<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(MARK ONE)

      [ X ]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
               EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   For the fiscal year ended December 31, 1996
                                       OR

      [   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                         Commission file number 0-17650

                                FP BANCORP, INC.
                 (Name of small business issuer in its charter)

<TABLE>
<CAPTION>
                        Delaware                                                     33-0018976
<S>                                                                       <C>
(State or other jurisdiction of incorporation or organization)            (I.R.S. Employer Identification No.)

        613 West Valley Parkway
         Escondido, California                                                        92025-4929
(Address of principal executive offices)                                               (Zip Code)
</TABLE>

          Issuer's telephone number, including area code (760) 741-3312

Securities registered under Section 12(b) of the Exchange Act:

   Title of each class             Name of each exchange on which registered
           None                                     None


     Securities registered pursuant to section 12(g) of the Exchange Act: Common
Stock, par value $.001

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

        Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /_/

         Issuer's revenues for its most recent fiscal year: $24,402,000

   The aggregate market value of the voting stock held by nonaffiliates as of
                         February 14, 1997: $22,119,000

                       DOCUMENTS INCORPORATED BY REFERENCE

          Part III - Portions of the Proxy Statement for Annual Meeting
                  of Stockholders to be held on May 27, 1997.

     The number of shares outstanding of Common Stock as of March 14, 1997:
                                   2,653,641

     Transitional Small Business Disclosure Format (check one): Yes     No  X
                                                                    ---    ---
<PAGE>   2
                                FP BANCORP, INC.
                         1996 FORM 10-KSB ANNUAL REPORT
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                Page
                                                                                ----

                                     PART I
<S>      <C>                                                                   <C>
Item 1.  Description of Business ................................................I-1
           General Development of Business.......................................I-1
           Competition...........................................................I-1
           Supervision and Regulation............................................I-2
                 General.........................................................I-2
                 Governmental Policies and Legislation...........................I-3
                 Interstate Banking..............................................I-4
                 Capital Requirements............................................I-4
                 Dividends.......................................................I-5
                 Federal Deposit Insurance Corporation Improvement Act of 1991 ..I-5
                 Deposit Insurance Assessments...................................I-6
                 Memorandum of Understanding.....................................I-7
           Accounting Standards..................................................I-7
           Employees.............................................................I-7
Item 2.  Description of Properties...............................................I-8
Item 3.  Legal Proceedings.......................................................I-8
Item 4.  Submission of Matters to a Vote of Security Holders.....................I-8

                                     PART II
Item 5.  Market for Common Equity and Related Stockholder Matters...............II-1
           Dividends............................................................II-1
Item 6.  Management's Discussion and Analysis...................................II-2
           Overview.............................................................II-2
           Results of Operations................................................II-3
                 Net Interest Income............................................II-3
                 Provision for Loan Losses......................................II-5
                 Other Operating Income.........................................II-6
                 Other Operating Expenses.......................................II-6
                 Income Taxes...................................................II-6
           Liquidity and Asset/Liability Management.............................II-6
                 Cash Flows.....................................................II-7
                 Liquidity......................................................II-7
           Interest Rates.......................................................II-8
           Investment Portfolios...............................................II-10
</TABLE>
<PAGE>   3
                                FP BANCORP, INC.
                         1996 FORM 10-KSB ANNUAL REPORT
                                TABLE OF CONTENTS
                                   (CONTINUED)
<TABLE>
<CAPTION>
                                                                                Page
                                                                                ----
<S>        <C>                                                                 <C>
             Loan Portfolio....................................................II-11
                   Commercial Loans............................................II-12
                   Real Estate Loans...........................................II-12
                   Construction Loans..........................................II-12
                   Installment Loans...........................................II-12
                   Loan Maturity and Interest Rate Sensitivity.................II-13
                   Nonperforming Assets........................................II-13
                   Allowance for Loan and Lease Losses.........................II-14
                   Credit Risk Management......................................II-17
             Premises and Equipment, Accrued Interest and Other Assets
              and Goodwill.....................................................II-17
             Deposits..........................................................II-18
             Financial Ratios..................................................II-19
             Capital Resources.................................................II-20
Item 7.    Financial Statements................................................II-21
Item 8.    Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure ..........................................II-21

                                    PART III
Item 9.    Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act..................III-1
Item 10.   Executive Compensation..............................................III-1
Item 11.   Security Ownership of Certain Beneficial Owners and Management .....III-1
Item 12.   Certain Relationships and Related Transactions......................III-1
Item 13.   Exhibits and Reports on Form 8-K....................................III-1
</TABLE>
<PAGE>   4
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL DEVELOPMENT OF BUSINESS

  FP Bancorp, Inc. (the "Company"), a Delaware corporation, was organized in
1995 and is registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended. The Company is the successor to FP Bancorp, a
California corporation, organized in 1984. The Company is headquartered in
Escondido, California, a city on the northeast edge of San Diego County,
approximately 35 miles north of downtown San Diego. The Company conducts all of
its business activities through branches of its wholly-owned subsidiary bank,
First Pacific National Bank ("FPNB"), which operates five branches in northern
San Diego County and three branches in southern Riverside County. Unless
otherwise indicated, all references to the business and assets of the Company
include the business and assets of FPNB. The Company's administrative offices
are located at 613 West Valley Parkway, Escondido, California 92025-4929,
telephone (760) 741-3312.

  FPNB focuses on providing commercial banking services in northern San Diego
County and southern Riverside County. From the time FPNB was formed, management
has worked to build a reputation for service to businesses and professionals
and, through efforts of its Board of Directors and management, has sought to
maintain an identity as a community-oriented commercial bank.

  During 1993, the Company completed the offering (the "Debenture Offering") of
$4,575,000 of its 9% Convertible Subordinated Debentures due December 31, 1997
(the "Debentures"), $3,400,000 of the proceeds of which increased the
capitalization of FPNB in mid-1993. On December 31, 1997, the holders of the
Debentures will receive cash in the principal amount of, or if the conversion
rights are exercised, 100 shares of the Company's common stock, $.001 par value
("Common Stock"), (subject to anti-dilutive adjustments) for each $1,000
principal of Debentures, subject to the limitation that the fair market value of
the shares of Common Stock received by the holder of a Debenture shall not
exceed twice the principal amount of the Debenture.

  Pursuant to an Agreement and Plan of Reorganization dated October 12, 1994, as
amended, among FP Bancorp, FPNB and Overland Bank ("Overland"), the Company
agreed to exchange shares of Common Stock, for all of the outstanding shares of
Overland common stock and to merge Overland into FPNB (the "Overland Merger").
The Overland Merger was effective April 1, 1995.

  Pursuant to an Agreement and Plan of Reorganization dated January 12, 1996, by
and among FP Bancorp, FPNB, RB Bancorp and its wholly-owned subsidiary, The Bank
of Rancho Bernardo, the Company acquired RB Bancorp and The Bank of Rancho
Bernardo for $7,350,000 in cash and merged The Bank of Rancho Bernardo with and
into FPNB (the "RB Merger"). The RB Merger was effective April 1, 1996.

  As of December 31, 1996, the Company had total assets of $308,585,000, total
deposits of $264,521,000 and total stockholders' equity of $20,978,000. Net
earnings for the year ended December 31, 1996 were $4,208,000 as compared to net
earnings of $1,911,000 for the year ended December 31, 1995, and net earnings of
$332,000 for the year ended December 31, 1994.

COMPETITION

  In general, the banking business in California is highly competitive with
respect to both loans and deposits and is dominated by major banks with many
offices operating over a wide geographic area. In the Company's primary service
area, major banks dominate the commercial banking industry as a result of
acquisitions of other independent banks in the area in recent years. The Company
competes for deposits and loans with other commercial banks and with nonbank
financial institutions, including savings and loan associations and credit
unions.

                                      I-1
<PAGE>   5
  Institutions such as brokerage firms, credit card companies and even retail
establishments offer alternative investment vehicles such as money market funds
and traditional banking services such as check-writing and cash advances on
credit card accounts. Other entities (both public and private) seeking to raise
capital through the issuance and sale of debt or equity securities also
represent a source of competition for the Company with respect to acquisition of
deposits.

  Among the advantages certain of these institutions have over the Company are
their ability to finance wide-ranging and effective advertising campaigns, to
access international money markets and to allocate their investment resources to
regions of highest yield and demand. Major banks operating in the Company's
service area offer services, such as international banking and trust services,
which are not offered by FPNB. Also, by virtue of their greater total
capitalization, such banks have substantially higher lending limits than FPNB.

  The Company does not have a dependency upon a single customer or industry, the
loss of which would have a material adverse effect. However, some of the
Company's commercial, real estate and construction borrowers are to some extent
dependent on the real estate and construction industries. The Company believes
that the unique services it offers, such as courier service and the high quality
of its customer service and attention, distinguish it from other financial
institutions in its market area. In addition, prompt response to lending
requests is a positive contributing factor to the Company's competitive position
in its area. The accessibility of senior management to customers and local
decision-making also distinguish the Company from other financial institutions.

  In order to compete with the other financial institutions in its primary
service area, the Company relies principally upon local promotional activities,
personal contact by its officers, directors, employees and stockholders and
specialized services that it offers to customers. For customers whose loan
demands exceed FPNB's lending limit, the Company attempts to arrange for such
loans on a participation basis with other community banks. The Company also
assists customers in obtaining services not offered directly by FPNB from its
correspondent banks or through third-party providers.

SUPERVISION AND REGULATION

            General. The Company is subject to the periodic reporting
requirements of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), which include, but are not limited to, the filing of annual,
quarterly and other reports with the Securities and Exchange Commission (the
"SEC").

  The Company is a bank holding company within the meaning of the Bank Holding
Company Act, and is registered as such with and is subject to the supervision of
the Federal Reserve Bank of San Francisco (the "FRB"). Generally, a bank holding
company is required to obtain the approval of the FRB before it may acquire all
or substantially all of the assets of any bank, or ownership or control of the
voting shares of any bank if, after giving effect to such acquisition of shares,
the bank holding company would own or control more than 5% of the voting shares
of such bank. The FRB's approval is also required for the merger or
consolidation of bank holding companies.

  The Company is required to file reports with the FRB and provide such
additional information as the FRB may require. The FRB also has the authority to
examine the Company and FPNB, as well as any arrangements between the Company
and FPNB, with the cost of any such examination to be borne by the Company.

  Banking subsidiaries of bank holding companies are also subject to certain
restrictions imposed by Federal law in dealings with their holding companies and
other affiliates. Subject to certain restrictions set forth in the Federal
Reserve Act, a bank can loan or extend credit to an affiliate, purchase or
invest in the securities of an affiliate, purchase assets from an affiliate or
issue a guarantee, acceptance or letter of credit on behalf of an affiliate;
provided that the aggregate amount of the above transactions of a bank and its
subsidiaries does not exceed 10% of the capital stock and surplus of the bank on
a per affiliate basis or 20% of the capital stock and surplus of the bank on an
aggregate affiliate basis. In addition, such transactions must be on terms and
conditions that are consistent with safe and sound banking practices and, in
particular, a bank and its subsidiaries generally may not purchase from an
affiliate a low-quality asset, as defined in the Federal Reserve Act. Such
restrictions also prevent a bank

                                       I-2
<PAGE>   6
holding company and its other affiliates from borrowing from a banking
subsidiary of the bank holding company unless the loans are secured by
marketable collateral of designated amounts. Further, the Company and its
subsidiary are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, sale or lease of property or furnishing
of services.

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

   As a national bank, FPNB is subject to regulation, supervision and regular
examination by the Office of the Comptroller of the Currency ("Comptroller").
Each depositor's account with FPNB is insured by the Federal Deposit Insurance
Corporation (the "FDIC") to the maximum amount permitted by law, which is
currently $100,000 for each insured deposit. FPNB is also subject to certain
regulations promulgated by the FRB and applicable provisions of California law,
insofar as they do not conflict with or are not preempted by Federal banking
law. The Comptroller regulates the number of locations of the branch offices of
a national bank, but may only permit a national bank to maintain branches in
locations and under the same conditions that state banks are permitted to
maintain by state law. California law presently permits a bank to locate a
branch office in any locality in the state. Additionally, California law exempts
banks, including national banks, from California usury law.

   The regulations of the FDIC, the Comptroller and the FRB govern most aspects
of the Company's business, including deposit reserve requirements, investments,
loans, certain check clearing activities, issuance of securities, payment of
dividends, branching, deposit interest rate ceilings and numerous other matters.
As a consequence of the extensive regulation of commercial banking activities in
the United States, the Company's business is particularly susceptible to changes
in state and Federal legislation and regulations, which may have the effect of
increasing the cost of doing business, limiting permissible activities or
increasing competition.

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

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

   From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of bank holding companies, banks and other financial
institutions are frequently made in Congress, in the California Legislature and
before various bank holding company and bank regulatory agencies. The likelihood
of any major changes and the impact such changes might have are impossible to
predict. Certain of the potentially significant changes which have been enacted
recently by Congress or various regulatory or professional agencies are
discussed below.

                                       I-3
<PAGE>   7
            Interstate Banking. On September 29, 1994, President Clinton signed
into law the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act"). The Interstate Banking Act has various
provisions designed to facilitate the acquisition of banks and branching across
state borders. Beginning on September 29, 1995, the FRB is authorized to approve
a bank holding company's application to acquire either control or substantial
assets of a bank located outside the bank holding company's home state,
regardless of whether the acquisition would be prohibited by state law. The
Interstate Banking Act would also permit a bank in one state to merge with
another bank outside its "home state," beginning on June 1, 1997. However, a
state may enact a law after September 29, 1994, but before June 1, 1997,
expressly prohibiting merger transactions with out-of-state banks, provided it
applies equally to all out-of-state banks. Mergers between banks in different
states prior to June 1, 1997 may be permitted if the home state of each bank
involved in the transaction has a law in effect which applies equally to all
out-of-state banks expressly permitting interstate mergers. Acquisitions of
branches and opening of new branches outside the home state of a bank will
continue to be subject to state law restrictions.

  On October 2, 1995, the California legislature adopted the Caldera, Weggeland,
and Killea California Interstate Banking and Branching Act of 1995 (the
"California Act"). The California Act expressly permits an out-of-state bank to
acquire an entire California bank by merger or purchase. De novo branching or
acquisition of branches in California by an out-of-state bank continue to be
prohibited. Out-of-state banks are permitted to affiliate with California
institutions and may establish facilities in California (such as loan production
offices) under conditions set forth in the California Act.

  Neither the Interstate Banking Act nor the California Act has had a material
effect upon the Company.

            Capital Requirements. The FRB, the Comptroller and the FDIC have
adopted risk-based capital adequacy guidelines for bank holding companies and
banks. The risk-based capital adequacy guidelines establish a risk-based
capital ratio based on the overall risk of the entity determined by (i)
assigning weighted risks to each balance sheet asset and certain off-balance
sheet commitments and (ii) adding up all of the weighted risks of all assets and
includable off-balance sheet commitments to obtain the total risk. The
guidelines generally require banks to maintain a total qualifying capital to
weighted risk assets level of 8% (the "Risk-based Capital Ratio"). Of the total
8%, at least 4% of the total qualifying capital to weighted risk assets (the
"Tier 1 Risk-based Capital Ratio") must be Tier 1 or core capital consisting
primarily of equity stock. Tier 2 capital, which is to make up the remainder of
total capital, consists of (i) loan loss allowance, up to 1.25% of weighted risk
assets (ii) mandatory convertible debentures and (iii) other forms of capital.
Qualified preferred capital stock may be considered core capital up to 25% of
all core capital elements.

  The FRB, the Comptroller and the FDIC have adopted leverage requirements that
apply in addition to the risk-based capital requirements. Under these
requirements, bank holding companies and banks are required to maintain core
capital of at least 3% of their assets (the "Leverage Ratio"). However, an
institution may be required to maintain core capital of at least 4% or 5%, or
possibly higher, depending upon the activities, risks, rate of growth, and other
factors deemed material by regulatory authorities. As of December 31, 1996, the
Company and FPNB both met all applicable capital requirements imposed by
regulation. See "Item 6. Management's Discussion and Analysis -- Capital
Resources."

  The FRB has adopted a policy of requiring each holding company to serve as a
source of financial strength to each of its subsidiary banks. If FPNB were to
experience either significant loan losses or rapid growth in loans or deposits,
or some other event resulting in a depletion or deterioration of capital
accounts were to occur, the Company might be compelled by the FRB to invest
additional capital in an amount sufficient to return FPNB's capital account to a
satisfactory level. Such action could preclude the Company from making payments
on the Debentures or making other expenditures. Such additional investment may
be required at times when, absent the policy of the FRB, the Company would not
be able or willing to provide such additional investment. However, as FPNB's
capital level exceeds Comptroller minimum requirements as of December 31, 1996,
no such action is anticipated.

                                       I-4
<PAGE>   8
            Dividends. There are regulatory restrictions on dividend payments by
both FPNB and the Company that may affect the Company's ability to make payments
on the Debentures and pay dividends on its Common Stock. See "Item 5. Market for
Common Equity and Related Stockholder Matters."

            Federal Deposit Insurance Corporation Improvement Act of 1991. On
December 19, 1991, President Bush signed into law the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). FDICIA is an omnibus banking
reform bill which added new regulation and made changes in existing regulation
of the operations, procedures and regulatory reporting of insured institutions,
bank holding companies and affiliates. Among other things, FDICIA establishes
five capital categories applicable to insured institutions, each with specific
regulatory consequences. If the appropriate Federal banking agency determines,
after notice and an opportunity for hearing, that an insured institution is in
an unsafe or unsound condition, it may reclassify the institution to the next
lower capital category (other than critically undercapitalized) and require the
submission of a plan to correct the unsafe or unsound condition. The Comptroller
has issued regulations (the "Prompt Corrective Action Regulations") to implement
these provisions. Under the regulations, the categories are:

  a. Well Capitalized -- The institution exceeds the required minimum level for
each relevant capital measure. A well capitalized institution is one (i) having
a Risk-based Capital Ratio of 10% or greater, (ii) having a Tier 1 Risk-based
Capital Ratio of 6% or greater, (iii) having a Leverage Ratio of 5% or greater
and (iv) not being subject to any order or written directive to meet and
maintain a specific capital level for any capital measure.

  b. Adequately Capitalized -- The institution meets the required minimum level
for each relevant capital measure. No capital distribution may be made that
would result in the institution becoming undercapitalized. An adequately
capitalized institution is one (i) having a Risk-based Capital Ratio of 8% or
greater, (ii) having a Tier 1 Risk-based Capital Ratio of 4% or greater and
(iii) having a Leverage Ratio of 4% or greater or a Leverage Ratio of 3% or
greater if the institution is rated composite 1 under the CAMEL rating system.

  c. Undercapitalized -- The institution fails to meet the required minimum
level for any relevant capital measure. An undercapitalized institution is one
(i) having a Risk-based Capital Ratio of less than 8% or (ii) having a Tier 1
Risk-based Capital Ratio of less than 4% or (iii) having a Leverage Ratio of
less than 4%, or if the institution is rated a composite 1 under the CAMEL
rating system, a Leverage Ratio of less than 3%.

  The appropriate Federal banking agency must closely monitor an
undercapitalized institution and the institution must submit an acceptable
capital restoration plan. Each company having control over the undercapitalized
institution must provide a limited guarantee that the institution will comply
with its capital restoration plan. Except under limited circumstances consistent
with an accepted capital restoration plan, an undercapitalized institution may
not grow. An undercapitalized institution may not acquire another institution,
establish additional branch offices or engage in any new line of business unless
determined by the appropriate Federal banking agency to be consistent with an
accepted capital restoration plan or the FDIC determines that the proposed
action will further the purpose of prompt corrective action. The appropriate
Federal banking agency may take any action authorized for a significantly
undercapitalized institution if an undercapitalized institution fails to submit
an acceptable capital restoration plan or fails in any material respect to
implement a plan accepted by the agency.

  An insured depository institution may not pay a management fee to a bank
holding company controlling that institution or any other person having control
of the institution if, after making the payment, the institution would be
undercapitalized. In addition, an institution cannot make a capital
distribution, such as a dividend or other distribution that is in substance a
distribution of capital to the owners of the institution if following such a
distribution the institution would be undercapitalized. Thus, if payment of such
a management fee or the making of such a distribution would cause FPNB to become
undercapitalized, it could not pay a management fee or dividend to the Company.

  d. Significantly Undercapitalized -- The institution is significantly below
the required minimum level for any relevant capital measure. A significantly
undercapitalized institution is one (i) having a Risk-based Capital Ratio of
less than 6% or (ii) having a Tier 1 Risk-based Capital Ratio of less than 3% or
(iii) having a Leverage Ratio of less than 3%.

                                       I-5
<PAGE>   9
  e. Critically Undercapitalized -- The institution fails to meet a critical
capital level set by the appropriate Federal banking agency. A critically
undercapitalized institution is one having a ratio of tangible equity to total
assets that is equal to or less than 2%.

  As of December 31, 1996, the Company was considered "adequately capitalized"
and FPNB was considered "well capitalized." See "Item 6. Management's Discussion
and Analysis -- Capital Resources."

  An institution which is classified as adequately capitalized or higher may not
pay a management fee to its holding company or other controlling person or make
capital distributions which in either case, would cause it to be less than
adequately capitalized.

  An institution which is less than adequately capitalized must adopt an
acceptable capital restoration plan, is subject to increased regulatory
oversight, and is increasingly restricted in the scope of its permissible
activities. A critically undercapitalized institution is subject to having a
receiver or conservator appointed to manage its affairs and for loss of its
charter to conduct banking activities.

            Deposit Insurance Assessments. FDICIA also requires the FDIC to
implement a risk-based assessment system in which the insurance premium relates
to the probability that the deposit insurance fund will incur a loss and directs
the FDIC to set semi-annual assessments in an amount necessary to increase the
reserve ratio of the Bank Insurance Fund (the "BIF") to at least 1.25% of
insured deposits or a higher percentage as determined to be justified by the
FDIC.

  The FDIC has promulgated implementing regulations that base an institution's
risk category partly upon whether the institution is well capitalized ("1"),
adequately capitalized ("2") or less than adequately capitalized ("3"), as
defined under the Prompt Corrective Action Regulations described above. In
addition, each insured depository institution is assigned to one of three
"supervisory subgroups." Subgroup "A" institutions are financially sound
institutions with few minor weaknesses, subgroup "B" institutions demonstrate
weaknesses which, if not corrected, could result in significant deterioration
and subgroup "C" institutions are those as to which there is a substantial
probability that the FDIC will suffer a loss in connection with the institution
unless effective action is taken to correct the areas of weakness. Effective
December 1, 1992 the FDIC began notifying each institution of its assessment
risk classification and rate semi-annually. Prior to June 30, 1995, based on its
capital and supervisory subgroups, each BIF member institution was assigned an
annual FDIC assessment rate of between $0.23 and $0.31 per $100 of deposits.

  On November 14, 1995, the FDIC Board of Directors voted to further reduce the
insurance premiums paid on deposits covered by the BIF. Under the new rate
structure, assessment rates were lowered by four cents per $100 of assessable
deposits for all risk categories, subject to the statutory requirement that all
institutions pay at least $2,000 annually for FDIC insurance. The new rate
structure retained the rate spread of from $0.00 to $0.27 per $100 of assessable
deposits between the highest- and lowest-rated institutions. Under the revised
rate structure, FPNB was assessed $33,000 and $1,000 for the first and second
halves, respectively, of 1996.

  On September 30, 1996, President Clinton signed into law the Deposit Insurance
Funds Act of 1996, which includes provisions recapitalizing the Savings
Association Insurance Fund ("SAIF"), provides for the eventual merger of the
SAIF with the BIF and reallocates payment of the annual Financing Corp. ("FICO")
bond obligation. Effective January 1, 1997, SAIF members will have the same
risk-based assessment schedule as BIF members. All SAIF and BIF institutions,
including FPNB, will be responsible for sharing the cost of interest payments on
the FICO bonds. The cost will be an annualized charge of 1.3 basis points for
BIF deposits and 6.5 basis points for SAIF deposits.

  On November 26, 1996, the FDIC Board of Directors voted to retain the existing
BIF assessment schedule for the first semiannual period of 1997 and to collect
an assessment against BIF-assessable deposits to be paid to FICO. In addition,
the FDIC eliminated the $2,000 minimum annual assessment and authorized the
refund of the

                                       I-6
<PAGE>   10
fourth-quarter minimum assessment of $500 paid by certain BIF-insured
institutions on September 30, 1996. Under the revised rate structure, FPNB was
assessed $27,000 for the first half of 1997.

            Memorandum of Understanding. On May 24, 1993, as a result of
supervisory concerns disclosed during the inspection of the Company by the FRB
in December, 1992, the Company entered into a Memorandum of Understanding with
the FRB (the "Memorandum"). The FRB conducted an inspection of FP Bancorp during
February 1996. Based on the results of this examination, the FRB terminated the
Memorandum effective April 18, 1996.

ACCOUNTING STANDARDS

  In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("Statement 121"). Statement 121 requires that long-lived assets and certain
identifiable intangibles to be held and used be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In addition, Statement 121 requires that long-lived
assets and certain identified intangibles to be disposed of be reported at the
lower of carrying amount or fair value less costs to sell. Statement 121 must be
adopted for financial statements for fiscal years beginning after December 15,
1995. The adoption of Statement 121 has not had a material impact on the
Company's results of operations or financial position.

  Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"), which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, Statement 123
also allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net earnings and pro forma net earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in Statement 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of Statement 123.

  In June 1996, the FASB issued Statement of Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" ("Statement 125"). Statement 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996 and is to be applied prospectively. This statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. The adoption of Statement 125 is not expected to have a material
impact on the Company.

EMPLOYEES

  As of December 31, 1996, the Company employed 155 persons full-time and 43
persons part-time. The Company's employees are not represented by a union or
covered by a collective bargaining agreement. Management believes that, in
general, its employee relations are excellent.

                                       I-7
<PAGE>   11
ITEM 2. DESCRIPTION OF PROPERTIES.

   The Company's headquarters are located at 613 West Valley Parkway in the
central financial district of Escondido, California. FPNB leases approximately
16,642 square feet of a three-story professional office building. The primary
office space has a 35-year lease term which commenced July 1, 1984 and provides
for various lease adjustments during its term. FPNB leases the facilities from a
partnership in which three of the members of the Board of Directors of FPNB are
partners. See "Item 12 - Certain Relationships and Related Transactions."

   The Valley Center branch, located at 29124 Valley Center Road in Valley
Center, California, consists of a 3,023 square-foot single-story building owned
by FPNB.

   The San Marcos branch, located at 879 San Marcos Boulevard in San Marcos,
California, consists of a 10,658 square-foot, free-standing two-story building
owned by FPNB.

   FPNB leases its 2,680 square-foot Lake San Marcos branch, located at 1132 San
Marino Drive in the Lake San Marcos community of San Marcos, California, and is
responsible for maintenance of the premises and payment of personal and real
property taxes and utilities.

   The Rancho Bernardo branch is located in a 7,398 square-foot building owned
by FPNB. The branch is located at 11717 Bernardo Plaza Court in San Diego,
California.

   The Temecula Valley branch is located at 41615 Winchester Road in Temecula,
California and consists of an approximately 10,000 square-foot, two-story
building owned by FPNB.

   The Rancho California Road branch is located at 30580 Rancho California Road
in Temecula, California, and consists of approximately 4,524 square feet in a
leased, single-story building.

   The Moreno Valley branch of FPNB is located at 24525 Alessandro Boulevard in
Moreno Valley, California, and consists of approximately 6,450 square feet of
leased space.

   All of the properties owned or leased by the Company are considered by
management to be well suited for a financial institution and are deemed adequate
to accommodate current needs, plus reasonable future expansion. The Company
maintains comprehensive general liability and casualty loss insurance covering
its properties and activities conducted in or about its properties. The Company
believes such insurance provides adequate protection for liabilities or losses
which might arise out of the ownership and use of such properties.

ITEM 3. LEGAL PROCEEDINGS.

   The Company is not involved in any pending legal proceedings other than
nonmaterial proceedings arising in the ordinary course of its business.

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

        None.

                                       I-8
<PAGE>   12
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

  Since September 18, 1995, the Common Stock has been traded on the Nasdaq
National Market System. The table below presents (i) the high and low bid prices
per share of the Common Stock quoted on the Nasdaq National Market System from
September 18, 1995 through December 31, 1996, (ii) the high and low bid prices
per share of the Common Stock quoted on the Nasdaq SmallCap Market from April
13, 1995 through September 17, 1995, and (iii) the high and low bid prices per
share of the Common Stock as reported by Western Financial Corporation prior to
April 13, 1995. The high and low bid prices of the Common Stock do not include
retail markups, markdowns or commissions and may not represent actual
transactions.

<TABLE>
<CAPTION>
                                  MARKET PRICES

                                        HIGH         LOW
                                        ----         ---
<S>            <C>                     <C>          <C>
               1996
                 Fourth Quarter        $12.38       $9.25
                 Third Quarter         $10.00       $8.50
                 Second Quarter        $ 9.50       $8.25
                 First Quarter         $ 9.00       $7.88

               1995
                 Fourth Quarter        $ 9.25       $7.88
                 Third Quarter         $ 8.25       $5.38
                 Second Quarter        $ 6.75       $5.13
                 First Quarter         $ 5.75       $5.00

               1994
                 Fourth Quarter        $ 6.00       $5.00
                 Third Quarter         $ 5.00       $4.50
                 Second Quarter        $ 5.00       $4.75
                 First Quarter         $ 5.00       $5.00
</TABLE>


      As of December 31, 1996, the Company had 1,162 stockholders of record, as
shown on the records of its transfer agent, U.S. Stock Transfer Corporation. The
Company is aware of at least eight securities dealers which currently make a
market in the Common Stock.

DIVIDENDS

   The principal source of FP Bancorp, Inc.'s revenues for the payment of
dividends is dividends from FPNB. Generally, the payment of dividends to the
Company by FPNB is limited to FPNB's current year's earnings, as defined in
Federal regulations, plus retained net earnings for the two preceding years.
Payment of dividends in excess of such amount requires prior Federal regulatory
approval. In addition to such limitations on dividend payments, the Comptroller
has authority to prohibit FPNB from paying dividends to FP Bancorp, Inc. if, in
the opinion of the Comptroller and notwithstanding the amount of current year
net earnings and retained net earnings for the two preceding years, the payment
of dividends would constitute an unsafe or unsound practice in light of the
overall financial condition of FPNB.

  In addition to the foregoing regulatory restrictions, the Company's ability to
pay dividends is governed by the Delaware General Corporation Law (the "Delaware
Law"). The Delaware Law provides that a Delaware corporation, such as the
Company, may, unless otherwise restricted by its certificate of incorporation,
declare and pay dividends out of any surplus or, if no surplus exists, out of
net profits for the fiscal year in which the dividend is declared and the
preceding fiscal year, or both (provided that the amount of capital of the
corporation following

                                      II-1
<PAGE>   13
the declaration and payment of the dividend is not less than the aggregate
amount of the capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets). The Delaware Law
also provides that a corporation may redeem or repurchase its shares out of
surplus. The ability of a Delaware corporation to pay dividends on or to redeem
or repurchase it shares is dependent on the financial status of the corporation
standing alone and not on a consolidated basis.

  No dividends were paid by the Company during 1996, 1995 or 1994. Payment of
stock or cash dividends by the Company in the future will depend upon the
Company's earnings and financial condition and other factors deemed relevant by
the Company, including performance of FPNB and its ability to pay dividends.
FPNB has adopted a policy of approving dividends only in the event that after
payment and for the foreseeable future, FPNB's capital level will not be
adversely affected. The Company has adopted a similar policy with regard to
payment of cash dividends to stockholders. These standards may be greater than
any standard the regulatory agencies may impose. Under these policies, FPNB
would not be able to pay a dividend to the Company and the Company would not be
able to pay a dividend to its stockholders. It is the current intention of
management of the Company to follow a policy of retaining most of the Company's
earnings to increase its capital to support future growth. Accordingly, no
assurance can be given that any dividends will be declared by the Company in the
next few years.

   The Debentures were issued under the terms of an Indenture dated November 9,
1992 (the "Indenture"), between the Company and Meridian Trust Company of
California, as Trustee. The Indenture provides that the Company will not (i)
declare or pay any dividend or make any distribution on the Common Stock or to
its stockholders (other than dividends or distributions payable in shares of the
Common Stock) or (ii) purchase, redeem or otherwise acquire or retire for value
any shares of the Common Stock or permit any subsidiary to purchase, redeem or
otherwise acquire or retire for value any shares of the Common Stock, if at the
time of such action, an Event of Default as defined in the Indenture shall have
occurred and be continuing or result therefrom.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.

   The following is management's discussion and analysis of the financial
condition and results of operations of the Company as of and for the years ended
December 31, 1996, 1995 and 1994. The discussion should be read in conjunction
with the Company's consolidated financial statements and notes thereto. See
"Item 7. Financial Statements."

OVERVIEW

   The Company reported net earnings for 1996 of $4,208,000 or $1.42 per share
as compared to net earnings of $1,911,000 or $0.72 per share in 1995. The
increase in net earnings of $2,297,000 or 120.20% was primarily due to (i)
increased income and efficiencies resulting from the acquisition of RB Bancorp,
(ii) a reduction in nonperforming assets, (iii) improved credit quality, (iv)
continued cost control efforts related to noninterest expenses and (v) the
beneficial tax position of the Company during the year. The Company's return on
average assets and return on average stockholders' equity were 1.58% and 22.38%,
respectively, for the year ended December 31, 1996, as compared to .95% and
12.98%, respectively, for the year ended December 31, 1995.

   The Company reported net earnings for 1995 of $1,911,000 or $0.72 per share
as compared to net earnings of $332,000 or $0.26 per share in 1994. The increase
in net earnings of $1,579,000 or 475.60% was primarily due to (i) a significant
reduction in nonperforming assets, (ii) improved credit quality, (iii) increased
income and efficiencies resulting from the acquisition of Overland Bank, (iv)
continued cost control efforts related to noninterest expenses and (v) the
beneficial tax position of the Company during the year. The Company's return on
average assets and return on average stockholders' equity were .95% and 12.98%
for the year ended December 31, 1995 as compared to .20% and 4.36% for the year
ended December 31, 1994.

                                      II-2
<PAGE>   14
RESULTS OF OPERATIONS

            Net Interest Income. Net interest income, the most significant
component of the Company's net earnings, is the amount by which the interest and
fees generated from loans and other earning assets exceeds the expense
associated with funding those assets. Net interest income depends upon the
difference between the gross interest and fees earned on the Company's loan and
investment portfolios ("interest-earning assets") and the amounts paid on its
deposits and borrowings ("interest-bearing liabilities"), and the relative
amounts and composition of its interest-earning assets and interest-bearing
liabilities. Management has contributed to the profitability and improved
operations of the Company by managing its mix of assets and liabilities to
increase net interest income.

  Net interest income increased $3,605,000 or 29.74% to $15,726,000 for the year
ended December 31, 1996 from $12,121,000 for the year ended December 31, 1995.
The rate earned on interest-earning assets in 1996 decreased to 9.51% from 9.80%
in 1995, due the effect of a net decrease in interest rates implemented by the
FRB during those two years. The rate paid on interest-bearing liabilities
remained relatively stable at 3.38% in 1996 and 3.35% in 1995. Average loans
outstanding in 1996 were $184,669,000, which earned interest at a rate of 10.33%
as compared to average loans outstanding of $136,425,000 which earned a rate of
10.89% during 1995. The average amount of all other interest-earning assets,
including primarily investment securities and Federal funds sold, was
$49,184,000 during 1996 which earned interest at a rate of 6.43% as compared to
an average amount of $37,776,000 which earned interest at a rate of 5.89% during
1995. Average interest-bearing liabilities for 1996 were $192,952,000 as
compared to average interest-bearing liabilities of $147,799,000 for the year
ended December 31, 1995.

  Net interest income increased $2,548,000 or 26.62%, to $12,121,000 for the
year ended December 31, 1995 from $9,573,000 for the year ended December 31,
1994. The rate earned on interest-earning assets in 1995 increased to 9.80% from
9.06% in 1994. The rate paid on interest-bearing liabilities increased to 3.35%
in 1995 from 2.47% in 1994. These increases were due primarily to higher average
interest rates during 1995 as compared to 1994 as a result of numerous changes
in rates implemented by the FRB during those two years. Average loans
outstanding in 1995 were $136,425,000 which earned interest at the rate of
10.89% as compared to average loans outstanding of $113,053,000 which earned
interest at a rate of 10.05% in 1994. The average amount of all other
interest-earning assets, including primarily investment securities and Federal
funds sold, was $37,776,000 during 1995 which earned interest at a rate of 5.89%
as compared to an average balance of other interest-earning assets of
$27,330,000 which earned interest at a rate of 4.95% during 1994. Average
interest-bearing liabilities for 1995 were $147,799,000 as compared to an
average balance of interest-bearing liabilities of $127,106,000 during 1994.

  Net interest income, when expressed as a percentage of average total
interest-earning assets, is referred to as "net interest margin." The Company's
net interest margin for the year ended December 31, 1996 was 6.72% as compared
to 6.96% for the year ended December 31, 1995 and 6.82% for the year ended
December 31, 1994.

                                      II-3
<PAGE>   15
         The following table presents the major categories of interest-earning
assets, interest-bearing liabilities and stockholders' equity with corresponding
average balances, related interest income or expense and resulting yields and
rates for the periods indicated.

<TABLE>
<CAPTION>

                                                             ANALYSIS OF NET INTEREST INCOME
                                                                 (DOLLARS IN THOUSANDS)

                                                                 YEAR'S ENDED DECEMBER 31,
                             ---------------------------------------------------------------------------------------------------
                                             1996                            1995                             1994
                             ---------------------------------------------------------------------------------------------------
                               AVERAGE    INTEREST     RATE       AVERAGE    INTEREST    RATE      AVERAGE     INTEREST   RATE
                               AMOUNT      INCOME/    EARNED/     AMOUNT      INCOME/   EARNED/     AMOUNT      INCOME/   EARNED/
                             OUTSTANDING   EXPENSE     PAID     OUTSTANDING   EXPENSE    PAID    OUTSTANDING    EXPENSE   PAID
                             -----------   -------     ----     -----------   -------    ----    -----------    -------   ----
                                 (1)                                (1)                              (1)
                                 ---                                ---                              ---
<S>                             <C>         <C>        <C>         <C>        <C>        <C>        <C>        <C>          <C>
 ASSETS
 Interest-earning assets:
   Loans(2)(3)                  $184,669    $19,082    10.33%      $136,425    $14,851    10.89%    $113,053    $11,364    10.05%
   Taxable investment
     securities                   39,062      2,650     6.78%        29,995      1,783     5.94%      23,562      1,185     5.03%
   Nontaxable investment
     securities                        0          0     0.00%             0          0     0.00%         741         45     6.07%
   Interest-earning
     deposits                        110          6     5.45%           341         19     5.57%          98          4     4.08%
   Federal funds sold             10,012        505     5.04%         7,440        422     5.67%       2,929        120     4.10%
                                 -------     ------     -----       -------     ------     -----     -------     ------
 Total interest-earning
   assets                        233,853     22,243     9.51%       174,201     17,075     9.80%     140,383     12,718     9.06%
 Other assets:
   Cash and due from banks        18,697                             14,069                           13,023
   Other assets, net              13,471                             12,670                           10,365
                                --------                           --------                         --------
     Total Assets               $266,021                           $200,940                         $163,771
                                ========                           ========                         ========
 LIABILITIES AND
 STOCKHOLDERS' EQUITY
 Interest-bearing
 liabilities:
   Deposits:
     Savings and time            $84,522      3,862     4.57%       $63,068      2,903     4.60%     $47,811      1,444     3.02%
   Interest-bearing demand
     and money market            103,442      2,148     2.08%        80,100      1,564     1.95%      74,695      1,216     1.63%
                                 -------      -----    ------       -------      -----    ------     -------      -----    ------
 Total interest-bearing
   deposits                      187,964      6,010     3.20%       143,168      4,467     3.12%     122,506      2,660     2.17%
 Debentures, Federal funds
   purchased and Securities
   sold under agreement to
   purchase                        4,988        507    10.16%         4,631        487    10.52%       4,600        485    10.54%
                                 -------      -----    ------       -------      -----    ------     -------      -----    ------
 Total interest-bearing
   liabilities                   192,952      6,517     3.38%       147,799      4,954     3.35%     127,106      3,145     2.47%
                                              -----                              -----                            -----
 Noninterest-bearing
   demand deposits                52,920                             37,225                           27,775
 Other liabilities                 1,350                              1,420                            1,278
Stockholders' equity              18,833                             14,717                            7,763
    Receivable from ESOP and
    unrealized net gain
    (loss) on investment
    securities available for
    sale                             (34)                              (221)                            (151)
                                --------                           --------                         --------
     Total Liabilities and
       Stockholders' Equity     $266,021                           $200,940                         $163,771
                                ========                           ========                         ========
    Net interest income                     $15,726                            $12,121                           $9,573
                                            =======                            =======                           ======

    Net interest margin(4)                              6.72%                              6.96%                            6.82%
---------------
</TABLE>

(1)   Averages are daily averages.
(2)   Loan interest income includes accretion of loan fees of $728,000,
      $452,000, and $1,249,000 for the years 1996, 1995 and 1994, respectively.
(3)   For the purpose of these computations, nonaccrual loans are included in
      average loans.
(4)   The net interest margin is calculated by dividing net interest income by
      average total interest-earning assets.





                                      II-4
<PAGE>   16
  As discussed above, the Company's net interest income is affected by the
change in the amount and mix of interest-earning assets and interest-bearing
liabilities, referred to as "volume change," as well as by changes in yields
earned on interest-earning assets and rates paid on deposits and other borrowed
funds, referred to as "rate changes." The following table presents, for the
periods indicated, a summary of changes in interest income and interest expense
for the major categories of interest-earning assets and interest-bearing
liabilities and the amounts of change attributable to variations in volumes and
rates.

                              RATE/VOLUME ANALYSIS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                 -----------------------------------------------------------------------------
                                                          1996 COMPARED TO 1995                  1995 COMPARED TO 1994
                                                           INCREASE (DECREASE)                     INCREASE (DECREASE)
                                                 -----------------------------------------------------------------------------
                                                  VOLUME         RATE          NET          VOLUME         RATE          NET
                                                  ------         ----          ---          ------         ----          ---
<S>                                              <C>           <C>           <C>           <C>           <C>           <C>
Interest earned on interest-earning assets:
  Loans(1) ................................      $ 5,254       $(1,023)      $ 4,231       $ 2,349       $ 1,138       $ 3,487
  Taxable investment
    securities ............................          539           328           867           324           274           598
  Nontaxable investment
    securities ............................            0             0             0           (45)            0           (45)
  Interest-earning deposits ...............          (13)            0           (13)           10             5            15
  Federal funds sold ......................          146           (63)           83           185           117           302
                                                 -------       -------       -------       -------       -------       -------
Total Interest Earned on
  Interest-earning Assets .................      $ 5,926       $  (758)      $ 5,168       $ 2,823       $ 1,534       $ 4,357
                                                 =======       =======       =======       =======       =======       =======
Interest paid on interest-bearing
  liabilities:
  Interest-bearing deposits:
    Savings and time ......................      $   987       $   (28)      $   959       $   461       $   998       $ 1,459
    Interest-bearing demand ...............          455           129           584            88           260           348
                                                 -------       -------       -------       -------       -------       -------
  Total interest-bearing deposits .........        1,442           101         1,543           549         1,258         1,807
  Debentures, Federal funds
    purchased and securities sold
    under agreement to repurchase .........            0            20            20             3            (1)            2
                                                 -------       -------       -------       -------       -------       -------
Total Interest Paid on
  Interest-bearing Liabilities ............      $ 1,442       $   121       $ 1,563       $   552       $ 1,257       $ 1,809
                                                 =======       =======       =======       =======       =======       =======
</TABLE>

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

(1)  Nonaccrual loans are included in the loan totals used in the calculation of
     this table.


            Provision for Loan Losses. The provision for loan losses is based
upon the Company's evaluation of the quality of the loan portfolio, total
outstanding and committed loans, previous loan losses and current and
anticipated economic conditions. In making its evaluation, the Company takes
into account the results of regulatory examinations of FP Bancorp, Inc. and
FPNB, which can be expected to occur at least once each year. The amount of the
provision for loan losses is a charge against earnings. Actual loan losses are
charged against the allowance for loan and lease losses (the "ALLL").

  The Company's ALLL is typically maintained at a level deemed adequate to
provide for known and inherent losses in the loan portfolio. No assurance can be
given that unforeseen adverse economic conditions or other circumstances will
not result in increased ALLL provisions in the future. Additionally, regulatory
examiners may require the Company to recognize additions to the ALLL based upon
their judgment about information available to them at the time of their
examinations.

                                      II-5
<PAGE>   17
  The provisions for loan losses for the years ended December 31, 1996, 1995 and
1994 were $700,000, $600,000, and $0, respectively. The increases in 1996 and
1995 were a result of the increase in loans during those years. No provision was
recorded during 1994 as a result of a decrease in loan charge-offs, problem
loans, improved credit quality, aggressive collection efforts resulting in
higher recoveries and a revised and improved loan approval and management system
put into place late in 1993.

  The ALLL was $3,121,000 or 1.46% of total loans as of December 31, 1996 as
compared to $2,013,000 or 1.40% of total loans as of December 31, 1995. See
"Allowance for Loan and Lease Losses."

            Other Operating Income. Total other operating income for the year
ended December 31, 1996 increased $353,000 or 19.55% to $2,159,000 from
$1,806,000 in 1995. The increase was primarily a result of an increase in
service charges and other fees resulting from deposit relationships acquired in
the RB Merger and the Company's internal growth in deposits during the year.

  Total other operating income for the year ended December 31, 1995 increased
$492,000 or 37.44% to $1,806,000 from $1,314,000 in 1994. The increase was
primarily a result of an increase in service charges and other fees resulting
from the deposit relationships acquired in the Overland Merger and the Company's
internal growth in deposits during the year.

            Other Operating Expenses. Total other operating expenses for the
year ended December 31, 1996 increased $1,655,000 or 13.52% to $13,899,000 from
$12,244,000 for 1995. The largest component of the increase occurred in salaries
and employee benefits, which increased $1,094,000 or 19.82% primarily due to the
acquisition of RB Bancorp and the opening of two new branches during 1996. For
the same reasons, occupancy expense increased $237,000 or 20.36% and furniture
and equipment expense increased $274,000 or 32.70%. Additional amortization of
goodwill in 1996 resulting from the RB Merger was $175,000 or an increase of
218.75% over 1995. Conversely, net other real estate owned ("OREO") expense
decreased by $237,000 or 31.81% due to a significant decrease in OREO balances
during 1996. The FDIC assessment also decreased significantly, from $252,000 to
only $34,000, a decrease of $218,000 or 86.51%, as a result of a restructuring
of FDIC assessment rates effective in 1996. The balance of other noninterest
expenses increased $330,000 or 9.06% as a result of the Company's growth, offset
by continued cost-cutting measures taken during 1996.

   Total other operating expenses for the year ended December 31, 1995 increased
$1,689,000 or 16.00% to $12,244,000 from $10,555,000 in 1994. The increase was a
result of the Company's growth accomplished by the Overland Merger, offset by
continued cost-cutting measures in the area of noninterest expenses. Salaries
and employee benefits increased $835,000 or 17.82%, professional services
expense increased $130,000 or 7.60%, and net other real estate owned expense
increased $120,000 or 19.20% for the year ended December 31, 1995 as compared to
the same period in 1994. Conversely, occupancy expense decreased $160,000 or
12.08% and the FDIC assessment decreased $192,000 or 43.24% for the year ended
December 31, 1995 as compared to the same period in 1994. The Company recorded a
loss on the sale of investment securities of $158,000 and amortization of
goodwill of $80,000 during 1995, for which there were no comparable expenses in
1994. The balance of other noninterest expenses increased $718,000 or 40.66%,
primarily in the area of additional promotional activities of the Company and
other operating expenses related to the Company's growth during 1995.

            Income Taxes. The Company realized net income tax benefits of
$922,000 and $828,000 for the years ended December 31, 1996 and 1995,
respectively, compared to no income tax benefit or expense for the year ended
December 31, 1994. The net income tax benefit in 1996 consisted of a net
increase of $1,320,000 in the net deferred tax asset which was offset by current
income taxes of $152,000 and a credit to goodwill of $246,000. Management
believes that the realization of the recognized deferred tax asset is more
likely than not, based on the expectation that the Company will generate the
necessary amount of taxable income in future periods.

LIQUIDITY AND ASSET/LIABILITY MANAGEMENT

  Effective asset/liability management includes maintaining adequate liquidity
and minimizing the impact of future interest rate changes on net interest
income. The responsibility for monitoring the Company's liquidity and

                                      II-6
<PAGE>   18
the sensitivity of its interest-earning assets and interest-bearing liabilities
lies with the executive committee of FPNB which meets each week to review
liquidity, investment strategies, loan demand and the adequacy of funding
sources.

            Cash Flows. The Company uses or is provided with cash flows from its
operating, investing and financing activities. Cash flows of FPNB are primarily
used to fund loans and are provided by the deposits and borrowings of FPNB.

  The Company's operating activities for the year ended December 31, 1996
resulted in net cash provided of $5,156,000 primarily due to net earnings of
$4,208,000 adjusted for depreciation and amortization of $1,249,000, a provision
for loan losses of $700,000 and a provision for losses on OREO of $409,000.
These cash flows were offset by a benefit for deferred taxes of $922,000 and an
increase in other assets and other liabilities of $713,000. The Company's
operating activities for the year ended December 31, 1995 resulted in net cash
provided of $2,110,000 primarily due to net earnings of $1,911,000 adjusted for
depreciation and amortization of $943,000, a provision for loan losses of
$600,000 and a provision for losses on OREO of $537,000. These cash flows were
offset by a benefit for deferred taxes of $828,000 and an increase in other
assets and other liabilities of $1,237,000. This compares to net cash provided
of $1,861,000 for the year ended December 31, 1994 primarily due to net earnings
of $332,000 adjusted for depreciation and amortization of $878,000 and a
provision for losses on OREO of $455,000.

  The Company's cash flows from investing activities used net cash of
$39,234,000 for the year ended December 31, 1996 compared to net cash provided
of $7,218,000 for the same period in 1995. Cash was used primarily to fund loans
in the amount of $27,886,000 and for net investment securities purchases in the
amount of $18,736,000. In addition, net cash of $5,302,000 was acquired in the
RB Bancorp Merger and proceeds from the sale of OREO during the year were
$2,464,000. The Company's cash flows from investing activities provided net cash
of $7,218,000 for the year ended December 31, 1995 compared to net cash used of
$4,053,000 for the same period in 1994. The significant increase in net cash
provided by investing activities was due to cash acquired from the Overland
Merger of $5,366,000, a decrease in loans outstanding of $1,705,000, and
proceeds from the sale of OREO of $6,107,000, offset by a net increase from the
purchase of and proceeds from the sale of investment securities available for
sale of $9,782,000.

  Net cash provided by financing activities for the year ended December 31, 1996
was $40,704,000 as compared to net cash used of $2,662,000 for the year ended
December 31, 1995. The net increase in interest-bearing and noninterest-bearing
deposits was $23,937,000 and there was an increase in Federal funds purchased
and other borrowings of $16,572,000 during 1996. Net cash used in financing
activities for the year ended December 31, 1995 was $2,662,000 compared to net
cash used of $727,000 for the same period in 1994. The net cash used in 1995 was
a result of a decrease in Federal funds purchased of $2,800,000.

            Liquidity. The objective of liquidity management is to maintain a
balance between sources and uses of funds in such a way that the cash
requirements of customers for loans and deposit withdrawals are met in the most
economical manner. Management of FPNB monitors its liquidity position
continuously in relation to trends of loans and deposits for short-term as well
as long-term requirements. Liquid assets are monitored on a daily basis to
assure maximum utilization. Management of FPNB also manages its liquidity
requirements by maintaining an adequate level of readily marketable assets and
access to short-term funding sources. This is primarily accomplished through
investing in obligations of U.S. Government agencies, various low-risk
mortgage-backed securities and overnight Federal funds sold.

  The Company defines liquid assets as cash and due from banks, overnight
Federal funds sold, interest-earning deposits, and investment securities
available for sale. The Company's ratios of liquid assets to deposits and
short-term borrowings was 25.00% as of December 31, 1996 as compared to 23.63%
as of December 31, 1995 and 12.17% as of December 31, 1994. The Company's ratios
of liquid assets to deposits and short-term borrowings increased to 23.63% as of
December 31, 1995 from 12.17% as of December 31, 1994 as a result of liquid
assets acquired in the Overland Merger and the reclassification of $8,450,000
from investment securities held to maturity

                                      II-7
<PAGE>   19
to investment securities available for sale on December 31, 1995, in accordance
with a one-time provision allowed by the FASB under Statement 115. See
"Investment Portfolios."

  The Company's overall liquidity position is enhanced by a sizable
concentration of total deposits less certificates of deposit of $100,000 or more
("Core Deposits") which management believes provides a stable and relatively
inexpensive funding base. Average Core Deposits totaled $216,928,000 or 90.05%
of average deposits as of December 31, 1996 compared to $165,176,000 or 91.56%
of average deposits as of December 31, 1995 and $141,027,000 or 93.84% of
average deposits as of December 31, 1994.

  Other than the investment securities portfolios (see "Investment Portfolios"),
the Company sells excess funds as overnight Federal funds sold to provide an
immediate source of liquidity. There were no Federal funds sold as of December
31, 1996. Federal funds sold were $2,000,000 as of December 31, 1995 and there
were no Federal funds sold as of December 31, 1994.

  The level of deposits may fluctuate significantly due to seasonal business
cycles of depository customers. Similarly, the level of demand for loans may
vary significantly and at any given time may increase or decrease substantially.
However, unlike the level of deposits, management has more direct control over
lending activities and maintains the level of those activities according to the
amounts of available funds.

  As of December 31, 1996, FPNB had lines of credit in the amount of $7,000,000
from correspondent banks which are renewable annually. FPNB also had a credit
line with the Federal Home Loan Bank, which would allow FPNB to borrow up to
$11,000,000. In addition, FPNB had a $10,000,000 reverse repurchase agreement
line with an investment broker, of which $4,950,000 was outstanding as of
December 31, 1996. The availability of the lines of credit, as well as
adjustments in deposit programs, provides for liquidity in the event that the
level of deposits should fall abnormally low. These sources provide that funding
thereof may be withdrawn depending upon the financial strength of FPNB.

  FP Bancorp's operations consist primarily of regulatory reporting, raising
capital and planning business strategies. In recent years, FP Bancorp's primary
source of liquidity has been the proceeds from two private offerings completed
in November of 1994, which raised net proceeds of approximately $3,034,000 (the
"Private Offerings"). FP Bancorp's current liquidity is sufficient to permit it
to operate as it has in the past, including full coverage of interest payments
on the Debentures. A dividend from FPNB would be received by FP Bancorp in the
event that cash payments to holders of Debentures is required and cash available
at FP Bancorp is not sufficient to cover such payments. See "Capital Resources."

INTEREST RATES

  While no single measure can completely identify the impact of changes in
interest rates on net interest income, one gauge of interest rate sensitivity is
to measure, over a variety of time periods, the differences in the amounts of
the Company's rate-sensitive assets and rate-sensitive liabilities. These
differences or "gaps" provide an indication of the extent to which net interest
income may be affected by future changes in interest rates. A "positive gap"
exists when rate-sensitive assets exceed rate-sensitive liabilities and
indicates that a greater volume of assets than liabilities will reprice during a
given period. This mismatch may enhance earnings in a rising interest rate
environment and may inhibit earnings in a declining interest rate environment.
Conversely, when rate-sensitive liabilities exceed rate-sensitive assets,
referred to as a "negative gap," it indicates that a greater volume of
liabilities than assets will reprice during the period. In this case, a rising
interest rate environment may inhibit earnings and a declining interest rate
environment may enhance earnings. The cumulative one-year contractual gap as of
December 31, 1996 was $(59,491,000), representing (21.79%) of interest-earning
assets.

                                      II-8
<PAGE>   20
The following table presents the Company's contractual gap position as of
December 31, 1996.

                            CONTRACTUAL GAP POSITION
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                    IMMEDIATELY
                                                    ADJUSTABLE     1 DAY
                                                     OR 1 DAY     THROUGH   4 THROUGH   7 THROUGH   OVER 12
                                                     MATURITY    3 MONTHS   6 MONTHS    12 MONTHS    MONTHS      TOTAL
                                                     --------    --------   --------    ---------    ------      -----
<S>                                                  <C>         <C>        <C>         <C>         <C>        <C>
ASSETS
Interest-earning assets:
  Investments available for sale ............        $      0    $      0   $      0    $      0    $ 47,405   $ 47,405
  Investments held to maturity ..............               0           0          0           0       9,279      9,279
  Loans(1)
    Installment .............................           5,402          10         26         311       6,622     12,371
    Real estate equity lines of credit ......           9,626           0          0           0           0      9,626
    Long-term real estate ...................           4,678           0          0           0       1,073      5,751
    Other ...................................         126,389       4,647      3,251       8,728      45,539    188,554
                                                     --------    --------   --------    --------    --------   --------
Total interest-earning assets ...............        $146,095    $  4,657   $  3,277    $  9,039    $109,918    272,986
                                                     ========    ========   ========    ========    ========
Other noninterest-earning assets ............                                                                    35,599
                                                                                                               --------
Total Assets ................................                                                                  $308,585
                                                                                                               ========
LIABILITIES
Interest-bearing liabilities:
  Demand deposits ...........................        $115,100    $      0   $      0    $      0    $      0   $115,100
  Savings accounts ..........................          17,366           0          0           0           0     17,366
  Certificates of deposit ...................           1,320      31,402     22,285      13,759       3,748     72,514
  Debentures ................................               0           0          0       4,575           0      4,575
  Federal funds purchased and securities sold
    under agreement to repurchase ...........               0      16,752          0           0           0     16,752
                                                     --------    --------   --------    --------    --------   --------
Total interest-bearing liabilities ..........        $133,786    $ 48,154   $ 22,285    $ 18,334    $  3,748    226,307
                                                     ========    ========   ========    ========    ========
Noninterest-bearing deposits ................                                                                    59,541
Other liabilities ...........................                                                                     1,759
Stockholders' equity ........................                                                                    20,978
                                                                                                               --------
Total Liabilities & Stockholders'
  Equity ....................................                                                                  $308,585
                                                                                                               ========
Interest rate sensitivity gap ...............        $ 12,309    $(43,497)  $(19,008)   $ (9,295)   $106,170
Cumulative interest rate
  sensitivity gap ...........................        $ 12,309    $(31,188)  $(50,196)   $(59,491)   $ 46,679

Cumulative interest rate sensitivity gap
  as a percent of interest-earning assets ...            4.51%     (11.42%)   (18.39%)    (21.79%)    17.10%
</TABLE>

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

(1)  Loan balances include nonaccrual loans of $1,374,000 as of December 31,
     1996.

   The Company actively manages its interest rate gap position. The objectives
of interest rate risk management are to control exposure of net interest income
to risks associated with interest rate movements, achieve consistent growth in
net interest income, and profit from favorable market opportunities. The Company
manages its rate gap position by adjusting the repricing characteristics of its
assets and liabilities. However, even with perfectly matched repricing of assets
and liabilities, interest rate risk cannot be avoided entirely. Interest rate
risk remains in the form of prepayment risk of assets or liabilities and risks
related to differences in the timing and indices for interest rate adjustments
for assets and liabilities with adjustable interest rates.

                                      II-9
<PAGE>   21
INVESTMENT PORTFOLIOS

  The Company invests funds not used for capital expenditures or lending
purposes in U.S. Government agency bonds, step up bonds, and mortgage-backed
securities, and may also purchase tax-exempt municipal bonds or certificates of
deposit. Obligations of U.S. Government agencies include Treasury notes,
callable or noncallable agency bonds and step up bonds which have no risk as to
loss of principal. Mortgage-backed securities include collateralized mortgage
obligations and mortgage-backed security pools with balloon principal payments.
The collateralized mortgage obligations in the Company's investment securities
portfolios are "low risk" as defined by applicable bank regulations and are
diverse as to collateral and interest rates of the underlying mortgages. The
mortgage-backed securities are diverse as to interest rates and guarantors.
Investment maturities range from less than one year to over ten years for U.S.
Government agency bonds, step up bonds and mortgage-backed securities.

  Investment securities available for sale as of December 31, 1996 were
$47,405,000, an increase of $19,824,000 or 71.88% from $27,581,000 as of
December 31, 1995. The increase was primarily due to $43,244,000 in purchases,
offset by the sale of $21,702,000 in securities and maturities of $4,504,000.
Investment securities held to maturity increased to $9,279,000 as of December
31, 1996 from $7,753,000 as of December 31, 1995, an increase of $1,526,000 or
19.68%, primarily due to purchases of $1,997,000 offset by maturities of
$446,000.

  In November 1995, the FASB issued a special report called "A Guide to
Implementation of Statement 115 in Accounting for Certain Investments in Debt
and Equity Securities" (the "Guide"). In accordance with the provisions of the
Guide, the Company elected to reclassify certain of its investment securities
from held to maturity to available for sale. On December 31, 1995, the Company
reclassified $8,450,000 from investment securities held to maturity to
investment securities available for sale.

  Investment securities available for sale as of December 31, 1995 were
$27,581,000, an increase of $19,389,000 or 236.68% from $8,192,000 as of
December 31, 1994. The increase was primarily due to $8,450,000 of securities
reclassified from investment securities held to maturity to investment
securities available for sale, $24,859,000 in purchases, $3,814,000 acquired
through the Overland Merger and an increase in the unrealized gain of $799,000,
offset by the sale of $15,077,000 in securities and maturities of $3,215,000.

  The table below presents the composition of the Company's investment
portfolios as of the dates indicated.

                              INVESTMENT PORTFOLIOS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                               --------------------------------------------------------------------
                                                        1996                    1995                     1994
                                               ------------------      -------------------     --------------------
                                               AMORTIZED    FAIR       AMORTIZED     FAIR      AMORTIZED     FAIR
                                                 COST       VALUE         COST       VALUE        COST       VALUE
                                               ---------    -----      ---------     -----     ---------     ------
<S>                                            <C>         <C>          <C>         <C>         <C>          <C>
AVAILABLE FOR SALE:
Obligations of U.S. Government
  agencies..............................       $ 9,989     $10,062      $11,285     $11,379     $3,127       $2,956
Step up bonds...........................             0           0            0           0      2,606        2,435
Mortgage-backed securities .............        35,223      35,256       15,472      15,662      2,629        2,456
Equity bank stock ......................         2,087       2,087          540         540        345          345
                                               -------     -------      -------     -------     ------       ------
Total Available for Sale ...............       $47,299     $47,405      $27,297     $27,581     $8,707       $8,192
                                               =======     =======      =======     =======     ======       ======

HELD TO MATURITY:
Obligations of U.S. Government
  agencies..............................        $1,000      $  995       $    0      $    0    $ 5,601      $ 5,146
Step up bonds...........................           997         997            0           0      2,001        1,941
Mortgage-backed securities .............         7,079       6,978        7,549       7,441      7,863        7,130
Corporate notes.........................           203         211          204         218          0            0
                                                ------      ------       ------      ------    -------      -------
Total Held to Maturity .................        $9,279      $9,181       $7,753      $7,659    $15,465      $14,217
                                                ======      ======       ======      ======    =======      =======
</TABLE>

                                      II-10
<PAGE>   22
  The following table presents the maturity distribution based on fair value or
amortized cost of the investment portfolios as of the dates indicated.


                 INVESTMENT PORTFOLIOS -- MATURITY DISTRIBUTION
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                DECEMBER 31, 1996
                                                -----------------
                                                FAIR
                                               VALUE        YIELD
                                               -----        -----
<S>                                          <C>            <C>
AVAILABLE FOR SALE:
Obligations of U.S. Government agencies:
  Five years through ten years .........     $ 9,055        7.55%
  Over ten years .......................       1,007        8.00%
Mortgage-backed securities .............      35,256        7.69%
Equity bank stock(1) ...................       2,087        6.00%
                                             -------
Total Available for Sale ...............     $47,405
                                             =======

HELD TO MATURITY:
Obligations of U.S. Government agencies:
  After five years through ten years ...     $   995        7.04%
  Over ten years .......................         997        6.53%
Mortgage-backed securities .............       6,978        5.65%
Corporate notes:
  After one year through five years ....         211        8.01%
                                             -------
Total Held to Maturity .................     $ 9,181
                                             =======
</TABLE>

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

(1)  Equity bank stock has no maturity.

LOAN PORTFOLIO

  The Company's net loans were $210,876,000 as of December 31, 1996, an increase
of $68,946,000 or 48.58% from $141,930,000 as of December 31, 1995. The RB
Merger accounted for $42,498,000 of the increase. In October 1996, the Company
purchased $6,800,000 of net real estate loans in a note pool purchase. The
balance of the increase was attributable to a net increase in new loan fundings
of $19,648,000 or 13.84% during the year.

  The Company's ratio of net loans to total deposits was 79.72% as of December
31, 1996. Typically, the Company maintains a ratio of loans to total deposits of
between 70% and 85%. The loan portfolio primarily consists of commercial and
real estate loans (including real estate term loans, construction loans and
other loans secured by real estate). However, the Company adjusts its mix of
lending and the terms of its loan programs according to market conditions and
other factors. As presented in the table below, the mix of loans within the
portfolio has changed from December 31, 1995 to December 31, 1996 with an
increase in the percentage of construction loans in the portfolio as a result of
the RB Merger. The Company's loans are typically made to businesses and
individuals located within the Company's market area, most of whom have account
relationships with FPNB. There is no concentration of loans exceeding 10% of
total loans which is not disclosed in the categories presented below. The
Company has not made any loans to foreign governments, banks, businesses or
individuals. Commercial, real estate and construction loans in the Company's
portfolio are primarily variable rate loans and have little interest rate risk.

                                      II-11
<PAGE>   23
  The table below presents the composition of the Company's loan portfolio as of
the dates indicated.

                                LOAN PORTFOLIO(1)
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                   ---------------------------------------------------------------------
                                   1996             1995            1994            1993            1992
                                   ----             ----            ----            ----            ----
<S>                              <C>             <C>             <C>             <C>             <C>
Commercial                       $ 80,894        $ 62,867        $ 60,252        $ 62,629        $ 49,993
Real Estate                       108,530          68,448          48,391          43,436          62,175
Construction                       14,507           6,204           9,795           6,192          21,707
Installment                        12,371           7,515           2,739           4,499           7,639
                                 --------        --------        --------        --------        --------
     Total Loans                 $216,302        $145,034        $121,177        $116,756        $141,514
                                 ========        ========        ========        ========        ========
</TABLE>

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

(1)  Loans are not net of ALLL, deferred loan fees and discounts of $5,426,000,
     $3,104,000, $2,994,000, $4,282,000 and $5,393,000 as of December 31, 1996,
     1995, 1994, 1993 and 1992, respectively.

            Commercial Loans. Commercial loans accounted for 37.40% of the
Company's loan portfolio as of December 31, 1996. Such loans are generally made
to provide operating lines of credit, to finance the purchase of inventory or
equipment, and for other business purposes. Commercial loans are primarily made
at rates that adjust with changes in the prevailing prime interest rate, are
generally made for a maximum term of one year (unless they are term loans), and
generally require interest payments to be made monthly. Typically, loans over
one year require monthly principal and interest payments. The creditworthiness
of the borrower is reviewed, analyzed, and evaluated on a periodic basis. Most
commercial loans are collateralized with business assets such as accounts
receivable, inventory, and equipment. Even with substantial collateralization
such as all the assets of the business and personal guarantees, commercial
lending involves considerable risk of loss in the event of a business downturn
or failure of the business.

            Real Estate Loans. Real estate loans accounted for 50.17% of the
Company's loan portfolio as of December 31, 1996. Real estate term lending,
especially lending secured by vacant land, involves risks that real estate
values in general will fall and that the value of the particular real estate
security for a loan will fall. The Company makes commercial and industrial real
estate term loans that are typically secured by a first trust deed. These loans
are generally made for a maximum of five years, typically with a floating
interest rate based on the prevailing prime interest rate, or with a fixed rate
of interest, and with a 15- to 30-year payment amortization. Such loans are
usually made for a maximum of 75% of the appraised value of the collateral.


            Construction Loans. Construction loans accounted for 6.71% of the
Company's loan portfolio as of December 31, 1996. Most construction loans are
made to individuals for the purpose of financing the construction of residences
they intend to occupy upon completion of construction. Other construction loans
are primarily made to owners of property who will use the proceeds to build or
develop property for sale upon completion of construction. Construction loans
are generally provided for a maximum of 80% of the appraised value of the
collateral for terms of up to 18 months at floating interest rates based on the
prevailing prime interest rate. Construction loans are provided to customers who
have a demonstrated financial ability to complete the project being financed, a
cash investment in the project, cash flow sufficient to service the debt and
strong financial stability and integrity in the judgment of management. The
borrower is usually prequalified for long-term financing at the time the
construction loan is evaluated. Construction lending differs from other types of
real estate lending because of uncertainties inherent in estimating construction
costs, the length of the construction period, the market for the project upon
completion and, in the case of a property intended for sale or rent, the time
for lease-up or sale. If permanent financing is not obtained by the borrower or
construction is not completed, the risk of default rises. Construction lending
also involves risks that real estate values in general will fall and that the
value of the particular real estate security for a loan will fall.

            Installment Loans. Installment loans accounted for 5.72% of the
Company's loan portfolio as of December 31, 1996. The Company's installment
loans are primarily for vehicle and aircraft purchases, home

                                      II-12
<PAGE>   24
improvement and personal loans. Vehicle financing involves the risk that
collateral will decline in value faster than the balance of the loan it secures.

            Loan Maturity and Interest Rate Sensitivity. The following table
presents the maturity of commercial, real estate, construction and installment
loans outstanding as of December 31, 1996, indicated according to contract
terms.

                                  LOAN MATURITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                         WITHIN ONE     ONE TO FIVE     AFTER FIVE
                            YEAR           YEARS          YEARS           TOTAL
                            ----           -----          -----           -----
<S>                       <C>            <C>            <C>             <C>
Commercial .............  $34,670        $24,490        $ 21,734        $ 80,894
Real Estate ............   23,573         51,584          33,373         108,530
Construction ...........   10,597          1,683           2,227          14,507
Installment ............    1,791          6,011           4,569          12,371
                          -------        -------        --------        --------
                          $70,631        $83,768        $ 61,903        $216,302
                          =======        =======        ========        ========
</TABLE>

  The following table presents the interest rate sensitivity of loans maturing
after one year as of December 31, 1996.

                            INTEREST RATE SENSITIVITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
<S>                                                      <C>
Fixed interest rates..............................       $ 56,466
Variable interest rates ..........................         89,205
                                                         --------
     Total Loans Maturing After One Year .........       $145,671
                                                         ========
</TABLE>

            Nonperforming Assets. Interest on loans is normally accrued from the
date a disbursement is made and recognized as income as it is accrued.
Generally, the Company reviews any loan on which payment has not been made for
90 days for potential nonaccrual. The loan is examined and the collateral is
reviewed to determine loss potential. If the loan is placed on nonaccrual, any
prior accrued interest which remains unpaid is reversed. Classification of a
loan as nonaccrual does not necessarily mean that the loan will be charged off
in the future. The $1,374,000 of loans classified as nonaccrual on December 31,
1996 primarily consisted of $614,000 in loans secured by real estate and
$675,000 in commercial loans. The balance of the nonaccruals were in installment
and other types of loans. The amount of interest income on nonaccrual and
restructured loans that are deemed to be fully collectable is included in net
earnings or loss for the years ended December 31, 1996, 1995 and 1994 in the
amounts of $65,000, $49,000 and $207,000, respectively.

  The Company has established a monitoring system for its loans in order to
identify potential problem loans and to permit the periodic evaluation of
impairment and the adequacy of ALLL in a timely manner. Impaired loans included
in the Company's loan portfolio as of December 31, 1996 and 1995 were $2,506,000
and $1,449,000, respectively, which had aggregate specific related allowance
amounts of $358,000 and $173,000, respectively. The measurement of impairment
may be based on (i) the present value of the expected future cash flows of the
impaired loan discounted at the loan's original effective interest rate, (ii)
the observable market prices of the impaired loan, or (iii) the fair value of
the collateral of a collateral-dependent loan. The amount by which the recorded
investment of the loan exceeds the measure of the impaired loan is recognized by
recording a valuation allowance with a corresponding charge to the ALLL
provision. During 1996 and 1995, the average balances of impaired loans were
$2,489,000 and $2,402,000, respectively. In 1996 and 1995, $65,000 and $81,000,
respectively, of interest was recognized on these loans during the period of
impairment on a cash basis in accordance with Company policy.

  As of December 31, 1996, troubled debt restructurings ("TDR's") amounted to
$717,000. The Company has not committed to lend any additional funds to these
borrowers under TDR's, and TDR's are current in accordance

                                      II-13
<PAGE>   25
with their modified terms. Interest recorded on the TDR's was $64,000 for the
year ended December 31, 1996. There were no TDR's as of December 31, 1995.

  Loans on nonaccrual amounted to $1,374,000, $735,000 and $2,587,000 as of
December 31, 1996, 1995 and 1994, respectively. Interest income of $111,000,
$52,000 and $122,000 would have been recorded for the years ended December 31,
1996, 1995 and 1994, respectively, if nonaccrual loans had been on a current
basis, in accordance with their original terms. Interest income of $65,000,
$49,000, and 207,000 was recognized on loans subsequently transferred to
nonaccrual status as of December 31, 1996, 1995 and 1994, respectively.

  The following table presents information with respect to the Company's past
due loans and the components of nonperforming assets as of the dates indicated.

                           NONPERFORMING ASSET TRENDS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                          --------------------------------------------------
                                                          1996       1995       1994       1993         1992
                                                          ----       ----       ----       ----         ----
<S>                                                      <C>        <C>        <C>        <C>         <C>
Nonperforming loans:
  Loans 90 days or more past due and still accruing
     interest ......................................     $  774     $    0     $    6     $ 1,018     $3,773
  Loans on nonaccrual ..............................      1,374        735      2,587       6,690      2,890
                                                         ------     ------     ------     -------     ------
Total nonperforming loans ..........................      2,148        735      2,593       7,708      6,663
Other real estate owned ............................      1,329      3,139      5,044       5,202      2,555
                                                         ------     ------     ------     -------     ------
     Total Nonperforming Assets ....................     $3,477     $3,874     $7,637     $12,910     $9,218
                                                         ======     ======     ======     =======     ======
Interest income which would have been recorded under
  original terms for loans on nonaccrual basis .....     $  111     $   52     $  122     $   378     $  194
</TABLE>

  Nonperforming assets totaled $3,477,000 or 1.61% of total loans, leases and
OREO as of December 31, 1996, as compared to $3,874,000 or 2.61% as of December
31, 1995. The following table presents the balance of nonperforming assets by
type as of December 31, 1996.

                          NONPERFORMING ASSETS BY TYPE
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                              COMMERCIAL    REAL ESTATE  CONSTRUCTION   INSTALLMENT      TOTAL
                              ----------    -----------  ------------   -----------      -----
<S>                             <C>            <C>            <C>         <C>            <C>
Nonperforming loans:
  Current ..................    $  667         $  104         $ 0         $    3         $  774
  Noncurrent ...............       675            614         $ 0             85          1,374
Other real estate owned ....       428            901         $ 0              0          1,329
                                ------         ------         ---         ------         ------
                                $1,770         $1,619         $ 0         $   88         $3,477
                                ======         ======         ===         ======         ======
</TABLE>

            Allowance for Loan and Lease Losses. The Company maintains an ALLL
which it considers adequate to cover the risk of losses in the loan portfolio.
The ALLL is based upon management's ongoing evaluation of the quality of the
loan portfolio, total outstanding and committed loans, previous charges against
the allowance and current and anticipated economic conditions. In making its
evaluation, the Company takes into account the results of regulatory
examinations of the Company and FPNB, which can be expected to occur at least
once each year. The Comptroller completed its most recent examinations of FPNB
in August 1996 and September 1995. As a result of the examinations the allowance
was found to be adequate and no additional provision for loan losses was
required. The Company's management believed that as of December 31, 1996 the
allowance was adequate. The amount of the provision for loan losses is a charge
against earnings. Actual loan losses are charged against the ALLL.

  The provisions for loan losses for the years ended December 31, 1996 and 1995
were $700,000 and $600,000, respectively. The relative increase in the provision
during 1996 was due to the increase in the loan portfolio during the year and a
significant decrease in charged off loans compared to 1995. The provisions for
loan losses

                                      II-14
<PAGE>   26
for the year ended December 31, 1995 was $600,000 as compared to $0 in 1994. The
increase in 1995 as compared to 1994 resulted from an analysis conducted by
management which deemed it necessary for an addition to the allowance to
adequately cover potential known and inherent risks in the loan portfolio.

  The provisions for loan losses for the years ended December 31, 1994, 1993 and
1992 were $0, $3,106,000, and $6,210,000, respectively. Significant provisions
were recorded during 1993 and 1992 primarily to provide for increased potential
loan losses due to the deterioration of local real estate markets.

  As of December 31, 1996, the ALLL totaled $3,121,000 or 1.46% of total loans
as compared with $2,013,000 or 1.40% of total loans as of December 31, 1995. As
of December 31, 1996 and 1995, the ALLL was 145.30% and 273.88%, respectively,
of nonperforming loans. The ALLL increased by $1,108,000 as of December 31, 1996
as compared to December 31, 1995, due to the addition of the ALLL recorded as a
result of the RB Merger of $790,000, the ALLL recorded as a result of the
purchase of a real estate note pool of $500,000 and a provision of $700,000 less
net charge-offs of $882,000. As of December 31, 1995, the ALLL totaled
$2,013,000 or 1.40% of total loans as compared with $2,666,000 or 2.20% of total
loans as of December 31, 1994. As of December 31, 1995 and 1994, the ALLL was
273.88% and 102.82%, respectively, of nonperforming loans. The ALLL decreased by
$653,000 as of December 31, 1995 compared to December 31, 1994, due to the
addition of the ALLL recorded as a result of the Overland Merger of $803,000 and
provisions of $600,000 less net charge-offs of $2,056,000. The decrease as of
December 31, 1995 as compared to December 31, 1994 in the ratio of ALLL to total
loans outstanding was due to a reduction in nonperforming loans, in relation to
an increase in total loans of which $30,159,000 were recorded as a result of the
Overland Merger.

  Net charge-offs for the Company decreased to $882,000 from $2,056,000 for the
years ended December 31, 1996 and 1995, respectively, primarily due to the
resolution in 1995 of problem loans acquired in the Overland Merger. The
percentages of net charge-offs to average loans for the years ended December 31,
1996 and 1995 were .48% and 1.51%, respectively.

                                      II-15
<PAGE>   27

    The following table presents charged-off loans, provisions for loan losses,
recoveries on loans previously charged off, allowance adjustments and the amount
of the ALLL for the dates indicated.

                 ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                             ------------------------------------------------------------
                                                 1996        1995        1994         1993        1992
                                             ----------  ----------  ----------   ----------  --------
<S>                                            <C>         <C>         <C>          <C>         <C>
    Balance at beginning of period..........   $2,013      $2,666      $3,830       $4,793      $3,010
    Loan charge-offs:
      Commercial............................      834         501         510          993       1,939
      Real estate...........................       58       1,838         853        3,225       2,050
      Construction..........................      460           0           0            0          45
      Installment...........................       66         114          98          267         550
                                               ------      ------     -------       ------      ------
    Total loan charge-offs..................    1,418       2,453       1,461        4,485       4,584
    Less loan recoveries:
      Commercial............................      278         238         154          347         111
      Real Estate...........................      212          14          96           27          22
      Construction..........................       10         101           0            0           0
      Installment...........................       36          44          47           42          24
                                               ------      ------     -------       ------      ------
    Total loan recoveries...................      536         397         297          416         157
                                               ------      ------     -------       ------      ------
      Net loan charge-offs..................      882       2,056       1,164        4,069       4,427
    Provisions for loan losses..............      700         600           0        3,106       6,210
    Allowance adjustment (1)................    1,290         803           0            0           0
                                               ------      ------     -------       ------     -------
    Balance at End of Period................   $3,121      $2,013      $2,666       $3,830      $4,793
                                               ======      ======      ======       ======      ======
    Ratio of net loan charge-offs during the
    period to average loans outstanding
    for the  period.........................     0.48%       1.51%       1.03%        3.16%       2.77%

    Ratio of loan recoveries during the
    period to charge-offs during the period..   37.80%      16.18%      20.33%        9.28%       3.42%
</TABLE>

---------------
(1) Represents allowance acquired in the RB Merger and a real estate note pool
    acquisition in 1996 and the Overland Merger in 1995.



                                     II-16
<PAGE>   28



    The following table presents the allocation of the ALLL as of the dates
indicated. Notwithstanding these allocations, the entire allowance for loan
losses is available to absorb charge-offs in any category of loans.

                ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                          --------------------------------------------------------------------
                                    1996                    1995                 1994
                          ------------------------  ---------------------  -------------------

                                        PERCENT OF             PERCENT OF             PERCENT OF
                                         LOANS IN               LOANS IN               LOANS IN
                           ALLOWANCE       EACH     ALLOWANCE     EACH     ALLOWANCE     EACH
                           FOR LOAN      CATEGORY   FOR LOAN    CATEGORY   FOR LOAN    CATEGORY
                           AND LEASE     TO TOTAL   AND LEASE   TO TOTAL   AND LEASE   TO TOTAL
                            LOSSES         LOANS     LOSSES       LOANS     LOSSES       LOANS
                          ----------    ----------  ---------    -------   ---------   --------
<S>                       <C>           <C>         <C>          <C>       <C>         <C>
           Commercial...     $  978        37.40%    $   626      43.35%   $   643       49.73%
           Real Estate..      1,785        50.17%      1,037      47.19%     1,100       39.93%
           Construction.        113         6.71%         71       4.28%        81        8.08%
           Installment..        116         5.72%         84       5.18%        32        2.26%
           Unallocated..        129          N/A         195        N/A        810         N/A
                            -------       -------    -------     -------    ------      -------
            Total........    $3,121       100.00%     $2,013     100.00%    $2,666      100.00%
                             ======       ======      ======     ======     ======      ======
</TABLE>


<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                     ---------------------------------------------
                                              1993                   1992
                                     ---------------------   ---------------------
                                                 PERCENT OF               PERCENT OF
                                                  LOANS IN                LOANS IN
                                     ALLOWANCE      EACH     ALLOWANCE      EACH
                                     FOR LOAN     CATEGORY   FOR LOAN     CATEGORY
                                     AND LEASE    TO TOTAL   AND LEASE    TO TOTAL
                                      LOSSES        LOANS     LOSSES       LOANS
                                     ---------   ----------  ---------    --------
<S>                                  <C>         <C>         <C>          <C>
                     Commercial...     $1,668       53.64%     $1,710       35.33%
                     Real Estate..      1,320       37.20%      1,436       43.94%
                     Construction.        400        5.30%        612       15.34%
                     Installment..         95        3.86%        477        5.39%
                     Unallocated..        347         N/A         558          N/A
                                      -------                 -------
                       Total......     $3,830      100.00%     $4,793      100.00%
                                       ======      ======      ======      ======
</TABLE>


         Credit Risk Management. The risk of nonpayment of loans is an inherent
aspect of commercial banking. The degree of perceived risk is taken into account
in establishing the structure of, and interest rates and security for, specific
loans and various types of loans. The Company strives to minimize its credit
risk exposure by its credit underwriting standards and loan policies and
procedures. Management continually evaluates the credit risks of such loans and
believes it has provided adequately for the credit risks associated with these
loans. The Company has implemented and expects to continue to implement and
update new policies and procedures to maintain its credit risk management
systems.

PREMISES AND EQUIPMENT, ACCRUED INTEREST AND OTHER ASSETS AND GOODWILL

    Premises and equipment, accrued interest and other assets and goodwill were
$16,777,000 as of December 31, 1996, an increase of $4,676,000 or 38.64% from
$12,101,000 as of December 31, 1995. The increase was primarily due to
$3,756,000 of such assets acquired in the RB Merger, including $2,330,000 of
goodwill. In addition, a net deferred tax asset of $1,320,000 was recorded
during 1996. See "Results of Operations -- Income Taxes."


                                     II-17

<PAGE>   29

DEPOSITS

      Average deposits were $240,884,000 for the year ended December 31, 1996,
an increase of $60,491,000 or 33.53% from $180,393,000 of average deposits for
the year ended December 31, 1995. Average deposits of $180,393,000 for the year
ended December 31, 1995 had increased $30,112,000 or 20.04% from $150,281,000
for the year ended December 31, 1994. As of December 31, 1996, total deposits
were $264,521,000, representing an increase of $78,857,000 or 42.47% from
$185,664,000 in total deposits as of December 31, 1995. The increase in deposits
during 1996 was primarily due to the $54,920,000 in deposits acquired from RB
Bancorp combined with significant internal growth throughout the other FPNB
branches. As of December 31, 1995, total deposits were $185,664,000,
representing an increase of $39,221,000 or 26.78% from $146,443,000 in total
deposits as of December 31, 1994. The increase in deposits during 1995 was
primarily due to the $39,098,000 in deposits acquired from Overland.

      The Company has historically maintained demand deposits of greater than
50% of total deposits, largely due to its strategy of targeting the deposits of
small to medium-sized businesses and professionals and its practice of
encouraging business borrowers to maintain compensating balances. For the year
ended December 31, 1996, average demand deposits were $156,362,000 or 64.91% of
average deposits. For the year ended December 31, 1995, average demand deposits
were $117,325,000 or 65.04% of average deposits. Average noninterest-bearing
demand deposits accounted for 21.97% of average deposits for the year ended
December 31, 1996, 20.64% of average deposits for the year ended December 31,
1995 and 18.48% of average deposits for the year ended December 31, 1994.

    Average interest-bearing deposits were $187,964,000 for the year ended
December 31, 1996, representing an increase of $44,796,000 or 31.29% over the
$143,168,000 in average interest-bearing deposits for the year ended December
31, 1995. The increase in average interest-bearing deposits during 1996 was
primarily due to the $43,982,000 of interest-bearing deposits acquired from RB
Bancorp on April 1, 1996, which were outstanding for nine months of the year.
Average interest-bearing deposits were $143,168,000 for the year ended December
31, 1995, representing an increase of $20,662,000 or 16.87% over the
$122,506,000 in average interest-bearing deposits for the year ended December
31, 1994. The increase in average interest-bearing deposits during 1995 was
primarily due to the $29,799,000 of interest-bearing deposits acquired from
Overland on April 1, 1995, which were outstanding for nine months of the year.
See "Net Interest Income."

    The Company's ratios of average Core Deposits to average deposits were
90.05%, 91.56% and 93.84%, as of December 31, 1996, 1995 and 1994, respectively.
Substantially all of the certificates of deposit of $100,000 and over are held
by customers who have or have had other business relationships with the Company
and who reside within its market area.



                                     II-18

<PAGE>   30



    The following table presents the Company's average deposits and the average
rate paid for each category of deposits for the periods indicated.

                           AVERAGE DEPOSIT INFORMATION
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                  ------------------------------------------------------------------
                                            1996                  1995                 1994
                                  ----------------------  -------------------  ---------------------
                                      AVERAGE    AVERAGE    AVERAGE    AVERAGE   AVERAGE     AVERAGE
                                     AMOUNT OF    RATE     AMOUNT OF    RATE    AMOUNT OF     RATE
                                    DEPOSITS(1)  PAID(2)   DEPOSITS(1) PAID(2)  DEPOSITS(1)  PAID(2)
                                   ------------  -------   ----------- -------  -----------  -------
<S>                                <C>           <C>       <C>         <C>      <C>    <C>
       Noninterest-bearing
       demand deposits..........   $  52,920        N/A    $ 37,225      N/A     $ 27,775       N/A

       Interest-bearing demand
         deposits...............     103,442       2.08%     80,100     1.95%      74,695     1.63%
       Savings deposits.........      17,689       1.97%     13,898     1.98%      11,864     1.95%
       Certificates of deposit:
         Under $100,000.........      42,876       5.12%     33,953     5.18%      26,693     3.31%
         $100,000 or more.......      23,957       5.50%     15,217     5.72%       9,254     3.56%
                                   ---------               --------               -------
       Total certificates of
         deposit................      66,833                 49,170                35,947
                                   ---------               --------              --------
       Total Average  Deposits...  $ 240,884               $180,393              $150,281
                                   =========               ========              ========
</TABLE>

---------------
(1) Averages are daily averages.
(2) Rates are annualized.


    The following table presents the maturity schedule of certificates of
deposit of $100,000 or more as of December 31, 1996.

                      CERTIFICATES OF DEPOSIT OVER $100,000
                             (DOLLARS IN THOUSANDS)

<TABLE>
<S>                                                       <C>
                        Three months or less.......       $16,010
                        Over three through six months.      6,958
                        Over six through 12 months....      3,864
                        Over 12 months................        587
                                                          -------
                          Total.......................    $27,419
                                                          =======
</TABLE>

FINANCIAL RATIOS

    The following table presents certain financial ratios for the periods
indicated.

                           RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                          -----------------------------
                                                            1996        1995       1994
                                                            ----        ----       ----
<S>                                                        <C>        <C>        <C>
             Return on average total assets(1)..            1.58%      0.95%      0.20%
             Return on average equity(1)........           22.38%     12.98%      4.36%
             Dividend payout ratio..............            0.00%      0.00%      0.00%
             Average equity to average total  assets(1).    7.08%      7.32%      4.74%
</TABLE>

---------------
(1) Averages are daily averages





                                     II-19
<PAGE>   31


CAPITAL RESOURCES

    The Company engages in an ongoing assessment of its capital needs in order
to maintain an adequate level of capital to support its growth and protect
depositors. This assessment is based on the Company's evaluation of the capital
needed to effect its business plans and to meet regulatory requirements. The
Company's two sources of capital are internally generated funds and the capital
markets. Historically, the Company relied primarily on internally generated
capital.

    On December 31, 1997, the holders of the Debentures will receive cash in the
principal amount, or, if the conversion rights are exercised, 100 shares of
Common Stock (subject to antidilutive adjustments) for each $1,000 principal of
Debentures, reflecting an effective conversion price of $10 per share, subject
to the limitation that the fair market value of the number of shares of Common
Stock received by the holder of a Debenture shall not exceed twice the principal
amount of the Debenture. If the trading price of Common Stock remains above the
$10 conversion price of the Debentures, management of the Company expects that
the majority of the Debentures will be converted, adding to the Company's
capital. However, there is no guarantee that Common Stock will continue to trade
above $10, and if it does not, and the holders of the Debentures choose not to
exercise their conversion rights, FP Bancorp would use available cash to make
payments to the holders of the Debentures. In the event that the amount of cash
available at FP Bancorp is not sufficient to make all required payments to
holders of the Debentures, the Company would receive a dividend from FPNB, which
would cause FPNB's capital to decline. See "Liquidity and Asset/Liability
Management."

    In November 1994, the Company completed the Private Offerings, which
increased its capitalization by $3,034,000. The Overland Merger resulted in an
increase in capital of $4,255,000. Management believes its capital resources are
adequate for the foreseeable future. However, no assurance can be given that
unforeseen adverse economic conditions or other circumstances will not result in
increased capital requirements.

    The FRB and the Comptroller adopted risk-based capital adequacy guidelines
effective March 15, 1989. These guidelines established a "Risk-based Capital
Ratio" determined by allocating assets and specified off-balance sheet
commitments into weighted categories, with higher levels of capital required for
the activities perceived as representing a greater risk. The guidelines also
require increased capital levels. The ratio of total qualifying capital to
weighted risk assets must equal at least 8%. Of the total 8%, at least 4% of the
total qualifying capital to weighted risk assets must be "Tier 1" or core
capital consisting primarily of equity stock. In addition, the FRB, the
Comptroller and the FDIC adopted Leverage Ratio requirements effective January
1, 1991 which require the Company to maintain a minimum core capital of at least
4% of its assets.

    As of December 31, 1996, the Company met all regulatory capital ratio
requirements and was considered "adequately capitalized" in accordance with
FDICIA.



                                     II-20

<PAGE>   32



    The following table presents the capital levels and ratios as of December
31, 1996. The Company information is based on the FRB risk-based capital
adequacy rules and leverage requirements.

                               REGULATORY CAPITAL
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                               DECEMBER 31, 1996
                                             ----------------------
                                                AMOUNT       RATIO
<S>                                           <C>             <C>
           LEVERAGE RATIOS:
           Tier 1 capital..................   $ 16,965        5.54%
           Minimum required................     12,249        4.00%
                                              --------        -----
            Excess.........................   $  4,716        1.54%
                                              ========        =====
                     Total Assets(1).......          $306,215

           RISK-BASED CAPITAL RATIOS:
           Tier 1 capital..................   $ 16,965        7.47%
           Minimum required................      9,088        4.00%
                                                ------        -----
            Excess.........................   $  7,877        3.47%
                                                ======        =====
           Total capital...................   $ 19,808        8.72%
           Minimum required................     18,175        8.00%
                                                ------        -----
            Excess.........................   $  1,633        0.72%
                                              ========        =====
                     Total Risk-weighted Assets..    $227,189
</TABLE>

---------------
(1)   Does not include unrealized gains on investment securities available for
      sale, goodwill and discount on loans acquired.

    Because the RB Bancorp Merger was a cash purchase, no additional capital was
created as a result of the transaction. Therefore, the Company's and FPNB's
capital ratios decreased in the short term as a result of the RB Bancorp Merger.
FPNB and the Company were both adequately capitalized immediately after the RB
Bancorp Merger.

ITEM 7.      FINANCIAL STATEMENTS.

                              FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Independent Auditor's Report                                               F-1
Consolidated Balance Sheets at December 31, 1996 and
      December 31, 1995                                                    F-2
Consolidated Statements of Earnings for the Years
      Ended December 31, 1996, 1995 and 1994                               F-3
Consolidated Statements of Stockholders' Equity for
      the Years Ended December 31, 1996, 1995 and 1994                     F-4
Consolidated Statements of Cash Flows for the Years
      Ended December 31, 1996, 1995 and 1994                               F-5
Notes to Consolidated Financial Statements                                 F-6
</TABLE>


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

         None.


                                     II-21
<PAGE>   33
                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
FP Bancorp, Inc.
Escondido, California:


     We have audited the accompanying consolidated balance sheets of FP Bancorp,
Inc. and subsidiary (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FP Bancorp,
Inc. and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.


/s/ KPMG Peat Marwick LLP


San Diego, California
January 21, 1997


                                      F-1
<PAGE>   34
                         FP BANCORP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     December 31,
-----------------------------------------------------------------------------------------------------------
ASSETS                                                                         1996                1995
-----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>
Cash and due from banks (note 3)                                          $  22,919,000       $  14,293,000
Federal funds sold                                                                  -             2,000,000
Investment securities available-for-sale, at fair value (note 4)             47,405,000          27,581,000
Investment securities held-to-maturity, at amortized cost (note 4)            9,279,000           7,753,000
Loans, net of allowance for loan losses of $3,121,000 and $2,013,000
in 1996 and 1995, respectively (note 5)                                     210,876,000         141,930,000
Other real estate owned, net (note 6)                                         1,329,000           3,139,000
Premises and equipment, net (note 7)                                          7,672,000           6,550,000
Goodwill, net (note 2)                                                        3,431,000           1,603,000
Accrued interest and other assets                                             5,674,000           3,948,000
-----------------------------------------------------------------------------------------------------------
Total assets                                                              $ 308,585,000       $ 208,797,000
-----------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------
Deposits (notes 4 and 8):
Noninterest-bearing                                                       $  59,541,000       $  41,234,000
Interest-bearing                                                            204,980,000         144,430,000
-----------------------------------------------------------------------------------------------------------
Total deposits                                                              264,521,000         185,664,000
-----------------------------------------------------------------------------------------------------------
Federal funds purchased                                                      11,802,000                 -
Other borrowings                                                              4,950,000                 -
Convertible subordinated debentures (note 9)                                  4,575,000           4,575,000
Accrued expenses and other liabilities                                        1,759,000           1,725,000
-----------------------------------------------------------------------------------------------------------
Total liabilities                                                           287,607,000         191,964,000
-----------------------------------------------------------------------------------------------------------
Stockholders' equity (notes 12 and 13):
Common stock, par value $.001, authorized 4,000,000 shares;
  issued and outstanding 2,653,641 and 2,650,811 shares
  in 1996 and 1995, respectively                                                  3,000               3,000
Additional paid-in capital                                                   24,571,000          24,556,000
Accumulated deficit                                                          (3,702,000)         (7,910,000)
Receivable from ESOP (note 14)                                                      -              (100,000)
Unrealized net gains on investment securities
  available-for-sale (note 4)                                                   106,000             284,000
-----------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                   20,978,000          16,833,000
-----------------------------------------------------------------------------------------------------------
Commitments, contingencies and subsequent events
  (notes 14,15,16,17,18 and 19)
Total liabilities and stockholders' equity                                $ 308,585,000       $ 208,797,000
===========================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-2
<PAGE>   35
                         FP BANCORP, INC. AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
                                                       Years ended December 31,
--------------------------------------------------------------------------------------------
                                                1996               1995              1994
--------------------------------------------------------------------------------------------
<S>                                        <C>                <C>                <C>
Interest income:
Interest and fees on loans (note 5)        $ 19,082,000       $ 14,851,000       $11,364,000
Federal funds sold                              505,000            422,000           120,000
Interest-earning deposits                         6,000             19,000             4,000
Investment securities (note 4):
 Taxable                                      2,650,000          1,783,000         1,185,000
 Exempt from Federal income tax                     -                  -              45,000
--------------------------------------------------------------------------------------------
Total interest income                        22,243,000         17,075,000        12,718,000
--------------------------------------------------------------------------------------------
Interest expense:
Deposits (note 8)                             6,010,000          4,467,000         2,660,000
Other (note 9)                                  507,000            487,000           485,000
--------------------------------------------------------------------------------------------
Total interest expense                        6,517,000          4,954,000         3,145,000
--------------------------------------------------------------------------------------------
Net interest income                          15,726,000         12,121,000         9,573,000
Provision for loan losses (note 5)              700,000            600,000               -
--------------------------------------------------------------------------------------------
Net interest income after provision
  for loan losses                            15,026,000         11,521,000         9,573,000
--------------------------------------------------------------------------------------------
Other operating income:
Service charges                               1,743,000          1,449,000           993,000
Other                                           416,000            357,000           321,000
--------------------------------------------------------------------------------------------
Total other operating income                  2,159,000          1,806,000         1,314,000
--------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits                6,615,000          5,521,000         4,686,000
Professional services                         1,907,000          1,840,000         1,710,000
Occupancy, net                                1,401,000          1,164,000         1,324,000
Furniture and equipment                       1,112,000            838,000           667,000
Other real estate owned, net                    508,000            745,000           625,000
Office supplies                                 572,000            384,000           310,000
Promotional                                     487,000            361,000           206,000
FDIC assessment                                  34,000            252,000           444,000
Loss on sale of investment securities           147,000            158,000               -
Amortization of goodwill                        255,000             80,000               -
Other                                           861,000            901,000           583,000
--------------------------------------------------------------------------------------------
Total other operating expenses               13,899,000         12,244,000        10,555,000
--------------------------------------------------------------------------------------------
Earnings before income tax benefit            3,286,000          1,083,000           332,000
Income tax benefit (note 11)                   (922,000)          (828,000)              -
--------------------------------------------------------------------------------------------
Net earnings                               $  4,208,000       $  1,911,000       $   332,000
============================================================================================
Primary earnings per share                        $1.54               $.77              $.26
============================================================================================
Fully diluted earnings per share                  $1.42               $.72              $.26
============================================================================================
</TABLE>



See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>   36
                         FP BANCORP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                         Years ended December 31,
-------------------------------------------------------------------------------------------------------------
                                                                 1996              1995              1994
-------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                <C>                <C>
Common Stock:
Balance at beginning of year
(2,650,811, 1,821,879 and 1,213,479 shares,
  respectively)                                            $      3,000       $      2,000       $      1,000
Private offering issuances, net (608,400 shares)                    -                  -                1,000
Common stock issued in merger (826,132 shares)                      -                1,000                -
-------------------------------------------------------------------------------------------------------------
Balance at end of year
(2,653,641, 2,650,811 and 1,821,879 shares,
  respectively)                                                   3,000              3,000              2,000
-------------------------------------------------------------------------------------------------------------
Additional Paid-in Capital:
Balance at beginning of year                                 24,556,000         20,287,000         17,254,000
Private offering issuances, net                                     -                  -            3,033,000
Exercise of stock options                                        15,000             15,000                -
Common stock issued in merger                                       -            4,254,000                -
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                       24,571,000         24,556,000         20,287,000
-------------------------------------------------------------------------------------------------------------
Accumulated Deficit:
Balance at beginning of year                                 (7,910,000)        (9,821,000)       (10,153,000)
Net earnings                                                  4,208,000          1,911,000            332,000
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                       (3,702,000)        (7,910,000)        (9,821,000)
-------------------------------------------------------------------------------------------------------------
Receivable from ESOP:
Balance at beginning of year                                   (100,000)          (133,000)          (167,000)
Payments from ESOP                                              100,000             33,000             34,000
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                              -             (100,000)          (133,000)
-------------------------------------------------------------------------------------------------------------
Unrealized Net Gains (Losses) on
  Investment Securities Available-for-sale:
Balance at beginning of year                                    284,000           (515,000)               -
Change in net unrealized gains (losses) on investment
  securities available-for-sale                                (178,000)           799,000           (515,000)
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                          106,000            284,000           (515,000)
-------------------------------------------------------------------------------------------------------------
Total                                                      $ 20,978,000       $ 16,833,000       $  9,820,000
=============================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>   37
                          FP BANCORP, INC. AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        Years ended December 31,
-------------------------------------------------------------------------------------------------------------
                                                                 1996             1995               1994
-------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                <C>                <C>
Cash flows from operating activities:
Net earnings                                               $  4,208,000       $  1,911,000       $    332,000
Adjustments to reconcile net earnings to net cash
  provided by operating activities:
Depreciation and amortization                                 1,249,000            943,000            878,000
Benefit for deferred taxes                                     (922,000)          (828,000)               -
Provision for loan losses                                       700,000            600,000                -
Provision for losses on other real
  estate owned                                                  409,000            537,000            455,000
Gain on sale of other real estate owned                         (17,000)          (213,000)           (81,000)
Loss (gain) on sale of investment
  securities available-for-sale                                 147,000            158,000            (18,000)
(Increase) decrease in other assets and
  other liabilities                                            (713,000)        (1,237,000)           419,000
Increase (decrease) in deferred loan
  origination fees                                               95,000            239,000           (124,000)
-------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                     5,156,000          2,110,000          1,861,000
-------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
(Increase) decrease in loans outstanding                    (27,886,000)         1,705,000         (8,909,000)
Proceeds from sale of other real
  estate owned                                                2,464,000          6,107,000          2,648,000
Net maturities of interest-earning
  deposits                                                      495,000          1,853,000            887,000
Maturities of investment securities
  available-for-sale                                          4,504,000          3,215,000          1,789,000
Maturities of investment
  securities held-to-maturity                                   446,000          1,274,000            365,000
Purchase of investment
  securities available-for-sale                             (43,244,000)       (24,859,000)        (1,000,000)
Purchase of investment securities
  held-to-maturity                                           (1,997,000)        (1,871,000)        (1,859,000)
Proceeds from sale of investment securities
  available-for-sale                                         21,555,000         15,077,000          2,198,000
Payments from ESOP                                              100,000             33,000             34,000
Net capital expenditures for premises
  and equipment                                                (973,000)          (682,000)          (206,000)
Net cash acquired in merger                                   5,302,000          5,366,000                -
-------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
  activities                                                (39,234,000)         7,218,000         (4,053,000)
-------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in interest-bearing
  deposits                                                   16,568,000         (3,784,000)        (7,843,000)
Net increase in noninterest-bearing
  deposits                                                    7,369,000          3,907,000          1,282,000
Increase (decrease) in Federal funds
  purchased and other borrowings                             16,752,000         (2,800,000)         2,800,000
Proceeds from exercise of stock options                          15,000             15,000                -
Net proceeds from private offering                                  -                  -            3,034,000
-------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
  activities                                                 40,704,000         (2,662,000)          (727,000)
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
  equivalents                                                 6,626,000          6,666,000         (2,919,000)
Cash and cash equivalents at beginning of
  period                                                     16,293,000          9,627,000         12,546,000
-------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of
  period                                                   $ 22,919,000       $ 16,293,000       $  9,627,000
=============================================================================================================
Supplemental disclosure of cash flow
  information:
Cash paid during the year for:
Interest                                                   $  6,565,000       $  4,781,000       $  2,788,000
Income taxes                                               $     43,000       $     72,000       $        -
=============================================================================================================
Supplemental disclosure of noncash
  investing and financing activities:
Transfer from loans to other real estate owned             $    737,000       $  2,951,000       $  4,524,000
=============================================================================================================
Loans to facilitate sale of other real estate owned        $     94,000       $     62,000       $  1,200,000
=============================================================================================================
Common stock issued in merger                              $          -       $  4,255,000       $        -
=============================================================================================================
Transfer from other real estate owned to
  bank premises                                            $          -       $          -       $    460,000
=============================================================================================================
Transfer of investment securities from
  held-to-maturity to available-for-sale                   $          -       $  8,450,000       $ 11,792,000
=============================================================================================================
Change in net unrealized gains (losses) on investment
  securities available-for-sale                            $   (178,000)      $    799,000       $   (515,000)
=============================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>   38
1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of FP Bancorp, Inc. ("FP Bancorp") and its
subsidiary (collectively, the "Company") conform to generally accepted
accounting principles and to general practice within the banking industry. The
following is a description of the more significant of the policies.

(a)  Principles of Consolidation:

The consolidated financial statements include the accounts of FP Bancorp and its
wholly-owned subsidiary, First Pacific National Bank ("FPNB"). All material
intercompany accounts and transactions have been eliminated in the consolidated
financial statements. The parent company financial statements are presented
using the equity method of accounting (note 20).

The Company's consolidated financial statements as of and for the year ended
December 31, 1996 include combined operations with RB Bancorp and its
wholly-owned subsidiary for the nine-month period from April 1, 1996 through
December 31, 1996 (note 2).

The Company's consolidated financial statements as of and for the year ended
December 31, 1995 include combined operations with Overland Bank ("Overland")
for the nine-month period from April 1, 1995 through December 31, 1995 (note 2).

(b)  Cash and Cash Equivalents:

For purposes of the statements of cash flows, cash and cash equivalents consist
of cash on hand, due from banks and Federal funds sold. Generally, Federal funds
are purchased and sold for one-day periods.

(c)  Investment Securities:

Management determines the appropriate classification of securities at the time
of purchase. If management has the intent and the Company has the ability at
time of purchase to hold securities until maturity, they are classified as
held-to-maturity. Investment securities held-to-maturity are stated at cost,
adjusted for amortization of premiums and accretion of discounts over the period
to maturity of the related security using the interest method. Securities to be
held for indefinite periods of time, but not necessarily to be held-to-maturity
or on a long-term basis are classified as available-for-sale and carried at fair
value with unrealized gains or losses reported as a separate component of
stockholders' equity, net of applicable income taxes. Realized gains or losses
on the sale of securities available-for-sale, if any, are determined using the
amortized cost of the specific securities sold. Securities available-for-sale
include securities that management intends to use as part of its asset/liability
management strategy and that may be sold in response to changes in interest
rates, prepayment risk and other related factors. Securities are individually
evaluated for appropriate classification, when acquired; consequently, similar
types of securities may be classified differently depending on factors existing
at the time of purchase.

(d)  Loans:

Interest on loans is accrued as earned. The accrual of interest on loans is
discontinued when, in management's judgment, a reasonable doubt exists as to the
collectability of such interest in the normal course of business. Nonaccrual
loans that become current as to both principal and interest can be returned to
accrual status subject to appropriate management approval.

Nonrefundable fees and related direct costs associated with the origination or
purchase of loans are deferred and netted against outstanding loan balances. Net
deferred fees and costs are recognized in interest income over the terms of the
loans using the interest method. The amortization of loan fees is discontinued
on nonaccrual loans.

Loan discounts and premiums acquired are accreted or amortized into interest
income as an adjustment of yield over the terms of the loans using the interest
method.


                                      F-6
<PAGE>   39
1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(e) Allowance for Loan Losses:

An allowance for loan losses is maintained at a level deemed appropriate by
management to adequately provide for known and inherent risks in the loan
portfolio and other extensions of credit, including off-balance sheet credit
extensions. The allowance is based upon a continuing review of the portfolio,
past loan loss experience, current economic conditions which may affect the
borrowers' ability to pay, and the underlying collateral value of the loans.
Loans which are deemed to be uncollectible are charged off and deducted from the
allowance. The provision for loan losses and recoveries on loans previously
charged off are added to the allowance.

Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("Statement 114") and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" ("Statement 118") on a prospective basis. Under the provisions of
Statement 114, a loan is considered impaired when it is probable that a creditor
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. Statement 114 defines methods of measuring impairment and,
if the measure of the impaired loan is less than the recorded investment in the
loan, it requires a creditor to create a valuation allowance with a
corresponding charge to the provision for loan losses. Statement 118 amends
Statement 114 to allow a creditor to use existing methods for recognizing
interest income on impaired loans. In addition, Statement 118 amends certain
disclosure requirements of Statement 114. The adoption of Statements 114 and 118
had no material effect on the Company's financial condition or results of
operations.

(f)  Other Real Estate Owned:

Real estate acquired by foreclosure is recorded at fair value. Fair value is
based on current appraisals less estimated selling costs. Write-downs to the
fair value at the time of acquisition of the real estate are made by a charge to
the allowance for loan losses, if necessary. Any subsequent write-downs are
charged against operating expenses and recognized as a valuation allowance.
Operating expenses of such properties, net of related income, and gains and
losses on their disposition are included in other expenses.

(g)  Premises and Equipment:

Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is charged to operating expense using the
straight-line method over the estimated useful lives of the assets, which range
from three to forty years. Leasehold improvements are capitalized and amortized
to operating expense over the term of the respective lease or the estimated
useful life of the improvement, whichever is shorter. Expenditures for
maintenance and repairs are charged to expense as incurred.

(h)  Goodwill:

Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited, generally twelve to fifteen years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.

(i)  Debenture Costs:

Debenture costs are amortized over the term of the debenture using the interest
method.


                                      F-7
<PAGE>   40

1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(j)  Income Taxes:

The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

(k)  Earnings Per Share:

Primary earnings per share is computed by dividing net earnings by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period. Stock options are considered to be common stock
equivalents and are included in the primary net earnings per share calculation
for that period unless the effect is determined to be antidilutive. The weighted
average numbers of shares used for the primary earnings per share calculations
were 2,724,000, 2,483,000 and 1,262,000 in 1996, 1995 and 1994, respectively.

Fully diluted earnings per share is computed by dividing net earnings (adjusted
for interest expense on the convertible subordinated debentures and unamortized
debenture costs) by the weighted average number of shares of common stock,
common stock equivalents and other potentially dilutive securities. The
subordinated convertible debentures are considered to be other potentially
dilutive securities and are included in the earnings per share calculations
unless the effect is determined to be antidilutive. The weighted average numbers
of shares used for the fully diluted earnings per share calculations were
3,206,000, 3,019,000 and 1,269,000 in 1996, 1995 and 1994, respectively.

(l)  Use of Estimates:

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

(m)  Stock Options:

Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"), which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, Statement 123
also allows entities to continue to apply the provisions of APB No. 25 and
provide pro forma net earnings and pro forma net earnings per share disclosures
for employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in Statement 123 had been applied. The Company
has elected to continue to apply the provisions of APB No. 25 and provide the
pro forma disclosure provisions of Statement 123.

 (n)  New Accounting Standards:

In June 1996, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" ("Statement 125"). Statement
125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. This statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings.


                                      F-8
<PAGE>   41
1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Management of the Company does not expect that adoption of Statement 125 will
have a material impact on the Company's financial position, results of
operations or liquidity.

(o)  Reclassifications:

Certain 1995 and 1994 amounts have been reclassified to conform to the
presentation used in 1996.


2)  MERGERS AND ACQUISITIONS

(a)  Overland Bank:

On April 1, 1995, the Company completed the merger of Overland into FPNB (the
"Overland Merger") for a net purchase price of $5,446,000, including acquisition
costs of $1,191,000. The acquisition was recorded using the purchase method of
accounting. Under this method of accounting, the purchase price was allocated to
the respective assets acquired with a fair value of $43,419,000 and liabilities
assumed with a fair value of $39,656,000 at the date of the purchase
transaction. The excess of the purchase price over the fair value of the net
assets acquired was recorded as goodwill. Pursuant to the merger agreement, all
of the outstanding shares of Overland common stock were converted into newly
issued shares of Company common stock. The number of shares of Company common
stock issued upon the conversion of each share of Overland common stock was
 .1006 shares, resulting in the issuance of 826,132 shares of Company common
stock.

(b)  RB Bancorp:

On April 1, 1996, the Company completed the merger of RB Bancorp and its
wholly-owned subsidiary, The Bank of Rancho Bernardo, with and into FPNB. The
acquisition was recorded using the purchase method of accounting. Under this
method of accounting, the purchase price was allocated to the respective assets
acquired with a fair value of $60,572,000 and liabilities assumed with a fair
value of $55,552,000 at the date of the purchase transaction. The excess of the
purchase price over the fair value of the net assets acquired was recorded as
goodwill, including $257,000 in acquisition costs. Pursuant to the merger
agreement, shareholders of RB Bancorp received $7,350,000 in cash for the
exchange of all outstanding RB Bancorp shares. The amount of consideration was
determined by negotiations between the Company and RB Bancorp.

The unaudited consolidated information below indicates on a pro forma basis the
results of operations if RB Bancorp had been acquired by the Company as of
January 1, 1995 and if Overland had been acquired by the Company on January 1,
1994.

<TABLE>
<CAPTION>
                                                  December 31,
------------------------------------------------------------------------
                                            1996                 1995
------------------------------------------------------------------------
<S>                                   <C>                 <C>
Net interest income                   $   16,438,000      $   15,756,000
Net earnings                          $    4,266,000      $    2,461,000
Primary earnings per share                     $1.57                $.99
Fully diluted earnings per share               $1.44                $.90
</TABLE>

3)  RESTRICTIONS ON CASH AND DUE FROM BANKS

The Company is required to maintain reserve balances with the Federal Reserve
Bank. The average amount held at the Federal Reserve Bank for the year ended
December 31, 1996 was approximately $2,716,000.


                                      F-9
<PAGE>   42
4)  INVESTMENT SECURITIES

a) Investment Securities Available-for-sale:

Mortgage-backed securities are fully guaranteed by the U.S. government. The
amortized cost, gross unrealized gains, gross unrealized losses and fair value
of investment securities available-for-sale as of December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
                                                        1996
------------------------------------------------------------------------------------------
                                                   Gross          Gross
                                 Amortized      Unrealized     Unrealized
                                    Cost           Gains         Losses        Fair Value
------------------------------------------------------------------------------------------
<S>                             <C>              <C>           <C>             <C>
U.S. Government agencies        $ 9,989,000      $ 73,000      $     -         $10,062,000
Mortgage-backed securities       35,223,000       169,000       (136,000)       35,256,000
Equity bank stock                 2,087,000           -              -           2,087,000
------------------------------------------------------------------------------------------
Total                           $47,299,000      $242,000      $(136,000)      $47,405,000
==========================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                        1995
-----------------------------------------------------------------------------------------
                                                   Gross         Gross
                                 Amortized      Unrealized     Unrealized
                                    Cost           Gains         Losses        Fair Value
-----------------------------------------------------------------------------------------
<S>                             <C>              <C>           <C>            <C>
U.S. Government agencies        $11,285,000      $139,000      $(45,000)      $11,379,000
Mortgage-backed securities       15,472,000       208,000       (18,000)       15,662,000
Equity bank stock                   540,000           -             -             540,000
-----------------------------------------------------------------------------------------
Total                           $27,297,000      $347,000      $(63,000)      $27,581,000
=========================================================================================
</TABLE>

The maturity distribution based on the amortized cost and fair value (excluding
equity bank stock) of investment securities available-for-sale as of December
31, 1996 by contractual maturity is shown below. Mortgage-backed securities have
contractual terms to maturity, but require periodic payments to reduce
principal. In addition, expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.

                                               Maturity Distribution
------------------------------------------------------------------------
                                              Amortized
                                                 Cost         Fair Value
------------------------------------------------------------------------
Due after five years through ten years      $ 8,989,000      $ 9,055,000
Over ten years                                1,000,000        1,007,000
------------------------------------------------------------------------
                                              9,989,000       10,062,000
Mortgage-backed securities                   35,223,000       35,256,000
------------------------------------------------------------------------
Total                                       $45,212,000      $45,318,000
========================================================================


Investment securities available-for-sale with a principal balance of $22,568,000
and $4,246,000 were pledged as security for public deposits and other purposes
as required by various statutes and agreements as of December 31, 1996 and 1995,
respectively. Proceeds from the sale of investment securities available-for-sale
during 1996 and 1995 were $21,555,000 and $15,077,000, respectively. Gross
losses of ($147,000) and ($158,000), respectively, were realized on those sales.
Cost was determined in computing the realized loss using the specific
identification method.


                                      F-10
<PAGE>   43

4)  INVESTMENT SECURITIES (CONTINUED)

b)  Investment Securities Held-to-maturity:

Mortgage-backed securities are fully guaranteed by the U.S. government. The
amortized cost, gross unrealized gains and losses and fair value of investment
securities held-to-maturity as of December 31, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
                                                                      1996
------------------------------------------------------------------------------------------------------
                                             Gross         Gross
                                           Amortized     Unrealized        Unrealized
                                             Cost          Gains             Losses         Fair Value
------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>                <C>               <C>
U.S. Government agencies                  $1,000,000   $        -         $    (5,000)      $  995,000
Step up notes                                997,000            -                 -            997,000
Mortgage-backed securities                 7,079,000            -            (101,000)       6,978,000
Corporate notes                              203,000          8,000               -            211,000
------------------------------------------------------------------------------------------------------
Total                                     $9,279,000      $   8,000       $  (106,000)      $9,181,000
======================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                        1995
---------------------------------------------------------------------------------------
                                                 Gross          Gross
                                 Amortized     Unrealized    Unrealized
                                    Cost         Gains         Losses        Fair Value
---------------------------------------------------------------------------------------
<S>                             <C>             <C>          <C>             <C>
Mortgage-backed securities      $7,549,000      $   -        $(108,000)      $7,441,000
Corporate notes                    204,000       14,000            -            218,000
---------------------------------------------------------------------------------------
Total                           $7,753,000      $14,000      $(108,000)      $7,659,000
=======================================================================================
</TABLE>


The maturity distribution based on amortized cost and fair value of investment
securities held-to-maturity as of December 31, 1996 by contractual maturity is
shown below. Mortgage-backed securities have contractual terms to maturity, but
require periodic payments to reduce principal. In addition, expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                              Maturity Distribution
-----------------------------------------------------------------------
                                           Amortized Cost    Fair Value
-----------------------------------------------------------------------
<S>                                         <C>             <C>
Due after one year through five years       $  203,000      $  211,000
Due after five years through ten years       1,000,000         995,000
Over ten years                                 997,000         997,000
Mortgage-backed securities                   7,079,000       6,978,000
-----------------------------------------------------------------------
Total                                       $9,279,000      $9,181,000
======================================================================
</TABLE>

Investment securities held-to-maturity with a principal amount of $6,089,000 and
$4,063,000 were pledged as security for public deposits and other purposes as
required by various statutes and agreements as of December 31, 1996 and 1995,
respectively. There were no sales of investment securities held-to-maturity
during 1996, 1995 or 1994.

c)  Interest Income on Investment Securities:

The following table presents interest income on investment securities for the
years ended December 31, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                                  1996            1995            1994
----------------------------------------------------------------------------------------
<S>                                           <C>             <C>             <C>
Investment Securities Available-for-sale      $2,182,000      $  915,000      $  373,000
Investment Securities Held-to-maturity           468,000         868,000         857,000
----------------------------------------------------------------------------------------
Total                                         $2,650,000      $1,783,000      $1,230,000
========================================================================================
</TABLE>


                                      F-11
<PAGE>   44
4)  INVESTMENT SECURITIES (CONTINUED)

d)  Portfolio Reclassification:

In November 1995, the FASB issued a special report called "A Guide to
Implementation of Statement 115 in Accounting for Certain Investments in Debt
and Equity Securities"(the "Guide"). In accordance with the provisions of the
Guide, the Company elected to reclassify certain of its investment securities
from held-to-maturity to available-for-sale. On December 31, 1995, the Company
reclassified $8,450,000 from investment securities held-to-maturity to
investment securities available-for-sale.

e)  Derivatives:

The Company has had only limited involvement in derivative financial instruments
and does not use them for trading purposes. They are used to manage interest
rate risk in the balance sheet and enhance earnings in the investment portfolio.
The Company has invested in U.S. government agency "step up" bonds, which
provide a higher initial yield than U.S. Treasury bonds or straight agency
bonds. In return for the higher yield, the issuer reserves the right to call the
bond at a given date prior to maturity. If the issuer does not exercise this
"call option", the coupon rate of the bond will "step up" to a contractually
agreed upon rate. Step up bonds mitigate interest rate risk through the exercise
of the call option or, in a rising rate environment, through the increase in
coupon rates. Step up bonds have no risk of loss of principal, and as such are
considered by management to be low risk derivative investments.

There were no derivatives included in investment securities available-for-sale
as of December 31, 1996. Derivatives included in investment securities
held-to-maturity were $997,000 as of December 31, 1996. There were no
derivatives included in investment securities available-for-sale and investment
securities held-to-maturity as of December 31, 1995.


5) LOANS
Loans were comprised of the following as of December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                         1996              1995
------------------------------------------------------------------
<S>                                 <C>               <C>
Commercial                          $ 80,894,000      $ 62,867,000
Real estate                          108,530,000        68,448,000
Construction                          14,507,000         6,204,000
Installment                           12,371,000         7,515,000
------------------------------------------------------------------
Total loans                          216,302,000       145,034,000
Less allowance for loan losses         3,121,000         2,013,000
Less deferred loan fees                  662,000           567,000
Less discount                          1,643,000           524,000
------------------------------------------------------------------
Net loans                           $210,876,000      $141,930,000
==================================================================
</TABLE>



The Company's loan portfolio consists primarily of loans to borrowers within San
Diego County and Southern Riverside County. Although the Company seeks to avoid
undue concentrations of loans to a single industry or based upon a single class
of collateral, real estate and real estate associated businesses are among the
principal industries in the Company's market area and, as a result, the
Company's loan and collateral portfolios are to some degree concentrated in
those industries. The Company evaluates each credit on an individual basis and
determines collateral requirements accordingly. When real estate is taken as
collateral, advances are generally limited to a certain percentage of the
appraised value of the collateral at the time the loan is made, depending on the
type of loan, the underlying property and other factors.

The maturity distribution of the loan portfolio as of December 31, 1996 was as
follows:

<TABLE>
<S>                    <C>
Within one year        $  70,631,000
One to five years         83,768,000
After five years          61,903,000
------------------------------------
Total                   $216,302,000
====================================
</TABLE>


                                      F-12
<PAGE>   45

5) LOANS (CONTINUED)

The sensitivity of loans to changes in interest rates as of December 31, 1996
was as follows:

<TABLE>
<S>                    <C>
Fixed rate loans       $  70,207,000
Variable rate loans      146,095,000
------------------------------------
Total                   $216,302,000
====================================
</TABLE>

The Company has established a monitoring system for its loans in order to
identify potential problem loans and to permit the periodic evaluation of
impairment and the adequacy of the allowance for loan losses in a timely manner.
Impaired loans included in the Company's loan portfolio as of December 31, 1996
and 1995 were $2,506,000 and $1,449,000, respectively, which had an aggregate
specific related allowance amounts of $358,000 and $173,000, respectively. The
measurement of impairment may be based on (i) the present value of the expected
future cash flows of the impaired loan discounted at the loan's original
effective interest rate, (ii) the observable market prices of the impaired loan
or (iii) the fair value of the collateral of a collateral-dependent loan. The
amount by which the recorded investment of the loan exceeds the measure of the
impaired loan is recognized by recording a valuation allowance with a
corresponding charge to the provision for loan losses. During 1996 and 1995, the
average balances of impaired loans were $2,489,000 and $2,402,000, respectively.
During 1996 and 1995, respectively, $65,000 and $81,000 of interest was
recognized on these loans during the period of impairment on a cash basis in
accordance with Company policy.

As of December 31, 1996, troubled debt restructurings ("TDR's") amounted to
$717,000. The Company has not committed to lend any additional funds to those
borrowers under TDR's, and TDR's are current in accordance with their modified
terms. Interest recorded on the TDR's was $64,000 for the year ended December
31, 1996. There were no TDR's as of December 31, 1995.

A summary of the activity in the allowance for loan losses, which includes
provisions for impaired loans, for the years ended December 31, 1996, 1995 and
1994 was as follows:

<TABLE>
<CAPTION>
                                         1996              1995              1994
------------------------------------------------------------------------------------
<S>                                  <C>               <C>               <C>
Balance as of beginning of year      $ 2,013,000       $ 2,666,000       $ 3,830,000
Provision charged to expense             700,000           600,000               -
Allowance acquired                     1,290,000           803,000               -
Loan charge-offs                      (1,418,000)       (2,453,000)       (1,461,000)
Loan recoveries                          536,000           397,000           297,000
------------------------------------------------------------------------------------
Balance as of end of year            $ 3,121,000       $ 2,013,000       $ 2,666,000
====================================================================================
</TABLE>

The allowance for loan losses is subjective and may be adjusted in the future
because of changes in economic conditions and the repayment abilities of the
borrowers. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance. These
agencies may require the Company to recognize additions to the allowance based
on their judgments related to information available to them at the time of their
examinations.

Loans on nonaccrual amounted to $1,374,000, $735,000 and $2,587,000 as of
December 31, 1996, 1995 and 1994, respectively. Interest income of $111,000,
$52,000 and $122,000 would have been recorded for the years ended December 31,
1996, 1995 and 1994, respectively, if nonaccrual loans had been on a current
basis, in accordance with their original terms. Interest income of $65,000,
$49,000, and $207,000 was recognized on loans subsequently transferred to
nonaccrual status as of December 31, 1996, 1995 and 1994, respectively.

In the normal course of business, the Company has made loans to certain
directors, executive officers and their affiliates under terms consistent with
their general lending policies. An analysis of this activity during 1996 is
summarized as follows:

<TABLE>
<S>                                        <C>
Loan balances as of December 31, 1995      $4,270,000
Additions                                   5,287,000
Collections                                (3,909,000)
-----------------------------------------------------
Loan balances as of December 31, 1996      $5,648,000
=====================================================
</TABLE>


                                      F-13
<PAGE>   46
5) LOANS (CONTINUED)

The Company has also extended additional commitments to these directors,
executive officers and their affiliates totaling approximately $1,795,000 as of
December 31, 1996.


6) OTHER REAL ESTATE OWNED

Other real estate owned was comprised of the following as of December 31, 1996
and 1995:

<TABLE>
<CAPTION>
                                                1996            1995
-----------------------------------------------------------------------
<S>                                          <C>             <C>
Real estate acquired through settlement
  of loans                                   $2,214,000      $4,019,000
Less allowance for possible losses              885,000         880,000
-----------------------------------------------------------------------
Total                                        $1,329,000      $3,139,000
=======================================================================
</TABLE>

A summary of the changes in the allowance for possible losses on other real
estate owned for the years ended December 31, 1996, 1995 and 1994 follows:

<TABLE>
<CAPTION>
                                         1996           1995            1994
------------------------------------------------------------------------------
<S>                                  <C>             <C>             <C>
Balance as of beginning of year      $ 880,000       $ 808,000       $ 820,000
Provision charged to expense           409,000         537,000         455,000
Charge-offs                           (404,000)       (465,000)       (467,000)
------------------------------------------------------------------------------
Balance as of end of year            $ 885,000       $ 880,000       $ 808,000
==============================================================================
</TABLE>

7)  PREMISES AND EQUIPMENT

Premises and equipment were comprised of the following as December 31, 1996 and
1995:

<TABLE>
<CAPTION>
                                            1996             1995
-------------------------------------------------------------------
<S>                                    <C>              <C>
Land                                   $ 2,049,000      $ 2,103,000
Premises                                 3,726,000        3,087,000
Furniture, fixtures and equipment        5,804,000        4,444,000
Leasehold improvements                   1,286,000        1,236,000
-------------------------------------------------------------------
                                        12,865,000       10,870,000
Less accumulated depreciation
   and amortization                      5,193,000        4,320,000
-------------------------------------------------------------------
Total                                  $ 7,672,000      $ 6,550,000
===================================================================
</TABLE>


8)  DEPOSITS

Interest-bearing deposits were comprised of the following as of December 31,
1996 and 1995:

<TABLE>
<CAPTION>
                                             1996              1995
---------------------------------------------------------------------
<S>                                    <C>               <C>
Interest-bearing demand deposits       $ 54,695,000      $ 38,317,000
Money market deposits                    60,405,000        41,138,000
Savings deposits                         17,366,000        14,732,000
Time deposits under $100,000             45,095,000        33,110,000
Time deposits of $100,000 or more        27,419,000        17,133,000
---------------------------------------------------------------------
Total interest-bearing deposits        $204,980,000      $144,430,000
=====================================================================
</TABLE>


                                      F-14
<PAGE>   47
8)  DEPOSITS (CONTINUED)

The maturity distribution of time deposits of $100,000 or more as of December
31, 1996 was as follows:

<TABLE>
<S>                                 <C>
Three months or less                $16,010,000
Over three through six months         6,958,000
Over six through twelve months        3,864,000
Over twelve months                      587,000
-----------------------------------------------
Total                               $27,419,000
===============================================
</TABLE>



Interest expense on deposits was comprised of the following for the years ended
December 31, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                            1996            1995             1994
----------------------------------------------------------------------------------
<S>                                     <C>             <C>             <C>
Interest-bearing demand deposits        $  459,000      $  354,000      $  340,000
Money market deposits                    1,689,000       1,211,000         877,000
Savings deposits                           348,000         275,000         231,000
Time deposits under $100,000             2,191,000       1,747,000         884,000
Time deposits of $100,000 or more        1,323,000         880,000         328,000
----------------------------------------------------------------------------------
Total interest expense on deposits      $6,010,000      $4,467,000      $2,660,000
==================================================================================
</TABLE>

9) CONVERTIBLE SUBORDINATED DEBENTURES

During 1993, the Company completed the sale of $4,575,000 of 9% convertible
subordinated debentures due December 31, 1997 (the "Debentures"). On December
31, 1997, the holders of the Debentures will receive cash in the principal
amount, or, if the conversion rights are exercised, 100 shares of FP Bancorp's
common stock (subject to antidilutive adjustments) for each $1,000 principal of
Debentures, subject to the limitation that the fair market value of the number
of shares of common stock received by the holder of a Debenture shall not exceed
twice the principal amount of the Debenture. FP Bancorp invested $3,400,000 of
the proceeds in FPNB, used approximately $618,000 to provide a reserve for the
payment of interest on the Debentures through January 1, 1995, paid expenses of
the offering and other items, and kept the remaining proceeds available for
general corporate purposes including payment of interest on the Debentures.


10)  FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("Statement 107"), requires that the Company
disclose estimated fair values for its financial instruments. The following
summary presents a description of the methodologies and assumptions used to
determine such amounts.

Cash and Due From Banks and Federal Funds Sold
The carrying amount is assumed to be the fair value because of the liquidity of
these instruments.

Investment Securities
Fair values are based on quoted market prices available as of the balance sheet
date. If a quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.

Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type and further segmented into fixed
and adjustable rate interest terms and by credit risk categories.


                                      F-15
<PAGE>   48
10)  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The fair value of fixed rate loans and nonperforming or adversely classified
adjustable rate loans is calculated by discounting scheduled cash flows through
the estimated maturity using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loans. The discount rates used for
performing fixed rate loans are the Company's current offer rates for comparable
instruments with similar terms.

The fair value of performing adjustable rate loans is estimated to be carrying
value. These loans reprice frequently at market rates and the credit risk is not
considered to be greater than normal.

Deposits
Under Statement 107, the fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings and NOW accounts, and money market
and checking accounts, is equal to the amount payable on demand as of December
31, 1996 and 1995. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining maturities. No
value has been assigned to the Company's long-term relationships with its
deposit customers (core deposit intangible) since it is not a financial
instrument as defined under Statement 107.

Federal Funds Purchased and Other Borrowings
The carrying amount is assumed to be the fair value because of the liquidity of
these instruments.

Convertible Subordinated Debentures
The fair value of Debentures is estimated based on the amount of discounted
future cash flows through estimated maturity using estimated market discount
rates based on current borrowing rates for similar debt instruments.

Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees
Written.
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. The fair value of letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties.

Limitations
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a portion of the Company's
financial instruments, fair value estimates are based on what management
believes to be conservative judgments regarding expected future cash flows,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. Since the fair value is estimated as of December 31, 1996 and
1995, the amounts that will actually be realized or paid at settlement or
maturity of the instruments could be significantly different.


                                      F-16
<PAGE>   49
10)  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The fair values of the Company's financial instruments as of December 31, 1996
and 1995 were as follows:

<TABLE>
<CAPTION>
                                                           1996                                  1995
----------------------------------------------------------------------------------------------------------------
                                                                  Fair Value                          Fair Value
                                             Carrying Amount      Estimates      Carrying Amount      Estimates
----------------------------------------------------------------------------------------------------------------
<S>                                           <C>               <C>               <C>               <C>
Financial assets:
Cash and due from banks                       $ 22,919,000      $ 22,919,000      $ 14,293,000      $ 14,293,000
Federal funds sold                                     -                 -           2,000,000         2,000,000
Investment securities available-for-sale        47,405,000        47,405,000        27,581,000        27,581,000
Investment securities held-to-maturity           9,279,000         9,181,000         7,753,000         7,659,000
Loans, net                                     210,876,000       209,035,000       141,930,000       139,384,000
Financial liabilities:
Deposits                                       264,521,000       264,688,000       185,664,000       185,835,000
Federal funds purchased and
  other borrowings                              16,752,000        16,752,000               -                 -
Convertible subordinated debentures              4,575,000         4,575,000         4,575,000         4,575,000
</TABLE>

<TABLE>
<CAPTION>
                                                                Fair Value                      Fair Value
                                            Contract Amount     Estimates    Contract Amount    Estimates
---------------------------------------------------------------------------------------------------------
<S>                                           <C>              <C>             <C>              <C>
Off-balance sheet financial instruments:
Commitments to extend credit                  $51,310,000      $1,026,000      $34,142,000      $629,000
Standby letters of credit                       3,269,000          65,000        4,334,000        87,000
</TABLE>


11)  INCOME TAXES

The components of income taxes for the year ended December 31, 1996, 1995 and
1994 were as follows:

<TABLE>
<CAPTION>
                                        1996              1995        1994
---------------------------------------------------------------------------
<S>                                <C>               <C>             <C>
Current:
  Federal                          $   145,000       $    21,000     $    -
  State                                  7,000             2,000          -
---------------------------------------------------------------------------
Total current                          152,000            23,000          -
---------------------------------------------------------------------------
Deferred:
  Federal                              733,000           513,000          -
  State                                240,000           165,000          -
---------------------------------------------------------------------------
Total deferred                         973,000           678,000          -
---------------------------------------------------------------------------
Change in valuation allowance       (2,293,000)       (1,578,000)         -
Tax credited to goodwill               246,000            49,000          -
---------------------------------------------------------------------------
Income tax benefit                 $  (922,000)      $  (828,000)    $    -
===========================================================================
</TABLE>


                                      F-17
<PAGE>   50
11) INCOME TAXES (CONTINUED)

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of December 31, 1996
and 1995 were as follows:

<TABLE>
<CAPTION>
                                                         1996              1995
----------------------------------------------------------------------------------
<S>                                                  <C>               <C>
Deferred tax assets:
  Plant and equipment, principally due to
    differences in depreciation                      $   352,000       $   254,000
  Nonaccrual interest recognized as
    income for taxes but not for books                    46,000            75,000
  OREO property, principally due to
    differences in valuation of property                 281,000           174,000
  Charitable contributions not deducted for tax              -              34,000
  Net operating loss carryforwards                     3,564,000         4,323,000
  Alternative minimum and other tax
    credit carryforwards                                 355,000           289,000
  Other                                                      -             155,000
----------------------------------------------------------------------------------
  Total gross deferred tax assets                      4,598,000         5,304,000
  Less:  valuation allowance                          (1,933,000)       (4,226,000)
----------------------------------------------------------------------------------
  Net deferred tax assets                            $ 2,665,000       $ 1,078,000
==================================================================================
Deferred tax liabilities:
  Allowance for loan losses, due to
    differences in computation of loan debts         $  (151,000)      $  (178,000)
  Deferred loan costs                                   (294,000)              -
----------------------------------------------------------------------------------
  Net deferred tax liability                         $  (445,000)      $  (178,000)
==================================================================================
</TABLE>


A reconciliation of total income taxes (benefit) for the years ended December
31, 1996, 1995 and 1994 to the amount computed by applying the applicable
statutory Federal income tax rate of 34% to earnings before income taxes
follows:

<TABLE>
<CAPTION>
                                                                   1996              1995            1994
-----------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>               <C>
Computed expected income taxes                                $ 1,117,000       $   368,000       $ 113,000
Tax exempt income                                                     -                 -           (13,000)
Decrease in valuation allowance                                (2,293,000)       (1,578,000)       (298,000)
Benefit of operating loss carryforward, not recognized                -                 -           167,000
State taxes, net of Federal benefit                               163,000           110,000             -
Adjustment of prior year estimated liability                          -              19,000             -
Recognition of acquired tax benefits previously included
  in valuation allowance                                          246,000            49,000             -
Other                                                            (155,000)          204,000          31,000
-----------------------------------------------------------------------------------------------------------
Total income tax benefit                                      $  (922,000)      $  (828,000)      $     -
===========================================================================================================
</TABLE>

Accumulated deferred income tax benefits included in accrued interest and other
assets in the consolidated balance sheets were $2,220,000 and $900,000 as of
December 31, 1996 and 1995, respectively. As of December 31, 1996, the Company
has net operating loss carryforwards for Federal and state income tax purposes
of $8,206,000 and $6,845,000, respectively, which are available to offset future
taxable income, if any, through 2010 and 2000, respectively. In addition, the
Company has alternative minimum and other tax credit carryforwards of
approximately $355,000 which are available to reduce future Federal regular
income taxes, if any, over an indefinite period.

The 1996 net change in the deferred tax asset valuation allowance was a decrease
of $2,293,000 consisting of a decrease of $1,234,000 relating to a favorable
reassessment of earnings expectations and a decrease of $973,000 relating to
current year activity. The remaining valuation allowance of $1,933,000 as of
December 31, 1996 relates to Federal and state tax carryforwards of acquired
institutions. Management believes that the realization of the recognized net
deferred tax asset of $2,220,000 is more likely than not, based on the
expectation that the Company will generate the necessary amount of taxable
income in future periods.


                                      F-18
<PAGE>   51
12)  COMMON STOCK

On November 22, 1994, the Company completed two private offerings of the
Company's common stock (the "Private Offerings"). After deducting the direct
costs of approximately $99,000, the private offerings generated $3,034,000 in
additional capital for FP Bancorp.


13)  STOCK OPTIONS

The Company has a stock option plan approved in 1988 (the "1988 Plan") which
provides for the granting of options for up to 90,090 shares of common stock to
employees for a price not less than the fair market value of the stock at the
date of grant. In November 1993, the Board of Directors approved an increase in
the number of shares available under the 1988 Plan to 250,000 shares and in May
1994, the increase was approved by the stockholders. In March 1996, the Board of
Directors approved an increase in the number of shares available under the 1988
Plan to 500,000 shares and in May 1996, the increase was approved by the
stockholders. The plan provides for nonqualified and incentive stock options for
employees and nonemployee directors. Shares under the employee options become
exercisable at a rate of 20% or 33 1/3% annually. Shares under the nonemployee
director options are exercisable immediately following the effective date of the
grant. The terms of the options range from five to ten years from the date the
options are granted. Options are granted at a price equal to the fair market
value of the shares as of the date of grant. Options to purchase 230,224 shares
were available for grant as of December 31, 1996.

The Company applies APB No. 25 in accounting for the 1988 Plan and, accordingly,
no compensation cost has been recognized for its stock options in the
consolidated financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under Statement
No. 123, the Company's net earnings would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                       1996        1995
--------------------------------------------------------------------------
<S>                                                <C>          <C>
Net earnings, as reported                          $4,208,000   $1,911,000
Pro forma net earnings                             $3,914,000   $1,911,000

Primary earnings per share, as reported                 $1.54        $0.77
Pro forma primary earnings per share                    $1.44        $0.77

Fully diluted earnings per share, as reported           $1.42        $0.72
Pro forma fully diluted earnings per share              $1.33        $0.72
</TABLE>

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions for 1996:
risk-free interest rates equal to comparable U.S. Treasury rates at each grant
date; dividend yield of zero; expected lives of six years; and volatility of
23.5%. The weighted average fair value of stock options granted in 1996 was
$3.43. Pro forma net earnings reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under Statement No. 123 is not reflected in the pro forma net earnings amounts
presented above because compensation cost is reflected over the options' vesting
period and compensation cost for options granted prior to January 1, 1995 is not
considered.


                                      F-19
<PAGE>   52
13)  STOCK OPTIONS (CONTINUED)

The following is a summary of transactions under the 1988 Stock Option Plans
which occurred during 1996 and 1995:

<TABLE>
<CAPTION>
                                                 1988 Plan
---------------------------------------------------------------------
                                          Number of  Weighted Average
                                           Shares     Exercise Price
---------------------------------------------------------------------
<S>                                       <C>           <C>
Outstanding as of December 31, 1994       155,776          $5.15
Exercised                                  (2,800)         $5.15
---------------------------------------------------------------------
Outstanding as of December 31, 1995       152,976          $5.15
Granted                                   114,000          $8.74
Exercised                                  (2,850)         $5.15
---------------------------------------------------------------------
Outstanding as of December 31, 1996       264,126          $6.70
---------------------------------------------------------------------
Exercisable as of:
December 31, 1996                         217,658          $6.33
December 31, 1995                         104,628          $5.15
---------------------------------------------------------------------
</TABLE>


As of December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options were $5.15 to $9.25 and 7.53
years, respectively.


14) EMPLOYEE STOCK OWNERSHIP PLAN

Prior to 1996, the Company sponsored the FP Bancorp Employee Stock Ownership
Plan (the "ESOP"). The amount of annual contributions to the ESOP were at the
discretion of the Company's Board of Directors. There were no contributions
under the ESOP in 1996. Contributions under the ESOP amounted to $143,000 and
$46,000 in 1995 and 1994, respectively.

The ESOP was designed to enable eligible employees, as defined in the plan
document, to participate in the growth and prosperity of the Company through
stock ownership. To fund the ESOP, the Company borrowed $500,000 and loaned the
proceeds to the ESOP. The ESOP used most of the proceeds to purchase 19,048
shares of newly issued stock of the Company. The Company's receivable from the
ESOP was $100,000 as of December 31, 1995. The receivable from ESOP was repaid
during 1996.

On January 23, 1996, the Board of Directors of the Company approved the
termination of the ESOP pending approval of the Internal Revenue Service, which
was received effective April 1, 1996. Upon termination of the ESOP, all
participants became fully vested in their assets. ESOP termination costs have
been paid by the Company.


15) 401(K) SAVINGS PLAN

Effective January 1, 1994, FPNB implemented the First Pacific National Bank
401(k) Savings Plan (the "Plan"). The Plan is a defined contribution plan
covering full-time and part-time employees who have completed six full months of
employment with FPNB. Temporary employees are excluded from Plan participation.
The Plan is subject to the provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA").

The Trustee and Administrator of the Plan is Union Bank of California ("Union
Bank"). The Plan provides for participant-directed accounts which allow
participants to allocate their account balances to the following Union Bank
investment funds: Stepstone Stable Value Income Fund, Stepstone Balanced Fund
and Stepstone Value Momentum Fund. A fourth fund, Fidelity's Contrafund, is also
offered. The participants of the Plan may also allocate up to 50% of their
deferral to an investment in FP Bancorp common stock.


                                      F-20
<PAGE>   53
15) 401(K) Savings Plan (CONTINUED)

Participants' accounts are credited or debited with investment earnings or
losses at the end of each calendar quarter. FPNB contributed $138,000 and
$80,000 as discretionary contributions for the years ended December 31, 1996 and
1995, respectively. The contribution in 1996 was a match based on 50% of a
participant's first 6% of salary withholdings. The 1995 contribution was a match
based on 50% of a participant's first 4% of salary withholdings.


16)  LEASE COMMITMENTS

The Company leases certain of its banking and administrative facilities from a
partnership whose partners include several members of the Company's Board of
Directors. As of December 31, 1996, minimum rental payments due primarily to
these related partnerships under operating leases having initial or remaining
noncancelable lease terms in excess of one year were as follows:

<TABLE>
<CAPTION>
                               Operating leases                Other
                             with related parties        operating leases
-------------------------------------------------------------------------
<S>                             <C>                        <C>
1997                            $   300,000                $  230,000
1998                                301,000                   233,000
1999                                278,000                   233,000
2000                                238,000                   233,000
2001                                196,000                   167,000
Thereafter                        2,958,000                   266,000
-------------------------------------------------------------------------
Total minimum lease payments     $4,271,000                $1,360,000
=========================================================================
</TABLE>

During 1996, 1995 and 1994 rent expense totaled $532,000, $431,000 and $474,000,
respectively. There are no contingent rental payments applicable to any of the
leases. Most of the leases provide that the Company pay taxes, maintenance,
insurance and certain other operating expenses applicable to the leased premises
in addition to the monthly minimum payments. Management expects that in the
normal course of business, leases that expire will be renewed or replaced by
other leases.


17)  COMMITMENTS AND CONTINGENCIES

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

Commitments to extend credit amounting to $51,310,000 were outstanding as of
December 31, 1996. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.

Standby letters of credit and financial guarantees amounting to $3,269,000 were
outstanding as of December 31, 1996. Standby letters of credit and financial
guarantees are conditional commitments issued by FPNB to guarantee the
performance of a customer to a third party. Those guarantees are primarily
issued to support private borrowing arrangements. Most guarantees will expire
within one year.

The Company generally requires collateral or other security to support financial
instruments with credit risk. Management does not anticipate that any material
loss will result from the outstanding commitments to extend credit, standby
letters of credit and financial guarantees.


                                      F-21
<PAGE>   54
17)  COMMITMENTS AND CONTINGENCIES (CONTINUED)

As of December 31, 1996, FPNB had lines of credit in the amount of $7,000,000
from correspondent banks which are renewable annually. FPNB also had a credit
line with the Federal Home Loan Bank, which would allow FPNB to borrow up to
$11,000,000. In addition, FPNB had a $10,000,000 reverse repurchase agreement
with an investment broker. The availability of the lines of credit, as well as
adjustments in deposit programs, provides for liquidity in the event that the
level of deposits should fall abnormally low. These sources provide that funding
thereof may be withdrawn depending upon the financial strength of FPNB.

Because of the nature of its activities, the Company is at all times subject to
pending and threatened legal actions which arise out of the normal course of its
business. In the opinion of management, based in part upon opinions of legal
counsel, the disposition of all litigation will not have a material effect on
the Company.


18) REGULATORY MATTERS

The Federal Deposit Insurance Corporation Improvement Act of 1992 ("FDICIA") was
signed into law on December 19, 1992. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1993.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well-capitalized", "adequately-capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized".

The prompt corrective action regulations define "well-capitalized" as having a
Risk-based Capital Ratio of 10% or greater, having a Tier 1 Risk-based Capital
Ratio of 6% or greater and having a leverage ratio of 5% or greater. Under these
guidelines, as of December 31, 1996, the Company was considered
"adequately-capitalized" and FPNB was considered "well-capitalized".

<TABLE>
<CAPTION>
                                           December 31, 1996
                                  FP Bancorp                   FPNB
------------------------------------------------------------------------------
                         To be Adequately Capitalized   To be Well Capitalized
                              Amount       Ratio          Amount       Ratio
------------------------------------------------------------------------------
Leverage Ratios:
<S>                         <C>            <C>          <C>           <C>
Tier 1 capital               $16,965       5.54%         $19,966       6.52%
Minimum required              12,249       4.00%          15,306       5.00%
------------------------------------------------------------------------------
  Excess                     $ 4,716       1.54%         $ 4,660       1.52%
==============================================================================
Risk-based Capital Ratios:
Tier 1 capital               $16,965       7.47%         $19,966       8.79%
Minimum required               9,088       4.00%          13,636       6.00%
------------------------------------------------------------------------------
  Excess                     $ 7,877       3.47%         $ 6,330       2.79%
------------------------------------------------------------------------------
Total capital                $19,808       8.72%         $22,810      10.04%
Minimum required              18,175       8.00%          22,726      10.00%
------------------------------------------------------------------------------
  Excess                     $ 1,633       0.72%         $    84       0.04%
==============================================================================
</TABLE>


Under Federal banking law, dividends declared by FPNB in any calendar year may
not, without the approval of the Office of the Comptroller of the Currency (the
"OCC"), exceed its net profit, as defined, for that year combined with its
retained income from the preceding two years. However, in October 1993, the OCC
issued a bulletin to all national banks outlining new guidelines limiting the
circumstances under with national banks may pay dividends even if the banks are
otherwise statutorily authorized to pay dividends. The limitations impose a
requirement or in some cases suggest that prior approval of the OCC should be
obtained before a dividend is paid if a national bank is the subject of
administrative action or the payment could be viewed by the OCC as unsafe or
unsound.

The regulatory restrictions on dividend payments for both FPNB and the Company
may affect the Company's ability to make interest payments on the Debentures
(note 9) and pay dividends on its common stock.


                                      F-22
<PAGE>   55
18) REGULATORY MATTERS (CONTINUED)

On May 24, 1993, as a result of supervisory concerns disclosed during the
inspection of FP Bancorp by the FRB in December, 1992, FP Bancorp entered into a
Memorandum of Understanding with the FRB (the "FP Bancorp Memorandum"). The FP
Bancorp Memorandum required improved supervision of FPNB by FP Bancorp. It also
prohibited certain actions by the Board of Directors of FP Bancorp, including
(i) payment of dividends without at least 15 days prior notice to the FRB, (ii)
incurring additional indebtedness without at least 15 days prior notice to the
FRB and (iii) repurchasing outstanding stock without prior approval of the FRB.

The FRB conducted an examination of FP Bancorp during February 1996. Based on
the results of this examination, the FRB terminated the FP Bancorp Memorandum
effective April 18, 1996.


19) SUBSEQUENT EVENTS

On January 7, 1997, the Company announced that FPNB has received approval from
the OCC for the acquisition of the Wells Fargo Bank Valley Center Branch located
in Valley Center in San Diego County, California. The transaction is expected to
be completed in early 1997.


20) PARENT COMPANY CONDENSED FINANCIAL INFORMATION

FP Bancorp, Inc.
Condensed Balance Sheets

<TABLE>
<CAPTION>
                                                         December 31,

ASSETS                                              1996            1995
----------------------------------------------------------------------------
<S>                                             <C>              <C>
Cash                                            $ 1,909,000      $ 2,220,000
Investment in subsidiary                         23,706,000       19,019,000
Other assets                                        160,000          480,000
----------------------------------------------------------------------------
Total assets                                    $25,775,000      $21,719,000
----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------
Accrued expenses and other liabilities          $   222,000      $   311,000
Convertible subordinated debentures               4,575,000        4,575,000
Stockholders' equity                             20,978,000       16,833,000
----------------------------------------------------------------------------
Total liabilities and stockholders' equity      $25,775,000      $21,719,000
============================================================================
</TABLE>


FP Bancorp, Inc.
Condensed Statements of Earnings

<TABLE>
<CAPTION>
                                                                      Years ended December 31,
                                                               1996             1995             1994
-------------------------------------------------------------------------------------------------------
<S>                                                       <C>               <C>               <C>
Other income                                              $   117,000       $   109,000       $  24,000
Interest expense                                             (483,000)         (483,000)       (412,000)
Operating expense                                            (291,000)         (531,000)       (224,000)
-------------------------------------------------------------------------------------------------------
Loss before income taxes and equity in undistributed
  net earnings of subsidiary                                 (657,000)         (905,000)       (612,000)
Equity in undistributed net earnings of subsidiary          4,865,000         2,816,000         944,000
-------------------------------------------------------------------------------------------------------
Net earnings                                              $ 4,208,000       $ 1,911,000       $ 332,000
=======================================================================================================
</TABLE>


                                      F-23
<PAGE>   56
20) PARENT COMPANY CONDENSED FINANCIAL INFORMATION (CONTINUED)

FP Bancorp, Inc.
Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                         Years ended December 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                1996              1995               1994
---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S>                                                                         <C>               <C>               <C>
Net earnings                                                                $ 4,208,000       $ 1,911,000       $   332,000
Adjustments to reconcile net earnings to net cash
  used in operating activities:
Equity in undistributed net earnings of subsidiary                           (4,865,000)       (2,816,000)         (944,000)
Amortization of debenture issuance costs                                         72,000            72,000            71,000
Net decrease (increase) in other assets                                         248,000          (155,000)         (161,000)
Increase (decrease) in accrued expenses and other liabilities                   (89,000)           87,000           (84,000)
---------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities                                          (426,000)         (901,000)         (786,000)
---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease in receivable from ESOP                                                100,000            33,000            34,000
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities                                       100,000            33,000            34,000
---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from private offering                                                  -                 -           3,034,000
Proceeds from exercise of stock options                                          15,000            15,000               -
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                        15,000            15,000         3,034,000
---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash                                                (311,000)         (853,000)        2,282,000
Cash at beginning of year                                                     2,220,000         3,073,000           791,000
---------------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                         $ 1,909,000       $ 2,220,000       $ 3,073,000
===========================================================================================================================
Supplemental disclosure of cash flow information: Cash paid for:
Interest                                                                    $   412,000       $   412,000       $   412,000
Income taxes                                                                $    33,000       $     1,000       $     1,000
===========================================================================================================================

Supplemental disclosure of noncash investing and financing activities:
Change in net unrealized gains (losses) on investment
  securities available-for-sale                                             $  (178,000)      $   799,000       $  (515,000)
===========================================================================================================================
Common stock issued in merger                                                       -         $ 4,255,000       $       -
===========================================================================================================================
</TABLE>


                                      F-24
<PAGE>   57
21) QUARTERLY EARNINGS

The following is a summary of the Company's quarterly earnings:

<TABLE>
<CAPTION>
                                                           Three months ended
--------------------------------------------------------------------------------------------------
1996                                  December 31      September 30       June 30        March 31
--------------------------------------------------------------------------------------------------
<S>                                   <C>               <C>             <C>             <C>
Interest income                       $ 6,315,000       $5,874,000      $5,631,000      $4,423,000
Interest expense                        1,828,000        1,778,000       1,618,000       1,293,000
Net interest income before
  provision for loan losses             4,487,000        4,096,000       4,013,000       3,130,000
Provision for loan losses                 150,000          150,000         150,000         250,000
Net interest income after
  provision for loan losses             4,337,000        3,946,000       3,863,000       2,880,000
Other operating income                    808,000          492,000         483,000         376,000
Other operating expenses                3,798,000        3,474,000       3,816,000       2,811,000
Earnings before income taxes            1,347,000          964,000         530,000         445,000
Net income taxes (benefit)               (340,000)           5,000         978,000         279,000
Net earnings                            1,007,000          969,000       1,508,000         724,000
Primary earnings per share            $       .37       $      .36      $      .55      $      .27
Fully diluted earnings per share      $       .32       $      .32      $      .48      $      .22
--------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                              Three months ended
--------------------------------------------------------------------------------------------------
1995                                  December 31      September 30       June 30        March 31
--------------------------------------------------------------------------------------------------
<S>                                   <C>               <C>             <C>             <C>
Interest income                       $ 4,573,000       $4,421,000      $4,595,000      $3,486,000
Interest expense                        1,338,000        1,298,000       1,269,000       1,049,000
Net interest income before
  provision for loan losses             3,235,000        3,123,000       3,326,000       2,437,000
Provision for loan losses                 500,000          100,000             -               -
Net interest income after
  provision for loan losses             2,735,000        3,023,000       3,326,000       2,437,000
Other operating income                    471,000          480,000         462,000         393,000
Other operating expenses                3,356,000        3,300,000       3,043,000       2,545,000
Earnings before income taxes             (150,000)         203,000         745,000         285,000
Net income tax benefit                    606,000          222,000             -               -
Net earnings                              456,000          425,000         745,000         285,000
Primary earnings per share            $       .17       $      .16      $      .28      $      .16
Fully diluted earnings per share      $       .15       $      .11      $      .27      $      .16
--------------------------------------------------------------------------------------------------
</TABLE>


                                      F-25
<PAGE>   58



                                    PART III

             The Registrant intends to file with the Securities and Exchange
Commission a definitive proxy statement pursuant to Regulation 14A, which will
involve the election of directors, within 120 days of the end of the fiscal year
covered by this Form 10-KSB (the "Proxy Statement").

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

             In response to this item, Registrant hereby incorporates by
reference the "Proposal II--Election of Directors" portion of the Proxy
Statement for the Annual Meeting of Stockholders to be held on May 27, 1997.

ITEM 10.     EXECUTIVE COMPENSATION.

             In response to this item, Registrant hereby incorporates by
reference the "Director Remuneration, Executive Officers, and Executive
Compensation" subparts of the "Proposal II--Election of Directors" portion of
the Proxy Statement for the Annual Meeting of Stockholders to be held on May 27,
1997.

ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

             In response to this item, Registrant hereby incorporates by
reference the "Securities Ownership of Officers, Directors and Others" subpart
of the "Proposal II--Election of Directors" portion of the Proxy Statement for
the Annual Meeting of Stockholders to be held on May 27, 1997.

ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

             In response to this item, Registrant hereby incorporates by
reference the "Certain Transactions" subparts of the "Proposal II--Election of
Directors" portion of the Proxy Statement for the Annual Meeting of Stockholders
to be held on May 27, 1997.

ITEM 13.     EXHIBITS LIST AND REPORTS ON FORM 8-K.

             (a)  Exhibits

             3.1      FP Bancorp, Inc. Certificate of Incorporation and
                      Amendment (incorporated by reference to Exhibit 3.1 to
                      report of FP Bancorp on Form 10-KSB for the year ended
                      December 31, 1994, File Number 0-17650)

             3.2      FP Bancorp, Inc. By-laws (incorporated by reference to
                      Exhibit 3.2 to report of FP Bancorp on Form 10-KSB for the
                      year ended December 31, 1994, File Number 0-17650)

             4.1      Indenture dated November 9, 1992 (including form of
                      Debenture) (incorporated by reference to Exhibit 4.2 to
                      the Registration Statement on Form S-2, File Number
                      33-52086)

             4.2      Trust Agreement (incorporated by reference to Exhibit 4.3
                      to the Registration Statement on Form S-2, File Number
                      33-52086)

             10.1     Escondido National Bank Plaza Lease dated January 4, 1984,
                      between Grand Avenue Financial Center Partnership and
                      Escondido National Bank, as Amended



                                     III-1
<PAGE>   59

                      (Current Principal Offices of FP Bancorp, Inc. and First
                      Pacific National Bank located at 613 West Valley Parkway,
                      Escondido, California 92025-4929) (incorporated by
                      reference to Exhibit 10.1 to the Registration Statement on
                      Form S-4, File No. 33-87388)

             10.2     Amendment to Escondido National Bank Plaza Lease
                      (incorporated by reference to Exhibit 10.2 to the Form
                      10-KSB of the Company for the year ended December 31,
                      1995, File Number 0-17650)

             10.3*    Amended and Restated 1988 Stock Option Plan of ENB Holding
                      Company as Amended (incorporated by reference to Exhibit A
                      to the Company's Proxy Statement for the Annual Meeting of
                      Stockholders held May 21, 1996)

             10.4     Lease Between Lake San Marcos Properties and San Marcos
                      National Bank dated August 9, 1988 (incorporated by
                      reference to Exhibit 10.9 to the Registration Statement on
                      Form S-1, File Number 33-33628)

             10.5     Standard Multi-Tenant Lease between Overland Bank and E.
                      E. Espinas, M.D., trustee of the E. E. Espinas, M.D.,
                      Inc., Retirement Trust executed August 30, 1977
                      (incorporated by reference to Exhibit 10.15 to the
                      Registration Statement on Form S-4, File No. 33-87388)

             10.6     Office Building Lease between Overland Bank and AARK/Park
                      Joint Venture (incorporated by reference to Exhibit 10.14
                      to the Registration Statement on Form S-4, File No.
                      33-87388)

             10.7     Overland Bank Series A Warrant Agreement (incorporated by
                      reference to Exhibit 10.16 to the Registration Statement
                      on Form S-4, File No. 33-87388)

             10.8*    Employment Agreement Dated March 1, 1993 between Escondido
                      National Bank, ENB Holding Company and Harvey L.
                      Williamson (incorporated by reference to Exhibit 10.5 to
                      the Form 10-KSB of ENB Holding Company for the Year Ended
                      December 31, 1993, File Number 0-17650)

             10.9*    Amendment to Employment Agreement dated December 30, 1994
                      between First Pacific National Bank and Harvey L.
                      Williamson (incorporated by reference to Exhibit 10.20 to
                      the Registration Statement on Form S-4, File No. 33-87388)

             10.10*   Change of Control Agreement between Harvey L. Williamson
                      and First Pacific National Bank dated January 20, 1994
                      (incorporated by reference to Exhibit 10.12 to the Form
                      10-KSB of ENB Holding Company for the Year Ended December
                      31, 1993, File Number 0-17650)

             10.11*   Amendment to Change of Control Agreement between Harvey L.
                      Williamson and First Pacific National Bank dated January
                      11, 1995 (incorporated by reference to Exhibit 10.17 to
                      the Registration Statement on Form S-4, File No. 33-87388)

             10.12*   Change of Control Agreement between Gary W. Deems and
                      First Pacific National Bank dated January 20, 1994
                      (incorporated by reference to Exhibit 10.13 to the Form
                      10-KSB of ENB Holding Company for the Year Ended December
                      31, 1993, File Number 0-17650)


                                     III-2
<PAGE>   60


             10.13*   Amendment to Change of Control Agreement between Gary W.
                      Deems and First Pacific National Bank dated January 11,
                      1995 (incorporated by reference to Exhibit 10.18 to the
                      Registration Statement on Form S-4, File No. 33-87388)

             10.14*   Change of Control Agreement between Michael J. Perdue and
                      First Pacific National Bank dated January 20, 1994
                      (incorporated by reference to Exhibit 10.14 to the Form
                      10-KSB of ENB Holding Company for the Year Ended December
                      31, 1993, File Number 0-17650)

             10.15*   Amendment to Change of Control Agreement between Michael
                      J. Perdue and First Pacific National Bank dated January
                      11, 1995 (incorporated by reference to Exhibit 10.19 to
                      the Registration Statement on Form S-4, File No. 33-87388)

             10.16*   ENB Holding Company Employee Stock Ownership Plan
                      (incorporated by reference to Exhibit 10.16 to the Form
                      10-KSB of ENB Holding Company for the Year Ended December
                      31, 1990, File No. 0-17650)

             10.17*   1996 Senior Management Incentive Compensation Plan
                      (incorporated by reference to Exhibit 10.21 to
                      Registrant's Annual Report on Form 10-KSB for its fiscal
                      year ended December 31, 1995)

             10.18*   1997 Management Incentive Compensation Plan

             10.19    Agreement and Plan of Reorganization by and among FP
                      Bancorp, Inc., First Pacific National Bank, RB Bancorp and
                      Bank of Rancho Bernardo dated as of January 12, 1996
                      (incorporated by reference to Exhibit 10.22 to
                      Registrant's Annual Report on Form 10-KSB for its fiscal
                      year ended December 31, 1995)

             10.20    Purchase and Assumption Agreement dated as of October 15,
                      1996, between Wells Fargo Bank, N.A. and First Pacific
                      National Bank

             10.21    Lease between Palomar Village Properties, Inc., a
                      California corporation, and First Pacific National Bank
                      dated February 29, 1996

             11       Statement re computation of per share earnings

             21       FP Bancorp, Inc. Subsidiaries (incorporated by reference
                      to Exhibit 21 to the Form 10-KSB of FP Bancorp for the
                      year ended December 31, 1994, File Number 0-17650)

             23       Consent of KPMG Peat Marwick LLP

             24       Power of Attorney (included in signature page)
             ----------------------------
             * Denotes a management contract or compensatory arrangement.

             (b)  Reports on Form 8-K

                  No reports on Form 8-K were filed during the Registrant's
                  quarter ended December 31, 1996.


                                     III-3
<PAGE>   61



                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date: March 26, 1997                FP BANCORP, INC.
                                    (Registrant)

                                     By:   /s/ Harvey L. Williamson
                                           -------------------------------------
                                           Harvey L. Williamson,
                                           President and Chief Executive Officer


    Know all men by these presents, that each person whose signature appears
below constitutes and appoints Harvey L. Williamson and Michael J. Perdue, or
either of them, his attorney-in-fact, each with power of substitution for him in
any and all capacities, to sign any amendments to this Annual Report on Form
10-KSB and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
ratifies and confirms all that each said attorney-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-KSB has been signed by the following persons in the
capacities and on the dates indicated.


<TABLE>
<CAPTION>
             NAME                    CAPACITY                          DATE
             ----                    --------                          ----


<S>                           <C>                                <C>
/s/ Mark N. Baker             Director                           March 26, 1997
---------------------------
Mark N. Baker

/s/ Gary W. Deems             Director, Chief Administrative     March 26, 1997
Gary W. Deems                 Officer and Executive Vice
                              President

/s/ Earle W. Frey, Jr.        Director                           March 26, 1997
---------------------------
Earle W. Frey, Jr.

/s/ Robert W. Klemme          Director                           March 26, 1997
---------------------------
Robert W. Klemme

/s/ Joseph J. Kuebler         Director                           March 26, 1997
---------------------------
Joseph J. Kuebler

/s/ Randall C. Luce           Director                           March 26, 1997
---------------------------
Randall C. Luce

/s/ Larry R. Markham          Director                           March 26, 1997
---------------------------
Larry R. Markham

/s/ Richard W. McBride        Director                           March 26, 1997
---------------------------
Richard W. McBride
</TABLE>


                                     III-4

<PAGE>   62





<TABLE>
<S>                               <C>                                <C>
/s/ Michael J. Perdue             Director, Chief Financial          March 26, 1997
----------------------------      Officer and Executive Vice
Michael J. Perdue                 President (Principal Financial
                                  Officer and Principal
                                  Accounting Officer)


/s/ Richard S. Spanjian           Director                           March 26, 1997
----------------------------
Richard S. Spanjian

/s/ Robert M. Spanjian            Director                           March 26, 1997
----------------------------
Robert M. Spanjian

/s/ Richard B. Thomas             Director                           March 26, 1997
----------------------------
Richard B. Thomas

/s/ Michael W. Wexler             Director                           March 26, 1997
----------------------------
Michael W. Wexler

/s/ Harvey L. Williamson          Director, Chief Executive          March 26, 1997
----------------------------      Officer (Principal Executive
Harvey L. Williamson              Officer)
</TABLE>




                                     III-5

<PAGE>   63



                                  EXHIBIT LIST


<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----

<S>      <C>                                                                              <C>
  3.1    FP Bancorp, Inc. Certificate of Incorporation and Amendment
         (incorporated by reference to Exhibit 3.1 to report of FP Bancorp on
         Form 10-KSB for the year ended December 31, 1994, File Number 0-17650)

  3.2    FP Bancorp, Inc. By-laws (incorporated by reference to Exhibit 3.2 to
         report of FP Bancorp on Form 10-KSB for the year ended December 31,
         1994, File Number 0-17650)

  4.1    Indenture dated November 9, 1992 (including form of Debenture)
         (incorporated by reference to Exhibit 4.2 to the Registration Statement
         on Form S-2, File Number 33-52086)

  4.2    Trust Agreement (incorporated by reference to Exhibit 4.3 to the
         Registration Statement on Form S-2, File Number 33-52086)

  10.1   Escondido National Bank Plaza Lease dated January 4, 1984, between
         Grand Avenue Financial Center Partnership and Escondido National Bank,
         as Amended (Current Principal Offices of FP Bancorp, Inc. and First
         Pacific National Bank located at 613 West Valley Parkway, Escondido,
         California 92025-4929) (incorporated by reference to Exhibit 10.1 to
         the Registration Statement on Form S-4, File No. 33-87388)

  10.2   Amendment to Escondido National Bank Plaza Lease (incorporated by
         reference to Exhibit 10.2 to the Form 10-KSB of the Company for the
         year ended December 31, 1995, File Number 0-17650)

  10.3*  Amended and Restated 1988 Stock Option Plan of ENB Holding Company as
         Amended (incorporated by reference to Exhibit A to the Company's Proxy
         Statement for the Annual Meeting of Stockholders held May 21, 1996)

  10.4   Lease Between Lake San Marcos Properties and San Marcos National Bank
         dated August 9, 1988 (incorporated by reference to Exhibit 10.9 to the
         Registration Statement on Form S-1, File Number 33-33628)

  10.5   Standard Multi-Tenant Lease between Overland Bank and E. E. Espinas,
         M.D., trustee of the E. E. Espinas, M.D., Inc., Retirement Trust
         executed August 30, 1977 (incorporated by reference to Exhibit 10.15 to
         the Registration Statement on Form S-4, File No. 33-87388)

  10.6   Office Building Lease between Overland Bank and AARK/Park Joint Venture
         (incorporated by reference to Exhibit 10.14 to the Registration
         Statement on Form S-4, File No. 33-87388)

  10.7   Overland Bank Series A Warrant Agreement (incorporated by reference to
         Exhibit 10.16 to the Registration Statement on Form S-4, File No.
         33-87388)

  10.8*  Employment Agreement Dated March 1, 1993 between Escondido National
         Bank, ENB Holding Company and Harvey L. Williamson (incorporated by
         reference to Exhibit 10.5 to the Form 10-KSB of ENB Holding Company for
         the Year Ended December 31, 1993, File Number 0-17650)
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<S>      <C>                                                                              <C>
  10.9*  Amendment to Employment Agreement dated December 30, 1994 between First
         Pacific National Bank and Harvey L. Williamson (incorporated by
         reference to Exhibit 10.20 to the Registration Statement on Form S-4,
         File No. 33-87388)

  10.10* Change of Control Agreement between Harvey L. Williamson and First
         Pacific National Bank dated January 20, 1994 (incorporated by reference
         to Exhibit 10.12 to the Form 10-KSB of ENB Holding Company for the Year
         Ended December 31, 1993, File Number 0-17650)

  10.11* Amendment to Change of Control Agreement between Harvey L. Williamson
         and First Pacific National Bank dated January 11, 1995 (incorporated by
         reference to Exhibit 10.17 to the Registration Statement on Form S-4,
         File No. 33-87388)

  10.12* Change of Control Agreement between Gary W. Deems and First Pacific
         National Bank dated January 20, 1994 (incorporated by reference to
         Exhibit 10.13 to the Form 10-KSB of ENB Holding Company for the Year
         Ended December 31, 1993, File Number 0-17650)

  10.13* Amendment to Change of Control Agreement between Gary W. Deems and
         First Pacific National Bank dated January 11, 1995 (incorporated by
         reference to Exhibit 10.18 to the Registration Statement on Form S-4,
         File No. 33-87388)

  10.14* Change of Control Agreement between Michael J. Perdue and First Pacific
         National Bank dated January 20, 1994 (incorporated by reference to
         Exhibit 10.14 to the Form 10-KSB of ENB Holding Company for the Year
         Ended December 31, 1993, File Number 0-17650)

  10.15* Amendment to Change of Control Agreement between Michael J. Perdue and
         First Pacific National Bank dated January 11, 1995 (incorporated by
         reference to Exhibit 10.19 to the Registration Statement on Form S-4,
         File No. 33-87388)

  10.16* ENB Holding Company Employee Stock Ownership Plan (incorporated by
         reference to Exhibit 10.16 to the Form 10-KSB of ENB Holding Company
         for the Year Ended December 31, 1990, File No.
         0-17650)

  10.17* 1996 Senior Management Incentive Compensation Plan (incorporated by
         reference to Exhibit 10.21 to Registrant's Annual Report on Form 10-KSB
         for its fiscal year ended December 31, 1995)

  10.18* 1997 Management Incentive Compensation Plan

  10.19  Agreement and Plan of Reorganization by and among FP Bancorp, Inc.,
         First Pacific National Bank, RB Bancorp and Bank of Rancho Bernardo
         dated as of January 12, 1996 (incorporated by reference to Exhibit
         10.22 to Registrant's Annual Report on Form 10-KSB for its fiscal year
         ended December 31, 1995)

  10.20  Purchase and Assumption Agreement dated as of October 15, 1996, between
         Wells Fargo Bank, N.A. and First Pacific National Bank

  10.21  Lease between Palomar Village Properties, Inc., a California
         corporation, and First Pacific National Bank dated February 29, 1996

  11     Statement re computation of per share earnings
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  21     FP Bancorp, Inc. Subsidiaries (incorporated by reference to Exhibit 21
         to the Form 10-KSB of FP Bancorp for the year ended December 31, 1994,
         File Number 0-17650)

  23     Consent of KPMG Peat Marwick LLP

  24     Power of Attorney (included in signature page)
  ----------------------------
  * Denotes a management contract or compensatory arrangement.
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