HTM)            $1,723           $0             $10      $1,733

Federal Reserve Stock          $  232           $0             $ 0      $  232
Federal Home Loan Bank         $  317           $0             $ 0      $  317
</TABLE>


Deposits

    Deposits totaled $97,791, at September 30, 1996, an increase of $1,039, or
1%, from December 31, 1995's balance of $96,752.  Since December 31, 1995,
slight increases have been seen in non-interest bearing deposits and time
certificates only.

    During the last twelve months, deposits have grown by $10,174, or 12%, over
September 30, 1995 total of $87,617.  Management attributes this growth to
changes in the Company's current service market, enhancements to the sales staff
and a marketing and advertisement plan focused on deposit growth.

                                       13
<PAGE>
 
    Late in March 1996, a special 7%, one year certificate of deposit product
offered a year ago, matured.  The Bank conducted a special marketing promotion
for these customers through an employee telephone campaign.  These customers
were offered certificate of deposits with maturities ranging from 12 to 24
months.  Interest rates offered on these certificate of deposits were tiered
dependent on the certificate of deposit's term and ranged 100 to 200 basis
points below the previous 7% rate.  The rates offered were similar to rates
offered for similar products at other financial institutions in the Bank's
service area.  The Bank's program was successful in maintaining the bulk of
these maturities at a substantially lower cost of funds, as evidenced by the
slight growth of $333 in certificate of deposits from $37,319 at December 31,
1995 to $37,652 at September 30, 1996.

    Non-interest bearing demand deposits were 22% of total deposits at September
30, 1996, as compared to 19% at September 30, 1995.  Time certificates of
deposit were 39% of total deposits for the nine months ended September 30, 1996,
and 40% for the same period of 1995.


New Accounting Pronouncements

    The Company was required to adopt SFAS No. 123, Accounting for Stock-Based
Compensation, on January 1, 1996.  SFAS No. 123 establishes accounting and
disclosure requirements using a fair value-based method of accounting for stock-
based employee compensation plans.  Under SFAS No. 123, the Company may either
adopt the new fair value-based accounting method or continue the intrinsic
value-based method and provide pro forma disclosures of net income and earnings
per share as if the accounting provisions of SFAS No. 123 had been adopted.  The
Company has adopted only the disclosure requirements of SFAS No. 123.

    In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of.  SFAS No. 121 is effective for fiscal years beginning after
December 15, 1995.  This Statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  The financial statement
impact of adopting SFAS No. 121 has not been material.


Liquidity and Capital Resources

    Liquidity refers to the Company's ability to maintain a cash flow adequate
to fund operations and meet obligations and other commitments on a timely basis.
As shown in the Consolidated Statements of Cash Flows ("Statement") for the nine
months ended September 30, 1996 and 1995, the Company's usual and primary source
of funds has been customer deposits and loan principal repayments.  While the
usual and primary sources are expected to continue to provide significant
amounts of funds in the future, their mix, as well as those from other sources,
will depend on future economic and other market conditions.

                                       14
<PAGE>
 
    The maturity and repricing profile of the Company's asset-liability mix is
currently in an asset sensitive position.  This means that when there exists a
declining interest rate environment, the returns on the Company's earning assets
decrease more quickly than the Company's cost of funds.  This causes a narrowing
of the net interest spread and a possible decrease to the overall earnings of
the Company.  As rates increase, the opposite effect occurs.  The Company's
management monitors the asset-liability position of the Company on a monthly
basis and is continually assessing both the asset-liability mix and the products
being offered to its customer.

    The 1996 Statement shows that operations and financing activities were
sources of net cash inflows ($468 and $756, respectively) for the first nine
months of the year.  Investing activities used a net $5,599 in cash, which was
comprised primarily in increases in net loan originations which totaled $4,608.
With these transactions, cash and cash equivalents for the first nine months of
1995 decreased by $4,375.

    If the Bank's loan portfolio grows substantially, it might be necessary to
raise deposits to support this growth.  The Bank monitors its loan-to-deposit
ratio (81% at September 30, 1996 as compared to 77% at December 31, 1995) on a
daily basis.  If the loan-to-deposit ratio indicated that a liquidity squeeze is
possible, the Bank has a number of options available to raise the necessary
liquidity.  The Bank can raise rates on deposits to attract more funds, as well
as having $6,500, in short-term lines of credit available to it from its
correspondent banks.

    Liquidity is measured by various ratios, the most common being the liquidity
ratio of cash less reserve requirements, time deposits with other financial
institutions, federal funds sold, and unpledged investment securities compared
to total deposits.  At September 30, 1996, this ratio was 21% as compared to 26%
at December 31, 1995, and 22% at September 30, 1995.

    The Company's primary source of income is interest income earned on its
liquid investments.  The amounts invested by the Company in the Bank as of
September 30, 1996 were approximately $88.  The Company's yearly operating
expenses are expected to exceed investment income by approximately $20 during
1996.

    During the first quarter of 1996, the Company declared and paid a cash
dividend of twelve and a half cents ($.125) per share on outstanding stock. The
first quarter dividend was based on 1995 earnings and amounted to $94.  During
the beginning of the second quarter of 1996, the Company declared another cash
dividend of twelve and a half cents ($.125) per share.  This second cash
dividend was based on the first quarter earnings of 1996 and was also $94.
During the third quarter of 1996, the Bank paid a $100 cash dividend to the
Company.  This dividend allowed the Company to declare and pay another cash
dividend of twelve and a half cents ($.125) per share for a total of $94.  If
the Company continues with this cash pay out, it is expected that Bank
management will pay additional dividends to the Company during the fourth
quarter of 1996.

                                       15
<PAGE>
 
Capital Adequacy

    The Federal Reserve Bank and the Comptroller of the Currency have specified
guidelines for the purpose of evaluating the capital adequacy of holding
companies and banks.  The table below summarizes the current requirements for
1996, and the Company's and the Bank's compliance therewith.  The requirements
for the ratio of regulatory capital to risk-weighted assets for an "adequately
capitalized" institution is 8.00%.
<TABLE>
<CAPTION>

                                         Capital as a       Minimum    Tier 1
                                          % of Risk-       Leverage   Capital
                                        Weighted Assets      Ratio     Ratio
<S>                                <C>                     <C>        <C>

Regulatory Requirements
for 1996                                    8.00%            4.00%     4.00%

Consolidated Company Ratio at
September 30, 1996                         11.59%            7.55%     9.73%

Bank Ratio at September
30, 1996                                   10.87%            7.45%     9.61%
</TABLE>

    The capital levels of both the Bank and the Company currently exceed the
regulatory requirements for a "well capitalized" institution.  Management
anticipates that both companies will continue to exceed the regulatory minimums
in the foreseeable future.  Therefore, the Company and the Bank have adequate
capital in order to expand in the future, either through loan generation or
other means of expansion.


Effects of Inflation

    The impact of inflation on a financial institution differs significantly
from that exerted on an industrial concern, primarily because its assets and
liabilities consist largely of monetary items.  The most direct effect of
inflation is higher interest rates.  However, the Bank's earnings are affected
by the spread between the yield on earning assets and rates paid on interest-
bearing liabilities rather than the absolute level of interest rates.
Additionally, there may be some upward pressure on the Company's operating
expenses, such as adjustments in staff expense and occupancy expense, based upon
consumer price indices.  In the opinion of management, inflation has not had a
material effect on the consolidated results of operations.

                                       16
<PAGE>
 
                        INDEX TO EXHIBITS

Exhibit No.                                    Description

   27                                     Financial Data Schedule

                                       17
<PAGE>
 
                                    PART II

                               OTHER INFORMATION

Item 1.     Not applicable

Item 2.     Not applicable

Item 3.     Not applicable

Item 4.     Not applicable

Item 5.     Not applicable

Item 6.     Exhibits and Reports on Form 8-K.

                Form 8-K - Tender Offer on Company Stock for its ESOP

                Form 8-K - Change in Accountants

                                       18
<PAGE>
 
                      SIGNATURES

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


                            NAPA NATIONAL BANCORP



Date: November 14, 1996     By:
                                Brian J. Kelly
                                President/COO



                            By:
                                Joan E. Heinitz
                                Treasurer

                                       19