United States
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                    FORM 10-K
                                   (Mark One)
              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year ended December 31, 1999

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

            For the transition period from ___________ to ___________

                         Commission File Number 0-11771

                              SJNB Financial Corp.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          California                                77-0058227
-------------------------------              -----------------------
(State or other jurisdiction of                 (I.R.S. Employer
 incorporation or organization)                Identification No.)

ONE NORTH MARKET STREET, SAN JOSE, CALIFORNIA                              95113
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code: (408) 947-7562

Securities registered pursuant to Section 12(b) of the Act:  NONE

      Securities registered pursuant to Section 12(g) of the Exchange Act:
                           Common Stock, no par value
--------------------------------------------------------------------------------
                                (Title of class)

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not 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-K or any amendment to this
Form 10-K. [ X ]

The aggregate market value of the voting common equity held by non-affiliates of
the  registrant,  based on a market value of $29.00 per share (the closing price
of the Common Stock, as of February 29, 2000) was $85,774,000

Number of shares of common stock outstanding as of February 29, 2000:  3,617,408
shares

                      Documents incorporated by reference:

Portions of the  registrant's  definitive  proxy statement for the  registrant's
2000 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A) are
incorporated by reference into Part III of this Report.
<PAGE>

                                TABLE OF CONTENTS

PART I

                                                                            Page
     Item 1 - Business                                                         3

     Item 2 - Properties                                                      12

     Item 3 - Legal Proceedings                                               13

     Item 4 - Submission of Matters to a Vote of Security Holders             13

PART II

     Item 5 - Market for Registrant's Common Equity and Related Stockholder
              Matters                                                         13

     Item 6 - Selected Financial Data                                         14

     Item 7 - Management's Discussion and Analysis of Financial Condition and
              Results of Operation                                            16

     Item 7A- Quantitative and Qualitative Disclosures about Market Risk      34

     Item 8 - Financial Statements and Supplementary Data                     35

     Item 9 - Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure                                        63

PART III

     Item 10- Directors and Executive Officers of the Registrant              63

     Item 11- Executive Compensation                                          63

     Item 12- Security Ownership of Certain Beneficial Owners and Management  63

     Item 13- Certain Relationships and Related Transactions                  63

PART IV

     Item 14- Exhibits, Financial Statement Schedules and Reports on
              Form 8-K                                                        63

SIGNATURES                                                                    66
<PAGE>
                                     PART I

ITEM 1.  BUSINESS
-----------------

Forward-Looking Information

This Annual Report on Form 10-K includes  forward-looking  information  which is
subject to the "safe  harbor"  created by Section 27A of the  Securities  Act of
1933,  as amended,  and Section 21E of the  Securities  Exchange Act of 1934, as
amended.  These  forward-looking  statements (which involve the Company's plans,
beliefs and goals,  refer to estimates  or use similar  terms)  involve  certain
risks and  uncertainties  that could cause actual  results to differ  materially
from  those in the  forward-looking  statements.  Such  risks and  uncertainties
include, but are not limited to, the following factors:  competitive pressure in
the banking industry;  changes in the interest rate  environment;  the declining
health of the economy,  either  nationally or regionally;  the  deterioration of
credit  quality,  which could cause an  increase in the  provision  for loan and
lease  losses;  changes  in the  regulatory  environment;  changes  in  business
conditions,  particularly  in Santa  Clara  County  real  estate  and high  tech
industries;  certain  operational  risks  involving data  processing  systems or
fraud; volatility of rate sensitive deposits; asset/liability matching risks and
liquidity  risks.  The Company  undertakes  no  obligation to revise or publicly
release the results of any  revision to these  forward-looking  statements.  See
also the section included herein entitled  "Certain  Additional  Business Risks"
and other risk factors discussed elsewhere in this Report.


General
-------

SJNB Financial Corp. (the "Company") is a bank holding company  registered under
the Bank Holding  Company Act of 1956, as amended (the "BHCA").  The Company was
incorporated  under the laws of the State of California  on April 18, 1983.  Its
principal  office is located at One North Market  Street,  San Jose,  California
95113, and its telephone number is (408) 947-7562.

The Company owns 100% of the issued and  outstanding  common  shares of San Jose
National  Bank  (referred  to  herein as  "SJNB"  or "the  Bank").  The Bank was
incorporated  on  November  23,  1981  and  commenced   business  in  San  Jose,
California,  on June 10, 1982.  SJNB engages in the general  commercial  banking
business  with  special  emphasis  on the  banking  needs  of the  business  and
professional communities in San Jose and the surrounding areas.

On January 2, 1996, the Bank acquired Astra  Financial  Corp. for  approximately
$760,000.  Its business was merged into the Bank's Financial  Services Division,
by adding  approximately $1.9 million of factored  receivables.  Astra Financial
Corp. was liquidated on January 5, 1996, and its assets were  transferred to the
Bank.  The Bank's  Financial  Services  Division  is located at 95 South  Market
Street, San Jose, California 95113.

On May 22,  1998,  SJNB  acquired  all of the stock of a private  company,  Epic
Funding Corporation ("Epic"), pursuant to a definitive agreement dated April 13,
1998. In connection  with the  acquisition,  which was  structured as a tax-free
reorganization,  the Company  issued  12,223 shares of its common stock and paid
$110,000 to Epic's sole  shareholder  in exchange for all of Epic's  outstanding
stock.  The total purchase price for Epic was $611,000,  while Epic's net equity
was $28,000.  Goodwill  amounted to $759,000,  including certain expenses of the
transaction.  Epic  provides  direct  and vendor  lease  programs  and  accounts
receivable financing to manufacturers and equipment users throughout  California
and across parts of the United States. Epic is now a wholly-owned  subsidiary of
the Bank.  Epic's  office is located in Danville,  California,  together  with a
small de novo  branch of the Bank at the same  facility,  which  opened  July 1,
1998.

On January 5, 2000,  Saratoga  Bancorp,  the parent company of Saratoga National
Bank,  was merged  with and into the  Company,  pursuant  to an  exchange of the
Company's  common  stock for all  common  stock of  Saratoga  Bancorp.  Saratoga
National Bank,  headquartered in Saratoga,  California,  operated three branches
and as of the acquisition date had  approximately  $142 million in assets,  $103
million in deposits and $15 million in shareholders'  equity.  Saratoga National
Bank was  merged  with and into SJNB on January  5,  2000.  Saratoga's  San Jose
office,  which was located  near SJNB's San Jose  office was  consolidated  into
SJNB's San Jose  office as of January 28,  2000.  The  shareholders  of Saratoga
received 0.70 shares of the Company's common stock for each outstanding share of
Saratoga  common stock.  Based on the closing  price of the  Company's  stock on
January 5, 2000 of $29.125,  the  transaction is valued at  approximately  $34.2
million,  excluding  the value of any  unexercised  options,  and each  Saratoga
shareholder  received the equivalent of .70 of the Company's common stock valued
at  $20.39  per  share.  The  merger  has been  accounted  for as a  pooling  of
interests.  See unaudited pro forma combined condensed financial  information as
if the  transaction  had taken place as of December  31, 1999 on page 62 of this
Report.

SJNB accepts checking and savings deposits, offers money market deposit accounts
and  certificates of deposit,  makes secured and unsecured  commercial and other
installment and term loans and offers other  customary  banking  services.  SJNB
offers banking services generally, but it places primary emphasis on lending for
real estate  purposes and specialized  lending to businesses and  professionals.
Loans for real estate purposes include term financing for commercial  facilities
and real  estate  construction  loans  mainly  for  residential  and  commercial
properties.  Loans to businesses and professionals  include accounts  receivable
financing,  equipment  financing,  commercial  loans,  SBA loans and  letters of
credit. The Company provides commercial banking,  factoring and leasing services
principally  through the Bank, the Bank's Financial  Services Division and Epic.
Although the Bank has neither a trust nor an international  banking  department,
it has arranged to provide these services through its correspondent  banks. As a
bank holding  company,  the Company is  authorized  to engage in the  activities
permitted under the BHCA and regulations thereunder.


Service Area
------------

The  principal  service area of SJNB  includes the County of Santa Clara and its
contiguous counties,  including San Mateo, Alameda, Contra Costa, Santa Cruz and
San Benito.


Employees
---------

At December 31, 1999,  SJNB had 110  full-time  officers  and  employees  and 25
part-time  employees  for a total of 99.08  employees on a full-time  equivalent
basis (125,  28, and 112.85,  respectively,  subsequent  to the  acquisition  of
Saratoga). Certain of the Bank's officers are also officers of the Company. None
of the Bank's  employees are  represented by a union.  Management  believes that
employee relations are good.


Supervision and Regulation
--------------------------

     The Effect of Government Policy on Banking

The  earnings  and growth of the Company are  affected  not only by local market
area factors and general economic  conditions,  but also by government  monetary
and fiscal policies.  For example, the Board of Governors of the Federal Reserve
System ("FRB") influences the supply of money through its open market operations
in U.S.  Government  securities and adjustments to the discount rates applicable
to borrowings by depository  institutions and others. Such actions influence the
growth of loans, investments and deposits and also affect interest rates charged
on loans and paid on deposits.  The nature and impact of future  changes in such
policies  on the  business  and  earnings of the  Company  cannot be  predicted.
Additionally, state and federal tax policies can impact banking organizations.

As a consequence of the extensive regulation of commercial banking activities in
the United States,  the business of the Company is  particularly  susceptible to
being affected by the enactment of federal and state  legislation which may have
the effect of  increasing or decreasing  the cost of doing  business,  modifying
permissible  activities or enhancing the competitive position of other financial
institutions.  Any change in applicable  laws or regulations may have a material
adverse effect on the business and prospects of the Company.

     Regulation and Supervision of Bank Holding Companies

The Company is a bank holding company subject to the Bank Holding Company Act of
1956, as amended  ("BHCA").  The Company reports to,  registers with, and may be
examined  by, the FRB. The FRB also has the  authority to examine the  Company's
subsidiaries.  The  costs  of any  examination  by the  FRB are  payable  by the
Company.

On November 12, 1999 President  Clinton  signed into law the  Gramm-Leach-Bliley
Act, or the Financial Services Act of 1999 (the "FSA"),  which becomes effective
on March 11,  2000.  The FSA amends  certain  portions  of the BHCA,  subject to
conditions. See "Recently Enacted Legislation" below for more information.

The Company is a bank holding  company within the meaning of Section 3700 of the
California  Financial  Code.  As such,  the  Company and the Bank are subject to
examination  by,  and may be  required  to file  reports  with,  the  California
Commissioner of Financial Institutions (the "Commissioner").

The FRB has significant  supervisory  and regulatory  authority over the Company
and its affiliates.  The FRB requires the Company to maintain  certain levels of
capital.  See  "Capital  Standards."  The FRB  also  has the  authority  to take
enforcement  action against any bank holding  company that commits any unsafe or
unsound practice, or violates certain laws, regulations or conditions imposed in
writing  by the  FRB.  See  "Prompt  Corrective  Action  and  Other  Enforcement
Mechanisms."

Under the BHCA, a company  generally  must obtain the prior  approval of the FRB
before it exercises a controlling influence over a bank, or acquires directly or
indirectly, more than 5% of the voting shares or substantially all of the assets
of any bank or bank holding company. Thus, the Company is required to obtain the
prior approval of the FRB before it acquires,  merges or  consolidates  with any
bank or  bank  holding  company.  Any  company  seeking  to  acquire,  merge  or
consolidate with the Company also would be required to obtain the prior approval
of the FRB.

The Company is generally  prohibited under the BHCA from acquiring  ownership or
control of more than 5% of the voting  shares of any company  that is not a bank
or bank holding  company and from engaging  directly or indirectly in activities
other than banking,  managing banks, or providing  services to affiliates of the
holding company.  However, a bank holding company, with the approval of the FRB,
may engage,  or acquire the voting  shares of companies  engaged,  in activities
that the FRB has  determined to be so closely  related to banking or managing or
controlling  banks as to be a proper  incident  thereto.  A bank holding company
must demonstrate  that the benefits to the public of the proposed  activity will
outweigh the possible adverse effects associated with such activity.

A bank  holding  company may acquire  banks in states  other than its home state
without regard to the  permissibility of such acquisitions  under state law, but
subject to any state  requirement that the bank has been organized and operating
for a minimum period of time, not to exceed five years, and the requirement that
the bank  holding  company,  prior to or  following  the  proposed  acquisition,
controls no more than 10% of the total amount of deposits of insured  depository
institutions  in the United States and no more than 30% of such deposits in that
state (or such lesser or greater amount set by state law).  Banks may also merge
across states lines, therefore creating interstate branches. Furthermore, a bank
is now able to open new  branches in a state in which it does not  already  have
banking operations, if the laws of such state permit such de novo branching.

Under California law, (a) out-of-state banks that wish to establish a California
branch  office to conduct core banking  business  must first acquire an existing
five year old California  bank or industrial loan company by merger or purchase,
(b) California state-chartered banks are empowered to conduct various authorized
branch-like  activities on an agency basis through  affiliated and  unaffiliated
insured  depository  institutions  in  California  and other  states and (c) the
Commissioner is authorized to approve an interstate  acquisition or merger which
would result in a deposit concentration  exceeding 30% if the Commissioner finds
that the  transaction  is  consistent  with public  convenience  and  advantage.
However,  a state bank chartered in a state other than  California may not enter
California  by  purchasing a California  branch  office of a California  bank or
industrial loan company without  purchasing the entire entity or by establishing
a de novo California bank.

The FRB generally  prohibits a bank holding  company from  declaring or paying a
cash  dividend  which would impose undue  pressure on the capital of  subsidiary
banks or would be funded only through borrowing or other arrangements that might
adversely affect a bank holding company's financial  position.  The FRB's policy
is that a bank holding  company  should not  continue its existing  rate of cash
dividends on its common stock unless its net income is  sufficient to fully fund
each dividend and its prospective rate of earnings  retention appears consistent
with its capital needs, asset quality and overall financial  condition.  See the
section  entitled  "Restrictions  on  Dividends  and  Other  Distributions"  for
additional  restrictions  on the  ability  on the  Company  and the  Bank to pay
dividends.

Transactions  between  the Company and the Bank are subject to a number of other
restrictions. FRB policies forbid the payment by bank subsidiaries of management
fees which are  unreasonable  in amount or exceed the fair  market  value of the
services  rendered  (or, if no market  exists,  actual  costs plus a  reasonable
profit). Subject to certain limitations,  depository institution subsidiaries of
bank  holding  companies  may extend  credit to,  invest in the  securities  of,
purchase assets from, or issue a guarantee,  acceptance,  or letter of credit on
behalf of, an affiliate,  provided that the aggregate of such  transactions with
affiliates  may  not  exceed  10%  of  the  capital  stock  and  surplus  of the
institution,  and the aggregate of such transactions with all affiliates may not
exceed 20% of the capital stock and surplus of such institution. The Company may
only borrow from depository  institution  subsidiaries if the loan is secured by
marketable  obligations  with a value of a  designated  amount  in excess of the
loan.  Further,  the Company may not sell a  low-quality  asset to a  depository
institution subsidiary.

Comprehensive  amendments  to  Regulation Y  became  effective in 1997,  and are
intended to improve the  competitiveness  of bank  holding  companies  by, among
other things:  (i) expanding  the list of permissible  nonbanking  activities in
which  well-run bank holding  companies  may engage  without prior FRB approval,
(ii) streamlining  the procedures for well-run bank holding  companies to obtain
approval to engage in other nonbanking activities and (iii) eliminating  most of
the  anti-tying  restrictions  imposed  upon bank  holding  companies  and their
nonbank  subsidiaries.  Amended Regulation Y also provides for a streamlined and
expedited  review process for bank acquisition  proposals  submitted by well-run
bank holding companies and eliminates certain duplicative reporting requirements
when there has been a further  change in bank  control or in bank  directors  or
officers after an earlier  approved  change.  These changes to Regulation Y  are
subject to numerous qualifications, limitations and restrictions. In order for a
bank  holding  company  to  qualify  as  "well-run,"  both  it and  the  insured
depository  institutions that it controls must meet the  "well-capitalized"  and
"well-managed" criteria set forth in Regulation Y.

To  qualify  as  "well-capitalized,"   the  bank  holding  company  must,  on  a
consolidated  basis:  (i) maintain  a total  risk-based  capital ratio of 10% or
greater;  (ii) maintain a Tier 1 risk-based capital ratio of 6% or greater;  and
(iii) not be subject to any order by the FRB to meet a specified  capital level.
Its lead insured depository institution must be well-capitalized as that term is
defined in the capital  adequacy  regulations of the applicable  bank regulator,
80%  of  the  total   risk-weighted   assets  held  by  its  insured  depository
institutions must be held by institutions that are well-capitalized, and none of
its insured depository institutions may be undercapitalized.

To qualify as  "well-managed":  (i) each of the bank holding  company,  its lead
depository institution and its depository  institutions holding 80% of the total
risk-weighted  assets of all its  depository  institutions  at their most recent
examination  or  review  must have  received  a  composite  rating,  rating  for
management and rating for compliance which were at least satisfactory; (ii) none
of the bank holding company's  depository  institutions may have received one of
the two lowest composite ratings; and (iii) neither the bank holding company nor
any of its depository  institutions  during the previous 12 months may have been
subject to a formal enforcement order or action.

     Bank Regulation and Supervision

As a national bank, the Bank is regulated,  supervised and regularly examined by
the Office of the Comptroller of the Currency  ("OCC").  Deposit accounts at the
Bank are insured by Bank Insurance Fund ("BIF"),  as administered by the Federal
Deposit Insurance  Corporation ("FDIC"), to the maximum amount permitted by law.
The Bank is also subject to applicable  provisions of California law, insofar as
such  provisions  are not in conflict with or preempted by federal  banking law.
The Bank is a member of the  Federal  Reserve  System,  and is also  subject  to
certain regulations of the FRB dealing primarily with check clearing activities,
establishment   of   banking    reserves,    Truth-in-Lending    (Regulation Z),
Truth-in-Savings (Regulation DD), and Equal Credit Opportunity (Regulation B).

The OCC may  approve,  on a  case-by-case  basis,  the  entry of bank  operating
subsidiaries  into a business  incidental  to banking,  including  activities in
which the parent bank is not  permitted to engage.  A national bank is permitted
to engage in  activities  approved  for a bank  holding  company  through a bank
operating  subsidiary,  such as acting as an  investment  or financial  advisor,
leasing  personal  property and  providing  financial  advice to  customers.  In
general,  these activities are permitted only for well-capitalized or adequately
capitalized national banks.

     Capital Standards

The  federal  banking  agencies  have  risk-based  capital  adequacy  guidelines
intended to provide a measure of capital  adequacy  that  reflects the degree of
risk associated with a banking  organization's  operations for both transactions
reported on the  balance  sheet as assets and  transactions,  such as letters of
credit and recourse arrangements, which are recorded as off balance sheet items.
Under these  guidelines,  nominal dollar amounts of assets and credit equivalent
amounts  of off  balance  sheet  items are  multiplied  by one of  several  risk
adjustment  percentages,  which range from 0% for assets  with low credit  risk,
such as certain U.S. government  securities,  to 100% for assets with relatively
higher credit risk, such as certain loans.

In determining  the capital level the Bank is required to maintain,  the federal
banking agencies do not, in all respects,  follow generally accepted  accounting
principles  ("GAAP") and has special rules which have the effect of reducing the
amount of capital it will  recognize  for  purposes of  determining  the capital
adequacy of the Bank.

A banking organization's  risk-based capital ratios are obtained by dividing its
qualifying  capital  by its total  risk-adjusted  assets and off  balance  sheet
items. The regulators measure  risk-adjusted  assets and off balance sheet items
against both total  qualifying  capital  (the sum of Tier 1  capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common
stock, retained earnings,  noncumulative  perpetual preferred stock, other types
of qualifying  preferred stock and minority  interests in certain  subsidiaries,
less most other intangible assets and other  adjustments.  Net unrealized losses
on  available-for-sale  equity  securities with readily  determinable fair value
must be deducted in  determining  Tier 1 capital.  For Tier 1 capital  purposes,
deferred tax assets that can only be realized if an institution earns sufficient
taxable  income in the future are limited to the amount that the  institution is
expected to realize within one year, or ten percent of Tier 1 capital, whichever
is less.  Tier 2  capital may consist of a limited  amount of the  allowance for
loan and lease losses,  term preferred  stock and other types of preferred stock
not  qualifying  as Tier 1  capital,  term  subordinated  debt and certain other
instruments with some  characteristics  of equity.  The inclusion of elements of
Tier 2 capital are subject to certain other  requirements and limitations of the
federal banking  agencies.  The federal banking agencies require a minimum ratio
of qualifying total capital to risk-adjusted  assets and off balance sheet items
of 8%, and a minimum ratio of Tier 1 capital to adjusted  average  risk-adjusted
assets and off balance sheet items of 4%.

On October 1, 1998, the FDIC adopted two rules governing  minimum capital levels
that  FDIC-supervised  banks must  maintain  against the risks to which they are
exposed.  The first rule makes risk-based  capital standards  consistent for two
types of credit  enhancements  (i.e.,  recourse  arrangements  and direct credit
substitutes)  and  requires  different  amounts of capital  for  different  risk
positions in asset securitization transactions.  The second rule permits limited
amounts of unrealized  gains on debt and equity  securities to be recognized for
risk-based capital purposes as of September 1, 1998. The FDIC rules also provide
that a qualifying  institution  that sells small  business loans and leases with
recourse  must hold  capital only  against the amount of recourse  retained.  In
general,  a qualifying  institution  is one that is  well-capitalized  under the
FDIC's prompt  corrective  action rules. The amount of recourse that can receive
the preferential  capital treatment cannot exceed 15% of the institution's total
risk-based capital.

In addition to the risked-based guidelines, the federal banking agencies require
banking organizations to maintain a minimum amount of Tier 1 capital to adjusted
average total assets,  referred to as the leverage  capital ratio. For a banking
organization  rated in the highest of the five  categories  used to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets must
be 3%. It is improbable,  however,  that an institution with a 3% leverage ratio
would  receive  the  highest  rating  since  a  strong  capital  position  is  a
significant part of the regulators'  rating.  For all banking  organizations not
rated in the highest  category,  the minimum leverage ratio must be at least 100
to 200 basis points above the 3% minimum.  Thus, the effective  minimum leverage
ratio,  for all  practical  purposes,  must be at least 4% or 5%. In addition to
these  uniform  risk-based  capital  guidelines  and leverage  ratios that apply
across the  industry,  the  regulators  have the  discretion  to set  individual
minimum capital  requirements for specific  institutions at rates  significantly
above the minimum guidelines and ratios.

The following  tables  present the capital  ratios for the Company and the Bank,
compared to the standards for well-capitalized  depository  institutions,  as of
December 31, 1999.
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
(amounts in thousands, except percentages)                                                     Well              Minimum
                                                                Actual                     Capitalized           Capital
                                                 --------------------------------------
                  The Company                         Capital              Ratio              Ratio            Requirement
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>                  <C>                 <C>
Leverage                                              $34,971             8.36%                5.0%                4.0%
Tier 1 Risk-based                                      34,971             9.80                 6.0                 4.0
Total Risk-based                                       39,442            11.05                10.0                 8.0
                   The Bank
------------------------------------------------------------------------------------------------------------------------------------
Leverage                                              $33,421             7.99%                5.0%                4.0%
Tier 1 Risk-based                                      33,421             9.46                 6.0                 4.0
Total Risk-based                                       37,848            10.71                10.0                 8.0
</TABLE>

The federal  banking  agencies must take into  consideration  concentrations  of
credit  risk  and  risks  from  non-traditional   activities,   as  well  as  an
institution's ability to manage those risks, when determining the adequacy of an
institution's   capital.  This  evaluation  will  be  made  as  a  part  of  the
institution's  regular  safety and soundness  examination.  The federal  banking
agencies  must  also  consider  interest  rate  risk  (when  the  interest  rate
sensitivity  of an  institution's  assets does not match the  sensitivity of its
liabilities or its off-balance-sheet position) in evaluation of a bank's capital
adequacy.

     Prompt Corrective Action and Other Enforcement Mechanisms

The Federal  Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA")
requires each federal banking agency to take prompt corrective action to resolve
the problems of insured  depository  institutions,  including but not limited to
those that fall below one or more prescribed  minimum  capital  ratios.  The law
required  each federal  banking  agency to promulgate  regulations  defining the
following five  categories in which an insured  depository  institution  will be
placed,  based on the level of its capital ratios: well capitalized,  adequately
capitalized,  undercapitalized,  significantly  undercapitalized  and critically
undercapitalized.

Under the prompt corrective  action provisions of FDICIA, an insured  depository
institution  generally will be classified in the following  categories  based on
the capital measures indicated below:


Well capitalized                       Adequately capitalized
------------------------------------   ---------------------------------------
Total risk-based capital of 10%;       Total risk-based capital of 8%;
Tier 1 risk-based capital of 6%; and   Tier 1 risk-based capital of 4%; and
Leverage ratio of 5%.                  Leverage ratio of 4%.

Undercapitalized                       Significantly undercapitalized
------------------------------------   ---------------------------------------
Total risk-based capital               Total risk-based capital less than 6%;
     less than 8%;
Tier 1 risk-based capital              Tier 1 risk-based capital less than 3%;or
     less than 4%; or
Leverage ratio less than 4%.           Leverage ratio less than 3%.

Critically undercapitalized
------------------------------------
Tangible equity to total
     assets less than 2%.


An  institution  that,  based upon its capital  levels,  is  classified as "well
capitalized,"  "adequately  capitalized" or "undercapitalized" may be treated as
though it were in the next lower  capital  category if the  appropriate  federal
banking agency,  after notice and opportunity  for  hearing, determines  that an
unsafe or unsound  condition  or an unsafe or  unsound  practice  warrants  such
treatment.  At each successive  lower capital  category,  an insured  depository
institution is subject to more restrictions.

In addition to measures  taken under the prompt  corrective  action  provisions,
commercial banking organizations may be subject to potential enforcement actions
by the federal  banking  agencies for unsafe or unsound  practices in conducting
their businesses or for violations of any law, rule, regulation or any condition
imposed  in  writing by the agency or any  written  agreement  with the  agency.
Enforcement actions may include the imposition of a conservator or receiver, the
issuance  of a  cease-and-desist  order  that can be  judicially  enforced,  the
termination of insurance of deposits (in the case of a depository  institution),
the imposition of civil money penalties,  the issuance of directives to increase
capital, the issuance of formal and informal agreements, the issuance of removal
and   prohibition   orders  against   institution-affiliated   parties  and  the
enforcement of such actions through injunctions or restraining orders based upon
a  judicial  determination  that the  agency  would be harmed if such  equitable
relief was not granted.  Additionally, a holding company's inability to serve as
a source of strength to its subsidiary banking  organizations  could serve as an
additional basis for a regulatory action against the holding company.

     Safety and Soundness Standards

FDICIA also  implemented  certain  specific  restrictions  on  transactions  and
required  federal  banking  regulators  to adopt  overall  safety and  soundness
standards  for  depository   institutions  related  to  internal  control,  loan
underwriting  and  documentation  and asset growth.  Among other things,  FDICIA
limits the  interest  rates paid on deposits by  undercapitalized  institutions,
restricts  the use of brokered  deposits,  limits the  aggregate  extensions  of
credit by a depository institution to an executive officer, director,  principal
shareholder or related  interest,  and reduces  deposit  insurance  coverage for
deposits  offered  by  undercapitalized  institutions  for  deposits  by certain
employee benefits accounts.

The  federal  banking  agencies  may  require  an  institution  to  submit to an
acceptable  compliance  plan as well as the  flexibility  to pursue  other  more
appropriate or effective courses of action given the specific  circumstances and
severity of an institution's noncompliance with one or more standards.

     Restrictions on Dividends and Other Distributions

The power of the board of  directors  of an insured  depository  institution  to
declare a cash dividend or other distribution with respect to capital is subject
to statutory and regulatory  restrictions  which limit the amount  available for
such  distribution  depending  upon the earnings,  financial  condition and cash
needs  of the  institution,  as  well as  general  business  conditions.  FDICIA
prohibits  insured  depository  institutions  from paying management fees to any
controlling  persons  or,  with  certain  limited  exceptions,   making  capital
distributions,  including dividends, if, after such transaction, the institution
would be undercapitalized.

The Federal  Banking  agencies  also have the authority to prohibit a depository
institution  from  engaging in business  practices  which are  considered  to be
unsafe or unsound,  possibly  including  payment of dividends or other  payments
under certain  circumstances even if such payments are not expressly  prohibited
by statute.

The payment of dividends by a national bank is further  restricted by additional
provisions  of federal  law,  which  prohibit a national  bank from  declaring a
dividend  on its shares of common  stock  unless its  surplus  fund  exceeds the
amount of its common  capital  (total  outstanding  common  shares times the par
value per share). Additionally,  if losses have at any time been sustained equal
to or exceeding a bank's  undivided  profits then on hand, no dividend  shall be
paid.  Moreover,  even if a bank's  surplus  exceeded its common capital and its
undivided profits exceed its losses, the approval of the OCC is required for the
payment of dividends if the total of all  dividends  declared by a national bank
in any  calendar  year would  exceed  the total of its net  profits of that year
combined  with its retained  net profits of the two  preceding  years,  less any
required  transfers  to surplus or a fund for the  retirement  of any  preferred
stock. A national bank must consider other business  factors in determining  the
payment of  dividends.  The payment of  dividends by the Bank is governed by the
Bank's  ability to  maintain  minimum  required  capital  levels and an adequate
allowance  for loan  losses.  Regulators  also  have  authority  to  prohibit  a
depository  institution from engaging in business practices which are considered
to be unsafe or  unsound,  possibly  including  payment  of  dividends  or other
payments  under  certain  circumstances  even if such payment are not  expressly
prohibited by statute.

     Premiums for Deposit Insurance and Assessments for Examinations

FDICIA  established  several  mechanisms to increase  funds to protect  deposits
insured by the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC is
authorized to borrow up to $30 billion  from the United States  Treasury;  up to
90% of the fair market value of assets of  institutions  acquired by the FDIC as
receiver from the Federal Financing Bank; and from depository  institutions that
are  members of the BIF.  Any  borrowings  not  repaid by asset  sales are to be
repaid through insurance premiums assessed to member institutions. Such premiums
must be  sufficient  to repay any  borrowed  funds  within  15 years and provide
insurance fund reserves of $1.25 for each $100 of insured deposits.  FDICIA also
provides  authority  for  special  assessments  against  insured  deposits.   No
assurance can be given at this time as to what the future level of premiums will
be.

     Community Reinvestment Act and Fair Lending Developments

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

     Recently Enacted Legislation

On November 12, 1999 President  Clinton  signed into law the Financial  Services
Act of 1999 ("FSA"),  which becomes effective on March 11, 2000. The FSA repeals
provisions of the Glass-Steagall Act, which had prohibited  commercial banks and
securities  firms from  affiliating with each other and engaging in each other's
businesses.   Thus,  many  of  the  barriers  prohibiting  affiliations  between
commercial banks and securities firms have been eliminated.

The BHCA is also amended by the FSA to allow new "financial  holding  companies"
("FHC") to offer banking, insurance,  securities and other financial products to
consumers.  Specifically,  the FSA  amends  section  4 of the  BHCA in  order to
provide for a framework for the  engagement in new  financial  activities.  Bank
holding companies ("BHC") may elect to become a financial holding company if all
its subsidiary depository institutions are well-capitalized and well-managed. If
these  requirements  are met, a BHC may file a certification to that effect with
the FRB and declare that it elects to become a FHC. After the  certification and
declaration is filed, the FHC may engage either de novo or though an acquisition
in any activity that has been determined by the FRB to be financial in nature or
incidental to such financial activity.  BHCs may engage in financial  activities
without prior notice to the FRB if those  activities  qualify under the new list
in section 4(k) of the BHCA. However,  notice must be given to the FRB within 30
days after a FHC has commenced one or more of the financial activities.

Under the FSA, national banks (as well as FDIC-insured  state banks,  subject to
various  requirements) are permitted to engage through "financial  subsidiaries"
in certain financial activities  permissible for affiliates of FHCs. However, to
be  able  to  engage  in  such   activities  the  national  bank  must  also  be
well-capitalized  and well-managed and receive at least a "satisfactory"  rating
in its most recent Community  Reinvestment Act examination.  In addition, if the
national  bank  ranks as one of the top 50 largest  insured  banks in the United
States, it must have an issue of outstanding  long-term debt rated in one of the
50 highest rating  categories by an independent  rating agency.  If the national
bank falls within the next group of 50, it must either meet the debt rating test
described  above or satisfy a comparable  test jointly  agreed to by the FRB and
the Treasury Department.  No debt rating is required for any national bank, such
as the Bank, not within the top 100 largest  insured banks in the United States.
We do not have any such debt outstanding.

The Company  cannot be certain of the effect of the foregoing  recently  enacted
legislation on its business,  although there is likely to be consolidation among
financial services institutions and increased competition for the Company.

     Pending Legislation and Regulations

Certain pending legislative proposals include bills to let banks pay interest on
business checking  accounts,  to cap consumer  liability for stolen debit cards,
and to give judges the authority to force  high-income  borrowers to repay their
debts rather than cancel them through bankruptcy.

     Competition

In the past, an independent bank's principal  competitors for deposits and loans
have been other banks (particularly major banks),  savings and loan associations
and credit unions.  To a lesser extent,  competition was also provided by thrift
and  loans,   mortgage  brokerage  companies  and  insurance  companies.   Other
institutions,  such as  brokerage  houses,  mutual fund  companies,  credit card
companies,  and even retail  establishments have offered new investment vehicles
which also compete  with banks for deposit  business.  The  direction of federal
legislation in recent years seems to favor  competition  between different types
of financial institutions and to foster new entrants into the financial services
market, and it is anticipated that this trend will continue.

The  enactment  of the  Interstate  Banking  and  Branching  Act in 1994 and the
California   Interstate  Banking  and  Branching  Act  of  1995  have  increased
competition  within  California.  Regulatory reform, as well as other changes in
federal and  California  law will also affect  competition.  While the impact of
these  changes,  and  of  other  proposed  changes,  cannot  be  predicted  with
certainty,  it is clear that the business of banking in  California  will remain
highly competitive.

At present there are  approximately  382 banking  offices in the geographic area
served by SJNB,  including  offices of major chain  banks and other  independent
banks. There are also approximately 140 offices of savings banks. Of these there
are 231 offices of commercial  banks (and 86 offices of savings  banks) in Santa
Clara  County,  which is the principal  market area for the San Jose office.  In
addition,  there are 151 offices of commercial  banks (and 54 offices of savings
banks) in the  Danville  office's  primary  market area.  Total  deposits of the
combined  area are  approximately  $48 billion as of June 30, 1999, of which the
Bank has  approximately  a 0.7% share. In the San Jose's office market area, the
Bank's market share is approximately 1.07% of the deposits in that market.

Presently,  there are at least  seven  other  independent  banks in Santa  Clara
County.  Three of the independent  banks - Heritage Bank of Commerce,  Cupertino
National Bank (a subsidiary of Greater Bay Bancorp),  and Silicon  Valley Bank -
emphasize commercial banking services and, therefore,  create direct competition
for the services that SJNB offers to the business and  professional  communities
in its market area.

The Bank's  Financial  Services  Division and Epic also compete with many of the
major and independent banks within their respective  marketing areas. The Bank's
Financial  Services  Division and Epic also compete with companies solely in the
factoring or leasing  business.  Such  companies may offer products and services
which traditionally are not offered by banking institutions.


Certain Additional Business Risks
---------------------------------

The Company's business, financial condition, operating results and prospects can
be  impacted by a number of factors,  including,  but not limited to,  those set
forth in the  paragraphs  below.  Any one of these  stated risks could cause the
Company's  actual  results in the future to vary from the Company's  anticipated
future results.

Shares of Company  Common  Stock  eligible for future sale could have a dilutive
effect on the market for Company  Common  Stock and could  adversely  affect the
market price of the Common Stock.  The Articles of  Incorporation of the Company
authorize  the issuance of 20,000,000  shares of Common and 5,000,000  shares of
Preferred Stock, of which approximately 3,617,408 common shares and no preferred
shares were  outstanding at February 29, 2000  (subsequent to the acquisition of
Saratoga  Bancorp).  Pursuant  to  its  stock  option  plans,  the  Company  had
outstanding options to purchase an aggregate of 726,000 shares of Company Common
Stock at February 29, 2000  (adjusting for the Saratoga  Bancorp's  stock option
plans).  As of the same date,  236,000  shares of Company  Common Stock remained
available for option grants under the  Company's  stock option plans,  including
stock option plans of Saratoga Bancorp.

The Company has  previously  announced its intention to pursue  acquisitions  of
other financial  services companies from time to time when such acquisitions are
believed by the Company to enhance  shareholder value or satisfy other strategic
objectives of the Company. Other acquisitions,  if any, could be accomplished by
the issuance of additional  shares of Company  Common Stock or other  securities
convertible  into or  exercisable  for such Common Stock.  Sales of  substantial
amounts of Company Common Stock or  convertible  securities in the public market
or due to  acquisitions  could  adversely  affect the market price of the Common
Stock.

The loan and lease  portfolio of the Company is  dependent  on real  estate.  At
December 31, 1999, real estate served as the principal source of collateral with
respect  to  approximately  47% of the  Company's  loan and lease  portfolio.  A
worsening of current economic  conditions or rising interest rates could have an
adverse  effect on the demand for new loans,  the ability of  borrowers to repay
outstanding loans, the value of real estate and other collateral  securing loans
and the value of the available  for sale  investment  portfolio,  as well as the
Company's  financial  condition  and  results of  operations  in general and the
market  value  of  the  Company's  Common  Stock.  Acts  of  nature,   including
earthquakes and floods, which may cause uninsured damage and other loss of value
to real  estate  that  secures  these  loans,  may also  negatively  impact  the
Company's financial condition.

The Bank is subject to certain operational risks including,  but not limited to,
data processing  system failures and errors and customer or employee fraud.  The
Bank  maintains a system of internal  controls  which it believes  will mitigate
such occurrences and maintains insurance coverage for such risks. Should such an
event occur that was not prevented or detected by the Bank's  internal  controls
or that was uninsured or in excess of the applicable  insurance limits, it could
have a  significant  negative  impact on the  Company's  financial  condition or
results of operations.


Statistical Data
----------------

Certain  consolidated  statistical  information  concerning  the business of the
Company  appears on page 14,  under the caption  "Selected  Financial  Data;" on
pages 16 through 34, under the caption "Management's  Discussion and Analysis of
Financial  Condition  and Results of  Operation;"  on page 34, under the caption
"Quantitative  and Qualitative  Disclosures  about Market Risk;" and on pages 35
through 61, in the Company's Consolidated Financial Statements.  Ratios relating
to the  Company's  Return on Equity  and Assets  appear on page 14. The  section
entitled  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operation" should be read in conjunction with the information in Item
1 herein and the Company's Consolidated Financial Statements.


ITEM 2:  PROPERTIES
-------------------

The Company  shares common  quarters with SJNB's main branch at One North Market
Street, San Jose,  California,  95113. The building was purchased by the Bank in
1985 and consists of approximately 24,000 square feet of basement,  ground floor
and second  floor  space.  It is  constructed  and  equipped to meet  prescribed
security requirements.

In  addition,  the Bank leases  approximately  12,000  square feet located at 95
South Market Street, San Jose,  California.  Approximately  9,000 square feet of
space at this location is currently  being occupied by two  third-party  tenants
under  subleases which expire at the termination of the lease in September 2004.
The Bank's Financial  Services Division is occupying the remaining space at this
location.

The Bank and its subsidiary,  Epic, share 3,000 square feet of leased facilities
in  Danville,  California.  The  monthly  lease  expense is $6,300  with  annual
increase in July 2000. The lease expires July 2001.

In connection with the acquisition of Saratoga Bancorp, three banking facilities
were obtained. Saratoga's main office and principal executive office, located at
12000 Saratoga-Sunnyvale Road, Saratoga,  California comprises 5,500 square feet
and was owned by  Saratoga  National  Bank.  This  office is now being used as a
branch of SJNB.  The second  office is located at 15405 Los Gatos  Blvd.,  Suite
103,  Los Gatos,  California.  The  facility has 3,082 square feet and is leased
under a  noncancelable-operating  lease  which  expires in 2003.  Current  lease
payments are $6,387 per month.  This office is being  maintained  as a branch of
SJNB. The third  facility was located at 160 West Santa Clara Street,  San Jose,
California.  The lease  expired on this facility as of December 31, 1999 and was
leased for the month of January 2000 at a cost of  approximately  $17,000.  This
office was closed as of January 28, 2000 and the accounts were consolidated into
the SJNB office located at One North Market Street.

In the opinion of management,  adequate  insurance is being  maintained on these
properties.


ITEM 3:  LEGAL PROCEEDINGS
--------------------------

Neither  the  Company  nor the Bank is a party  to any  material  pending  legal
proceeding,  nor is their  property  the subject of any material  pending  legal
proceeding,  except ordinary routine legal  proceedings  arising in the ordinary
course of the Bank's business and incidental to its business,  none of which are
expected  to have a material  adverse  impact upon the  Company's  or the Bank's
business, financial position or results of operations.


ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

At a Special  Meeting of  Shareholders  of the  Company on  December  13,  1999,
1,453,026  shares  were  represented  in person or by  proxy.  The  shareholders
approved the merger  between  Saratoga  Bancorp and SJNB  Financial  Corp.  with
1,439,645 shares being voted for the approval,  5,903 shares being voted against
and 7,478 shares abstained.


PART II


ITEM 5:  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

As of  February  29,  2000,  the Company had  3,617,408  shares of Common  Stock
outstanding, held by approximately 2,200 beneficial shareholders.  The Company's
Common  Stock is listed on the NASDAQ  National  Market  System under the symbol
"SJNB." Market makers of the Company's  Common Stock  include:  Hoefer & Arnett,
Inc.,  Sandler  O'Neill & Partners,  Wedbush  Morgan  Securities,  Inc.,  Knight
Securities L.P., Keefe Bruyette & Woods, Inc., and Spear, Leeds & Kellogg.


Stock Price
-----------
<TABLE>
<CAPTION>

The following sets forth the high and low sales prices for the Company's  Common
Stock  during the periods  indicated,  as reported by NASDAQ,  and the per share
cash dividends declared on the Common Stock during such periods.


QUARTERLY COMMON STOCK PRICE
-----------------------------------------------------------------------------------------------------------
                                                                     Price
                                                                of Common Stock                 Cash
                                                             High              Low           Dividends
-----------------------------------------------------------------------------------------------------------
                         1998
-----------------------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>                <C>
First Quarter                                                $37.00           $33.50             $.14
Second Quarter                                                43.25            35.00              .14
Third Quarter                                                 43.25            26.00              .14
Fourth Quarter                                                29.00            26.00              .14
-----------------------------------------------------------------------------------------------------------
      Annual cash dividend per share                                                              .56
-----------------------------------------------------------------------------------------------------------
                         1999
-----------------------------------------------------------------------------------------------------------
First Quarter                                                 28.50            26.00              .14
Second Quarter                                                30.25            26.50              .14
Third Quarter                                                 34.50            31.00              .14
Fourth Quarter                                                37.00            30.00              .14
-----------------------------------------------------------------------------------------------------------
      Annual cash dividend per share                                                              .56
-----------------------------------------------------------------------------------------------------------
                         2000
-----------------------------------------------------------------------------------------------------------
First quarter (through February 29,  2000)                    30.63            27.75              .16*
<FN>
*Declared  by the Board of Directors on January 26, 2000 and to be paid on March
6, 2000 to shareholders of record on February 7, 2000.
</FN>
</TABLE>

The  Company's  Board of  Directors  considers  the  advisability  and amount of
proposed  dividends  each  year.  Future  dividends  will  be  determined  after
consideration of the Company's  earnings,  financial  condition,  future capital
funds,  regulatory requirements and such other factors as the Board of Directors
may deem  relevant.  The  Company's  primary  source  of funds  for  payment  of
dividends to its  shareholders  will be receipt of dividends and management fees
from the Bank.  The payment of dividends  by a bank is subject to various  legal
and  regulatory  restrictions.  See  "Business -  Supervision  and  Regulation -
Restrictions on Dividends and Other  Distributions."  It is the intention of the
Company to continue  the payment of  quarterly  dividends,  subject to financial
results and other factors which could limit or restrict  dividends as more fully
discussed elsewhere herein.

ITEM 6:  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

The following presents selected financial data and ratios for the five years ended December 31, 1999:

----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)                         As of and for the Years Ended December 31,
STATEMENT OF OPERATIONS DATA :                        1999           1998           1997           1996           1995
----------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>            <C>            <C>            <C>            <C>
Net interest income                                  $21,852        $20,254        $18,489        $16,468        $14,295
Provision for loan and lease losses                     (495)          (300)          (705)          (190)        (1,045)
Other income                                           1,426          1,059          1,013            846            966
Other expenses                                       (12,991)       (11,497)        (9,910)        (9,635)        (8,797)
----------------------------------------------------------------------------------------------------------------------------
Income before income taxes                             9,792          9,516          8,887          7,489          5,419
Income taxes                                          (3,984)        (3,975)        (3,773)        (3,198)        (2,395)
----------------------------------------------------------------------------------------------------------------------------
Net income                                            $5,808         $5,541         $5,114         $4,291         $3,024
============================================================================================================================
PER SHARE DATA:
----------------------------------------------------------------------------------------------------------------------------
Net income per share - basic                           $2.45          $2.23          $2.04          $1.73          $1.27
Net income per share - diluted                          2.31           2.11           1.94           1.64           1.22
Cash dividends per share                                0.56           0.56           0.45           0.33           0.21
Shareholders' equity per share                         15.65          14.48          13.30          12.14          11.02
Tangible shareholders' equity per share                14.15          12.84          11.80          10.40           9.06
============================================================================================================================
BALANCE SHEET DATA:
----------------------------------------------------------------------------------------------------------------------------
Balance sheet totals-end of year:
  Assets                                            $425,947       $349,934       $324,919       $309,403       $252,195
  Loans and leases                                   326,961        261,380        228,972        198,627        170,800
  Deposits                                           370,742        302,442        270,345        244,639        196,692
  Shareholders' equity                                37,829         35,482         33,159         31,205         26,658
Average balance sheet amounts:
  Assets                                            $387,604       $337,185       $314,460       $274,868       $222,913
  Loans and leases                                   292,692        236,971        212,795        183,367        152,820
  Earning assets                                     362,926        313,605        286,585        251,156        202,996
  Deposits                                           337,035        292,502        265,340        217,716        183,282
  Shareholders' equity                                34,715         34,097         31,091         28,288         24,898
============================================================================================================================
SELECTED RATIOS:
----------------------------------------------------------------------------------------------------------------------------
Return on average equity                               16.73%         16.25%         16.45%         15.17%         12.15%
Return on average assets                                1.50           1.64           1.63           1.56           1.36
Efficiency ratio (non-interest expense
 as a percentage of total revenues)                    55.81          53.94          50.82          55.65          57.64
Efficiency ratio excluding the amortization of
  intangibles and goodwill                             53.85          51.80          48.39          52.77          53.92
Dividend payout ratio                                  22.90          25.08          21.95          19.30          16.67
Average equity to average assets                        8.96          10.11           9.89          10.29          11.17
Leverage capital ratio                                  8.36           9.10           9.06           9.28           9.00
Nonperforming loans and leases to total loans           0.43           0.09           0.19           0.27           0.52
and leases
Net chargeoffs to average loans and leases              ----           0.01           0.10           0.04           0.33
Allowance for loan or lease losses to total             1.62           1.83           1.96           2.02           2.25
loans and leases
Allowance for loan or lease losses to
  nonperforming loans and leases                      375.00       1,983.00       1,060.00         733.00         430.00
============================================================================================================================
</TABLE>


ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

This Annual Report on Form 10-K includes forward-looking  information within the
meaning of Section 27A of the  Securities  Act of 1933, as amended,  and Section
21E of the Securities  Exchange Act of 1934, as amended,  and are subject to the
"safe harbor" created by those sections. These forward-looking statements (which
involve the  Company's  plans,  beliefs  and goals,  refer to  estimates  or use
similar terms) involve certain risks and  uncertainties  that could cause actual
results to differ materially from those in the forward-looking  statements. Such
risks and uncertainties  include, but are not limited to, the following factors:
competitive  pressure  in the banking  industry;  changes in the  interest  rate
environment;   the  declining  health  of  the  economy,  either  nationally  or
regionally;  the deterioration of credit quality,  which could cause an increase
in  the  provision  for  loan  and  lease  losses;  changes  in  the  regulatory
environment; changes in business conditions,  particularly in Santa Clara County
real estate and high tech industries;  certain  operational risks involving data
processing   systems  or  fraud;   volatility   of  rate   sensitive   deposits;
asset/liability  matching risks and liquidity risks.  The Company  undertakes no
obligation  to revise or publicly  release the results of any  revision to these
forward-looking  statements.  See  also the  section  included  herein  entitled
"Business - Certain Additional  Business Risks" and other risk factors discussed
elsewhere in this Report.

The purpose of the following discussion is to provide information  pertaining to
the financial condition and results of operations of the Company that may not be
apparent  from a review of the  consolidated  financial  statements  and related
notes. It also incorporates certain statistical  information that is required by
Industry  Guide 3 promulgated by the  Securities  and Exchange  Commission.  The
discussion  should be read in conjunction with the  aforementioned  consolidated
financial  statements,  as found on pages 35 through 61. The interest earned and
yields on nontaxable securities have been adjusted to a fully-taxable equivalent
basis for all financial information presented in this Item 7.

Dollars and share  amounts are in  thousands  in the text for Item 7, except per
share amounts or as otherwise noted.


Financial Review
----------------

     Earnings Summary

For the year ended  December 31, 1999,  the Company  reported net income of $5.8
million or $2.31 per diluted  share as compared to net income of $5.5 million or
$2.11 per diluted share in December 31, 1998 (a 9% increase). Net income for the
year  increased  over that of the previous year  primarily due to an increase of
$1.6 million in net  interest  income and an increase in other income of $367 of
which $253  related to the  reversal of a specific  reserve for an acquired  SBA
loan  which was paid in full and a change in the method of  calculating  certain
deposit service charges. These increases were partially offset by an increase in
the loan  and  lease  loss  provision  of $195  (due to the  growth  in the loan
portfolio) and by an increase in non-interest  expense of $1.5 million  relating
to the acquisition of Epic Funding and increased costs due to growth.

For the year ended  December 31, 1998,  the Company  reported net income of $5.5
million or $2.11 per diluted  share as compared to net income of $5.1 million or
$1.94 per diluted  share in December 31, 1997 (an 8%  increase).  Net income for
the year  increased  over that of the previous year primarily due to an increase
of $1.8 million in net interest income and a decrease in the loan and lease loss
provision, partially offset by an increase in non-interest expense mainly due to
the aforementioned acquisition of Epic Funding.

As of December 31, 1999,  consolidated assets were $426 million, gross loans and
leases were $327 million,  and deposits were $371  million.  Total  consolidated
assets  increased  $76 million  from $350  million at  December  31,  1998,  and
deposits grew $69 million from $302 million the previous  year,  representing  a
22% and 23%  increase,  respectively.  Loan and lease  and  deposit  growth  was
generated mainly by marketing and business  development  efforts of the Bank and
its subsidiary, Epic Funding. In addition the Bank generated additional deposits
of $29 million in various wholesale markets.

As of December 31, 1998,  consolidated assets were $350 million, gross loans and
leases were $261 million,  and deposits were $302  million.  Total  consolidated
assets  increased $25 million from $325  million,  and deposits grew $32 million
from $270  million  the  previous  year,  representing  an 8% and 12%  increase,
respectively.  Loan and lease and deposit  growth was generated by marketing and
business development efforts of the Bank, in addition to a $10 million, ten year
callable,  floating  rate (30 day  LIBOR  plus 5 basis  points)  certificate  of
deposit in December 1998.

     Net Interest Income and Margin

Net interest income is the principal source of the Company's operating earnings.
Significant factors affecting net interest income are rates,  volumes and mix of
the loan, investment and deposit portfolios.

The following  table shows the composition of average earning assets and average
funding  sources,  average yields and rates and the net interest  margin for the
three years ended December 31, 1999.
<TABLE>
<CAPTION>

AVERAGE BALANCES, RATES AND YIELDS
(dollars in thousands)                          1999                         1998                         1997
----------------------------------------------------------------------------------------------------------------------------
                                     Average           Avg yield/ Average           Avg yield/ Average           Avg yield/
Assets                               Balance  Interest Rate paid  Balance  Interest Rate paid  Balance  Interest Rate paid
----------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
<S>                                  <C>      <C>         <C>     <C>      <C>        <C>      <C>      <C>        <C>
  Loans and leases, net (1)          $292,692 $28,915      9.88%  $236,971 $24,858     10.49%  $212,795 $22,732     10.68%
  Securities available for sale (2)    46,374   2,889      6.23     45,599   2,749      6.03     48,178   2,982      6.19
  Securities held to maturity:
    Taxable (3)                         3,981     261      6.56      8,653     535      6.17     11,929     806      6.76
    Nontaxable (4)                      6,168     457      7.40      3,852     291      7.56      2,916     235      8.06
  Money market investments             13,711     701      5.11     18,530   1,024      5.53     10,767     586      5.44
Interest rate hedging instruments        ----     (50)     ----       ----      (9)     ----       ----      (9)     ----
--------------------------------------------------------         --------------------         --------------------
      Total interest-earning assets   362,926  33,173      9.14    313,605  29,448      9.39    286,585  27,332      9.54
--------------------------------------------------------         --------------------         --------------------
Allowance for loan or lease losses     (5,006)                      (4,604)                      (4,162)
Cash and due from banks                16,144                       14,805                       20,008
Other assets                            9,720                        9,404                        7,835
Core deposit intangibles and            3,820                        3,975                        4,194
goodwill, net
----------------------------------------------                   ----------                   ----------
      Total                          $387,604                     $337,185                     $314,460
==============================================                   ==========                   ==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
 Deposits:
  Interest-bearing demand             $52,263   1,316      2.51    $50,970   1,325      2.59    $46,126   1,178      2.55
  Money market and savings             98,174   3,450      3.51    100,327   3,504      3.49     85,696   3,061      3.57
  Certificates of deposit:
   Less than $100                      36,470   1,917      5.25     13,387     680      5.07     14,987     792      5.28
   $100 or more                        78,861   3,871      4.90     60,293   3,256      5.40     53,662   2,964      5.52
--------------------------------------------------------         --------------------         --------------------
    Total certificates of deposit     115,331   5,788      5.01     73,680   3,936      5.34     68,649   3,756      5.47
--------------------------------------------------------         --------------------         --------------------
Other short-term borrowings             9,921     584      5.88      4,976     312      6.26     12,610     754      5.98
--------------------------------------------------------         --------------------         --------------------
       Total interest-bearing         275,689  11,138      4.04    229,954   9,077      3.95    213,081   8,749      4.11
liabilities
--------------------------------------------------------         --------------------         --------------------
Noninterest-bearing demand             71,267                       67,524                       64,869
Accrued interest payable and
  other liabilities                     5,933                        5,610                        5,419
----------------------------------------------                   ----------                   ----------
      Total liabilities               352,889                      303,088                      283,369
----------------------------------------------                   ----------                   ----------
Shareholders' equity                   34,715                       34,097                       31,091
----------------------------------------------                   ----------                   ----------
       Total                         $387,604                     $337,185                     $314,460
=============================================-----------         =========-----------         =========-----------
Net interest income and margin (5)            $22,035      6.07%           $20,371      6.50%           $18,583      6.48%
=====================================        =====================        =====================        =====================
<FN>

(1) Includes  amortized loan fees of $1,380 for 1999, $1,309 for 1998 and $1,014
for 1997.  Nonperforming loans and leases have been included in average loan and
lease balances.

(2) Includes  dividend  income of $122, $147 and $219 received in 1999, 1998 and
1997, respectively.

(3)  Includes  dividend  income of $32 received in 1999 and $31 received in 1998
and 1997.

(4) Adjusted to a fully  taxable  equivalent  basis using the federal  statutory
rate ($183 in 1999, $116 in 1998 and $94 in 1997).

(5) The net interest  margin  represents the net interest income as a percentage
of average earning assets.
</FN>
</TABLE>
<TABLE>
<CAPTION>

The following table shows the effect on the interest  differential of volume and
rate changes for the years ended December 31, 1999 and 1998:

VOLUME/RATE ANALYSIS
(dollars in thousands)                               1999 vs. 1998                              1998 vs. 1997
-----------------------------------------------------------------------------------------------------------------------------
                                                   Increase (decrease)                        Increase (decrease)
                                                     due to change in                           due to change in
-----------------------------------------------------------------------------------------------------------------------------
                                          Average        Average        Total        Average        Average        Total
                                           Volume         Rate         Change         Volume         Rate         Change
-----------------------------------------------------------------------------------------------------------------------------
Interest income:
<S>                                         <C>              <C>         <C>           <C>              <C>         <C>
  Loans and leases (1)                      $4,546          $(490)       $4,056        $2,527          $(401)       $2,126
  Securities:
    Available for sale                          47             93           140          (157)           (76)         (233)
    Taxable                                   (309)            36          (273)         (207)           (65)         (272)
    Nontaxable                                 176            (10)          166            70            (13)           56
   Money market investments                   (266)           (57)         (323)          429              9           438
-----------------------------------------------------------------------------------------------------------------------------
     Total interest income                   4,194           (428)        3,766         2,662           (546)        2,116
-----------------------------------------------------------------------------------------------------------------------------
Interest expense:
  Interest -bearing demand                      34            (43)           (9)          126             22           147
  Money market and savings                     (75)            21           (54)          514            (71)          443
  Certificates of deposits:
    Less than $100                           1,172             65         1,237           (82)           (31)         (112)
    $100 or greater                          1,003           (388)          615           359            (67)          292
  Other short-term borrowings                  309            (37)          272          (479)            37          (442)
-----------------------------------------------------------------------------------------------------------------------------
      Total interest expense                 2,442           (381)        2,061           438           (110)          328
-----------------------------------------------------------------------------------------------------------------------------
  Interest rate hedging instruments                           (41)          (41)         ----                         ----
-----------------------------------------------------------------------------------------------------------------------------
Change in net interest income               $1,752           $(88)       $1,664        $2,224          $(436)       $1,788
=============================================================================================================================
<FN>
(1) The effect of the change in loan fees is  included as an  adjustment  to the
average rate and is described in greater detail below.
</FN>
</TABLE>

Consolidated net interest income (on a fully taxable equivalent basis) was $22.0
million in 1999,  as compared  to $20.4  million in 1998.  The  increase of $1.6
million in net interest income during 1999 was primarily a result of an increase
in volume of $49.3  million in earning  assets which  amounted to  approximately
$1.8 million of net  interest  income.  The increase in net interest  income in
1999  relating  to the  increase  in volume  and fees was  offset by an  overall
decrease in the net  interest  margin (the  difference  in the yields on earning
assets and the cost of funds).

The  Bank's   asset/liability   position   is  slightly   asset-sensitive   (See
"Asset/Liability  Management").  Therefore in times of a declining interest rate
environment,  the Bank's net interest margin should be negatively  impacted,  as
was the case in 1999. The Bank's average prime was 8.00% in 1999, as compared to
8.38% in 1998.  At the same time the Bank's net interest  margin  declined  from
6.50% in 1998 to 6.07% in 1999.  This was  primarily  caused by a decline in the
interest  earned on earning assets which decline from 9.39% to 9.14%,  while the
overall cost of interest-bearing  liabilities increased from 3.95% to 4.04%. The
increase in the cost of interest-bearing  liabilities was mainly due to a change
in the mix to high cost funds.

Commencing in the third quarter of 1999 and  continuing in early 2000,  the FOMC
has increased  interest  rates by 100 basis  points.  This has caused the Bank's
prime rate to increase from 7 3/4% to 8 3/4%. Due to the  competitive  nature of
the Bank's  market,  a decline in the Bank's  interest rate  sensitivity  and an
overall increase in its cost of funds (due to a changing mix of deposit products
and borrowings)  the Bank's net interest  margin (on a fully taxable  equivalent
basis) remained  stable in the fourth quarter versus the  immediately  preceding
quarter at 6.05%. Even though the Bank is asset-sensitive,  further increases in
interest rates may not have a significant,  if any,  positive  impact on its net
interest margin.

Consolidated net interest income (on a fully taxable equivalent basis) was $20.4
million in 1998,  as compared  to $18.6  million in 1997.  The  increase of $1.8
million in net interest income during 1998 was primarily a result of an increase
in volume of $27 million in earning assets which amounted to approximately  $2.2
million of net  interest  income and an increase of  approximately  $295 in loan
fees.  Late in 1998, the Federal Open Market  Committee  ("FOMC")  decreased the
interbank  borrowing  rate by 75 basis points and the Discount  Rate by 50 basis
points  which  resulted in a decrease in the Bank's  prime rate from 8 1/2% to 7
3/4%.  The Bank's average prime was 8.38% in 1998, as compared to 8.44% in 1997.
In a declining rate environment, the Company must generally increase its earning
assets in order to maintain net interest income growth.

Interest  expense in 1999 was $11.1 million as compared to $9.1 million in 1998.
The difference was due primarily to the increase in volume  (approximately $45.7
million)  in addition to an overall  increase  in  interest  rates paid.  Actual
interest  expense rates  increased from 3.95% to 4.04%.  This occurred while the
average  prime  rate  deceased  38  basis  points.  In  addition  the  level  of
non-interest-bearing  deposits  declined  from an  average  of 22.7% of  average
deposits in 1998 to 20.5% in 1999.

Interest  expense in 1998 was $9.1  million as compared to $8.7 million in 1997.
The  difference  was due  primarily  to the  increase  in  volume  offset by the
decrease in overall  interest rate paid.  Actual interest expense rates declined
from 4.11% to 3.95%. This compares to a decrease in the yields on earning assets
from 9.54% in 1997 to 9.39% in 1998.

A substantial  portion of the Bank's deposits (an average of 21% in 1999 and 23%
in 1998) are non  interest-bearing  and  therefore do not reprice when  interest
rates  change.  See  "Funding."  This is somewhat  ameliorated  by a significant
amount of customer corporate account balances which are tied to earnings credits
and utilized to offset bank service costs.

Due to the nature of the Company's lending markets, in which loans are generally
tied to the Prime Rate,  it is believed  an  increase in interest  rates  should
positively  affect the Company's  future  earnings,  while a decline in interest
rates would have a negative impact. Should interest rates decline in the future,
management believes that net interest income could be negatively impacted and it
is not feasible to provide an accurate  measure of such a change  because of the
many factors (many of which are uncontrollable) influencing the result.

The Company's net interest margin for the periods  presented is high relative to
its peer  group,  mainly  due to its  high  proportion  of non  interest-bearing
deposits and the impact of its generally higher yielding loans, but specifically
leasing, factoring and asset-based lending.

Net interest income also reflects the impact of nonperforming  loans and leases.
The effect of nonaccrual loans and leases on interest income for the years ended
December 31, 1999 through 1995 was as follows:
<TABLE>
<CAPTION>

NEGATIVE IMPACT OF NONACCRUAL LOANS AND LEASES
(dollars in thousands)                                              For the Years Ended December 31,
------------------------------------------------------------------------------------------------------------------------------
                                                 1999            1998             1997            1996             1995
------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>              <C>              <C>             <C>             <C>
Interest revenue which would have been
  recorded under original terms                  $132             $22              $61             $35             $111
Interest revenue actually realized                112              21               32              29               11
------------------------------------------------------------------------------------------------------------------------------
Negative impact on interest revenue               $20              $1              $29              $6             $100
==============================================================================================================================
</TABLE>

     Provision for Loan and Lease Losses

The level of the allowance for loan and lease losses (and  therefore the related
provision)  reflects the Company's  judgment as to the inherent risks associated
with the loan, lease and factoring  portfolios.  Since estimates of the adequacy
of the Company's  allowance  for loan and lease losses are based on  foreseeable
risks,  such  judgments  are subject to change based on changing  circumstances.
Based on management's  current evaluation of such risks, as well as judgments of
the Company's  regulators,  additions of $495,  $300,  and $705 were made to the
allowance  for loan and  lease  losses  in 1999,  1998 and  1997,  respectively.
Management's  determinations  of the provision in 1999, 1998 and 1997 were based
on the measurement of the possibility of future  estimated loan and lease losses
through  various  objective  and  subjective  criteria  and  the  impact  of net
chargeoffs.  See "Loan and Lease  Portfolio" for a detailed  discussion of asset
quality and the allowance for loan and lease losses.

     Other Income
<TABLE>
<CAPTION>

The following table sets forth the components of other income and the percentage
distribution  of such income for the years ended  December  31,  1999,  1998 and
1997.

OTHER INCOME
 (dollars in thousands)                               1999                       1998                        1997
------------------------------------------------------------------------------------------------------------------------------
                                               Amount       Percent       Amount       Percent       Amount       Percent
-----------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>         <C>            <C>         <C>            <C>         <C>
Depositor service charges                         $839        58.8%          $659        62.3%          $607        59.9%
Other operating income                             638        44.7            404        38.1            453        44.7
Net loss on securities available for sale          (51)       (3.6)            (4)        (.4)           (47)       (4.6)
-----------------------------------------------------------------------------------------------------------------------------
    Total                                       $1,426       100.0%        $1,059       100.0%        $1,013       100.0%
=============================================================================================================================
</TABLE>

Other income totaled $1.4 million in 1999, $1.1 million in 1998 and $1.0 million
in 1997.  The increase in other income during 1999 resulted from the reversal of
a specific reserve  established on the date it was purchased for an acquired SBA
loan which was paid in full and to a change in the method of  assessing  certain
service charges on deposit accounts.

     Other Expense

The  components of other  expense are set forth in the  following  table for the
years ended December 31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>

OTHER EXPENSE AS A PERCENT OF AVERAGE ASSETS
 (dollars in thousands)                             1999                        1998                       1997
----------------------------------------------------------------------------------------------------------------------------
                                             Amount      Percent         Amount       Percent        Amount       Percent
----------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>            <C>           <C>           <C>           <C>
Salaries and benefits                        $7,840        2.02%         $6,787        2.01%         $5,725        1.82%
Occupancy                                       915        0.24             775        0.23             725        0.23
Data processing                                 604        0.15             663        0.20             441        0.14
Legal and professional fees                     506        0.13             315        0.09             331        0.11
Amortization of core deposit intangibles
  and goodwill                                  456        0.12             457        0.14             473        0.15
Client services                                 437        0.11             443        0.13             345        0.11
Business promotion                              389        0.10             332        0.10             369        0.12
Directors and shareholders                      339        0.09             282        0.08             332        0.11
Other                                         1,505        0.39           1,442        0.43           1,169        0.36
----------------------------------------------------------------------------------------------------------------------------
     Total                                  $12,991        3.35%        $11,497        3.41%         $9,910        3.15%
============================================================================================================================
</TABLE>

Total other  expenses  increased  approximately  $1.5  million or 13% in 1999 as
compared to 1998. The increase is partially  related to the  acquisition of Epic
Funding Corporation (which accounted for approximately $400 of the increase) and
the  opening  of the of the  East  Bay  Regional  Office  (which  accounted  for
approximately  $300 of the  increase),  both occurring in July 1998. In addition
salaries and benefits increased as a result of the increased incentive accruals,
additions to staff and the competitive  environment for personnel.  Increases in
occupancy  also  related  to Epic  and the East Bay  Regional  Office.  Business
promotion  expenses have  increased  mainly due to the increased  efforts of the
Bank to penetrate new markets and to continue to develop  existing market share.
Legal and  professional  fees have  increased due to costs  associated  with the
preparation  of proxy  materials and the annual  report,  increased  audit fees,
legal contract negotiations,  general consulting and other matters. The increase
in other relates to increased director and shareholder costs (increased director
fees,  transfer  agent  fees and  increased  costs of Annual  Report)  and other
general cost increases.

Total other expenses  increased  approximately  $1.6 million or 16.0% in 1998 as
compared to 1997. The increase is primarily  related to the  acquisition of Epic
Funding  Corporation  (which accounted for approximately  $421 of the increase),
salary  increases of $328 during the first quarter of 1998,  necessary to adjust
officers' salaries based on competitive conditions and increased data processing
expenses  of  $213  relating  to the  acquisition  and  implementation  of a new
processing  system in November 1997. In addition,  the Bank increased the number
of business  development  and lending  personnel  and  incurred  overall  salary
increases  for the Bank's  operating  staff.  Advertising  and  marketing  costs
increased due to effects of greater  amounts  expended on charitable  donations,
community support events and client  entertainment.  Client services paid by the
Bank also  increased due to the  significant  increase in services  provided for
client purposes.

     Income Taxes

The  effective  tax rate  was 41% in  1999,  42% in 1998  and  1997.  The  lower
effective tax rate in 1999 was primarily due to the greater amount of nontaxable
income  generated  by  the  investment  in  California   nontaxable   securities
(municipals and other political subdivisions).

     Quarterly Income

The unaudited consolidated income statement data of the Company and the Bank, in
the  opinion  of  management,  includes  all normal  and  recurring  adjustments
necessary  to state fairly the  information  set forth  therein.  The results of
operations are not necessarily  indicative of results for any future period. The
following table shows the Company's  unaudited  quarterly  income statement data
for the years 1999 and 1998:
<TABLE>
<CAPTION>

UNAUDITED QUARTERLY INCOME STATEMENT DATA
 (dollars in thousands, except per
  share amounts)                            First quarter       Second quarter        Third quarter       Fourth quarter
----------------------------------------------------------------------------------------------------------------------------
                                           1999      1998       1999      1998       1999      1998       1999      1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>
Net interest income                       $4,983    $4,965     $5,237    $5,020     $5,712    $5,119     $5,920    $5,150
Provision for loan or lease losses          (100)    -----     -----      -----       (150)     (150)      (245)     (150)
Other income                                 498       276        265       251        316       250        347       282
Other expenses                            (3,060)   (2,779)    (3,171)   (2,731)    (3,347)   (2,934)    (3,413)   (3,053)
----------------------------------------------------------------------------------------------------------------------------
Income before income taxes                 2,321     2,462      2,331     2,540      2,531     2,285      2,609     2,229
Income taxes                                (992)   (1,027)      (954)   (1,059)    (1,033)     (960)    (1,005)     (929)
----------------------------------------------------------------------------------------------------------------------------
Net income                                $1,329    $1,435     $1,377    $1,481     $1,498    $1,325     $1,604    $1,300
============================================================================================================================

Net income per share - basic                $0.55     $0.57      $0.59     $0.59      $0.64     $0.54      $0.67     $0.53
============================================================================================================================
Net income per share - diluted              $0.53     $0.54      $0.56     $0.56      $0.60     $0.51      $0.63     $0.51
============================================================================================================================
</TABLE>

The Company  reported net income of $1.6 million for the quarter ended  December
31, 1999,  compared  with net income of $1.3  million for the fourth  quarter of
1998. The results for the fourth quarter of 1999 as compared to the same quarter
a year ago reflect an increase in volume of earning assets ($392 million in 1999
compared to $319 million in 1998).  The loan and lease loss provision  increased
from $150 in 1998 to $245 in 1999. Other expenses increased $360, primarily as a
result of an increase in incentive  accruals and increased costs associated with
the 1999 audit examinations.


Financial Condition and Earning Assets

     Money Market Investments

Money market investments,  which include federal funds sold and other short-term
investments, were $5.6 million at December 31, 1999 as compared to $22.3 million
at December 31, 1998.  This decrease is mainly due to the increase in investment
securities and loans of $92 million as compared to the growth in deposits of $68
million.

The average  balance of money market  investments,  which include  federal funds
sold and liquid money market  investments,  was $13.7  million in 1999 and $18.5
million in 1998.  These balances  represented  4.1% and 6.3% of average deposits
for  1999  and  1998,  respectively.  They  are  maintained  primarily  for  the
short-term liquidity needs of the Bank. The decrease in money market investments
relates  primarily  to the  growth in  investments  securities  and  loans.  See
"Capital and Liquidity."

     Securities

The following table shows the book value composition of the securities portfolio
at December 31, 1999, 1998 and 1997. At December 31, 1999, there were no issuers
of securities  for which the  aggregate  book value of securities of such issuer
held by the Bank exceeded 10% of the Company's shareholders' equity.
<TABLE>
<CAPTION>

INVESTMENT SECURITIES COMPOSITION
 (dollars in thousands)                                             December 31,
-----------------------------------------------------------------------------------------------
                                                        1999          1998           1997
-----------------------------------------------------------------------------------------------
Investment securities available for sale:
<S>                                                      <C>           <C>            <C>
  U. S. Treasury                                         $2,007        $3,077         $5,041
  U. S. Government Agencies                              20,025        25,686         34,327
  Mortgage-backed                                        30,517         3,966          5,171
  Asset-backed                                            1,978          ----           ----
  Trust preferred                                         6,583          ----           ----
  Mutual funds                                            2,364         2,487          3,766
-----------------------------------------------------------------------------------------------
    Investment securities available for sale             63,474        35,216         48,305
-----------------------------------------------------------------------------------------------
Investment securities held to maturity:
  U. S. Treasury                                           ----        $1,000         $1,992
  U. S. Government Agencies                                $499         3,496          5,485
  State and municipal                                     7,327         4,213          3,224
  Mortgage-backed                                           657         1,927          2,518
  Other                                                     559           537            518
-----------------------------------------------------------------------------------------------
    Investment securities held to maturity                9,042        11,173         13,737
-----------------------------------------------------------------------------------------------
  Total                                                 $72,516       $46,389        $62,042
===============================================================================================
</TABLE>

Investment securities classified as available for sale (which include all mutual
funds), are acquired without the intent to hold until maturity.  At December 31,
1999, the Bank's weighted  average maturity of the available for sale investment
portfolio was 5.1 years.  It is estimated  that for each 1.0% change in interest
rates, the value of the Company's  securities  available for sale will change by
approximately 3.3%.

Any  unrealized  gain or loss on  investment  securities  available  for sale is
reflected in the carrying value of the security and reported net of income taxes
in the equity section of the  consolidated  balance  sheets.  Realized gains and
losses are reported in the consolidated  statement of income. The net unrealized
loss,  net of tax, on securities  available for sale as of December 31, 1999 was
$850.  This  compares  to the net  unrealized  gain,  net of tax,  of $300 as of
December  31,  1998.  The  change  in the  unrealized  gain or loss is  directly
attributable  to the  increase in interest  rates  during late 1999.  Changes in
interest  rates have an inverse  effect on the value of securities for which the
interest rate is fixed.

Investment  securities  classified as held to maturity  include those securities
which the Company has the ability and intent to hold to maturity.  The Company's
policy is to  generally  acquire "A" rated or better U.S.,  state and  municipal
securities.   The  specific  issues  are  monitored  for  changes  in  financial
condition.  Appropriate  action would be taken if significant  deterioration was
noted.

The pre-tax  unrealized loss on investment  securities held to maturity was $800
as of December  31, 1999 as compared  to a $196  pre-tax  unrealized  gain as of
December 31, 1998. The change in the net  unrealized  gain or loss resulted from
the  increase  in  interest  rates in late  1999.  The Bank's  weighted  average
maturity of the held to maturity  investment  portfolio  as of December 31, 1999
was  approximately  10.4  years.  It is  estimated  that for each 1.0% change in
interest  rates,  the value of the  Company's  securities  held to maturity will
change by approximately 5.8%. This volatility  decreases as the average maturity
shortens.  Since it is the intention of  management to hold these  securities to
maturity, the unrealized losses will be realized over the life of the securities
as above- market interest income is recognized.

Mortgage-backed  securities  ("MBS")  are  considered  to have  increased  risks
associated with them because of the timing of principal repayments.  As interest
rates  decrease,  the  average  maturity  of  mortgages  underlying  MBS tend to
decline; as rates increase,  maturities tend to lengthen.  At December 31, 1999,
the Company had the following  securities which were  mortgage-backed or related
securities:

 Mortgage-backed and Related Securities
 December 31, 1999
                                                                       Fair
 (dollars in thousands)                                  Cost         Value
 ---------------------------------------------------- --------- ----------------
 Federal Home Loan Mortgage Corp. (U.S. Agency)         $3,604        $3,551
 Federal National Mortgage Association (U.S. Agency)    16,284        16,035
 Collateralized mortgage obligations                    11,657        11,599
 Federated ARMs Funds *                                  1,686         1,618
 Overland Variable Rate Government Fund                    832           746
* The assets of these mutual funds are invested  mainly in adjustable  rate U.S.
Treasury or U.S. Government Agency securities.

Loan and Lease Portfolio

The following table shows the Company's consolidated loans and leases by type of
loan or borrower and their percentage distribution:
<TABLE>
<CAPTION>

LOAN AND LEASE PORTFOLIO
 (dollars in thousands)                                                       December 31,
-----------------------------------------------------------------------------------------------------------------------------
                                                  1999            1998            1997            1996            1995
-----------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>              <C>             <C>             <C>             <C>
Commercial and other                             $107,415         $91,866         $94,029         $78,291         $62,245
SBA                                                46,031          37,019          39,409          32,968          25,128
Leasing                                            16,633           3,768           -----           -----           -----
Factoring and asset-based                           9,901           7,393           4,915           4,397           2,366
Real estate construction                           40,620          32,340          17,818          15,451          14,488
Real estate term                                   96,434          80,009          64,403          59,567          58,567
Consumer                                           10,764           9,647           9,042           8,622           8,800
Unearned fee income                                  (837)           (662)           (644)           (668)           (793)
-----------------------------------------------------------------------------------------------------------------------------
  Total loan and lease portfolio                 $326,961        $261,380        $228,972        $198,627        $170,800
=============================================================================================================================
                                                                               December 31,
-----------------------------------------------------------------------------------------------------------------------------
                                                  1999            1998            1997            1996            1995
-----------------------------------------------------------------------------------------------------------------------------
Commercial and other                              32.9%           35.1%           41.1%           39.4%           36.4%
SBA                                               14.1            14.2            17.2            16.6            14.7
Leasing                                            5.1             1.4           -----           -----           -----
Factoring and asset-based                          3.0             2.8             2.1             2.2             1.4
Real estate construction                          12.4            12.4             7.8             7.8             8.5%
Real estate term                                  29.5            30.6            28.1            30.0            34.3
Consumer                                           3.3             3.7             3.9             4.3             5.2
Unearned fee income                               (0.3)           (0.3)           (0.3)           (0.3)           (0.5)
-----------------------------------------------------------------------------------------------------------------------------
  Total loan and lease portfolio                 100.0%          100.0%          100.0%          100.0%          100.0%
=============================================================================================================================
</TABLE>

     General

The  Company's  loan and  lease  portfolio  consists  primarily  of  short-term,
floating rate loans for business and real estate  purposes.  Effective as of the
merger date  (January 5, 2000) with  Saratoga  National  Bank the legal  lending
limit of SJNB increased to approximately $7 million.

The  commercial  loan  portfolio  primarily  consists  of  loans  to  small-  to
medium-sized  businesses with gross revenues up to $50 million, as well as loans
to local professional businesspersons. SJNB's lending services include revolving
credit loans, SBA loans, term loans, accounts receivable  financing,  factoring,
equipment  financing  and letters of credit.  Commercial  loans include loans to
real estate developers for short-term  investment  purposes  (approximately $7.9
million),  loans for real  estate  investment  purposes  made to  non-developers
(approximately $3.0 million) and loans for other investments (approximately $1.2
million).

SBA loans are made for commercial and real estate purposes.  The Bank originates
its SBA loans and has a policy of carrying both the guaranteed and  unguaranteed
portions  of these  loans in its  outstanding  loans  rather  then  selling  the
guaranteed portion. These loans carry a 70% to 80% guarantee by the SBA.

The leasing  portfolio  consists  of  financing  type  leases made to  small-and
medium-sized businesses. The average lease is approximately $150 and there is no
concentration  of  the  type  of  equipment  for  which  Epic  Funding  provides
financing. The increase during 1999 as compared to 1998 was due to the full year
of operations for Epic Funding.

Factoring and asset based represents  purchased account  receivable  (factoring)
and a structured  accounts  receivable  lending  program where the Bank receives
specific  payment  for client  invoices.  Under the  Factoring  program the Bank
purchases  accounts  receivable from clients and then receives  payment directly
from the party obligated for the receivable. In most cases, the Bank's Financial
Services Division purchases the receivables  subject to recourse from the Bank's
factoring  client.  The  factoring  business and related  purchasing of accounts
receivable is subject to a greater degree of risk than normal lending due to the
involvement  of the third  party  obligee,  the lack of control  over the direct
receipt of  payment,  and the  potential  purchase  of  fraudulent  or  inflated
receivables.  To date,  there have been no  significant  losses  relating to the
Bank's factoring program.

The real  estate  construction  portfolio  consists of 37%  residential  and 63%
commercial.  Such loans are made on the basis of the economic  viability for the
specific  project,  the cash flow  resources of the developer,  the  developer's
equity in the project and the underlying financial strength of the borrower. The
Company's  policy is to monitor each loan with respect to incurred costs,  sales
price and sales cycle.

The real  estate  term  loans  include  term  loans  (up to a  twenty-five  year
maturity) on income-producing commercial properties.

Consumer loans consist primarily of loans to individuals for personal uses, such
as home equity loans,  installment purchases,  premier lines (unsecured lines of
credit) and overdraft protection loans and a variety of other consumer purposes.

Concentrations  of credit risk arise when a number of  customers  are engaged in
similar business  activities,  or activities in the same geographic  region,  or
have  similar  economic   features  that  would  cause  their  ability  to  meet
contractual  obligations  to  be  similarly  affected  by  changes  in  economic
conditions.  Although the Company has a diversified loan and lease portfolio,  a
substantial  portion of its customers'  ability to honor loan and lease terms is
reliant upon the economic stability of Santa Clara County,  which in some degree
relies on the stability of high  technology  companies in its "Silicon  Valley."
Loans are made on the basis of a secure  repayment source as the first priority.
Collateral is generally a secondary source for loan qualification.

Approximately  47% of the loan and lease  portfolio is directly  related to real
estate or real estate  interests,  when real  estate  construction  loans,  real
estate term loans,  Prime equity loans (included in consumer loans in the amount
of $5.3  million) and certain  other loans to real estate  developers  and other
investors for short-term investment purposes are included.  Approximately 33% of
the loan  and  lease  portfolio  is made up of  commercial  loans;  however,  no
particular industry represents a significant portion of such loans.

Inherent in any loan and lease portfolio are risks associated with certain types
of loans  and  leases.  The  Company  attempts  to  limit  these  risks  through
conservative  loan and lease policies and review  procedures that are applied at
the  time of  origination.  Included  in these  policies  are  specific  maximum
loan-to-value  ("LTV")  limitations  as to  various  categories  of real  estate
related loans. These ratios are as follows:

Maximum Loan to Value Ratios
------------------------------------------------------------
                                               Maximum LTV
 Category of Real Estate Collateral               Ratio
--------------------------------------------- --------------
Raw land                                            50%
Land Development                                    60
Construction:
  1-4 Single family residence,
    Owner occupied                                  80
    Speculative development                         75
  Other                                             75
Term  loans  (construction   take-out
  and commercial)                                   75
Other improved property                             70
Prime equity loans                                  80

The  Company's   loan  and  lease  policy   provides  that  any  term  loans  on
income-producing  properties  must have a minimum  debt  service  coverage of at
least 1.2 to 1 for non-owner  occupied  property and at least 1.1 to 1 for owner
occupied.

During  1999 the Bank  lowered  the  maximum  loan to value  ratio for most real
estate projects.  In prior years the 1-4 Single family residence requirement was
based on the dollar  amount of the  commitment.  This was changed to reflect the
differences in the risks associated with owner occupied construction as compared
to development  done on a speculative  basis. In the latter case and in the case
of all other construction projects the loan to value ratio was decreased to 75%.

One of the  significant  risks  associated  with real estate lending is the risk
associated with the possible  existence of environmental  risks or hazards on or
in property  affiliated  with the loan.  The Bank attempts to mitigate such risk
through the use of an Environmental  Risk Questionnaire for all loans secured by
real  estate.  A Phase I  environmental  report is required if so  indicated  by
response to the  questionnaire  or if (for any other reason) it is determined to
be   appropriate.   Other   reasons  would   include  the   industrial   use  of
environmentally   sensitive   substances   or  the   proximity  to  other  known
environmental  problems.  A Phase  II  report  is  required  in  certain  cases,
depending on the outcome of the Phase I report.

     Activity

Total loans and leases were $327 million and averaged $293 million as of and for
the year ended  December 31, 1999.  Total loans and leases were $261 million and
averaged  $237  million  as of and for the year ended  December  31,  1998.  The
increase in total loans and leases of $66 million during 1999 represented growth
from all sectors of the Bank's portfolio.  Real estate  construction  loans grew
$8.3 million or an  approximate  growth of 26% for 1999. The major source of the
growth related  primarily to construction was in the commercial area. The demand
for  construction  in the Bank's market area continued to be strong.  Generally,
the growth in  construction  loans was mainly due to the rapid  expansion of the
Bank's market area.  Demand in the housing and commercial  markets was fueled by
the growth in the high technology  sector and the related  increase in wealth of
employees of Silicon Valley technology  firms.  Major projects the Bank assisted
in developing were several  hospitality and mini-storage  projects.  Real estate
term  loans  increased  by $16  million as a result of the lower  interest  rate
environment  during  the first and second  quarters  of 1999,  which  fueled the
demand for  refinancing.  Also,  the Bank  continued to provide term funding for
several  of its  completed  construction  projects,  as  well  as the  continued
development of new business.

In addition the Bank  experienced  growth in commercial  ($15 million),  SBA ($9
million), leasing ($13 million), and factoring/asset-based lending ($3 million).
Growth in all these areas was mainly due to the economic  conditions  of Silicon
Valley  and  rapid  expansion  of the  technology  sector.  The Bank was able to
successfully penetrate the market through its business development efforts.

Total loans and leases were $261 million and averaged $237 million as of and for
the year ended  December 31, 1998.  Total loans and leases were $229 million and
averaged  $213  million  as of and for the year ended  December  31,  1997.  The
increase in total loans and leases of $32 million during 1998 relates  primarily
to the growth in the Bank's real estate portfolio. Both construction lending and
real estate term lending  showed  significant  growth during 1998. The growth in
the  construction  portfolio was mainly due to the rapid expansion of housing in
the  Bank's  market  area.  Demand  in the  housing  market  was  fueled  by low
unemployment  (less  than 4% over the last two years)  and  increased  wealth of
employees of Silicon Valley technology firms.

The economic  climate in Northern  California has been generally  strong in 1999
and  1998.  The  competitive  environment  within  the  Bank's  marketplace  for
additional  loan and lease growth has become more  aggressive  between  lenders,
resulting  in  increasingly   competitive  pricing.  To  the  extent  that  such
competitive  activity  continues  during 2000 and the Bank finds it necessary to
meet such competition, the Bank's net interest margins could decline.

          Asset Quality

     Allowance for Loan and Lease Losses

A consequence  of lending  activities  is the potential for loss.  The amount of
such losses will vary from time to time depending upon the risk  characteristics
of the loan and lease  portfolio  as  affected by  economic  conditions,  rising
interest rates and the financial experience of borrowers. The allowance for loan
and lease losses,  which provides for the risk of losses  inherent in the credit
extension  process,  is  increased  by the  provision  for loan and lease losses
charged to expense and decreased by the amount of charge-offs net of recoveries.
There is no  precise  method  of  predicting  specific  losses or  amounts  that
ultimately  may be  charged  off on  particular  segments  of the loan and lease
portfolio.  Similarly,  the adequacy of the  allowance for loan and lease losses
and the level of the related  provision  for loan and lease losses is determined
on a judgmental basis by management based on consideration of:

     - Economic conditions,
     - Borrowers' financial condition,
     - Loan and lease impairment,
     - Evaluation of industry trends,
     - Industry and other concentrations,
     - Loans which are contractually current as to payment terms but demonstrate
       a higher degree of risk as identified by management,
     - Continuing evaluation of the performing loan portfolio,
     - Monthly review and  evaluation of problem loans and leases  identified as
       having loss potential,
     - Quarterly review by the Board of Directors,
     - Off-balance sheet risks, and
     - Assessments by regulators and other third parties.

In addition to the  internal  assessment  of the loan and lease  portfolio  (and
off-balance  sheet credit risk,  such as letters of credit,  etc.),  the Company
also retains a consultant who performs  credit reviews on a quarterly  basis and
then  provides an assessment of the adequacy of the allowance for loan and lease
losses. The federal banking regulators also conduct examinations of the loan and
lease portfolio periodically.

The Company  utilizes a method of assigning a minimum and maximum loss ratio for
each grade of loan or lease  within  each  category of loans  (commercial,  real
estate term,  real estate  construction,  etc.) Loans and leases are graded on a
ranking  system based on  management's  assessment of the loan or lease's credit
quality.  The assigned loss ratio is based upon the Company's prior  experience,
industry  experience,  delinquency  trends and the level of nonaccrual loans and
leases.  In addition,  the Company's  methodology  considers (and assigns a risk
factor  for)   current   economic   conditions,   off-balance   sheet  risk  and
concentrations of credit. The methodology provides a systematic approach for the
measurement  of  the  possible  existence  of  future  loan  and  lease  losses.
Management  and the Board of Directors  evaluate the allowance and determine its
desired level considering  objective and subjective measures,  such as knowledge
of the  borrowers'  business,  valuation of  collateral,  the  determination  of
impaired  loans and leases and  exposure  to  potential  losses.  Based on known
information available to it at the date of this Report, management believes that
the  Company's  allowance  for loan and lease  losses,  determined  as described
above, was adequate at December 31, 1999 for foreseeable losses.

The allowance for loan and lease losses is a general reserve  available  against
the total loan and lease portfolio and off-balance sheet credit exposure.  While
management  uses available  information to recognize  losses on loans or leases,
future  additions to the allowance may be necessary based on changes in economic
conditions.  In addition,  various regulatory  agencies,  as an integral part of
their examination process, periodically review the Bank's allowance for loan and
lease  losses.  Such  agencies may require the Bank to provide  additions to the
allowance  based on their judgment of information  available to them at the time
of their examination.

Finally, there is uncertainty concerning future economic trends. Accordingly, it
is not  possible to predict the effect  future  economic  trends may have on the
level of the provision for loan and lease losses in future periods.

The following table  summarizes the activity in the allowance for loan and lease
losses for the five years ended December 31, 1999:
<TABLE>
<CAPTION>

ALLOWANCE FOR LOAN AND LEASE LOSSES
 (dollars in thousands)                                                          Years Ended December 31,
----------------------------------------------------------------------------------------------------------------------------
                                                                   1999        1998        1997        1996        1995
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>         <C>         <C>         <C>         <C>
 Balance, beginning of the year                                    $4,778      $4,493      $4,005      $3,847      $3,311
----------------------------------------------------------------------------------------------------------------------------
Chargeoffs by category:
  Commercial and other                                                108         234         205         243         217
  SBA                                                                  19       -----          37          22         112
  Factoring and asset-based                                         -----       -----           1          83       -----
  Real estate construction                                          -----       -----       -----       -----         154
  Real estate term                                                      4       -----          32          69         125
  Consumer                                                             21       -----          13          21          88
----------------------------------------------------------------------------------------------------------------------------
    Total chargeoffs                                                  152         234         288         438         696
----------------------------------------------------------------------------------------------------------------------------
Recoveries by category:
  Commercial and other                                                135          93          58         216         134
  SBA                                                                   5          58           5          39          11
  Factoring and asset-based                                         -----       -----           6          35       -----
  Real estate construction                                              3       -----       -----       -----       -----
  Real estate term                                                      4       -----       -----           1          26
  Consumer                                                             16          68           2          65          16
----------------------------------------------------------------------------------------------------------------------------
    Total recoveries                                                  163         219          71         356         187
----------------------------------------------------------------------------------------------------------------------------
Net (recoveries) chargeoffs                                           (11 )        15         217          82         509
----------------------------------------------------------------------------------------------------------------------------
Provision charged to expense                                          495         300         705         190       1,045
Allowance relating to acquired businesses                           -----       -----       -----          50       -----
----------------------------------------------------------------------------------------------------------------------------
Balance, end of the year                                           $5,284      $4,778      $4,493      $4,005      $3,847
============================================================================================================================

Ratios:
Net chargeoffs to average loans and leases                          -----        0.01%       0.10%       0.04%       0.33%
Allowance to total loans and leases at the end of the year           1.62%       1.83        1.96        2.02        2.25
Allowance to nonperforming loans and leases at end of the year     375.00    1,983.00    1,060.00      733.00      430.00
============================================================================================================================
</TABLE>

During  1999 the Bank wrote off $152 in loans and had  recoveries  of $163 for a
total of $11 in net  recoveries.  Net  chargeoffs  were $15 or 0.01% of  average
loans and leases during 1998. Net chargeoffs were $217 or 0.10% of average loans
during 1997.

The  allowance  for loan and lease  losses as a  percentage  of total  loans and
leases  was  1.62%,  1.83%,  and  1.96% at  December  31,  1999,  1998 and 1997,
respectively.  The  allowance  for loan and  lease  losses  as a  percentage  of
nonperforming  loans was  approximately  375%, 1,983% and 1,060% at December 31,
1999, 1998 and 1997,  respectively.  Nonperforming  loans were $1,411,  $241 and
$424 at December 31, 1999, 1998 and 1997, respectively. See "Nonperforming Loans
and Leases" below.

Based on an evaluation of individual credits, historical credit loss experienced
by loan or lease type and economic  conditions,  management  has  allocated  the
allowance for loan and lease losses as follows for the past five years:
<TABLE>
<CAPTION>

ALLOCATION OF THE ALLOWANCE FOR LOAN OR LEASE LOSSES
(dollars in thousands)                                          Amount of allowance allocation at December 31,
----------------------------------------------------------------------------------------------------------------------------
                                                          1999          1998          1997          1996          1995
----------------------------------------------------------------------------------------------------------------------------
 <S>                                                     <C>           <C>           <C>           <C>           <C>
  Commercial and other                                   $1,984        $1,842        $1,265        $1,070        $1,316
  SBA                                                     1,051         1,064         1,079           840         1,075
  Leasing                                                   455            90         -----         -----         -----
  Factoring and asset-based                                 320           197           206           159            83
  Real estate construction                                  329           291           236           223           225
  Real estate term                                          832           764           788           835           710
  Consumer                                                  195           195           158           127           227
  Unallocated                                               118           335           761           751           211
----------------------------------------------------------------------------------------------------------------------------
    Total                                                $5,284        $4,778        $4,493        $4,005        $3,847
============================================================================================================================
                                                                 Percent of loans and leases in each category
                                                                   to total loans and leases at December 31,
----------------------------------------------------------------------------------------------------------------------------
                                                          1999          1998          1997          1996          1995
----------------------------------------------------------------------------------------------------------------------------
  Commercial and other                                     32.6%         34.9%         40.8%         39.1%         36.0%
  SBA                                                      14.1          14.2          17.2          16.6          14.7
  Leasing                                                   5.1           1.4         -----         -----         -----
  Factoring and asset-based                                 3.0           2.8           2.1           2.2           1.4
  Real estate construction                                 12.4          12.4           7.8           7.8           8.5
  Real estate term                                         29.5          30.6          28.1          30.0          34.3
  Consumer                                                  3.3           3.7           3.9           4.3           5.2
----------------------------------------------------------------------------------------------------------------------------
    Total                                                 100.0%        100.0%        100.0%        100.0%        100.0%
============================================================================================================================
</TABLE>

The  allowance  for loan and lease  losses is  maintained  without any  internal
allocation  to the  segments  of the loan and  lease  portfolio  and the  entire
allowance is available to cover any loan and lease losses.  The allocation above
is  based on  subjective  estimates  that  take  into  account  historical  loss
experience   and   management's   current   assessment   of  the  relative  risk
characteristics  of the  portfolio as of the  reporting  date noted above and as
described more fully herein.

     Nonperforming Loans and Leases

Loans for which the accrual of interest has been suspended,  restructured  loans
and other loans with  principal  or interest  contractually  past due 90 days or
more are set forth in the following table:
<TABLE>
<CAPTION>

NONPERFORMING LOANS AND LEASES
(dollars in thousands)                                                                    December 31,
----------------------------------------------------------------------------------------------------------------------------
                                                                        1999       1998      1997       1996       1995
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>          <C>       <C>        <C>        <C>
Loans and leases accounted for on a non-accrual basis                   $1,395       $197      $360       $457       $866
Loans and leases restructured and in compliance with modified terms      -----         44        63         89      -----
Other loans and leases with principal or interest contractually past
  due 90 days or more                                                       16      -----         1      -----         28
----------------------------------------------------------------------------------------------------------------------------
    Total                                                               $1,411       $241      $424       $546       $894
============================================================================================================================
</TABLE>

The increase in the total on nonperforming loans during 1999 was due mainly to a
single customer with aggregate  borrowings of $1.1 million. The Bank believes it
has  adequate  collateral  and it is not  anticipated  that  there  is any  loss
exposure due to this  nonperforming  loan. At the date of the merger of Saratoga
Bancorp, January 5, 2000, nonperforming loans increased by approximately $375.

Potential nonperforming loans and leases are identified by management as part of
its ongoing evaluation and review of the loan and lease portfolio. Based on such
reviews  and  information  known  to  management  at the  date of  this  Report,
management has not identified any loans or leases (other than those in the above
table) about which it has serious  doubts  regarding the  borrowers'  ability to
comply with present loan  repayment  terms,  such that the loans or leases might
subsequently  be classified as  nonperforming.  Management  has  identified  one
Saratoga  National  Bank loan in the amount of $377 about  which it has  serious
doubts  regarding the  borrower's  ability to comply with present loan repayment
terms, such that the loan will be classified as nonperforming in future combined
financial data.

The  accrual of  interest  on loans is  discontinued  and any accrued and unpaid
interest is reversed  when, in the opinion of  management,  there is significant
doubt as to the  collectibility  of interest or principal or when the payment of
principal or interest is ninety days past due, unless the amount is well-secured
and in the process of collection.

          Other Real Estate Owned

At  December  31,  1999  and 1998  there  were no  properties  owned by the Bank
acquired through the foreclosure process.

Commitments and Lines of Credit

It is the  Bank's  policy  not to issue  formal  commitments  or lines of credit
except to well-established and financially  responsible commercial  enterprises.
Such  commitments  can be either  secured or unsecured  and are typically in the
form of revolving lines of credit for seasonal working capital needs.

Occasionally,  such  commitments  are in the  form  of a  letter  of  credit  to
facilitate the customer's particular business transaction. Commitments and lines
of credit  typically  mature  within one year.  These  commitments  involve  (to
varying  degrees)  credit risk in excess of the amount  recognized  as either an
asset or liability in the statement of financial position.  The Company attempts
to control this credit risk through its credit approval process. The same credit
policies are used when entering into such commitments.

As of December 31, 1999, the Company had undisbursed  loan commitments to extend
credit as follows:

UNDISBURSED LOAN COMMITMENTS
(dollars in thousands)                                   Amount
--------------------------------------------------------------------
Commercial and other                                     $115,006
SBA                                                        $1,110
Real estate construction                                   35,027
Real estate term                                            1,919
Consumer                                                   10,501
--------------------------------------------------------------------
    Total                                                $163,564
====================================================================

In addition,  there was  approximately  $5.6 million  available for  commitments
under unused letters of credit.


Funding
-------

Deposits represent SJNB's principal source of funds. Most of the Bank's deposits
are  obtained  from  professionals,   small-  to  medium-sized   businesses  and
individuals  within the Bank's  market area.  SJNB's  deposit  base  consists of
non-interest  and  interest-bearing  demand  deposits,  savings and money market
accounts  and  certificates  of deposit.  The  following  table  summarizes  the
composition of deposits as of December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>

DEPOSIT CATEGORIES
(dollars in thousands)                    December 31, 1999            December 31, 1998            December 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
                                                     Percentage                   Percentage                   Percentage
                                         Total        of Total        Total        of Total        Total        of Total
                                        Amount        Deposits       Amount        Deposits        Amount       Deposits
-----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>            <C>            <C>           <C>
Noninterest-bearing demand               $73,201        19.74%        $70,962         23.46%        $78,437        29.01%
Interest-bearing demand                   48,205        13.00          49,468         16.36          45,655        16.89
Money market and savings                 120,330        32.46          91,320         30.19          82,619        30.56
Certificates of deposit:
  Less than $100                          44,201        11.92          22,492          7.44          15,207         5.63
  $100 or more                            84,805        22.88          68,200         22.55          48,427        17.91
-----------------------------------------------------------------------------------------------------------------------------
     Total                              $370,742       100.00%       $302,442        100.00%       $270,345       100.00%
=============================================================================================================================
</TABLE>

Deposits increased 23% to $371 million at December 31, 1999 from $302 million at
December 31, 1998.  Deposits  increased 12% to $302 million at December 31, 1998
from $270 million at December 31, 1997. These increases are due to a combination
of  factors  including  the  development  of  customers  with  significant  cash
balances,  utilization of sophisticated  cash management  systems and aggressive
pricing of interest rates.

The Bank has been able to attract a  significant  proportion  of its deposits in
the  form of  noninterest-bearing  deposits.  The  Bank's  primary  business  is
commercially oriented with significant  noninterest-bearing  deposits maintained
by commercial customers. In a high interest rate environment,  these funds could
be subject to  disintermediation  (moved for higher interest rate products).  To
counter such  possibilities,  the Bank  maintains an array of products  which it
believes would be competitive  if such were to occur.  In addition,  in illiquid
economic  times  (possibly  recessions)  these  deposits  could  be  subject  to
withdrawal  pressures.  See "Capital and Liquidity - Liquidity" for a discussion
of the Bank's liquidity sources.

The Bank also  raises a  substantial  amount of funds  through  certificates  of
deposit of $100 or greater,  which were  approximately  23% of total deposits at
December 31, 1999.  These  deposits are usually at interest  rates  greater than
other  types of  deposits  and are more  sensitive  to  interest  rate  changes.
Historically,  the Bank's  overall  cost of funds has been less than that of its
peer group.  However, as these certificates of deposit are usually more interest
rate sensitive, their repricing in an increasing interest rate environment could
increase the Bank's cost of funds and negatively  impact the Bank's net interest
margin. See "Capital and Liquidity."

On December 4, 1998 the Bank  obtained  $10 million  through the  placement of a
ten-year synthetic floating rate certificate of deposit. The instrument consists
of two linked  transactions,  a callable  interest rate swap and callable  fixed
rate certificate of deposit. Under the swap agreement,  the Bank pays LIBOR plus
five  basis  points  and  receives  6% for a period  of ten  years.  The swap is
callable after one year by a major U.S. domestic bank. Simultaneously,  the Bank
issued a callable 6% fixed rate  certificate  of  deposit.  The  certificate  of
deposit does not have any early redemption  clauses,  other than by death of the
holder. Effectively,  the Bank's rate of interest on the combined transaction is
LIBOR plus five basis points.

The Bank utilizes  short-term  borrowings in its balance sheet  management.  The
short-term borrowings  (securities sold under agreements to repurchase) are used
for short-term  liquidity needs. The average cost of the borrowings  during 1999
was 5.61%,  the average amount  outstanding  was $7.4 million and the maximum at
any month end was $15.6 million.


Asset/Liability Management

The Company defines interest rate sensitivity as the measurement of the mismatch
in  repricing  characteristics  of assets,  liabilities  and  off-balance  sheet
instruments at a specified  point in time. This mismatch (known as interest rate
sensitivity gap) represents the potential  mismatch in the change in the rate of
interest revenue accrual and interest expense that would result from a change in
interest  rates.   Mismatches  in  interest  rate  repricing  among  assets  and
liabilities arise primarily from the interaction of various customer  businesses
(i.e.,  types of loans and leases versus the types of deposits  maintained)  and
from management's  discretionary investment and funds gathering activities.  The
Company attempts to manage its exposure to interest rate  sensitivity.  However,
due to its size and direct  competition  from the major banks,  the Company must
offer  products  which are  competitive  in the market place,  even if less than
optimum with respect to its interest rate exposure.

The  Company's  balance  sheet  position  at  December  31,  1999  was  slightly
asset-sensitive,  based upon the  significant  amount of variable rate loans and
the repricing  characteristics of its deposit accounts. This position provides a
hedge against rising interest rates,  but has a detrimental  effect during times
of interest rate decreases.  Net interest revenues are negatively  impacted by a
decline in  interest  rates and  positively  impacted by an increase in interest
rates. The interest rate gap is a measure of interest rate exposure and is based
upon the known  repricing  dates of certain assets and  liabilities  and assumed
repricing  dates of others.  See  "Financial  Review - Net  Interest  Income and
Margin."

The following table quantifies the Company's  interest rate exposure at December
31, 1999 based upon the known  repricing dates of certain assets and liabilities
and the assumed repricing dates of others. At December 31, 1999, the Company was
asset-sensitive  in the near term, as noted above.  It is expected by management
that  with the  addition  of  Saratoga  Bancorp  the Bank  will  continue  to be
asset-sensitive.
<TABLE>
<CAPTION>

DISTRIBUTION OF REPRICING OPPORTUNITIES
December 31, 1999
(dollars in thousands)
                                                      After three    After six     After one
                                          Within      months but    months but      year but        After
                                          three       within six    within one       within         five
                                          months        months         year        five years       years         Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>          <C>           <C>            <C>          <C>
Money market investments                   $5,650                                                                  $5,650
Investment securities-taxable                 605            $45           $80          $796           $189         1,715
Investment securities-non-taxable             371            374           491         1,120          4,971         7,327
Securities available for sale               3,938          1,779         9,026        23,113         25,618        63,474
Loans and leases                          228,306          6,666        13,674        46,315         32,000       326,961
-----------------------------------------------------------------------------------------------------------------------------
 Total earning assets                     238,870          8,864        23,271        71,344         62,778       405,127
-----------------------------------------------------------------------------------------------------------------------------
Interest-bearing demand, money
 market and savings                       168,535          -----         -----         -----          -----       168,535
Certificates of deposit:
 Less than $100                            16,735          3,582         2,774         6,809         14,301        44,201
  $100 or more                             57,483         10,054        15,204         1,334            730        84,805
Repurchase agreements                       -----          -----        10,497         -----          -----        10,497
Other borrowings                              910          -----         -----         -----            230         1,140
-----------------------------------------------------------------------------------------------------------------------------
 Total interest-bearing liabilities       243,663         13,636        28,475         8,143         15,261       309,178
-----------------------------------------------------------------------------------------------------------------------------
Interest rate gap                         ($4,793)       ($4,772)      ($5,204)      $63,201        $47,517       $95,949
=============================================================================================================================
Cumulative interest rate gap              ($4,793)       ($9,565)     ($14,769)      $48,432        $95,949
==============================================================================================================
Interest rate gap ratio                      0.98           0.65          0.82          8.76           4.11
==============================================================================================================
Cumulative interest rate gap ratio           0.98           0.96          0.95          1.16           1.31
==============================================================================================================
</TABLE>

In evaluating the Company's exposure to interest rate risk, certain shortcomings
inherent  in the method of analysis  presented  in the  foregoing  table must be
considered.  For  example,  although  certain  assets and  liabilities  may have
similar maturities or periods to reprice, they may react in different degrees to
changes in market  interest rates.  Additionally,  the interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
market  interest  rates.  Further,  certain  earning  assets have features which
restrict  changes in interest  rates on a short-term  basis and over the life of
the asset.  In  considering  such  shortcomings  the above table would reflect a
slightly asset sensitive position. The Company considers the anticipated effects
of these  various  factors in  implementing  its interest  rate risk  management
activities, including the utilization of certain interest rate hedges.

A large  proportion  of the  Bank's  deposits  are non  interest-bearing  demand
deposits and are not included in the above table as they tend not to be interest
rate  sensitive.  The average balance of these deposits was $71 million in 1999.
In addition,  the Bank's total tangible capital of approximately  $34 million is
not included as a funding source in the above table.  Lastly, the table includes
the  repricing of the Bank's  non-maturity  deposits  (interest-bearing  demand,
money market and savings accounts) as repricing immediately.  These accounts are
not subject to any specific  interest rate adjustment  formulas and are adjusted
by management  based upon the competitive  environment and the Bank's  liquidity
and  asset/liability  positions.  Taking these factors into consideration  could
alter the above ratios significantly.

The maturities  and yields of the investment  portfolio at December 31, 1999 are
shown below:
<TABLE>
<CAPTION>

MATURITY AND YIELDS OF INVESTMENT SECURITIES
At December 31, 1999
(dollars in thousands)
----------------------------------------------------------------------------------------------------------------------------
                                                                                Maturity
----------------------------------------------------------------------------------------------------------------------------
                                                                   After one year     After five years
                                   Carrying   Within one year    within five years    within ten years     After ten years
                                     Value    Amount     Yield    Amount    Yield     Amount     Yield    Amount     Yield
-----------------------------------------------------------------------------------------------------------------------------
Securities available for sale:
<S>                                   <C>       <C>     <C>         <C>      <C>
  U. S. Treasury                      $2,007    $1,001   5.99%      $1,006    6.23%    -----     -----     -----     -----

  U. S. Government Agencies           20,025     9,169   6.08       10,856    6.11     -----     -----     -----     -----
  Mortgage-backed (1)                 30,517       949   6.71       10,836    6.72    $7,308     6.54%   $11,424     6.88%
  Asset-backed                         1,978       177   6.60        1,801    6.15     -----     -----     -----     -----
  Trust preferred                      6,583     -----  -----        -----   -----     -----     -----     6,583     7.91
  Mutual funds                         2,364     2,364   4.78        -----   -----     -----     -----     -----     -----
-------------------------------------------------------          ----------         -----------         ----------
    Total                             63,474    13,660              24,499             7,308              18,007
-------------------------------------------------------          ----------         -----------         ----------
Securities held to maturity:
  U. S. Government Agencies              499     -----  -----          499    6.78      -----    -----     -----     -----
  State and municipal (2)              7,327       798   7.09          180    7.63        369     8.46     5,980     7.86
  Mortgage-backed (1)                    657       657   7.90        -----   -----      -----    -----     -----     -----
  Other                                  559     -----  -----        -----   -----      -----    -----       559     6.00
-------------------------------------------------------          ----------         -----------         ----------
    Total                              9,042     1,455                 679                369              6,539
-------------------------------------------------------          ----------         -----------         ----------
  Total                              $72,516   $15,115   6.05%     $25,178    6.40%    $7,677     6.64%  $24,546     7.38%
=============================================================================================================================
<FN>
(1) Maturities of  mortgaged-backed  securities are based upon dealer prepayment
projections.
(2) State and municipal  securities  are adjusted to a fully taxable  equivalent
basis using the federal statutory rate.
</FN>
</TABLE>

The  following  table  shows the  maturity  and  interest  rate  sensitivity  of
commercial, SBA, real estate construction and real estate term loans at December
31, 1999.  Approximately 77% of the commercial and real estate loan portfolio is
priced with floating  interest rates,  which limit the exposure to interest rate
risk on long-term loans.
<TABLE>
<CAPTION>

                                                          Balances maturing                    Interest Rate Sensitivity
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                  Predeter-
                                      Balances at                       One                         mined        Floating
                                      December 31,     One year       year to         Over        interest       interest
                                          1999         or less      five years     five years       rates         rates
-----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>            <C>            <C>           <C>           <C>
Commercial                               $107,415        $73,824        $26,263        $7,328        $20,386       $87,029
=============================================================================================================================
SBA                                       $46,031         $2,881        $10,423       $32,726         $3,219       $42,812
=============================================================================================================================
Real estate construction                  $40,620        $36,468         $2,605        $1,547           $460       $40,161
=============================================================================================================================
Real estate term                          $96,434        $12,156        $25,985       $58,293        $43,088       $53,346
=============================================================================================================================
</TABLE>

The above table does not take into  account the  possibility  that a loan may be
renewed at the time of maturity.  In most  circumstances,  the Company  treats a
renewal  request in  substantially  the same  manner in which it  considers  the
request for an initial  extension of credit.  The Company does not have a policy
to automatically renew loans.


Capital and Liquidity
---------------------

     Capital

The Company's book value per share was $15.65,  $14.48 and $13.30 as of December
31, 1999, 1998 and 1997, respectively. Tangible book value per share was $14.15,
$12.84 and $11.80 at December 31, 1999,  1998 and 1997,  respectively,  adjusted
for goodwill and core deposit intangibles. Shareholders' equity was $38 million,
$35  million  and  $33  million  as  of  December  31,  1999,   1998  and  1997,
respectively. Tangible shareholders' equity was $34 million, $31 million and $30
million as of December 31, 1999,  1998 and 1997,  respectively.  During 1999 and
1998 the Company repurchased 115 shares for $3.1 million and 102 shares for $2.5
million,  respectively.  See  Notes to  Consolidated  Financial  Statements  and
"Business -  Supervision  and  Regulation"  for a  discussion  of the  Company's
capital requirements.

     Liquidity

Management strives to maintain a level of liquidity  sufficient to meet customer
requirements  for loan and lease  funding  and  deposit  withdrawals.  Liquidity
requirements are evaluated by taking into consideration  factors such as deposit
concentrations,  seasonality  and  maturities,  loan and lease  demand,  capital
expenditures and prevailing and anticipated economic conditions. SJNB's business
is  generated   primarily  through  customer  referrals  and  employee  business
development  efforts.  The Bank utilizes brokered deposits on a limited basis to
satisfy temporary liquidity needs.

The  Bank's  sources of  liquidity  consist of its  deposits  with other  banks,
overnight  funds  sold  to  correspondent   banks  and  short-term,   marketable
investments  net of short-term  borrowings.  On December 31, 1999,  consolidated
liquid  assets  totaled  $60 million or 14% of  consolidated  total  assets,  as
compared  to $70 million or 20% of  consolidated  total  assets on December  31,
1998.  In addition to the liquid asset  portfolio,  SJNB also has $22 million in
informal  lines  of  credit  available  with  three  major   commercial   banks,
approximately  $6.7 million of credit  available at the Federal Reserve Discount
Window,  a repurchase  agreement for up to $34 million in additional  borrowings
and $22 million in SBA  guaranteed  loans which are available for sale and could
likely be sold within a 30-day period.

SJNB is primarily a business  and  professional  bank and, as such,  its deposit
base is more  susceptible  to  economic  fluctuations.  Accordingly,  management
strives  to  maintain a  balanced  position  of liquid  assets to  volatile  and
cyclical  deposits.  In their  normal  course of  business,  commercial  clients
maintain  balances in large  certificates  of deposit.  The  stability  of these
balances hinges upon, among other factors,  market conditions and each business'
seasonality.  Large certificates of deposit amounted to 23% of total deposits on
December 31, 1999 and 1998.

Liquidity  is  also  affected  by  investment  securities  and  loan  and  lease
maturities and the effect of interest rate  fluctuations on the marketability of
both assets and liabilities.  The loan and lease portfolio consists primarily of
floating rate,  short-term  loans.  On December 31, 1999,  approximately  36% of
total  consolidated  assets  had  maturities  under  one  year  and 74% of total
consolidated  loans and  leases  had  floating  rates  tied to the prime rate or
similar indexes. The short-term nature of the loan and lease portfolio, and loan
agreements  which  generally  require  monthly  interest  payments,  provide the
Company with an additional secondary source of liquidity.

The Company's  liquidity is maintained by cash flows stemming from dividends and
management  fees from the Bank and the exercise of stock  options  issued to the
Bank's employees and directors. The amount of dividends from the Bank is subject
to certain  regulatory  restrictions as discussed in Note 17 of the Notes to the
Consolidated  Financial Statements and elsewhere within this Report.  Subject to
said restrictions, at December 31, 1999, up to $8.9 million could have been paid
to the parent  Company by the Bank without  regulatory  approval.  The Company's
parent-only  financial  statements  are  presented  in Note 16 of the  Notes  to
Consolidated  Financial  Statements.  Dividends of $3.8 million and $4.5 million
were paid to the parent company during 1999 and 1998, respectively.

There are no material commitments for capital expenditures in 2000 or beyond.

Effects of Inflation
--------------------

The most direct  effect of  inflation on the Company is higher  interest  rates.
Because a  significant  portion of the Bank's  deposits  is  represented  by non
interest-bearing demand accounts, changes in interest rates have a direct impact
on the financial results of the Bank. See "Asset/Liability  Management." Another
effect of inflation is the upward pressure on the Company's  operating expenses.
Inflation did not have a material effect on the Bank's  operations in 1999, 1998
or 1997.


Item 7A:  Quantitative and Qualitative Disclosures about Market Risk
--------------------------------------------------------------------

The Company defines interest rate sensitivity as the measurement of the mismatch
in  repricing  characteristics  of assets,  liabilities  and  off-balance  sheet
instruments at a specified  point in time. This mismatch (known as interest rate
sensitivity gap) represents the potential  mismatch in the change in the rate of
interest income and interest expense that would result from a change in interest
rates.  Mismatches in interest rate repricing among assets and liabilities arise
primarily from the interaction of various customer  businesses  (i.e.,  types of
loans and leases versus the types of deposits  maintained) and from management's
discretionary investment and funds gathering activities. The Company attempts to
manage its exposure to interest rate sensitivity.  However,  due to its size and
direct  competition  from the major banks, the Company must offer products which
are  competitive in the market place,  even if less than optimum with respect to
its interest rate exposure.

The Company's  balance sheet position at December 31, 1999 was  asset-sensitive,
based upon the  significant  amount of  variable  rate  loans and the  repricing
characteristics of its deposit accounts.  This position provides a hedge against
rising  interest  rates,  but has a detrimental  effect during times of interest
rate decreases.  Net interest  revenues are negatively  impacted by a decline in
interest rates. The interest rate gap is a measure of interest rate exposure and
is based upon the known  repricing  dates of certain assets and  liabilities and
assumed  repricing dates of others.  See "Financial Review - Net Interest Income
and Margin."

Commencing  in the third  quarter of 1999,  the Federal  Open  Market  Committee
("FOMC")  began a process of  increasing  interest  rates to offset the possible
increase in inflation and to slow down consumer  spending.  Through February 29,
2000, the FOMC had increased interest rates 100 basis points. During this period
the Bank  experienced  very little  change in its net interest  margin.  For the
three  quarters  ended June 30, 1999,  September 30, 1999 and December 31, 1999,
net interest margins on a fully taxable  equivalent basis were 5.97%,  6.05% and
6.05%,  respectively.  The  effect of  possible  interest  rate  changes  is not
precisely  determinable  due to the many  factors  influencing  the  Bank's  net
interest margin,  including repricing of deposits,  a change in mix of the loan,
lease and deposit portfolios and other borrowings,  changes in relative volumes,
the speed in which  fixed  rate loans and  leases  are  repriced,  discretionary
investment activities and other factors.  Although, there was not an appreciable
change  in  the  Bank's  net  interest  margin,  during  this  period  the  Bank
experienced significant growth in its higher cost funding sources, such as money
market savings and  certificates  of deposits.  The growth in these deposits had
the impact of offsetting any increase in the net interest margin.

In evaluating the Company's exposure to interest rate risk, certain shortcomings
inherent  in the method of analysis  presented  in the  following  table must be
considered.  For  example,  although  certain  assets and  liabilities  may have
similar maturities or periods to reprice, they may react in different degrees to
changes in market  interest rates.  Additionally,  the interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
market  interest  rates.  Further,  certain  earning  assets have features which
restrict  changes in interest  rates on a short-term  basis and over the life of
the asset.  The  Company  considers  the  anticipated  effects of these  various
factors  when  implementing  its  interest  rate  risk  management   activities,
including the utilization of certain interest rate hedges.

See  footnote 15 of the  Consolidated  Financial  Statements  on page 56 of this
Report for a discussion of the methodology and assumptions used in the following
table.
<TABLE>
<CAPTION>

Interest Rate Risk Analysis
                                                            December 31, 1999                                     December 31,
(dollars in thousands)        Average                                                                                 1998
                              Interest  Expected Maturity/Principal Repayment December 31,        Total    Fair       Fair
                                Rate     2000    2001     2002      2003     2004    Thereafter  Balance   Value      Value
------------------------------------------------------------------------------------------------------------------------------
Interest-Sensitive Assets:
<S>                             <C>    <C>        <C>    <C>       <C>      <C>      <C>        <C>        <C>      <C>
Fed funds sold and other
 short-term investments           6.30% $5,650     -----   -----     -----    -----     -----     $5,650    $5,653   $22,298
Investments:
   Fixed maturity                 6.15  11,928    $3,433  $7,989    $1,822   $2,575   $10,673     38,420    37,606    37,610
   Mortgage Backed                6.90   4,554     5,398   5,770     3,969    2,464     9,019     31,174    31,187     5,930
   Mutual Funds                   4.91   2,364     -----   -----     -----    -----     -----      2,364     2,364     2,487
   Federal Reserve Bank Stock     6.00   -----     -----   -----     -----    -----       559        559       559       537
Loans and leases:
  Fixed rate                      9.46   9,396     7,219   3,485     4,700    5,757    36,555     67,112    66,689    54,572
  Variable rate                  10.08 128,462    15,717   9,599    10,219    8,386    61,196    233,579   234,924   199,730
  Leasing                        10.24   3,463     4,275   4,695     3,935    -----     -----     16,368    16,008     4,283
  Factoring accounts receivable
    and asset-based lending      21.98   9,901     -----   -----     -----    -----     -----      9,901     9,961     7,672
  Interest rate floor                                                                                                     82
Interest-Sensitive Liabilities:
Deposits:
   Interest-bearing demand        2.50  24,997     6,963   6,963     9,282    -----     -----     48,205    46,194    48,270
   Money market                   4.14  71,377    23,520  23,522     -----    -----     -----    118,419   116,768    88,376
   Savings                        2.10   -----       573     573       382      382     -----      1,910     1,856     2,037
   Certificates of deposit        5.18 105,832     5,348   2,266       529   11,876     3,155    129,006   129,094    91,094
Fed funds purchased and
  repurchase agreements           5.79  10,997     -----   -----     -----    -----     -----     10,997    11,016     5,003
Interest-Sensitive
  Off-balance sheet items:
Unused lines of credit and
  undisbursed loan commitments   10.66   -----     -----   -----     -----    -----     -----    163,564     -----     -----
</TABLE>

ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

The following section includes the Company's Consolidated Financial Statements:

     Independent Auditors' Report

     Consolidated Balance Sheets - December 31, 1999 and 1998

     Consolidated  Statements  of Income for the Years Ended  December 31, 1999,
          1998 and 1997

     Consolidated  Statements of Shareholders'  Equity and Comprehensive  Income
          for the Years Ended December 31, 1999, 1998 and 1997

     Consolidated  Statements  of Cash Flows for the Years  Ended  December  31,
          1999, 1998 and 1997

     Notes to Consolidated Financial Statements



<PAGE>


                          Independent Auditors' Report

The Board of Directors
SJNB Financial Corp.:

We have audited the accompanying  consolidated  balance sheets of SJNB Financial
Corp.  and  subsidiary  (the Company) as of December 31, 1999 and 1998,  and the
related   consolidated   statements   of   income,   shareholders'   equity  and
comprehensive  income,  and cash  flows for each of the years in the  three-year
period ended December 31, 1999. 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 require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of SJNB Financial Corp.
and  subsidiary  as of  December  31,  1999 and 1998,  and the  results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1999,  in  conformity  with  generally  accepted  accounting
principles.


KPMG LLP

Mountain View, California
January 13, 2000
<PAGE>

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Balance Sheets
December 31, 1999 and 1998
(in thousands)
-----------------------------------------------------------------------------------------------------------------------------
Assets                                                                                          1999             1998
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>              <C>
Cash and due from banks                                                                        $11,180          $11,239
Federal funds sold                                                                                -----            2,200
Money market investments                                                                          5,650           20,085
Investment securities:
  Available for sale                                                                             63,474           35,216
  Held to maturity (Fair value: $8,242 at December 31, 1999
    and $11,369 at December 31,1998)                                                              9,042           11,173
-----------------------------------------------------------------------------------------------------------------------------
    Total investment securities                                                                  72,516           46,389
-----------------------------------------------------------------------------------------------------------------------------
Loans and leases                                                                                326,961          261,380
Allowance for loan or lease losses                                                               (5,284)          (4,778)
-----------------------------------------------------------------------------------------------------------------------------
  Loans and leases, net                                                                         321,677          256,602
-----------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net                                                                       3,812            3,770
Accrued interest receivable                                                                       2,209            1,600
Intangibles, net of accumulated amortization of  $2,620 at December 31,1999
 and $2,164 at December 31, 1998.                                                                 3,617            4,027
Other assets                                                                                      5,286            4,022
-----------------------------------------------------------------------------------------------------------------------------
     Total                                                                                     $425,947         $349,934
=============================================================================================================================

Liabilities and Shareholders' Equity
-----------------------------------------------------------------------------------------------------------------------------
Deposits:
  Non interest-bearing                                                                          $73,201          $70,962
  Interest-bearing                                                                              297,541          231,480
-----------------------------------------------------------------------------------------------------------------------------
     Total deposits                                                                             370,742          302,442
-----------------------------------------------------------------------------------------------------------------------------
Other short-term borrowings                                                                      10,997            5,000
Accrued interest payable                                                                          1,321              822
Other liabilities                                                                                 5,058            6,188
-----------------------------------------------------------------------------------------------------------------------------
     Total liabilities                                                                          388,118          314,452
-----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
  Preferred stock, no par value, 5,000 shares authorized;
     none issued or outstanding in 1999 or 1998                                                   -----            -----
  Common stock, no par value; 20,000 shares authorized;
     2,417 and 2,449 shares issued and outstanding
     in 1999 and 1998 respectively.                                                              15,796           16,777
  Retained earnings                                                                              22,883           18,405
  Accumulated other comprehensive (loss) income, net                                               (850)             300
-----------------------------------------------------------------------------------------------------------------------------
     Total shareholders' equity                                                                  37,829           35,482
-----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies                                                                       ----             ----
-----------------------------------------------------------------------------------------------------------------------------
     Total                                                                                     $425,947         $349,934
=============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
----------------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Statements of Income
Years ended December 31, 1999, 1998 and 1997
----------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)                                       1999              1998             1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>              <C>               <C>
Interest income:
  Interest and fees on loans and leases                                       $28,915          $24,858           $22,732
  Interest on money market investments                                            701            1,024               586
  Interest and dividends on investment securities available for sale            2,889            2,749             2,982
  Interest on investment securities held to maturity                              535              709               947
  Other interest and investment income                                            (50)              (9)               (9)
----------------------------------------------------------------------------------------------------------------------------
    Total interest income                                                      32,990           29,331            27,238
----------------------------------------------------------------------------------------------------------------------------
Interest expense:
  Deposits:
    Interest-bearing demand                                                     1,316            1,325             1,178
    Money market and savings                                                    3,450            3,504             3,061
    Certificates of deposit of $100 or more                                     3,871            3,256             2,964
    Certificates of deposit of less than $100                                   1,917              680               792
 Other short-term borrowings                                                      584              312               754
----------------------------------------------------------------------------------------------------------------------------
    Total interest expense                                                     11,138            9,077             8,749
----------------------------------------------------------------------------------------------------------------------------
    Net interest income                                                        21,852           20,254            18,489
----------------------------------------------------------------------------------------------------------------------------
Provision for loan and lease losses                                               495              300               705
----------------------------------------------------------------------------------------------------------------------------
     Net interest income after provision for loan and lease losses             21,357           19,954            17,784
----------------------------------------------------------------------------------------------------------------------------
Other income:
  Service charges on deposits                                                     839              659               607
  Other operating income                                                          638              404               453
  Net loss on sale of securities available for sale                               (51)              (4)              (47)
----------------------------------------------------------------------------------------------------------------------------
     Total other income                                                         1,426            1,059             1,013
----------------------------------------------------------------------------------------------------------------------------
Other expenses:
  Salaries and benefits                                                         7,840            6,787             5,725
  Occupancy                                                                       915              775               725
  Other                                                                         4,236            3,935             3,460
----------------------------------------------------------------------------------------------------------------------------
     Total other expenses                                                      12,991           11,497             9,910
----------------------------------------------------------------------------------------------------------------------------
     Income before income taxes                                                 9,792            9,516             8,887
Income taxes                                                                    3,984            3,975             3,773
----------------------------------------------------------------------------------------------------------------------------
     Net income                                                                $5,808           $5,541            $5,114
============================================================================================================================

Basic earnings per share                                                       $2.45            $2.23             $2.04
============================================================================================================================
Diluted earnings per share                                                     $2.31            $2.11             $1.94
============================================================================================================================
Average common shares outstanding                                               2,375            2,484             2,508
============================================================================================================================
Average common and common share equivalents outstanding                         2,510            2,627             2,640
============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
---------------------------------------------------------------------------------------------------------------------
                                                                                                Net Unrealized
                                                                                                 Gain (Loss)      Total
                                                                                                on Securities     Share-
                                                                       Common        Retained     Available      holders'
(in thousands, except per share amounts)                 Shares         Stock        Earnings      for Sale       Equity
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>            <C>               <C>       <C>
Balances, December 31, 1996                               2,571       $20,880        $10,263           $62       $31,205
Net income for the year                                    ----          ----          5,114          ----         5,114
Other comprehensive income-Unrealized gain
  on securities available for sale, net                    ----          ----           ----            43            43
                                                                                                              ---------------
Comprehensive income                                       ----          ----           ----          ----         5,157
                                                                                                              ---------------
Stock options exercised                                      24           206           ----          ----           206
Common stock repurchase                                    (102)       (2,495)          ----          ----        (2,495)
Tax benefit from stock options exercised                   ----           209           ----          ----           209
Cash dividends ($0.45 per share)                           ----          ----         (1,123)         ----        (1,123)
-----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997                               2,493        18,800         14,254           105        33,159
-----------------------------------------------------------------------------------------------------------------------------
Net income for the year                                    ----          ----          5,541          ----         5,541
Other comprehensive income-Unrealized gain
  on securities available for sale, net                    ----          ----           ----           195           195
                                                                                                              ---------------
Comprehensive income                                       ----          ----           ----          ----         5,736
                                                                                                              ---------------
Stock options exercised                                      35           529           ----          ----           529
Common stock repurchase                                     (91)       (3,498)          ----          ----        (3,498)
Issuance of common stock for Epic Funding Corp.              12           501           ----          ----           501
Tax benefit from stock options exercised                   ----           445           ----          ----           445
Cash dividends ($0.56 per share)                           ----          ----         (1,390)         ----        (1,390)
-----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998                               2,449        16,777         18,405           300        35,482
-----------------------------------------------------------------------------------------------------------------------------
Net income for the year                                    ----          ----          5,808          ----         5,808
Other comprehensive income-Unrealized loss
  on securities available for sale, net                    ----          ----           ----        (1,150)       (1,150)
                                                                                                              ---------------
Comprehensive income                                       ----          ----           ----          ----         4,658
                                                                                                              ---------------
Common stock issued                                          60         1,800                                      1,800
Stock options exercised                                      23           275           ----          ----           275
Common stock repurchase                                    (115)       (3,104)          ----          ----        (3,104)
Tax benefit from stock options exercised                   ----            48           ----          ----            48
Cash dividends ($0.56 per share)                           ----          ----         (1,330)         ----        (1,330)
-----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1999                               2,417       $15,796        $22,883         $(850)      $37,829
=============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Statements of Cash Flows
Years ended December 31, 1999,  1998 and 1997
----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                                       1999              1998             1997
----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S>                                                                            <C>              <C>               <C>
  Net income                                                                   $5,808           $5,541            $5,114
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Provision for loan and lease losses                                         495              300               705
      Depreciation and amortization                                               626              546               529
      Amortization of intangibles                                                 456              457               473
      Deferred tax benefit                                                       (230)             (56)             (356)
      Loss on sale of securities available for sale                                51                4                47
      Net gain on sale of other real estate owned                               -----            -----               (65)
      Amortization of premium (discount) on investment securities, net             10              (49)              (48)
      (Increase) decrease in intangible assets                                    (45)             (50)              237
      Increase in accrued interest receivable and other assets                 (1,673)            (253)           (2,107)
      Increase in accrued interest payable and other liabilities                  184            1,678             1,716
----------------------------------------------------------------------------------------------------------------------------
          Net cash provided by operating activities                             5,712            8,118             6,245
----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Proceeds from sale or maturities of securities available for sale            16,761           32,476            18,610
  Maturities of securities held to maturity                                     6,125            4,323             2,250
  Purchase of securities available for sale                                   (46,783)         (19,008)          (18,850)
  Purchase of securities to be held to maturity                                (3,993)          (1,768)             (857)
  Proceeds from the sale of other real estate owned                             -----            -----               519
  Net increase in loans and leases                                            (65,785)         (32,274)          (30,562)
  Capital expenditures                                                           (669)            (400)             (444)
  Cash used to acquire Epic Funding Corp.                                       -----             (206)            -----
----------------------------------------------------------------------------------------------------------------------------
          Net cash used in investing activities                               (94,344)         (16,857)          (29,334)
----------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
  Net increase in deposits                                                     68,300           32,097            25,706
  Increase (decrease) in other short-term borrowings                            5,997          (11,000)          (13,688)
  Cash dividends                                                               (1,330)          (1,390)           (1,123)
  Common stock repurchased                                                     (3,104)          (3,498)           (2,495)
  Common stock issued                                                           1,800            -----             -----
  Proceeds from stock options exercised                                           275              529               206
----------------------------------------------------------------------------------------------------------------------------
          Net cash provided by financing activities                            71,938           16,738             8,606
----------------------------------------------------------------------------------------------------------------------------
          Net (decrease) increase in cash and equivalents                     (16,694)           7,999           (14,483)
Cash and equivalents at beginning of year                                      33,524           25,525            40,008
----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year                                           $16,830          $33,524           $25,525
============================================================================================================================
Other cash flow information:
  Interest paid                                                               $10,639           $9,118            $8,511
  Income taxes paid                                                             4,750            2,626             3,445
============================================================================================================================
  Purchase of Epic Funding Corp.:
    Leases                                                                     -----              $149              -----
    Other assets                                                               -----               789              -----
----------------------------------------------------------------------------------------------------------------------------
      Total assets acquired                                                    -----               938              -----
  Cash paid and expenses incurred                                                                 (206)
  Liabilities assumed:
    Other liabilities                                                          -----               231              -----
----------------------------------------------------------------------------------------------------------------------------
      Total liabilities assumed                                                -----               231              -----
----------------------------------------------------------------------------------------------------------------------------
Common stock issued, net of registration costs                                 -----              $501              -----
============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>

Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997

NOTE 1 - Summary of Significant Accounting Policies

SJNB Financial Corp.  ("Company") is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended. The Company was incorporated under
the laws of the State of California on April 18, 1983.  Its principal  office is
located at One North Market Street, San Jose, California, 95113.

The Company owns 100% of the issued and  outstanding  common  shares of San Jose
National  Bank  (referred  to  herein as  "SJNB"  or "the  Bank").  The Bank was
incorporated on November 23, 1981 and commenced business in San Jose, California
on June 10,  1982.  Its main office is located at One North Market  Street,  San
Jose,  California.  SJNB engages in the general commercial banking business with
special  emphasis  on  the  banking  needs  of  the  business  and  professional
communities  in San Jose  and the  surrounding  areas.  The  Financial  Services
Division is located at 95 South Market, San Jose,  California,  where it engages
in the factoring of accounts receivable.

The  accounting  policies of SJNB  Financial  Corp.  and San Jose  National Bank
(collectively,   the  "Company")  are  in  accordance  with  generally  accepted
accounting  principles  and  conform to  general  practices  within the  banking
industry.

a.  Consolidation

The consolidated financial statements include the accounts of SJNB. All material
intercompany  accounts and transactions have been eliminated in the consolidated
financial statements.

b.  Investment Securities

The Company accounts for its investment securities as follows:

Available for sale-Investment securities that are acquired without the intent to
hold until  maturity are classified as available for sale.  Such  securities are
carried at market  value.  Market value  adjustments  are reported as a separate
component of shareholders' equity until realized.

Held to maturity-Investment  securities purchased with the intent and ability to
hold them until maturity are classified as held to maturity. Such securities are
carried at cost,  adjusted  for  accretion  of  discounts  and  amortization  of
premiums.

Investment  securities  purchased are recorded as of their trade date. Accretion
of discounts and amortization of premiums arising at acquisition are included in
income using methods approximating the interest method. Gains or losses on sales
of  securities,  if any, are  determined  based on the  specific  identification
method. The carrying values of individual  investment securities are reduced, if
necessary,  through  write-downs to reflect other than temporary  impairments in
value.

c.  Loans and Leases and Allowance for loan and Lease Losses

Loans and leases  generally  are  stated at the  principal  amount  outstanding.
Interest  on loans is credited to income on a simple  interest  basis.  Unearned
revenue on direct  financing  leases is accreted over the lives of the leases in
decreasing amounts to provide a constant rate of return on the net investment in
the  leases.  Loan  origination  fees and direct  origination  costs,  including
initial direct cost of lease origination are deferred and amortized to income by
a method  approximating  the level yield method over the estimated  lives of the
underlying  loans.  The accrual of interest on loans and leases is  discontinued
and any  accrued  and  unpaid  interest  is  reversed  when,  in the  opinion of
management,  there is significant doubt as to the  collectibility of interest or
principal  or when the payment of principal or interest is ninety days past due,
unless the amount is well-secured and in the process of collection.

The allowance for loan and leases losses is a valuation allowance  maintained to
provide for future loan losses through charges to current operating expense. The
allowance  is based upon a continuing  review of loans and leases by  management
which includes  consideration  of changes in the character of the loan and lease
portfolio,  current and anticipated economic conditions, past lending experience
and such other factors which, in management's  judgment,  deserve recognition in
estimating potential loan losses. In addition,  regulatory examiners may require
the Company to recognize  additions to the  allowance  based on their  judgments
about information available to them at the time of their examinations.

Impaired loans are those in which,  based on current  information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual  terms of the loan or lease  agreement,  including  scheduled
interest  payments.  The  Company  measures  such loans and leases  based on the
present value of future cash flows discounted at the loan's or lease's effective
interest rate, or at the loan's or lease's market value or the fair value of the
collateral if the loan is secured.  If the  measurement  of the impaired loan or
lease is less than the recorded investment, impairment is recognized by creating
or adjusting an existing allocation of the allowance for loan and leases losses.
Recognition  of interest  income on impaired loans or leases is as stated in the
first paragraph above of this footnote 1(c).

d.  Premises and Equipment

Premises and equipment are stated at cost,  less  accumulated  depreciation  and
amortization.  Depreciation  and  amortization  are charged to expense  over the
estimated useful lives of the assets on a straight-line basis as follows:

     Buildings                         30 years
     Furniture and equipment         3-10 years
     Improvements                    7-15 years

e.  Intangibles

Goodwill is amortized using the straight-line method over 15 years. Core deposit
intangibles are amortized using an accelerated method over ten years.

On a periodic  basis,  the Company  reviews its intangible  assets for events or
changes in  circumstances  that may  indicate  that the  carrying  amount of the
assets may not be  recoverable.  Should such a change indicate that the value of
such intangibles may be impaired,  an evaluation of the recoverability  would be
performed, using undiscounted cash flows, prior to any writedown of the assets.

f.  Interest Rate Instruments

Interest  rate  instruments  are  entered  into in  conjunction  with the Bank's
asset/liability  management.  As these  contracts  are  entered  into only after
meeting the  accounting  criteria for a hedge,  and as long as they  continue to
meet such criteria, changes in market value are deferred and the net settlements
are  accrued  as  adjustments  to  interest  income.   The  Bank  currently  has
outstanding  an interest  rate swap for $10 million in  connection  with the $10
million ten year synthetic  floating rate  certificate of deposit and a one year
$10 million treasury lock, both of which are accounted for as hedges

g.  Income Taxes

The Company  accounts  for income  taxes using the asset and  liability  method.
Under this method,  deferred tax assets and  liabilities  are recognized for the
future tax consequences of 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.

Under the asset and liability  method,  deferred tax assets are  recognized  for
deductible   temporary   differences   and   operating   loss  and  tax   credit
carryforwards,  and then a valuation  allowance  is  established  to reduce that
deferred tax asset if it is "more likely than not" that the related tax benefits
will not be realized.

h.  Stock-based Compensation

The  Company  continues  to  account  for  stock-based  compensation  using  the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting  for Stock  Issued to  Employees."  The Company  only  grants  stock
options at fair  market  value.  Statement  of  Financial  Accounting  Standards
("SFAS")  No.  123,  Accounting  for  Stock-Based   Compensation,"   established
accounting  and  disclosure  requirements  using a  fair-value-based  method  of
accounting for stock-based employee  compensation plans. The Company has elected
to remain on its  current  method of  accounting  as  described  above,  and has
adopted the disclosure requirements of SFAS No. 123.

i.  Net Income Per Share

Basic net income per share is computed by  dividing  net income by the  weighted
average number of shares of common stock  outstanding  during the year.  Diluted
net income per share is computed by dividing net income by the weighted  average
number of  shares  of  common  stock  outstanding  during  the year plus  shares
issuable  assuming  exercise  of  all  employee  stock  options,   except  where
anti-dilutive.

j.  Comprehensive Income

Effective  January  1,  1998,  the  Company  adopted  SFAS  No.  130,  Reporting
Comprehensive  Income, which establishes new rules for the reporting and display
of comprehensive  income and its components.  The adoption of this statement had
no impact on net  income or  shareholders'  equity.  SFAS No. 130  requires  the
Company's net unrealized gains or losses on available-for-sale  securities to be
included in other comprehensive income.  Comprehensive income is included in the
statement of shareholders' equity for the periods presented.

k.  Statement of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents  include cash on
hand, amounts due from banks, fed funds sold and money market investments.

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  asset and  liabilities  to prepare  these  financial  statements  in
conformity with generally accepted accounting  principles.  Actual results could
differ from those estimates.

m.  Impairment of Long-lived Assets

Long-lived  assets  and  certain  identifiable  intangibles  held and used by an
entity are reviewed for impairment  whenever events or changes indicate that the
carrying  amount  of an  asset  may  not be  recoverable.  The  Company  has not
identified  any  long-lived  assets  or  identifiable   intangibles  which  were
impaired.

n.   Accounting   for   Transfers   and   Servicing  of  Financial   Assets  and
     Extinguishments of Liabilities

SFAS No. 125,  Accounting  for Transfers  and Servicing of Financial  Assets and
Extinguishments of Liabilities,  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.  Under this approach, after a transfer of
financial  assets,  an entity  recognizes all financial and servicing  assets it
controls and liabilities it has incurred and derecognizes financial assets it no
longer controls and liabilities that have been extinguished. The Company did not
have any significant  transactions in which this Statement had any impact on its
consolidated financial statements.

o.  Segments of an Enterprise and Related Information

SFAS  No.  131,   Disclosures  about  Segments  of  an  Enterprise  and  Related
Information,  requires certain  information about the operating  segments of the
Company. The objective of requiring  disclosures about segments of an enterprise
and related  information is to provide  information about the different types of
business  activities in which an enterprise  engages and the different  economic
environments in which it operates to help users of financial  statements  better
understand  its  performance;  better assess its prospects for future cash flows
and make more informed  judgments  about the enterprise as a whole.  The Company
has determined it has three segments,  general commercial  banking,  leases, and
factoring/asset  based financing.  Neither leasing nor factoring and asset based
financing  meet the required  thresholds  for  disagregation  and  therefore the
disclosures and related information about such segments has not been included in
the  consolidated  financial  statements.  At such time these  segments meet the
required thresholds, such disclosures and other information will be included. It
is expected they will meet the thresholds in 2000.

p.  Derivative Instruments and Hedging Activities

In  June  1998,  the  FASB  issued  SFAS  No.  133,  Accounting  for  Derivative
Instruments  and Hedging  Activities.  This  Statement  requires  that an entity
recognize all  derivatives  as either assets or  liabilities in the statement of
financial  position and measure those  instruments at fair value.  In June 1999,
the FASB issued SFAS No. 137, Accounting for Derivative  Instruments and Hedging
Activities-Deferral  of Effective  Date.  This Statement  deferred the effective
date to the fiscal  quarters of fiscal years  beginning after June 15, 2000. The
Company expects to adopt this Statement on January 1, 2001.  Management believes
the Statement would not have a significant effect on the Company's  consolidated
financial position or its consolidated statement of operations.

q.  Reclassification

Certain 1998 and 1997 amounts  have been  reclassified  to conform with the 1999
presentation.

NOTE 2 - Acquisitions

On May 22,  1998  SJNB  acquired  all of the stock of a  private  company,  Epic
Funding Corporation (Epic),  pursuant to a definitive  agreement dated April 13,
1998. In connection  with the  acquisition,  which was  structured as a tax-free
reorganization  and  accounted  for as a  purchase  transaction  for  accounting
purposes,  SJNB issued  12.2 shares of its common  stock and paid $110 to Epic's
shareholder  in exchange for all of Epic's  outstanding  stock.  Total  purchase
price was $611, while Epic's fair value of net assets was $28; goodwill amounted
to $759 including certain expenses of the transaction.  Epic provides direct and
vendor lease programs and accounts  receivable  financing to  manufacturers  and
equipment  users  throughout  California  and across parts of the United States.
Epic is a  wholly-owned  subsidiary  of the Bank.  Epic's  office is  located in
Danville, California;  together with a small de novo branch at the same facility
which was opened on July 1, 1998.

NOTE 3 - Cash and Due from Banks

The Federal Reserve  requires the Bank to maintain  average reserve balances for
certain deposit  balances.  There were no required reserves at December 31, 1999
or 1998.

NOTE 4 - Investment Securities
<TABLE>
<CAPTION>

Investment  securities  as of  December  31,  1999 and 1998  are  summarized  as
follows:

(dollars in thousands)                                                         December 31, 1999
----------------------------------------------------------------------------------------------------------------------------
                                                                                   Unrealized                      Fair
                                                                       ------------------------------------
                                                              Cost             Gains            Losses             Value
----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>              <C>              <C>
Available for sale:
 U.S. Treasury                                               $2,004                $3            -----            $2,007
 U. S. Government Agencies                                   20,215             -----            ($190)           20,025
 Mortgage Backed                                             30,888             -----             (371)           30,517
 Asset-backed                                                 2,000             -----              (22)            1,978
 Trust preferred                                              7,062             -----             (479)            6,583
  Mutual funds                                                2,518             -----             (154)            2,364
----------------------------------------------------------------------------------------------------------------------------
    Total available for sale                                 64,687                 3           (1,216)           63,474
----------------------------------------------------------------------------------------------------------------------------
Held to Maturity:
  U.S. Government agencies                                      499                 3            -----               502
  State and municipal (nontaxable)                            7,327             -----             (816)            6,511
  Mortgage Backed                                               657                13            -----               670
----------------------------------------------------------------------------------------------------------------------------
    Total held to maturity                                    8,483                16             (816)            7,683
Federal Reserve Bank Stock                                      559             -----            -----               559
----------------------------------------------------------------------------------------------------------------------------
    Total                                                     9,042                16             (816)            8,242
----------------------------------------------------------------------------------------------------------------------------
      Total investment securities portfolio                 $73,729               $19          ($2,032)          $71,716
============================================================================================================================
                                                                               December 31, 1998
----------------------------------------------------------------------------------------------------------------------------
                                                                                    Unrealized                   Fair
                                                                       --------------------------------------
                                                              Cost             Gains            Losses            Value
----------------------------------------------------------------------------------------------------------------------------
Available for sale:
  U.S. Treasury                                              $3,005               $72            -----            $3,077
  U. S. Government Agencies                                  25,220               466            -----            25,686
  Mortgage Backed                                             3,865               101            -----             3,966
  Mutual funds                                                2,638             -----            ($151)            2,487
----------------------------------------------------------------------------------------------------------------------------
    Total available for sale                                 34,728               639             (151)           35,216
----------------------------------------------------------------------------------------------------------------------------
Held to Maturity:
  U.S. Treasury                                               1,000                 7            -----             1,007
  U.S. Government agencies                                    3,496                38            -----             3,534
  State and municipal (nontaxable)                            4,213               116            -----             4,329
  Mortgage Backed                                             1,927                35            -----             1,962
----------------------------------------------------------------------------------------------------------------------------
    Total held to maturity                                   10,636               196            -----            10,832
Federal Reserve Bank Stock                                      537             -----            -----               537
----------------------------------------------------------------------------------------------------------------------------
    Total                                                    11,173               196            -----            11,369
----------------------------------------------------------------------------------------------------------------------------
      Total investment securities portfolio                 $45,901              $835            ($151)          $46,585
============================================================================================================================
</TABLE>

As of December 31, 1999 and 1998  investment  securities with carrying values of
approximately  $36.9 million and $18.6  million,  respectively,  were pledged as
collateral  for  deposits  of public  funds and other  purposes.  Investment  in
Federal Reserve Bank stock is carried at cost, which is  approximately  equal to
its market value.

The  following  tables  provide  the  scheduled   maturities  of  the  Company's
investment securities portfolio as of December 31, 1999:

Maturity of investment securities portfolio
(dollars in thousands)                               December 31, 1999
                                            ------------------------------------
                                                 Amortized            Fair
     Securities available for sale                 Cost               Value
                                            ------------------------------------
Due in one year or less                            $11,315           $11,296
Due after one year through five years               24,760            24,499
Due after five years through ten years               7,448             7,308
Due after ten years                                 18,646            18,007
                                            ------------------------------------
  Total                                             62,169            61,110
                                            ------------------------------------
     Securities held to maturity
Due in one year or less                              1,455             1,463
Due after one year through five years                  679               680
Due after five years through ten years                 369               344
Due after ten years                                  5,980              5196
                                            ------------------------------------
  Total                                              8,483             7,683
                                            ------------------------------------
     Non-maturity investments
Available for sale - Mutual Funds                    2,518             2,364
Held to maturity - FRB Stock                           559               559
                                            ------------------------------------
  Total                                              3,077             2,923
                                            ------------------------------------
    Total Investment securities                    $73,729           $71,716
                                            ====================================

Mutual funds consist of several funds  invested in U. S.  Government  securities
and government issued adjustable rate mortgages (ARMS).

Interest income earned on U. S. Treasury,  U. S.  Government  agencies and state
and municipal  securities for the years ended  December 31, 1999,  1998 and 1997
are as follows:

<TABLE>
<CAPTION>
                                                                        Interest income
(dollars in thousands)                                      1999             1998              1997
-----------------------------------------------------------------------------------------------------------
Securities available for sale:
<S>                                                         <C>               <C>              <C>
  U.S. Treasury                                             $147              $293             $280
  U.S. Government agencies                                 1,396             2,008            2,110
  Mortgage-backed                                            851               301              373
  Asset-backed                                                72             -----            -----
  Trust preferred                                            301             -----            -----
  Mutual funds                                               122               147              219
Securities held to maturity:
  U.S. Treasury                                               24                97              132
  U.S. Government agencies                                   115               260              453
  State and municipal (nontaxable)                           274               175              141
  Mortgage-backed                                             90               146              190
  Federal Reserve Bank                                        32                31               31
-----------------------------------------------------------------------------------------------------------
     Interest income                                      $3,424            $3,458           $3,929
===========================================================================================================
</TABLE>

NOTE 5 - Loans
<TABLE>
<CAPTION>

A summary of loans as of December 31, 1999, 1998 and 1997 is as follows:

(dollars in thousands)                                      1999             1998              1997
-----------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>              <C>
Commercial and other                                      $107,415           $91,866          $94,029
SBA                                                         46,031            37,019           39,409
Leasing                                                     16,633             3,768            -----
Factoring and asset-based                                    9,901             7,393            4,915
Real estate construction                                    40,620            32,340           17,818
Real estate term                                            96,434            80,009           64,403
Consumer                                                    10,764             9,647            9,042
Unearned fee income                                           (837)             (662)            (644)
-----------------------------------------------------------------------------------------------------------
  Total loan and lease portfolio                           326,961           261,380          228,972
Less allowance for loan or lease losses                     (5,284)           (4,778)          (4,493)
-----------------------------------------------------------------------------------------------------------
     Loans and leases, net                                $321,677          $256,602         $224,479
===========================================================================================================
</TABLE>

Concentrations  of credit risk arise when a number of  customers  are engaged in
similar business  activities,  or activities in the same geographic  region,  or
have  similar  features  that would  cause  their  ability  to meet  contractual
obligations to be similarly affected by changes in economic conditions. Although
the Company has a diversified loan and lease portfolio, a substantial portion of
its customers' ability to honor contracts is reliant upon the economic stability
of the Santa Clara Valley,  which in some degree relies on the stability of high
technology  companies in its "Silicon  Valley."  Loans and leases are  generally
made on the basis of a secure  repayment  source,  which is based on a  detailed
cash flow analysis; however, collateral is generally a secondary source for loan
qualification.

Approximately  29% of the Company's loan and lease  portfolio is made up of real
estate  term  loans.  This  category  of real  estate  loans  includes  loans on
income-bearing  commercial  properties.  In addition,  12% of the loan and lease
portfolio is made up of real estate  construction  loans. These loans consist of
approximately 37% residential and 63% commercial. Included in Consumer loans are
Prime  equity  loans of $5.3  million  or  approximately  2% of the  total  loan
portfolio.  Included in the commercial  category are mortgage  warehouse  loans,
loans to real estate developers for short-term  investment purposes and loans to
nondevelopers for real estate  investment  purposes that amount to approximately
4% of the total loan portfolio.  This amounts to  approximately  47% of the loan
portfolio   directly   related  to  real  estate  or  real   estate   interests.
Approximately 33% of the total loan portfolio is commercial loans;  however,  no
particular industry represents a significant portion of such loans.

The  following  is an  analysis of the  allowance  for loan losses for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>

(dollars in thousands)                                      1999              1998             1997
-----------------------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>             <C>
Balance, beginning of year                                  $4,778             $4,493          $4,005
Provision for loan or lease losses                             495                300             705
Charge-offs                                                   (152)              (234)           (288)
Recoveries                                                     163                219              71
-----------------------------------------------------------------------------------------------------------
Balance, end of year                                        $5,284             $4,778          $4,493
===========================================================================================================
</TABLE>

At December 31, 1999 and 1998, impaired loans totaled $1.4 million and $403 with
a corresponding valuation allowance of $224 and $27, respectively. For the years
ended  December 31, 1999 and 1998, the average  recorded  investment in impaired
loans was approximately $475 and $733, respectively. The Company recognized $41,
$60 and $46 of interest on impaired  loans  (during the portion of the year they
were  impaired),  of which $40, $8 and $39  related to impaired  loans for which
interest income is recognized on the cash basis for the years ended December 31,
1999, 1998 and 1997, respectively.

The  balance  of  nonaccrual  loans  as  of  December  31,  1999  and  1998  was
approximately $1.4 million and $197, respectively. The effect on interest income
had these loans been performing in accordance with contractual terms was $132 in
1999, $22 in 1998, and $61 in 1997.  Income  actually  recognized on these loans
was $112 in 1999, $21 in 1998 and $32 in 1997.

The Company has made loans to executive officers, directors and their affiliates
in the ordinary course of business. An analysis of activity with respect to such
loans during the years ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>

(dollars in thousands)                                      1999             1998              1997
-----------------------------------------------------------------------------------------------------------
<S>                                                       <C>               <C>              <C>
Balance, beginning of year                                $1,749            $1,223           $1,652
New loans disbursed                                        2,717             1,340              495
Repayments of loans                                       (1,725)             (814)            (924)
-----------------------------------------------------------------------------------------------------------
Balance, end of year                                      $2,741            $1,749           $1,223
===========================================================================================================
</TABLE>

As of December  31,  1999,  loans of  approximately  $11 million were pledged as
collateral for the Federal Reserve Discount Window.

NOTE 6 - Premises and Equipment

A summary of  premises  and  equipment  as of  December  31, 1999 and 1998 is as
follows:

(dollars in thousands)                                    1999             1998
--------------------------------------------------------------------------------
Land                                                     $829              $829
Buildings and improvements                              3,153             3,109
Furniture and equipment                                 2,371             1,748
--------------------------------------------------------------------------------
     Premises and equipment                             6,353             5,686
Less accumulated depreciation and amortization          2,541)           (1,916)
--------------------------------------------------------------------------------
     Premises and equipment, net                       $3,812            $3,770
===========================================================++++=================

NOTE 7 - Time Deposits

As of  December  31, 1999 and 1998,  the Bank had $85  million and $68  million,
respectively,  in time  deposits  in  denominations  of $100 or  more.  Interest
expense for these  deposits  was $3.9 million and $3.3 million in 1999 and 1998,
respectively.  Time  deposits in  denominations  of $100 or more which mature in
greater than one year was $54.6 million as of December 31, 1999.

On December 4, 1998 the Bank raised $10 million  through the  placement of a ten
year synthetic floating rate certificate of deposit.  The instrument consists of
two linked  transactions,  a callable interest rate swap and callable fixed rate
certificate  of deposit.  Under the swap agreement the Bank pays LIBOR plus five
basis  points and  receives  6% for a period of ten years.  The swap is callable
after one year by the  issuer.  Simultaneously,  the Bank  issued a callable  6%
fixed rate 10 year  certificate of deposit.  The certificate of deposit does not
have  any  early  redemption  clauses,  other  then  by  death  of  the  holder.
Effectively,  the Bank's rate of interest on the combined  transaction  is LIBOR
plus five basis points.

NOTE 8 - Other Short-term Borrowings

Other short-term  borrowings include federal funds purchased and securities sold
under agreements to repurchase and information  relating to these borrowings are
summarized below:
<TABLE>
<CAPTION>

(dollars in thousands)                                      1999             1998              1997
-----------------------------------------------------------------------------------------------------------
Federal funds purchased
<S>                                                        <C>               <C>              <C>
   Balance at December 31,                                    $500            $5,000            -----
   Weighted average interest rate at year end                 5.50%             5.50%           -----
   Maximum amount outstanding at any month end              22,000             5,000           $6,000
   Average outstanding balance                               1,801               380              834
   Weighted average interest rate paid                        5.54%             6.40%            5.93%
Securities sold under agreements to repurchase
   Balance at December 31,                                 $10,497             -----          $16,000
   Weighted average interest rate at year end                 5.80%            -----             5.72%
   Maximum amount outstanding at any month end              15,559           $12,000           16,000
   Average outstanding balance                               7,421             3,762           11,236
   Weighted average interest rate paid                        5.61%             5.59%            5.77%
</TABLE>

Any securities  used under  securities  sold under  agreements to repurchase are
under the control of the Bank. Securities subject to the agreement to repurchase
represent  securities  held by the  Bank in its  securities  available  for sale
portfolio  with a total  amortized  cost of $13.3  million and a market value of
$13.1 million as of December 31, 1999.

The  Company's   bank   subsidiary  has  informal   arrangements   with  various
correspondents  providing  short-term  credit for liquidity  requirements;  such
informal lines aggregated $22 million at December 31, 1999.

NOTE 9 - Accumulated other Comprehensive Income
<TABLE>
<CAPTION>

Accumulated  other  comprehensive  income  is as  follows  for the  years  ended
December 31, 1999, 1998, and 1997:

--------------------------------------------------------------- -------------- --------------- --------------
                                                                    1999            1998           1997
--------------------------------------------------------------- -------------- --------------- --------------
<S>                                                                <C>              <C>              <C>
Realized losses on securities available for sale, net                $(51)           $(4)           $(47)
Unrealized  (loss)appreciation  of  securities  held for sale,     (1,099)           199              90
net
--------------------------------------------------------------- -------------- --------------- --------------
Other comprehensive (loss) income                                 ($1,150)          $195             $43
=============================================================== ============== =============== ==============
</TABLE>

NOTE 10 - Earnings per Share

The  reconciliation  of the numerators and denominators of the basic and diluted
earnings per share (EPS) computations are as follows:
<TABLE>
<CAPTION>

                                                                For the year ended December 31, 1999
-------------------------------------------------------------------------------------------------------------
                                                                                                Per share
                                                           Net income           Shares           amount
-------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                    <C>              <C>
Net income and basic EPS                                     $5,808                  2,375           $2.45
                                                                                             ================
Effect of stock option dilutive shares                                                 135
--------------------------------------------------------------------------------------------
Diluted EPS                                                                          2,510           $2.31
=============================================================================================================
                                                                For the year ended December 31, 1998
-------------------------------------------------------------------------------------------------------------
Net income and basic EPS                                     $5,541                  2,484           $2.23
                                                                                             ================
Effect of stock option dilutive shares                                                 143
--------------------------------------------------------------------------------------------
Diluted EPS                                                  $5,541                  2,627           $2.11
=============================================================================================================
                                                                For the year ended December 31, 1997
                                                        -----------------------------------------------------
Net income and basic EPS                                     $5,114                  2,508           $2.04
                                                                                             ================
Effect of stock option dilutive shares                                                 132
--------------------------------------------------------------------------------------------
Diluted EPS                                                  $5,114                  2,640           $1.94
=============================================================================================================
</TABLE>

NOTE 11 - Income Taxes

Income tax expense for the years ended December 31, 1999, 1998 and 1997 consists
of the following:
<TABLE>
<CAPTION>

(dollars in thousands)                                       1999             1998              1997
-----------------------------------------------------------------------------------------------------------
Current:
<S>                                                           <C>              <C>               <C>
  Federal                                                     $3,218           $3,120            $3,208
  State                                                          996              911               921
-----------------------------------------------------------------------------------------------------------
     Total current                                             4,214            4,031             4,129
-----------------------------------------------------------------------------------------------------------
Deferred:
  Federal                                                       (183)             (45)             (281)
  State                                                          (47)             (11)              (75)
-----------------------------------------------------------------------------------------------------------
    Total deferred                                              (230)             (56)             (356)
-----------------------------------------------------------------------------------------------------------
       Income taxes                                           $3,984           $3,975            $3,773
===========================================================================================================
</TABLE>

Total income tax expense differed from the amount computed by applying the U. S.
federal income tax rates of 34% in years ended December 31, 1999,  1998 and 1997
to income before income taxes as a result of the following:
<TABLE>
<CAPTION>

(dollars in thousands)                                       1999             1998              1997
-----------------------------------------------------------------------------------------------------------
<S>                                                           <C>              <C>               <C>
Computed "expected " tax expense                              $3,329           $3,235            $3,021
California franchise tax, net of federal income tax              627              610               558
Amortization of intangible assets                                136              136               142
Federal tax-exempt investment income                             (97)             (52)              (42)
Other                                                            (11)              46                94
-----------------------------------------------------------------------------------------------------------
     Income taxes                                             $3,984           $3,975            $3,773
===========================================================================================================
</TABLE>

The tax effects of temporary  differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 and
1998, are presented below:
<TABLE>
<CAPTION>

(dollars in thousands)                                       1999             1998
------------------------------------------------------------------------------------------
Deferred tax assets:
<S>                                                           <C>              <C>
  Allowance for loan and lease losses                         $1,850           $1,592
  Purchase accounting adjustments                                 95              137
  Foreclosure income                                              43               43
  State taxes                                                    337              286
  Deferred compensation                                          105              114
  Securities available for sale                                  567             ----
  Other                                                           72              100
------------------------------------------------------------------------------------------
    Total gross deferred tax assets                            3,069            2,272
------------------------------------------------------------------------------------------
Deferred tax liabilities:
  Securities available for sale                                 ----              200
  Depreciation and amortization                                   81               81
------------------------------------------------------------------------------------------
    Total gross deferred tax liabilities                          81              281
------------------------------------------------------------------------------------------
      Net deferred tax assets                                 $2,988           $1,991
==========================================================================================
</TABLE>

Amounts for the current year are based upon estimates and  assumptions as of the
date of this report and could vary  significantly  from amounts shown on the tax
returns  as  filed.  Accordingly,  the  variances  from the  amounts  previously
reported  for 1998 are  primarily as a result of  adjustments  to conform to tax
returns as filed.

Deferred tax assets related to purchase  accounting  adjustments include the tax
effect of fair  market  value  adjustments  of the  assets  and  liabilities  of
businesses  acquired.  The Company  believes  that the net deferred tax asset is
realizable  through  sufficient  taxable income within the carryback periods and
the current year's taxable income.

NOTE 12 - Detail of Other Expense

Other expense for the years ended  December 31, 1999,  1998 and 1997 consists of
the following:
<TABLE>
<CAPTION>

(dollars in thousands)                                      1999             1998              1997
-----------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>              <C>
Data processing                                               $604              $663             $441
Amortization of core deposit intangibles and goodwill          456               457              473
Legal and professional fees                                    506               315              331
Client services                                                437               443              345
Business promotion                                             389               332              369
Directors and shareholders                                     339               282              332
Net cost of other real estate owned                          -----                 3              (72)
Other                                                        1,505             1,440            1,241
-----------------------------------------------------------------------------------------------------------
  Total                                                     $4,236            $3,935           $3,460
===========================================================================================================
</TABLE>

NOTE 13 - Stock Option Plan

During 1996 the  shareholders of the Company approved the 1996 Stock Option Plan
(the "Plan"),  which replaced the then existing two stock option plans. The 1996
Stock Option Plan is described below. In accordance with APB 15, no compensation
cost has been recognized for the Plan. Had  compensation  cost for the Plan been
determined  consistent  with SFAS No. 123, the Company's net income and earnings
per share would have been adjusted to the pro forma amounts for options  granted
for the years 1998, 1998 and 1997 indicated below:
<TABLE>
<CAPTION>

(dollars in thousands)                                       1999             1998              1997
-----------------------------------------------------------------------------------------------------------
Net income:
<S>                                                           <C>              <C>               <C>
  As reported                                                 $5,808           $5,541            $5,114
  Pro forma                                                    4,663            4,854             4,850
-----------------------------------------------------------------------------------------------------------
Net income per share:
  Basic, as reported                                           $2.45            $2.23             $2.04
  Basic, pro forma                                              1.96             1.95              1.93
-----------------------------------------------------------------------------------------------------------
  Diluted, as reported                                         $2.31            $2.11             $1.94
  Diluted, pro forma                                            1.86             1.85              1.84
</TABLE>

The above amounts  include the impact on net income and net income per share for
options granted during the years 1995 through 1999; such amounts would have been
substantially  different if options  granted  prior to 1995 had been included in
the computation.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions used for grants in the following years:
<TABLE>
<CAPTION>

Assumptions:                                                   1999              1998             1997
--------------------------------------------------------- ---------------- ----------------- ----------------
<S>                                                            <C>              <C>               <C>
   Dividend yield                                                2.0%             1.8%              1.3%
   Volatility                                                   46.7%            50.0%             53.0%
   Risk free interest rates                                      5.4%             5.0%              6.4%
   Expected lives (years)                                        7.2              6.4               6.5
</TABLE>


The 1996 Stock  Option Plan  provides  that either  incentive  stock  options or
nonstatutory  stock options may be granted to certain key employees or directors
to purchase authorized, but unissued, Common Stock of the Company. Shares may be
purchased  at a price not less than the fair  market  value of such stock on the
date of the grant.  Generally,  stock options  become  exercisable  40% one year
after  the date of grant  and 20% in each of the  following  three  years.  They
expire no later than ten years  after the date of the grant.  The Plan  provides
that outside directors will automatically receive a nonstatutory option covering
5,000 shares  annually at an exercise price equal to 100% of the market price of
the Common Stock on the date of grant.  The 1996 Stock Option Plan  replaced the
previous two plans which had similar  provisions.  If options  granted under the
prior plans expire  without being  exercised,  the  corresponding  common shares
shall  become  available  for awards under the Plan.  During 1999,  1,080 shares
became available under this provision. The number of shares available for future
grants of options  under the 1996 Stock  Option  Plan was 153,487 as of December
31, 1999.

Activity under the stock plans is as follows:

                                                                  Weighted
                                                  Number           Average
                                                    of            Exercise
Options                                           Shares            Price
--------------------------------------------------------------------------------
Balances, December 31, 1996                       252,518           $11.40
  Granted                                         100,070            25.60
  Cancelled                                       (15,075)           15.70
  Exercised                                       (23,553)            8.76
--------------------------------------------------------------------------------
Balances, December 31, 1997                       313,960            15.92
  Granted                                         371,200            31.26
  Cancelled                                      (198,230)           35.25
  Exercised                                       (35,080)           15.08
--------------------------------------------------------------------------------
Balances, December 31, 1998                       451,850            20.09
--------------------------------------------------------------------------------
  Granted                                         158,170            27.93
  Cancelled                                       (30,182)           25.74
  Exercised                                       (19,798)           13.90
--------------------------------------------------------------------------------
Balances, December 31, 1999                       560,040           $22.22
================================================================================

The  weighted-average  fair value of options  granted during 1999, 1998 and 1997
was $12.34, $14.38 and $13.28 respectively.

The following table summarizes  options  outstanding and exercisable at December
31, 1999:
<TABLE>
<CAPTION>

                                       Options Outstanding                                  Options Exercisable
                  -----------------------------------------------------------------------------------------------------------
                          Number                                                         Number               Weighted
    Range of            Outstanding                 Weighted Average                  Exercisable              Average
    Exercise               as of             Remaining           Exercise                as of                Exercise
     Prices          December 31, 1999          Life              Price            December 31, 1999            Price
-----------------------------------------------------------------------------------------------------------------------------
<S>        <C>          <C>                       <C>              <C>                    <C>                   <C>
  $5.38 -  $9.31          15,400                   3.38             $6.46                  15,400                $6.46
  11.50 -  11.50          92,500                   5.57              9.34                  92,500                 9.34
  13.38 -  16.75          56,930                   6.41             16.22                  43,870                16.29
  17.31 -  25.00          68,460                   7.13             23.99                  43,220                23.78
  25.38 -  26.56          16,450                   9.05             26.55                     120                25.38
  26.69 -  26.69         171,360                   8.81             26.69                  67,512                26.69
  27.19 -  34.25         138,940                   9.28             28.11                   -----                -----
-----------------------------------------------------------------------------------------------------------------------------
 $5.38  - $34.25         560,040                   7.80            $22.22                 262,622               $17.18
=============================================================================================================================
<FN>

Options  exercisable  as of December  31, 1998 and 1997 were 163,674 and 126,679
and had weighted average exercise prices of $13.24 and $11.54 respectively.
</FN>
</TABLE>

NOTE 14 - Commitments and Contingent Liabilities

In the normal course of business,  there are  outstanding  commitments,  such as
commitments  to extend  credit,  which  are not  reflected  in the  consolidated
financial statements. These commitments involve, to varying degrees, credit risk
in excess of the  amount  recognized  as  either  an asset or  liability  in the
consolidated  balance  sheet.  The Company  controls the credit risk through its
credit  approval  process.  The same credit policies are used when entering into
such commitments. Management does not anticipate any loss from such commitments.
Amounts  committed to extend credit under normal lending  agreements  aggregated
approximately  $164  million and $139  million  for  undisbursed  variable  loan
commitments  and  approximately  $5.6 million and $6.3  million for  commitments
under unused standby letters of credit and other guarantees at December 31, 1999
and 1998, respectively.

The Bank utilizes various  financial  instruments with off-balance sheet risk to
reduce  its  exposure  to  fluctuations  in  interest  rates.   These  financial
instruments involve, to varying degrees, credit and interest rate risk in excess
of the amount  recognized  as either an asset or liability  in the  statement of
financial position.

The credit risk is the  possibility  that a loss may occur  because a party to a
transaction  fails to perform  according to the terms of the contract.  Interest
rate risk is the  possibility  that future changes in market prices will cause a
financial  instrument to be less valuable or more onerous.  The Bank attempts to
control  the credit  risk  arising  from these  instruments  through  its credit
approval  process  and  through the use of risk  control  limits and  monitoring
procedures. Interest rate risk is managed by various asset and liability methods
including the utilization of interest rate hedging vehicles.

The Company is obligated under its lease  agreements for 95 South Market Street,
San Jose and 50 Oak  Court,  Danville  under a  noncancelable  operating  leases
through  September 2004 and July 2001,  respectively.  The leases are subject to
periodic  adjustments  based on changes in the CPI.  The  following  table shows
future minimum payments under the leases as of December 31, 1999:

-------------------------------------------------------------
Years Ending December 31,
(in thousands)
2000                                              $314
2001                                               269
2002                                               236
2003                                               236
2004                                               177
Total minimum lease payments
=============================================================

Total  minimum  lease  payments to be  received  under  noncancelable  operating
subleases at December 31, 1999 were  approximately  $890; these payments are not
reflected in the above table. Total rent expense was $330, $281, and $90 for the
years ended December 31, 1999, 1998 and 1997, respectively.

There is ordinary routine litigation  incidental to the business pending against
the Company but, in the opinion of management, liabilities (if any) arising from
such claims  will not have a material  effect  upon the  consolidated  financial
statements of the Company.

NOTE 15 - Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Value of Financial  Instruments," requires
disclosure  of estimated  fair values for the Company's  financial  instruments.
Fair value estimates, methods and assumptions, set forth below for the Company's
financial  instruments,  are made solely to comply with the requirements of SFAS
No.  107 and  should  be read in  conjunction  with the  consolidated  financial
statements and notes thereto in this Annual Report.

Fair values are based on  estimates or  calculations  at the  transaction  level
using present value  techniques in instances  where quoted market prices are not
available. Because broadly traded markets do not exist for most of the Company's
financial  instruments,  the fair value calculations  attempt to incorporate the
effect of current  market  conditions at a specific  time.  Fair  valuations are
management's  estimates of the values,  and they are often  calculated  based on
current  pricing  policy,   the  economic  and  competitive   environment,   the
characteristics  of the financial  instruments,  and other such  factors.  These
calculations  are  subjective in nature,  involve  uncertainties  and matters of
significant  judgment  and do not  include  tax  ramifications;  therefore,  the
results  cannot be determined  with  precision,  substantiated  by comparison to
independent  markets  and may not be  realized  in an actual  sale or  immediate
settlement of the  instruments.  The fair valuations have not been updated since
year end;  therefore,  the valuations may have changed  significantly since that
point in time.

The Company has not included certain  material items in its disclosure,  such as
the value of the long-term  relationships  with the Company's deposit customers,
since these  intangibles  are not financial  instruments.  There may be inherent
weaknesses  in  any  calculation  technique,   and  changes  in  the  underlying
assumptions used,  including  discount rates and estimates of future cash flows,
could significantly  affect the results.  For all these reasons, the aggregation
of the fair value calculations presented herein do not represent, and should not
be construed to represent, the underlying value of the Company.

The following table presents a summary of the Company's  financial  instruments,
as defined by SFAS No. 107 as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>

Fair Value of Financial Instruments
(dollars in thousands)                                           1999                    1998
--------------------------------------------------------------------------------------------------------
                                                        Carrying       Fair      Carrying      Fair
Financial assets                                          Value       Value        Value       Value
--------------------------------------------------------------------------------------------------------
<S>                                                      <C>         <C>          <C>         <C>
Cash and due from banks                                  $11,180     $11,180      $11,239     $11,239
Money market investments                                   5,650       5,653       22,285      22,298
Investment securities                                     72,516      71,716       46,389      46,563
Loans and leases, net                                    321,677     322,298      256,602     261,479
Accrued interest receivable                                2,209       2,209        1,600       1,600
Financial liabilities
--------------------------------------------------------------------------------------------------------
Deposits                                                 370,742     368,919      302,442     289,147
Federal funds purchased, securities sold under
  repurchase agreements and other borrowings              11,637      11,656        5,743       5,748
Off-balance sheet
Financial Instruments
--------------------------------------------------------------------------------------------------------
Interest rate floor contract purchased                     -----       -----          100          82
</TABLE>

The  methodology  and  assumptions  utilized to  estimate  the fair value of the
Company's financial  instruments,  not previously discussed above, are described
below:

Financial  instruments  with fair  value  approximate  to  carrying  value - The
carrying  value of cash and due from banks,  money market  investments,  accrued
interest  receivable,   noninterest-bearing  demand  accounts,  interest-bearing
demand,  money market and savings deposit accounts,  accrued interest receivable
and  expense  approximates  fair  value  due to the  short-term  nature of these
financial instruments.

Investment  securities - The  estimated  fair values of  securities  by type are
based on quoted market prices when available.

Loans and leases - The  carrying  amount of loans and leases is net of  unearned
fee  income  and the  reserve  for loan and  lease  losses.  The fair  valuation
calculation  process  differentiates  loans and leases based on their  financial
characteristics, such as product classification, loan category, pricing features
and  remaining  maturity.  Prepayment  estimates  are  evaluated  by product and
respective  interest rate. Discount rates presented in the paragraphs below have
a wide range due to the Company's mix of fixed and variable rate products.

The fair value of loans and leases is calculated by discounting contractual cash
flows using discount rates that reflect the Company's  current pricing for loans
and leases with similar  characteristics  and  remaining  maturity.  Most of the
discount  rates  applied to these loans were  between 8.2% and 10.6% at December
31, 1999.

Additionally,  the allowance  for loan and lease losses was applied  against the
estimated  fair  value of loans  and  leases to  recognize  future  defaults  of
contractual cash flows.

Fair value for nonperforming loans and leases is based on discounting  estimated
cash flows using a rate commensurate with the risk associated with the estimated
cash flows, or underlying collateral values, where appropriate.

Deposits - The fair value of  certificates of deposit and other time deposits is
calculated based on the discounted value of contractual cash flows. The discount
rate is  estimated  using the rates  currently  offered for like  deposits  with
similar remaining maturities.

Other short-term borrowings - A reasonable estimate of the fair value of federal
funds sold is the carrying amount because of the relatively short period of time
between the origination of the instrument and its expected maturity.

The fair value of the Company's  securities sold under repurchase  agreements is
calculated based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently  offered for such  instruments  with
similar remaining maturities.

Commitment  to extend  credit - The  majority of the  Company's  commitments  to
extend credit carry variable and current  market  interest rates if converted to
loans or leases.  Because these commitments are generally unassignable by either
the  Company  or the  borrower,  they only  have  value to the  Company  and the
borrower.  The  estimated  fair value  approximates  the  recorded  deferred fee
amounts and is excluded from the table.

Derivative  financial  instruments  - The fair value of the interest  rate floor
generally  reflects the  estimated  amounts the Company would receive based upon
dealer quotes, to terminate such agreements at the reporting date.

NOTE 16 - SJNB Financial Corp.
(Parent Company Only)

The following  are the financial  statements  of SJNB  Financial  Corp.  (parent
company only):
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------
Balance Sheets
December 31, 1999 and 1998
(dollars in thousands)                                                                         1999             1998
----------------------------------------------------------------------------------------------------------------------------
Assets
<S>                                                                                            <C>               <C>
Cash and equivalents                                                                            $1,141               $50
Investment in the Bank                                                                          36,341            34,603
Other assets                                                                                       347               829
----------------------------------------------------------------------------------------------------------------------------
     Total assets                                                                              $37,829           $35,482
============================================================================================================================
Liabilities and Shareholders' Equity
Total liabilities-Accounts payable                                                               -----             -----
----------------------------------------------------------------------------------------------------------------------------
Common stock                                                                                   $15,796           $16,776
Retained earnings                                                                               22,883            18,406
Net unrealized (loss) gain on securities available for sale                                       (850)              300
----------------------------------------------------------------------------------------------------------------------------
     Total shareholders' equity                                                                 37,829            35,482
----------------------------------------------------------------------------------------------------------------------------
     Total liabilities and shareholders' equity                                                $37,829           $35,482
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------
Statements of Income
Years Ended December 31, 1999, 1998 and 1997
(dollars in thousands)                                                       1999              1998             1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>              <C>               <C>
Cash dividend received from Bank                                              $3,779           $4,470            $2,600
Interest income and fees on loans                                                 11                8                13
Other expense                                                                   (202)            (118)              (84)
----------------------------------------------------------------------------------------------------------------------------
Income before taxes                                                            3,588            4,360             2,529
Income tax benefit                                                                75               45                28
----------------------------------------------------------------------------------------------------------------------------
Income before undistributed income of the Bank                                 3,663            4,405             2,557
Equity in undistributed income of the Bank                                     2,145            1,136             2,557
----------------------------------------------------------------------------------------------------------------------------
Net income                                                                    $5,808           $5,541            $5,114
============================================================================================================================

Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
(dollars in thousands)                                                       1999              1998             1997
----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
  Net income                                                                  $5,808           $5,541            $5,114
    Adjustments to reconcile net income to net cash
        used in operating activities:
        Increase in other assets                                                (213)            (172)              (19)
        Equity in undistributed income of the Bank                            (2,145)          (1,136)           (2,557)
----------------------------------------------------------------------------------------------------------------------------
          Net cash provided by operating activities                            3,450            4,233             2,538
----------------------------------------------------------------------------------------------------------------------------
  Cash flows from investing activities:
    Cash dividend                                                             (1,330)          (1,390)           (1,123)
    Common stock repurchased                                                  (3,104)          (3,498)           (2,495)
    Stock options exercised                                                    2,075              529               206
----------------------------------------------------------------------------------------------------------------------------
          Net cash used in investing activities                               (2,359)          (4,359)           (3,412)
----------------------------------------------------------------------------------------------------------------------------
  Net increase (decrease) in cash and equivalents                              1,091             (126)             (874)
  Cash and equivalents at beginning of year                                       50              176             1,050
----------------------------------------------------------------------------------------------------------------------------
  Cash and equivalents at end of year                                         $1,141              $50              $176
============================================================================================================================
Noncash transaction:
  Contribution of stock used in the acquisition of Epic Funding Corp.          -----             $501             -----
============================================================================================================================
</TABLE>

NOTE 17 - Regulatory Matters

The Federal  Reserve  Board,  the  Comptroller of the Currency and the FDIC have
issued   substantially   similar  risk-based  and  leverage  capital  guidelines
applicable to United States banking organizations. In addition, those regulatory
agencies  may from time to time  require  that a banking  organization  maintain
capital above the minimum levels,  whether because of its financial condition or
actual or anticipated growth.

The  Federal  Reserve  Board  risk-based  guidelines  define a two-tier  capital
framework.   Tier  1  capital  consists  of  common  and  qualifying   preferred
shareholders'  equity,  less certain  intangibles and other adjustments.  Tier 2
capital  consists of subordinated  and other  qualifying debt, and the allowance
for loan and lease losses up to 1.25% of risk weighted assets. The total of Tier
1  and  Tier  2  capital,  less  investments  in  unconsolidated   subsidiaries,
represents  qualifying total capital, at least 50% of which must consist of Tier
1 capital. Risk-based capital ratios are calculated by dividing Tier 1 and total
capital by  risk-weighted  assets.  Assets and  off-balance  sheet exposures are
assigned to one of four categories of risk-weights,  based primarily on relative
credit risk.  The minimum tier 1 risk-based  capital ratio is 4% and the minimum
total  risk-based  capital ratio is 8%. The leverage capital ratio is determined
by dividing Tier 1 capital by adjusted average total assets. Although the stated
minimum leverage capital ratio is 3%, most banking organizations are required to
maintain  leveraged capital ratios of at least 100 to 200 basis points above the
3%.

The table below  summarizes the Tier 1 and total  risk-based  capital ratios and
leverage capital ratios of the Company and the Bank as of the dates indicated:
<TABLE>
<CAPTION>

Risk-based and Leverage Capital Ratios
(dollars in thousands)
                                                               December 31, 1999                   December 31, 1998
                                                       ----------------------------------------------------------------------
Company-Risk-based                                          Amount            Ratio            Amount            Ratio
                                                       ----------------------------------------------------------------------
<S>  <C>                                                      <C>            <C>                <C>             <C>
Tier 1 capital                                                $34,971          9.80%             $30,798         10.56%
Tier 1 capital minimum requirement                             14,274          4.00               11,664          4.00
                                                       ----------------------------------------------------------------------
  Excess                                                      $20,697          5.80%             $19,134          6.56%
                                                       ======================================================================
Total capital                                                 $39,442         11.05%             $34,457         11.82%
Total capital minimum requirement                              28,549          8.00               23,328          8.00
                                                       ----------------------------------------------------------------------
  Excess                                                      $10,893          3.05%             $11,129          3.82%
                                                       ======================================================================
Risk-adjusted assets                                         $356,861                           $291,602
                                                       =================                  =================

Company-Leverage
Tier 1 capital                                                $34,971          8.36%             $30,798          9.10%
Minimum leverage ratio requirement                             16,727          4.00               13,542          4.00
                                                       ----------------------------------------------------------------------
  Excess                                                      $18,244          4.36%             $17,256          5.10%
                                                       ======================================================================
Average total assets                                         $418,177                           $338,544
                                                       =================                  =================

Bank-Risk-based
Tier 1 capital                                                $33,421          9.46%             $30,125          10.33%
Tier 1 capital minimum requirement                             14,132          4.00               11,661           4.00
                                                       ----------------------------------------------------------------------
  Excess                                                      $19,288          5.46%             $18,464           6.33%
                                                       ----------------------------------------------------------------------
Total capital                                                 $37,848         10.71%             $33,783          11.59%
Total capital minimum requirement                              28,265          8.00               23,322           8.00
                                                       ----------------------------------------------------------------------
  Excess                                                       $9,583          2.71%             $10,461           3.59%
                                                       ======================================================================
Risk-adjusted assets                                         $353,307                           $291,524
                                                       =================                  =================

Bank-Leverage
Tier 1 capital                                                $33,421          7.99%             $30,125           8.88%
Minimum leverage ratio requirement                             16,729          4.00               13,567           4.00
                                                       ----------------------------------------------------------------------
  Excess                                                      $16,692          3.99%             $16,558           4.88%
                                                       ======================================================================
Average total assets                                         $418,230                           $339,166
                                                       =================                  =================
</TABLE>

The Federal Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA"),
among other things,  identifies five capital  categories for insured  depository
institutions,  (well  capitalized,  adequately  capitalized,   undercapitalized,
significantly undercapitalized and critically undercapitalized) and requires the
respective  Federal  regulatory   agencies  to  implement  systems  for  "prompt
corrective action" for insured depository  institutions that do not meet minimum
capital requirements within such categories.  FDICIA imposes  progressively more
restrictive  constraints  on operations,  management and capital  distributions,
depending on the category in which an institution is classified. Failure to meet
the  capital  guidelines  could also  subject a banking  institution  to capital
raising  requirements.   An  "undercapitalized"  bank  must  develop  a  capital
restoration  plan and its  parent  holding  company  must  guarantee  the bank's
compliance  with the plan. The liability of the parent holding company under any
such  guarantee is limited to the lesser of 5% of the bank's  assets at the time
it became  "undercapitalized"  or the  amount  needed  to comply  with the plan.
Furthermore,  in the event of the bankruptcy of the parent holding company, such
guarantee would take priority over the parent's general unsecured creditors.

The various regulatory agencies have adopted  substantially  similar regulations
that define the five capital  categories  identified by FDICIA,  using the total
risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the
relevant  capital  measures.  Such  regulations  establish  various  degrees  of
corrective   action   to  be   taken   when   an   institution   is   considered
undercapitalized.  Under the regulations,  a "well capitalized" institution must
have a Tier 1 capital  ratio of at least 6%, a total  capital  ratio of at least
10% and a  leverage  ratio  of at  least  5% and  not be  subject  to a  capital
directive  order.  An "adequately  capitalized"  institution  must have a Tier 1
capital ratio of at least 4%, or 3% in some cases.  Under these guidelines,  the
Company and the Bank were considered  well  capitalized at December 31, 1999 and
1998.

Banking  agencies have recently  adopted  final  regulations  which mandate that
regulators take into consideration  concentrations of credit risk and risks from
non-traditional  activities, as well as an institution's ability to manage those
risks,  when  determining  the  adequacy  of  an  institution's   capital.  This
evaluation  will  be  made  as part  of the  institution's  regular  safety  and
soundness  examination.  Banking  agencies  also  have  recently  adopted  final
regulations  requiring  regulators  to  consider  interest  rate risk  (when the
interest  rate  sensitivity  of an  institution's  assets  does  not  match  the
sensitivity of its liabilities or its off-balance-sheet  position) in evaluation
of a bank's capital  adequacy.  Concurrently,  banking  agencies have proposed a
methodology for evaluating interest rate risk. After gaining experience with the
proposed measurement  process,  those banking agencies intend to propose further
regulations to establish an explicit risk-based capital charge for interest rate
risk.

The ability of the Company to pay dividends  largely  depends upon the dividends
paid to it by the Bank.  There are legal  limitations on the ability of the Bank
to provide  funds to the Company in the form of loans,  advances  or  dividends.
Under national banking law, without the prior approval of the Comptroller of the
Currency,  the Bank may not declare  dividends in any calendar  year that exceed
the Bank's net profits for that year,  as defined by statute,  combined with its
net retained  profits,  as defined,  for the preceding two years. As of December
31, 1999,  the Bank may initiate  dividend  payments  without  prior  regulatory
approval of up to $7.1 million.

Note 18 - Subsequent Event - Acquisition of Saratoga Bancorp

On January 5, 2000, the Company acquired all of the outstanding shares of common
stock of  Saratoga  Bancorp,  the parent  company  of  Saratoga  National  Bank,
pursuant to an exchange of the  Company's  common  stock for all common stock of
Saratoga Bancorp. Saratoga National Bank, headquartered in Saratoga, California,
operated  three  branches  and as of the  acquisition  date had $142  million in
assets and $103  million in  deposits.  Saratoga's  San Jose  office,  which was
located near SJNB's San Jose office was consolidated into SJNB's San Jose office
in January  2000.  The  shareholders  of  Saratoga  received  0.70 shares of the
Company's  common stock for each  outstanding  share of Saratoga  common  stock.
Based on the closing price of the Company's  stock on January 5, 2000 of $29.125
the transaction is valued at approximately $34.2 million, excluding the value of
any  unexercised  options,  and each Saratoga  shareholder  received SJNB common
stock valued at $20.39 per share. The merger has been accounted for as a pooling
of interests.

The following unaudited pro forma combined financial  information,  based on the
historical financial statements of the parties,  summarizes the combined results
of  operations  of the Company and  Saratoga  Bancorp on a pooling of  interests
basis, as if the  combination  had been  consummated on January 1 of each of the
periods   presented.   These  pro  forma  financials  are  simply   arithmetical
combinations of the Company's and Saratoga Bancorp's separate financial results,
which do not reflect any direct costs or potential savings which are expected to
result from the  consolidation  of the  operations and are not indicative of the
results of future  operations.  Excluded  from the 1999 results of operations is
approximately  $330, net of taxes, of costs directly  related to the merger.  No
assurances can be given with respect to the ultimate  level of expense  savings.
Earnings per share were calculated  using the exchange ratio of .70 as described
above.
<TABLE>
<CAPTION>

(in thousands, except per share data)
-----------------------------------------------------------------------------------------------------------
Unaudited                                                    As of or for the year ended December 31,
-----------------------------------------------------------------------------------------------------------
                                                              1999              1998              1997
-----------------------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>              <C>
Total assets                                                $568,202           $494,736         $455,963
Loans and leases                                             400,780            335,943          292,737
Deposits                                                     473,734            405,857          361,391
Shareholders' equity                                          53,291             50,739           46,764
===========================================================================================================
Net interest income                                          $27,471            $25,603          $23,562
Provision for loan and lease losses                             (861)              (436)            (705)
Other income                                                   2,737              1,824            1,490
Other expense                                                (16,691)           (14,462)         (12,888)
-----------------------------------------------------------------------------------------------------------
Income before income taxes                                    12,656             12,529           11,459
Income taxes                                                  (4,949)            (5,040)          (4,749)
-----------------------------------------------------------------------------------------------------------
Net income                                                    $7,707             $7,489           $6,710
===========================================================================================================
Net income per share - basic                                   $2.21              $2.06            $1.86
Net income per share - diluted                                  2.07               1.92             1.74
===========================================================================================================
</TABLE>


ITEM 9:   CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

Not applicable.


                                    PART III



ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

Information  concerning  directors,  executive  officers,  promoters and control
persons and compliance with Section 16(a) of the Exchange Act is incorporated by
reference to the text under the captions  "Election  of  Directors,"  "Executive
Compensation  and  Transactions  with Directors and Officers" and "Section 16(a)
Beneficial  Ownership Reporting  Compliance" in the Registrant's Proxy Statement
for its 1999 Annual Meeting of Shareholders.


ITEM 11:  EXECUTIVE COMPENSATION
--------------------------------

Information  concerning  executive  compensation is incorporated by reference to
the text  under  the  caption  "Executive  Compensation  and  Transactions  with
Directors and Officers" in the Registrant's  Proxy Statement for its 2000 Annual
Meeting of Shareholders.


ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

Information  concerning  security  ownership  of certain  beneficial  owners and
management is incorporated by reference to the text under the captions "Security
Ownership  of  Directors  and  Management"  and  "Security  Ownership of Certain
Beneficial  Owners"  in the Registrant's  Proxy  Statement  for its 2000  Annual
Meeting of Shareholders.


ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

Information   concerning  certain  relationships  and  related  transactions  is
incorporated by reference to the text under the caption "Executive  Compensation
and  Transactions  with  Directors  and  Officers"  of  the  Registrant's  Proxy
Statement for its 2000 Annual Meeting of Shareholders.


                                     PART IV



ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------

(a) 1. All Financial Statements

See Index to Financial Statements on page 35 hereof.

(a) 2. Financial statements schedules required.  None.  (Information included in
Financial Statements).

(a) 3. Exhibits

The following exhibits are filed as part of this report:

     Exhibit Number

(2)a.     Agreement  and Plan of Merger by and  among the  Registrant,  Saratoga
          Bancorp and Saratoga  National  Bank,  dates as of August 27, 1999, is
          hereby  incorporated  by reference to Exhibit 2.1 of the  Registrant's
          Registration Statement on Form S-4 as filed on October 14, 1999, under
          Registration No. 333-89013.

(3)(i).   The Registrant's  Restated Articles of  Incorporation,  as amended are
          hereby incorporated by reference to Exhibit (3) a. of the Registrant's
          Quarterly  Report on Form 10-Q for the quarterly period ended June 30,
          1999.

(3)(ii).  The Registrant's  restated Bylaws, as  amended as of  January 26, 2000
          and February 23, 2000.

*(10)a.   The   Registrant's   1992   Employee   Stock  Option  Plan  is  hereby
          incorporated by reference from Exhibit 4.1 of the Registrant's on Form
          S-8, as filed on September 4, 1992, under Registration No. 33-51740.

*(10)b.   Amendment  No. 1 to the  1992 Employee  Stock  Option  Plan is  hereby
          incorporated  by reference  from  Exhibit  (10) b. of the  Registrants
          Annual  Report on Form 10-K for the  fiscal  year ended  December  31,
          1998.

*(10)c.   The form of Incentive  Stock Option Agreement being utilized under the
          1992 Employee  Stock Option Plan is hereby  incorporated  by reference
          from Exhibit 4.2 of the  Registrant's  Registration  Statement on Form
          S-8, as filed on September 4, 1992, under Registration No. 33-51740.

*(10)d.   The  form of Stock Option  Agreement  being  utilized  under  the 1992
          Employee  Stock Option Plan is hereby  incorporated  by reference from
          Exhibit 4.3 of the Registrant's Registration Statement on Form S-8, as
          filed on September 4, 1992, under Registration No. 33-51740.

*(10)e.   The  Registrant's Amended  1996 Stock  Option Plan is incorporated  by
          reference to Exhibit 99.1 of the Registrant's  Form S-8 filed June 15,
          1999, under Registration No. 333-80683.

*(10)f.   The form of Nonstatutory Stock Option  Agreement for outside Directors
          being  utilized  under the  Amended  1996 Stock  Option Plan is hereby
          incorporated  by  reference  to  Exhibit  (10) f. of the  Registrant's
          Annual  Report on Form 10-K for the  fiscal  year ended  December  31,
          1998.

*(10)g.   The form of Nonstatutory Stock Option  Agreement for  Employees  being
          utilized   under  the  Amended   1996  Stock  Option  Plan  is  hereby
          incorporated  by  reference  to  Exhibit  (10) g. of the  Registrant's
          Annual  Report on Form 10-K for the  fiscal  year ended  December  31,
          1998.

*(10)h.   The form of Incentive Stock Option  Agreement being utilized under the
          Amended 1996 Stock Option Plan is hereby  incorporated by reference to
          Exhibit (10) h. of the Registrant's Annual Report on Form 10-K for the
          fiscal year ended December 31, 1998.

*(10)i.   The Saratoga Bancorp 1982 Stock Option Plan.

*(10)j.   The Saratoga Bancorp 1994 Stock Option Plan (Amended).

*(10)k.   Forms of Incentive Stock Option Agreement, Non-Statutory  Stock Option
          Agreement  and  Non-Statutory   Stock  Option  Agreement  for  Outside
          Directors.

*(10)l.   Agreement between James R. Kenny and SJNB Financial Corp. and San Jose
          National Bank dated March 27, 1996 is hereby incorporated by reference
          to Exhibit (10) m. of the Registrant's Quarterly Report on Form 10-QSB
          for the quarterly period ended March 31, 1996.

*(10)m.   Agreement between Eugene E. Blakeslee and SJNB Financial Corp. and San
          Jose  National  Bank dated  March 27, 1996 is hereby  incorporated  by
          reference to Exhibit (10) n. of the  Registrant's  Quarterly Report on
          Form 10-QSB for the quarterly period ended March 31, 1996.

(10)n.    Sublease dated April 5, 1982, for premises at 95 South Market  Street,
          San Jose, CA is hereby incorporated by reference to Exhibit (10) n. of
          the  Registrant's  Annual  Report on Form  10-KSB for the fiscal  year
          ended December 31, 1994.

(10)o.    Sublease by and between McWhorter's  Stationary  and San Jose National
          Bank, dated July 6, 1995, and as amended August 11, 1995 and September
          21,  1995,  for  premises at 95 South  Market  Street,  San Jose CA is
          hereby   incorporated   by   reference  to  Exhibit  (10)  o.  of  the
          Registrant's  Quarterly Report on Form 10-QSB for the quarterly period
          ended September 30, 1995.

(10)p.    Agreement  of  Purchase  and  Sale  dated  July  27,  1988  for  12000
          Saratoga-Sunnyvale Road, Saratoga, CA.

(10)q.    Form of Director Supplemental  Compensation  Agreement dated September
          24, 1998 between  Saratoga  National Bank and Robert G. Egan,  John F.
          Lynch III and V. Ronald Mancuso, respectively.

(10)r.    Form of Director Life  Insurance Endorsement  Method Split Dollar Plan
          Agreement dated September 24, 1998 between Saratoga  National Bank and
          Robert G. Egan, John F. Lynch III and V. Ronald Mancuso, respectively.

(10)s.    Form of  Director Surrogate Supplemental  Compensation Agreement dated
          September  24,  1998  between  Saratoga  National  Bank and  Victor E.
          Aboukhater and William D. Kron, respectively.

(10)t.    Form  of Director Surrogate  Life Insurance  Endorsement Method  Split
          Dollar  Plan  Agreement  dated  September  24, 1998  between  Saratoga
          National  Bank  and  Victor  E.   Aboukhater   and  William  D.  Kron,
          respectively.

(10)u.    Form of  Officer  Supplemental Compensation Agreement  dated September
          24, 1998 between Saratoga  National Bank and Earl Lanna,  Mary Rourke,
          Sandra Swenson, Barbara Resop and Cathe Franklin, respectively.

(10)v.    Form of  Officer Life  Insurance Endorsement Method  Split Dollar Plan
          Agreement dated September 24, 1998 between Saratoga  National Bank and
          Earl Lanna,  Mary  Rourke,  Sandra  Swenson,  Barbara  Resop and Cathe
          Franklin, respectively.

(10)w.    Richard  L. Mount Executive Supplemental  Compensation Agreement dated
          September 24, 1998.

(10)x.    Richard L. Mount  Life Insurance Endorsement Method  Split Dollar Plan
          Agreement dated September 24, 1998.

(10)y.    Richard L. Mount Executive Benefits Agreement dated June 18, 1999.

(22)      Subsidiary of Registrant.

(23)      Consent of KPMG LLP.

(27)      Financial Data Schedule.

*    Indicates management contract or compensation plan or arrangement.


(b)       Reports on Form 8-K

     Registrant:  Current Report of Form 8-K filed on December 16, 1999.



<PAGE>

                                   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:  February 29, 2000                     SJNB Financial Corp.

By: /s/J.R. Kenny                            By: /s/E.E. Blakeslee
    ---------------------------------            -----------------------------
    James R. Kenny                               Eugene E. Blakeslee
    President and Chief                          Executive Vice President &
    Executive Officer                            Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.

/s/ J.R. Kenny                               /s/ F.J. Gorry
---------------------------------            ---------------------------------
James R. Kenny                               F. Jack Gorry, Director
President, Chief Executive Officer           February 29, 2000
and Director
(Principal Executive Officer)
February 29, 2000

/s/ E.E. Blakeslee                           /s/ A.K. Lund
---------------------------------            ---------------------------------
Eugene E. Blakeslee                          Arthur K. Lund, Director
Executive Vice President and                 February 29, 2000
Chief Financial Officer and
Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer
February 29, 2000

/s/ R.S. Akamine                             /s/ L. Oneal
---------------------------------            ---------------------------------
Ray S. Akamine, Director                     Louis Oneal, Director
February 29, 2000                            February 29, 2000

/s/ R.A. Archer                              /s/ D. Rubino
---------------------------------            ---------------------------------
Robert A. Archer                             Diane Rubino, Director
Chairman and Director                        February 29, 2000
February 29, 2000

/s/ A.B. Bruno                               /s/ D.L. Shen
---------------------------------            ---------------------------------
Albert V. Bruno, Director                    Douglas L. Shen, Director
February 29, 2000                            February 29, 2000

/s/ R. Diridon                               /s/ G.S. Vandeweghe
---------------------------------            ---------------------------------
Rod Diridon,Sr., Director                    Gary S. Vandeweghe
February 29, 2000                            February 29, 2000
<PAGE>


SJNB Financial Corp.

                                    Form 10-K

                                    Exhibits

                                December 31, 1999


The following exhibits are filed as part of this report:

(2)a.     Agreement and Plan of Merger by and  among  the  Registrant,  Saratoga
          Bancorp and Saratoga  National  Bank,  dates as of August 27, 1999, is
          hereby  incorporated  by reference to Exhibit 2.1 of the  Registrant's
          Registration Statement on Form S-4 as filed on October 14, 1999, under
          Registration No. 333-89013.

(3)(i).   The Registrant's  Restated Articles of  Incorporation,  as amended are
          hereby incorporated by reference to Exhibit (3) a. of the Registrant's
          Quarterly  Report on Form 10-Q for the quarterly period ended June 30,
          1999.

(3)(ii).  The Registrant's  restated Bylaws,  as  amended as of January 26, 2000
          and February 23, 2000.

*(10)a.   The  Registrant's  1992  Employee  Stock    Option  Plan   is   hereby
          incorporated  by  reference  from  Exhibit  4.1  of  the  Registrant's
          Registration  Statement  on Form S-8, as filed on  September  4, 1992,
          under Registration No. 33-51740.

*(10)b.   Amendment  No. 1 to the  1992 Employee  Stock  Option  Plan is  hereby
          incorporated  by reference  from  Exhibit  (10) b. of the  Registrants
          Annual  Report on Form 10-K for the  fiscal  year ended  December  31,
          1998.

*(10)c.   The form of Incentive  Stock Option Agreement being utilized under the
          1992 Employee  Stock Option Plan is hereby  incorporated  by reference
          from Exhibit 4.2 of the  Registrant's  Registration  Statement on Form
          S-8, as filed on September 4, 1992, under Registration No. 33-51740.

*(10)d    The form of  Stock  Option  Agreement  being  utilized under  the 1992
          Employee  Stock Option Plan is hereby  incorporated  by reference from
          Exhibit 4.3 of the Registrant's Registration Statement on Form S-8, as
          filed on September 4, 1992, under Registration No. 33-51740.

*(10)e.   The Registrant's  Amended  1996 Stock  Option Plan is  incorporated by
          reference to exhibit 99.1 of the Registrant's  Form S-8 filed June 15,
          1999, under Registration No. 333-80683.

*(10)f.   The form of Nonstatutory Stock Option  Agreement for outside Directors
          being  utilized  under the  Amended  1996 Stock  Option Plan is hereby
          incorporated  by  reference  to  Exhibit  (10) f. of the  Registrant's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1998

*(10)g.   The form of Nonstatutory  Stock Option  Agreement for Employees  being
          utilized   under  the  Amended   1996  Stock  Option  Plan  is  hereby
          incorporated  by  reference  to  Exhibit  (10) g. of the  Registrant's
          Annual  Report on Form 10-K for the  fiscal  year ended  December  31,
          1998.

*(10)h.   The form of Incentive Stock Option  Agreement being utilized under the
          Amended 1996 Stock Option Plan is hereby  incorporated by reference to
          Exhibit (10) h. of the Registrant's Annual Report on Form 10-K for the
          fiscal year ended December 31, 1998.

*(10)i.   The Saratoga Bancorp 1982 Stock Option Plan.

*(10)j.   The Saratoga Bancorp 1994 Stock Option Plan (Amended).

*(10)k.   Forms of Incentive Stock Option  Agreement, Non-Statutory Stock Option
          Agreement  and  Non-Statutory   Stock  Option  Agreement  for  Outside
          Directors.

*(10)l.   Agreement between James R. Kenny and SJNB Financial  Corp.and San Jose
          National Bank dated March 27, 1996 is hereby incorporated by reference
          to Exhibit (10) m. of the Registrant's Quarterly Report on Form 10-QSB
          for the quarterly period ended March 31, 1996.

*(10)m.   Agreement between Eugene E. Blakeslee and SJNB Financial Corp. and San
          Jose  National  Bank dated  March 27, 1996 is hereby  incorporated  by
          reference to Exhibit (10) n. of the  Registrant's  Quarterly Report on
          Form 10-QSB for the quarterly period ended March 31, 1996.

(10)n.    Sublease  dated April 5, 1982, for premises at 95 South Market Street,
          San Jose, CA is hereby incorporated by reference to Exhibit (10) n. of
          the  Registrant's  Annual  Report on Form  10-KSB for the fiscal  year
          ended December 31, 1994.

(10)o.    Sublease by and between McWhorter's  Stationary  and San Jose National
          Bank, dated July 6, 1995, and as amended August 11, 1995 and September
          21,  1995,  for  premises at 95 South  Market  Street,  San Jose CA is
          hereby   incorporated   by   reference  to  Exhibit  (10)  o.  of  the
          Registrant's  Quarterly Report on Form 10-QSB for the quarterly period
          ended September 30, 1995.

(10)p.    Agreement  of  Purchase  and  Sale  dated  July  27,  1988  for  12000
          Saratoga-Sunnyvale Road, Saratoga, CA.

(10)q.    Form of Director Supplemental  Compensation  Agreement dated September
          24, 1998 between  Saratoga  National Bank and Robert G. Egan,  John F.
          Lynch III and V. Ronald Mancuso, respectively.

(10)r.    Form of Director Life  Insurance Endorsement Method  Split Dollar Plan
          Agreement dated September 24, 1998 between Saratoga  National Bank and
          Robert G. Egan, John F. Lynch III and V. Ronald Mancuso, respectively.

(10)s.    Form of  Director Surrogate Supplemental  Compensation Agreement dated
          September  24,  1998  between  Saratoga  National  Bank and  Victor E.
          Aboukhater and William D. Kron, respectively.

(10)t.    Form  of Director Surrogate  Life Insurance  Endorsement Method  Split
          Dollar  Plan  Agreement  dated  September  24, 1998  between  Saratoga
          National  Bank  and  Victor  E.   Aboukhater   and  William  D.  Kron,
          respectively.

(10)u.    Form of  Officer Supplemental  Compensation A greement dated September
          24, 1998 between Saratoga  National Bank and Earl Lanna,  Mary Rourke,
          Sandra Swenson, Barbara Resop and Cathe Franklin, respectively.

(10)v.    Form of  Officer Life  Insurance Endorsement Method  Split Dollar Plan
          Agreement dated September 24, 1998 between Saratoga  National Bank and
          Earl Lanna,  Mary  Rourke,  Sandra  Swenson,  Barbara  Resop and Cathe
          Franklin, respectively.

(10)w.    Richard  L. Mount Executive Supplemental  Compensation Agreement dated
          September 24, 1998.

(10)x.    Richard L. Mount  Life Insurance Endorsement Method  Split Dollar Plan
          Agreement dated September 24, 1998.

(10)y.    Richard L. Mount Executive Benefits Agreement dated June 18, 1999.

(22)      Subsidiary of Registrant.

(23)      Consent of KPMG LLP.

(27)      Financial Data Schedule.

*    Indicates management contract or compensation plan or arrangement.