UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

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

                   For the Fiscal Year ended December 31, 1997

                                       OR

                 [ ] TRANSITION REPORT UNDER 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    (408) 947-7562

Securities registered pursuant to Section 12(b) of the Exchange 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. [ ]

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of the  registrant,  based on a market value of $35.00 per share
(the closing price of the Common Stock, as of March 3, 1998) was $69,257,000.

Number of shares of common stock outstanding as of March 3, 1998: 2,516,558 

                      Documents incorporated by reference:
Portions of registrant's definitive proxy statement for registrant's 1997 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                                                         1

 Item 2 -     Properties                                                       9

 Item 3 -     Legal Proceedings                                               10

 Item 4 -     Submission of Matters to a Vote of Security Holders             11

PART II

Item 5 -     Market for Registrant's Common Equity and Related Stockholder 
             Matters                                                          11

Item 6-      Selected Financial Data                                          12

Item 7 -     Management's  Discussion  and  Analysis  of  Financial  
             Condition  and  Results  of Operations                           13

 Item 7A-     Quantitative and Qualitative Disclosures about Market Risk      30

 Item 8 -     Financial Statements and Supplementary Data                     31

 Item 9 -     Changes  in  and  Disagreements   with  Accountants  on  
              Accounting  and  Financial  Disclosure                          52

PART III

 Item 10 -    Directors and Executive Officers of the Registrant              52

 Item 11 -    Executive Compensation                                          52

 Item 12 -    Security Ownership of Certain Beneficial Owners and Management  52

 Item 13 -    Certain Relationships and Related Transactions                  52

 Item 14 -    Exhibits, Financial Statement Schedules and Reports on Form 8-K 52

 Signatures                                                                   58


<PAGE>


                                     PART I


ITEM 1.  BUSINESS

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
do not involve the historical or financial statement information herein) 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;  general economic conditions,  either nationally or regionally, are
less favorable than expected,  resulting in, among other things, a deterioration
in credit  quality and an increase in the  provision  for possible  loan losses;
changes  in  the  regulatory   environment;   changes  in  business  conditions,
particularly in Santa Clara County and in the  semiconductor  industry;  certain
operational risks involving data processing systems or fraud; volatility of rate
sensitive  deposits;  asset/liability  matching risks and liquidity risks; risks
associated with the Year 2000; and changes in the securities  markets.  See also
the  section  included  herein  entitled  "Year  2000" and  "Certain  Additional
Business Risks" and other risk factors discussed elsewhere in this Report.


General

SJNB Financial Corp.  ("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. The Company acquired  Business Bancorp ("BB") and
its wholly-owned subsidiary California Business Bank ("CBB") on October 1, 1994.
Operations of the Company and BB were consolidated into a single location at One
North Market Street,  San Jose,  California  95113.  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.

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.  In addition,  the Bank offers factoring  services through its Financial
Services  Division.  Although the Bank has neither a trust nor an  international
banking  department,  it has  arranged  to provide  these  services  through its
correspondent banks.

The Company provides  commercial banking services  principally  through the Bank
and the Bank's  Financial  Services  Division.  As a bank holding  company,  the
Company is authorized to engage in the activities  permitted  under the BHCA and
regulations thereunder.


Year 2000

The Company has  conducted a  comprehensive  review of its  computer  systems to
identify  the  systems  that could be  affected by the "Year 2000" issue and has
developed an  implementation  plan designed to resolve the issue.  The Year 2000
problem  arises  because many  software  programs  were written using two digits
rather than four to define the applicable  year.  Any of the Company's  programs
that have time-sensitive software may recognize the two-digit date "00" as being
the year 1900 rather  then the year 2000.  This could  result in a major  system
failure or miscalculations.

The Company plans to utilize both internal and external  resources to attempt to
identify, correct or replace, and test its systems for the Year 2000 compliance.
It is anticipated that all corrective  action and testing of key systems will be
completed by December 31, 1998.  The Company has recently  converted  the Bank's
main data  processing  system.  The vendor has stated that the  software is Year
2000 compliant.  Confirmations from the Bank's other vendors have been requested
as to their plans for being Year 2000 compliant.

The Bank presently believes that, with modifications to existing software and/or
the  conversion  to new  software  which is Year 2000  compliant,  the Year 2000
problem  should not pose  significant  operational  problems  for the  Company's
computer  systems as so modified and  converted.  The Company is  expensing  all
period costs associated with the Year 2000 problem.  To date, the amount of such
expense  has not been  significant.  It is  estimated  that the Bank will  incur
approximately $100,000 for the identification, correction and reprogramming, and
testing of systems for Year 2000 compliance during 1998 and 1999.

Other  significant  risks  relating  to the Year  2000  problem  are that of the
unknown  impact of this problem on the  operations  of the Bank's  customers and
actions which banking  regulators may take. The Bank is making efforts to ensure
that its  customer  base is  aware of the Year  2000  problem.  In  addition  to
seminars for and mailings to its customer  base, the Bank has amended its Credit
Policy and credit authorization documentation to include consideration regarding
the Year 2000 problem.  It is not possible to predict the effect of this problem
on the economic viability of its customers and the related impact it may have on
the level of the Bank's provision for possible loan losses in future periods.


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,  1997,  SJNB had 68 full-time  officers  and  employees  and 16
part-time  employees  for a total of 77.5  employees  on a full-time  equivalent
basis. 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.
Applicable California bank and corporation tax rates were recently reduced by 5%
in order to keep California competitive with other western states.

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
increase or decrease the cost of doing business,  modify permissible  activities
or enhance 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 cost of any examination by the FRB are payable by the Company.

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 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
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  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.  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 5
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 branch office.

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
"Restrictions on Dividends and Other Distributions" for additional restrictions.

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  does  not  exceed  10% of  the  capital  stock  and  surplus  of the
institution, and the aggregate of such transactions with all affiliates does 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.

The FRB has  adopted  comprehensive  amendments  to  Regulation  Y which  became
effective  April 21, 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 in the event of 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  composite,  management and compliance
ratings  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.

By comparison,  California state-chartered banks are regulated by the California
Department of Financial Institutions ("DFI"). The DFI was created pursuant to AB
3351,  effective  July 1, 1997, and combines the State Banking  Department,  the
Department of Savings and Loan, and regulatory  oversight over  industrial  loan
companies and credit unions with the DFI.

         Capital Standards

The OCC and other 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 OCC does
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 the purpose 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
possible  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 September  16, 1997,  the FDIC adopted a final rule  lowering the  risk-based
capital  requirements  for  certain  small  business  loans and leases sold with
recourse.  The final rule on small  business loans and leases sold with recourse
essentially  makes  permanent an interim  interagency  rule in effect since 1995
that reduced the minimum  capital  levels that  institutions  must  maintain for
those  transactions.  Under the final rule, 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,  federal banking regulators 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 by regulators 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 by the  regulators  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.

<TABLE>
<CAPTION>

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, 1997 (amounts in thousands except percentage amounts).


(amounts in thousands, except percentages)
---------------------------------------------------------------------------------------------------------------------------
                                                                                                            
                                                               Actual                        Well              Minimum
                                               -------------------------------------      Capitalized          Capital
                 The Company                        Capital              Ratio               Ratio           Requirement
---------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                 <C>                   <C>                 <C> 
Leverage                                            $29,167             9.07%                 5.0%                4.0%
Tier 1 Risk-based                                    29,167            11.28                  6.0                 4.0
Total Risk- based                                    32,415            12.53                 10.0                 8.0
                  The Bank
---------------------------------------------------------------------------------------------------------------------------
Leverage                                            $28,879             8.97%                 5.0%                4.0%
Tier 1 Risk-based                                    28,879            11.17                  6.0                 4.0
Total Risk-based                                     32,126            12.43                 10.0                 8.0

</TABLE>

Regulators 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.  Regulators 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"  Total  risk-based  capital of 10%;  Tier 1  risk-based
         capital of 6%; and Leverage ratio of 5%.
     "Adequately  capitalized" Total risk-based capital of 8%; Tier 1 risk-based
         capital of 4%; and Leverage ratio of 4%.
     "Undercapitalized"
         Total risk-based  capital less than 8%; Tier 1 risk-based  capital less
         than 4%; or Leverage ratio less than 4%.
     "Significantly  undercapitalized"  Total  risk-based  capital less than 6%;
         Tier 1 risk-based capital less than 3%; or 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  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  regulators 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.

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 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

The Taxpayer  Relief Act of 1997  provides for Education  Individual  Retirement
Accounts  ("Education  IRA"),  a new type of  tax-free  savings  vehicle  to pay
qualified  higher  education  expenses.  A  maximum  of  $500  per  year  may be
contributed  to Education  IRAs for any  beneficiary  under the age of 18 years,
provided the  contributor  has adjusted  gross income for the year not exceeding
$95,000 ($150,000 for joint returns).  No income tax deduction is provided for a
contribution to an Education IRA. Until a distribution is made from an Education
IRA, earnings on contributions to the account are not subject to tax. Additional
restrictions apply as well.

During 1996, new federal  legislation  amended the  Comprehensive  Environmental
Response, Compensation, and Liability Act ("CERCLA") and the underground storage
tank provisions of the Resource Conservation and Recovery Act to provide lenders
and fiduciaries with greater protections from environmental  liability.  In June
1997,  the U.S.  Environmental  Protection  Agency  ("EPA")  issued its official
policy with regard to the  liability of lenders  under CERCLA as a result of the
enactment of the Asset  Conservation,  Lender  Liability  and Deposit  Insurance
Protection  Act of 1996.  California  law  provides  that,  subject to  numerous
exceptions,  a lender  acting in the  capacity  of a lender  shall not be liable
under  any state or local  statute,  regulation  or  ordinance,  other  than the
California  Hazardous  Waste  Control Law, to undertake a cleanup,  pay damages,
penalties or fines, or forfeit  property as a result of the release of hazardous
materials at or from the property.

In 1997,  California  adopted the  Environmental  Responsibility  Acceptance Act
(Cal.  Civil  Code  ss.ss.  850-855)  to  facilitate  (i)  the  notification  of
government  agencies and potentially  responsible parties (e.g., for cleanup) of
the  existence of  contamination  and (ii) the cleanup or other  remediation  of
contamination by the potentially  responsible parties.  The Act requires,  among
other things,  that owners of sites who have actual  awareness of a release of a
hazardous material that exceeds a specified  notification  threshold to take all
reasonable steps to identify the potentially  responsible  parties and to send a
notice of  potential  liability  to the  parties and the  appropriate  oversight
agency.

         Pending Legislation and Regulations

There are pending  legislative  proposals  to reform the  Glass-Steagall  Act to
allow  affiliations   between  banks  and  other  firms  engaged  in  "financial
activities," including insurance companies and securities firms.

On September 16, 1997, the FDIC proposed two new rules governing minimum capital
levels that FDIC-supervised  banks must maintain against the risks to which they
are exposed.  The first proposed rule would make  risk-based  capital  standards
consistent for two types of credit enhancements (i.e., recourse arrangements and
direct credit  substitutes) and would require  different  amounts of capital for
different  risk  positions  in asset  securitization  transactions.  The  second
proposed  rule  would  permit  limited  amounts  of  unrealized  gains on equity
securities to be recognized for risk-based capital purposes.

Certain other pending legislative proposals include bills to permit banks to 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 as well as the
California  Interstate  Banking and Branching  Act of 1995 will likely  increase
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.


Certain Additional Business Risks

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

Shares of the  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. The Articles of Incorporation of the Company  authorize
the  issuance  of  20,000,000  shares of common  stock,  of which  approximately
2,493,000  shares were  outstanding at December 31, 1997.  Pursuant to its stock
option  plans,  at December 31,  1997,  the Company had  outstanding  options to
purchase an aggregate of 313,960 shares of Company Common Stock.  As of December
31, 1997,  153,025 shares of Company Common Stock remained  available for option
grants under the stock option  plans.  Sales of  substantial  amounts of Company
Common Stock in the public market could adversely affect the market price of the
Common Stock.

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.

The loan  portfolio of the Company is dependent on real estate.  At December 31,
1997,  real estate served as the principal  source of collateral with respect to
approximately  53% of the  Company's  loan  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 for Company
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 to mitigate such  occurrences  and
maintains insurance coverage for such risks, but 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.

The risks  associated  with the "Year 2000"  problem  involve  both  operational
issues  relating  to the Bank's data  processing  systems and the impact of this
problem on the  operations of the Bank's  customers.  Both of these issues could
have a  significant  negative  impact on the  Company's  financial  condition or
results of operations  including the level of the Bank's  provision for possible
loan losses in future periods.


Statistical Data

Certain  consolidated  statistical  information  concerning  the business of the
Company  appears on page 12,  under the caption  "Selected  Financial  Data;" on
pages 13 through 29, under the caption "Management's  Discussion and Analysis of
Financial  Condition and Results of  Operations;"  on pages 30 and 31, under the
caption  "Quantitative  and Qualitative  Disclosures  about Market Risk;" and on
pages 31 through 51, in the Company's Consolidated Financial Statements.  Ratios
relating  to the  Company's  Return on Equity and Assets  appear on page 12. The
section entitled  "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations"  should be read in  conjunction  with the  Company's
Consolidated Financial Statements.


ITEM 2:  PROPERTIES

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

In addition,  the Bank assumed BB's lease for  approximately  12,000 square feet
located  at 95 South  Market  Street,  San  Jose,  California  when the  Company
acquired BB in October  1994.  Approximately  9,000 square feet of space at this
location is currently being occupied by two third-party  tenants under subleases
which expire in September 2004 upon  termination  of the original BB lease.  The
remaining  space at this  location  is being  occupied  by the Bank's  Financial
Services Division.

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

The Bank has invested in loans secured by real property  collateral.  The Bank's
policies   with  respect  to  such  loans  are   described   under  the  caption
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Loan  Portfolio."  The Bank's policies on real estate secured loans
may be changed without a vote of security holders.


ITEM 3:  LEGAL PROCEEDINGS

Other than as set forth below, neither the Company or 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 business, financial position or results of operations.

The Bank has been named as a  defendant  in a lawsuit  filed in the Santa  Clara
County Superior Court (which has subsequently  been remanded to U. S. Bankruptcy
Court jurisdiction) by Giannotta Properties, Inc. (the "Borrower"). The Borrower
had  borrowed  money  from the  Bank,  had  defaulted,  and in  settlement  of a
subsequent  lawsuit for  collection,  had given the Bank a security  interest in
certain real property as security for the loan. The Borrower again  defaulted on
the loan, the Bank declared a default and the  foreclosure  trustee  conducted a
foreclosure  sale of the real  property on January 17,  1995.  The  property was
purchased at the foreclosure  sale by a third party. The Bank recovered the full
amount owed to it by the Borrower.  On January 18, 1995, the Borrower filed suit
against the Bank, the foreclosure  trustee,  the third party property purchaser,
and  various  other  parties,  alleging,  among other  things,  a claim that the
foreclosure  sale was improperly  conducted.  On December 22, 1996, the Borrower
filed its First Amended Complaint against a number of defendants alleging "about
$5 million" in damages as a result of the conduct described in its claims, which
amount appears to be unsubstantiated  by the Borrower's  pleadings or subsequent
discovery.  The Bank answered the First  Amended  Complaint on February 10, 1997
denying all causes of action. The Plaintiff first and foremost seeks to overturn
the foreclosure sale. If Plaintiff is successful in that result, no damages will
be held  against  the Bank.  If the Court  finds that  Plaintiff  is entitled to
unwind the sale,  but for some reason the real  property is  unavailable,  money
damages could be awarded against the Bank; however, this result could be reached
only if the Court finds that the Notice of Sale recorded  during the foreclosure
and  subsequent  continuances  of the sale  were  legally  defective.  This is a
question of law, and the Bank cannot at the date of this Report predict how this
question will be resolved. The Bank intends to vigorously defend this lawsuit.

During 1995,  the Bank (along with  Comerica  Bank-California,  Santa Clara Land
Title and three principals of Century Loan  Corporation) was served with a civil
complaint in a class action  lawsuit filed in the Superior  Court of Santa Clara
County, California. The lawsuit stemmed from the failure of Century Loan, a real
estate  investment  company  now  in  bankruptcy,  that  borrowed  approximately
$750,000  from the Bank during  1994.  Plaintiffs  were  persons who invested in
deeds of trust sold by Century  Loan.  Their  complaint  alleged  that they were
defrauded  by  Century  Loan and its  principals  and  that  the Bank and  other
defendants  aided and abetted a  fraudulent  Ponzi scheme by the  principals  of
Century Loan.

The Court  granted  class  certification  to the  Plaintiffs  in December  1995,
permitting them to proceed on behalf of all Century Loan investors.  On November
26, 1996, the Court granted summary  judgment in favor of the Bank on all of the
Plaintiff's  claims  against it. The Court  found no evidence  that the Bank had
participated  in any  conspiracy  with or aided and  abetted  Century  Loan.  On
December 4, 1996,  the Court entered  judgment in favor of the Bank,  dismissing
the Plaintiffs' claims. Plaintiff's motion for a new trial was denied on January
27, 1997 and has subsequently been appealed. Plaintiffs have filed their opening
brief on  appeal.  Counsel  for the  Bank  has  filed a  responsive  brief.  The
California Bankers Association has filed an amicus  (friend-of-the-court)  brief
arguing in favor of the Bank's position.
Oral argument has not yet been scheduled.




<PAGE>


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

No matter was submitted to a vote of security  holders during the fourth quarter
of the fiscal year covered by this Report.


                                     PART II


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

As of  March  3,  1998,  the  Company  had  2,516,558  shares  of  Common  Stock
outstanding, held by approximately 1,800 beneficial shareholders.  The Company's
Common  Stock is listed on the NASDAQ  National  Market  System under the symbol
"SJNB." The market makers of the common stock are: Sutro & Co., Hoefer & Arnett,
Inc., Dean Witter Reynolds,  Inc., Sandler O'Neill & Partners, Van Kasper & Co.,
Inc.,  Torrey Pines Securities Inc.,  Herzog,  Heine,  Geduld,  Inc. and Wedbush
Morgan Securities, Inc.


Stock Price

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.

               QUARTERLY COMMON STOCK PRICE
-----------------------------------------------------------
                                 Price
                            of Common Stock       Cash
                            High       Low      Dividends
-----------------------------------------------------------
          1996
-----------------------------------------------------------
First Quarter                $14.38    $13.13     -----
Second Quarter                16.88     14.00      $.15
Third Quarter                 19.38     17.00     -----
Fourth Quarter                20.88     18.75       .18
-----------------------------------------------------------
          1997
-----------------------------------------------------------
First Quarter                 26.00     18.75     -----
Second Quarter                26.00     22.50       .21
Third Quarter                 32.25     24.75     -----
Fourth Quarter                42.00     30.75       .24
-----------------------------------------------------------
          1998
-----------------------------------------------------------
First quarter (through
March 3, 1998)                37.00     33.50       .14*

*Declared  by the Board of Directors on January 21, 1998 and payable on March 2,
1998 to shareholders of record on February 9, 1998.

The  Company's  Board of  Directors  considers  the  advisability  and amount of
proposed  dividends each year.  Future  dividends will be determined in light 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 banks is  subject  to  various  legal and  regulatory
restrictions.  See  "Business  -  Supervision  and  Regulation  Restrictions  on
Dividends and Other Distributions."

From the period of 1993 through 1997, the Company  maintained a policy of paying
semi-annual  dividends to its shareholders.  Effective with the first quarter of
1998,  the Company  commenced a policy to pay  quarterly  cash  dividends to its
shareholders.  It is the  intention  of  the  Company  to  continue  payment  of
dividends,  subject to financial  results and other factors which could limit or
restrict dividends as more fully discussed elsewhere herein.




<PAGE>
<TABLE>
<CAPTION>


ITEM 6:  SELECTED FINANCIAL DATA

The following  presents  selected  financial  data and ratios for the five years
ended December 31, 1997:

(dollars in thousands, except per share  amounts)
-----------------------------------------------------------------------------------------------------------------------------
                                                               As of and for the Years Ended December 31,
STATEMENT OF OPERATIONS DATA :                       1997            1996           1995            1994            1993
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>            <C>              <C>             <C>   
Net interest income                                $18,489         $16,468        $14,295          $9,749          $7,163
Provision for possible loan losses                    (705)           (190)        (1,045)           (600)           (625)
Other income                                         1,013             846            966             744             682
Other expenses                                      (9,910)         (9,635)        (8,797)         (6,676)         (5,276)
-----------------------------------------------------------------------------------------------------------------------------
Income before income taxes                           8,887           7,489          5,419           3,217           1,944
Income taxes                                         3,773           3,198          2,395           1,354             758
-----------------------------------------------------------------------------------------------------------------------------
Net income                                          $5,114          $4,291         $3,024          $1,863          $1,186
=============================================================================================================================
PER SHARE DATA:
-----------------------------------------------------------------------------------------------------------------------------
Net income per share - basic                         $2.04           $1.73          $1.27           $1.05           $0.71
Net income per share - diluted                        1.94            1.64           1.22            1.00            0.70
Cash dividends per share                              0.45            0.33           0.21            0.16            0.14
Shareholders' equity per share                       13.30           12.14          11.02            9.92            9.86
Tangible shareholders' equity per share              11.80           10.40           9.06            7.84            9.86
=============================================================================================================================
BALANCE SHEET DATA:
-----------------------------------------------------------------------------------------------------------------------------
Balance sheet totals-end of year:
  Assets                                          $324,919        $309,403       $252,195        $205,949        $127,967
  Loans                                            228,972         198,627        170,800         149,407          97,958
  Deposits                                         270,345         244,639        196,692         180,287         109,712
  Shareholders' equity                              33,159          31,205         26,658          23,442          16,064
Average balance sheet amounts:
  Assets                                          $314,460        $274,868       $222,913        $153,717        $117,627
  Loans                                            212,795         183,367        152,820         112,818          84,457
  Earning assets                                   286,585         251,156        202,996         140,445         106,999
  Deposits                                         265,340         217,716        183,282         133,897         100,899
  Shareholders' equity                              31,091          28,288         24,898          18,210          15,551
=============================================================================================================================
SELECTED RATIOS:
-----------------------------------------------------------------------------------------------------------------------------
Return on average equity                             16.45%          15.17%         12.15%          10.23%           7.63%
Return on average assets                              1.63            1.56           1.36            1.21            1.01
Efficiency ratio (non-interest expense
 as a percentage of total revenues)                  50.82           55.65          57.64           63.62           67.25
Efficiency ratio excluding the amortization
of
  intangibles and goodwill                           48.39           52.77          53.92           62.04           67.25
Dividend payout ratio                                21.95           19.30          16.67           17.18           19.22
Average equity to average assets                      9.89           10.29          11.17           11.85           13.22
Leveraged capital ratio                               9.06            9.28           9.00            9.33           12.02
Nonperforming loans to total loans                    0.19            0.27           0.52            3.67            3.75
Net chargeoffs to average loans                       0.10            0.04           0.33            1.11            0.14
Allowance for loan losses to total loans              1.96            2.02           2.25            2.22            2.10
Allowance for loan losses to
  nonperforming loans                             1,060.00          733.00         430.00           60.00           56.00

</TABLE>



<PAGE>


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

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
do not involve the historical or financial statement information herein) involve
certain  risks and  uncertainties  that  could  cause  actual  results to differ
materially  from  those  in  the  forward-looking   statement.  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;  general economic conditions,  either nationally or regionally, are
less favorable than expected,  resulting in, among other things, a deterioration
in credit  quality and an increase in the  provision  for possible  loan losses;
changes  in  the  regulatory   environment;   changes  in  business  conditions,
particularly in Santa Clara County and in the  semiconductor  industry;  certain
operational risks involving data processing systems or fraud; volatility of rate
sensitive  deposits;  asset/liability  matching risks and liquidity risks; risks
associated with the Year 2000; and changes in the securities  markets.  See also
the  section  included  herein  "Year 2000" and  "Business - Certain  Additional
Business Risks" and other risk factors discussed elsewhere in this Report.

The purpose of the following discussion is to address 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 32 through 54. 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 are in thousands in the text,  except per share  amounts or as otherwise
noted.



Financial Review

         Earnings Summary

For the year ended  December 31, 1997,  the Company  reported net income of $5.1
million or $1.94 per diluted  share as compared to net income of $4.3 million or
$1.64 per diluted  share in December 31, 1996 (a 19%  increase).  Net income for
the year  increased  substantially  over that of a year ago primarily due to the
increase of $2.0 million in net interest  income offset by increases in the loan
loss provision and non-interest expense.

For the year ended  December 31, 1996,  the Company  reported net income of $4.3
million or $1.64 per diluted  share as compared to net income of $3.0 million or
$1.22 per diluted  share in December 31, 1995 (a 43%  increase).  Net income for
the year  increased  substantially  over that of the prior year primarily due to
the  increase  of $2.2  million in net  interest  income  and a decrease  in the
provision for loan losses of $855 in 1996.  The increase in net interest  income
and the  reduction in the provision for loan losses was offset by an increase in
expenses primarily related to the increase in volumes.

As of December 31, 1997, consolidated assets were $325 million, gross loans were
$229  million,  and  deposits  were  $270  million.  Total  consolidated  assets
increased  $16  million  from  $309  million  a year  ago,  representing  a 5.2%
increase.  Loan and deposit  growth was  generated  by increased  marketing  and
business development efforts of the Bank.

As of December 31, 1996, consolidated assets were $309 million, gross loans were
$199  million,  and  deposits  were  $245  million.  Total  consolidated  assets
increased  $57 million from $252 million in the prior year,  representing  a 23%
increase.  Loan and deposit  growth was  generated  by increased  marketing  and
business development efforts of the Bank.

         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.


<PAGE>
<TABLE>
<CAPTION>
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, 1997.


AVERAGE BALANCES, RATES AND YIELDS
(dollars in thousands)
                                                  1997                         1996                        1995
----------------------------------------------------------------------------------------------------------------------------
                                       Average            Avg.      Average           Avg.      Average            Avg.
                                                           Yield/                      Yield/                       Yield/
Assets                                 Balance  Interest  Rate      Balance  Interest Rate Paid Balance  Interest  Rate
                                                            Paid                                                     Paid
----------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
<S>                                    <C>      <C>        <C>     <C>       <C>       <C>      <C>      <C>        <C>   
  Loans, net (1)                        $212,795 $22,732    10.68%  $183,367  $20,422   11.14%   $152,820 $18,016    11.79%
  Securities available for sale (2)       48,178   2,982     6.19     47,666    2,907    6.10      30,619   1,847     6.03
  Securities held to maturity:
    Taxable (3)                           11,929     806     6.76     12,356      813    6.58      12,122     758     6.25
    Nontaxable (4)                         2,916     235     8.06      2,866      227    7.91       2,601     201     7.72
  Money market investments                10,767     586     5.44      4,901      258    5.26       4,834     280     5.79
Interest rate hedging instruments           ----      (9)    ----       ----       (9)   ----        ----     (43)    ----
----------------------------------------------------------         -------------------          -------------------
      Total interest-earning assets      286,585  27,332     9.54    251,156   24,618    9.80     202,996  21,059    10.37
----------------------------------------------------------         -------------------          -------------------
Allowance for possible loan losses        (4,162)                     (3,980)                      (3,574)
Cash and due from banks                   20,008                      15,944                       11,668
Other assets                               7,835                       6,842                        7,035
Core deposit intangibles and goodwill, net 4,194                       4,906                        4,788
------------------------------------------------                   ----------                   ---------
      Total                             $314,460                    $274,868                     $222,913
================================================                   ==========                   =========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
  Deposits:
    Interest-bearing demand              $46,126   1,178     2.55    $41,322    1,155    2.79     $30,915   1,158     3.74
    Money market and savings              85,696   3,061     3.57     60,833    2,035    3.35      51,654   1,751     3.39
    Certificates of deposit:
      Less than $100                      14,987     792     5.28     14,628      802    5.48      15,519     826     5.32
      $100 or more                        53,662   2,964     5.52     46,794    2,608    5.57      40,305   2,232     5.54
----------------------------------------------------------         -------------------          -------------------
      Total certificates of deposit       68,649   3,756     5.47     61,422    3,410    5.55      55,824   3,058     5.48
----------------------------------------------------------         -------------------          -------------------
Other short-term borrowings               12,610     754     5.98     24,467    1,459    5.96      11,663     716     5.88
----------------------------------------------------------         -------------------          -------------------
      Total interest-bearing liabilities 213,081   8,749     4.11    188,044    8,059    4.29     150,056   6,683     4.45
----------------------------------------------------------         -------------------          -------------------
Noninterest-bearing demand                64,869                      54,139                       44,889
Accrued interest payable and
  other liabilities                        5,419                       4,397                        3,070
------------------------------------------------                   ----------                   ---------
      Total liabilities                  283,369                     246,580                      198,015
------------------------------------------------                   ----------                   ---------
Shareholders' equity                      31,091                      28,288                       24,898
------------------------------------------------                   ----------                   ---------
       Total                            $314,460                    $274,868                     $222,913
================================================----------         ==========---------          =========----------
Net interest income and margin (5)               $18,583     6.48%            $16,559    6.59%            $14,376     7.08%
=======================================         ===================          ===================         ===================
<FN>

(1)  Includes amortized loan fees of $1,014 for 1997, $1,018 for 1996 and $1,123
     for 1995. Nonperforming loans have been included in average loan balances.

(2)  Includes  dividend income of $219, $217 and $233 received in 1997, 1996 and
     1995, respectively.

(3)  Includes dividend income of $31 received in 1997 and 1996 and $30 in 1995.

(4)  Adjusted to a fully taxable  equivalent  basis using the federal  statutory
     rate ($94 in 1997, $91 in 1996 and $81 in 1995).

(5)  The net interest margin  represents the net interest income as a percentage
     of average earning assets.

</FN>
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

The following table shows the effect on the interest  differential of volume and
rate changes for the years ended December 31, 1997 and 1996:

VOLUME/RATE ANALYSIS
(dollars in thousands)
                                                    1997 vs. 1996                           1996 vs. 1995
----------------------------------------------------------------------------------------------------------------------------
                                                     Increase (decrease)                  Increase (decrease)
                                                       due to change in                     due to change in
----------------------------------------------------------------------------------------------------------------------------
                                           Average      Average        Total         Average       Average        Total
                                           Volume        Rate          Change        Volume       Rate (2)       Change
----------------------------------------------------------------------------------------------------------------------------
Interest income:
<S>                                         <C>          <C>          <C>            <C>            <C>          <C>   
  Loans (1)                                  $3,098       $(788)       $2,310         $3,326         $(500)       $2,826
  Securities:
    Available for sale                           31          44            75          1,039            21         1,060
    Taxable                                     (32)         25            (7)            15            40            55
    Nontaxable                                    4           4             8             21             5            26
  Money market investments                      319           9           328              4           (26)          (22)
----------------------------------------------------------------------------------------------------------------------------
     Total interest income                    3,420        (706)        2,714          4,405          (460)        3,945
----------------------------------------------------------------------------------------------------------------------------
Interest expense:
  Interest checking                              90         (67)           23            (12)            9            (3)
  Money market and savings                      880         146         1,026            307           (23)          284
  Certificates of deposits:
    Less than $100                               21         (31)          (10)           (51)           27           (24)
    $100 or greater                             379         (23)          356            361            15           376
  Other short-term borrowings                  (709)          4          (705)           733            10           743     
----------------------------------------------------------------------------------------------------------------------------
      Total interest expense                    661          29           690          1,338            38         1,376
----------------------------------------------------------------------------------------------------------------------------
Interest rate hedging instruments              ----        ----          ----           ----            34            34
----------------------------------------------------------------------------------------------------------------------------
Change in net interest income                $2,759       $(735)       $2,024         $3,067         $(464)       $2,603
============================================================================================================================
<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.
(2) Excluded from the average rate column for interest  income on loans is $420 of interest  income  collected in 1995 on a
     cash basis which pertains to prior periods.
</FN>
</TABLE>


Consolidated net interest income (on a fully taxable equivalent basis) was $18.6
million in 1997, as compared to $16.6 million in 1996. The $2.0 million increase
in net  interest  income  during  1997 was due  primarily  to an increase in the
volume of earning assets.  The Bank's net interest margin for 1997 was 6.48%, as
compared to 6.59% in 1996. The decrease in the net interest margin was primarily
due to the impact of the competitive  market and the resulting  pressure on loan
interest rates. The Bank's average prime was 8.44% in 1997, as compared to 8.27%
in 1996. In a declining rate  environment,  the Company must generally  increase
its earning assets in order to maintain net interest income growth.

Consolidated net interest income (on a fully taxable equivalent basis) was $16.6
million in 1996, as compared to $14.4 million in 1995. The $2.2 million increase
in net  interest  income  during  1996 was due  primarily  to an increase in the
volume of earning assets.  The Bank's net interest margin for 1996 was 6.59%, as
compared to 7.08% in 1995. The decrease in the net interest margin was primarily
due to: (i) the receipt of substantial  interest  income on a cash basis in 1995
(approximately  $588) for loans  that had been on  nonaccrual  status;  (ii) the
impact of the declining  interest rate environment in 1996; and (iii) the impact
of the competitive market and the resulting pressure on loan interest rates.
The Bank's average prime was 8.27% in 1996, as compared to 8.83% in 1995.

Loan fees contributed 4.5% of loan portfolio  interest during 1997, 5.0% in 1996
and 6.2% in 1995.  This  decline  in the  proportion  of loan fees to total loan
interest was due mainly to the increase in the competitive  atmosphere  relating
to loan pricing,  the overall level of interest rates and the higher  proportion
of SBA loans  included in the loan  portfolio  (SBA loans  generally  have lower
origination fees).

Interest  expense in 1997 was $8.7  million as compared to $8.1 million in 1996.
This was mainly due to the increase in volumes.  Actual  interest  expense rates
declined from 4.29% in 1996 to 4.11% in 1997 (this compares to a decrease in the
yields on  earning  assets  of 9.80% in 1997 to 9.54% in 1996).  Proportionately
interest expense declined at a greater rate than interest income in management's
view because the Bank took measures to assure the most efficient product pricing
for deposit products.

Interest  expense in 1996 was $8.1  million as compared to $6.7 million in 1995.
This was mainly due to the increase in volumes.  Actual  interest  expense rates
declined from 4.45% in 1995 to 4.29% in 1996. This compares to a decrease in the
yields on earning assets of 10.37% in 1995 to 9.80% in 1996.

A substantial  portion of the Bank's deposits (an average of 24% in 1997, 25% in
1996 and 24% in 1995) are non interest-bearing and therefore do not reprice when
interest  rates  change.  See  "Funding."  This  is  somewhat  ameliorated  by a
significant  amount of  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, an increase in interest rates should  positively  affect
the Company's  future  earnings,  while a decline in interest rates would have a
negative  impact.  In late 1997 and early 1998,  market  interest rates declined
significantly   due  to  several   factors   most  notable  of  which  were  the
strengthening  of the  dollar,  the Asia crisis and the  collective  wisdom that
inflation has receded.  Should this "market"  trend of declining  interest rates
continue  during 1998, the Bank could  experience an additional  increase in its
cost of funds relative to the yields earned on its earning assets and a decrease
in its net interest margin.

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 the Bank's Financial Services Division.

Net interest income also reflects the impact of nonperforming  loans. The effect
of nonaccrual  loans on interest  income for the years ended  December 31, 1997,
1996 and 1995 was as follows:


NEGATIVE IMPACT OF NONACCRUAL LOANS
(dollars in thousands)             For the Years
                                Ended December 31,
------------------------------------------------------------
                          1997   1996  1995   1994   1993
------------------------------------------------------------
Interest revenue which
  would have been
  recorded under
original
  terms                    $61    $35  $111   $359   $265
Interest revenue
actually
  realized                  32     29    11    121    126
------------------------------------------------------------
Negative impact on
  interest revenue         $29     $6  $100   $238   $139
============================================================

This  table  does not  reflect  the cash  basis  interest  received  on  several
significant loan  collections  during 1995, as such loans were not classified as
nonaccrual  as of the end of the year.  The  impact of such was  significant  in
1995. Approximately $588 of interest income was recognized in 1995 on collection
of certain  loans  classified  nonaccrual,  which  resulted  in a 29 basis point
impact on the net interest margin.

              Provision for Possible Loan Losses

The level of the allowance  for possible loan losses (and  therefore the related
provision)  reflects the Company's  judgment as to the inherent risks associated
with the loan and factoring  portfolios.  Since estimates of the adequacy of the
Company's  allowance  for possible loan 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 $705, $190 and $1.0 million were made to the
allowance  for  possible  loan  losses  in 1997,  1996 and  1995,  respectively.
Management's  determinations  of the provision in 1997, 1996 and 1995 were based
on the  measurement of the  possibility of future  estimated loan losses through
various objective and subjective criteria and the impact of net chargeoffs.  See
"Loan  Portfolio"  for a detailed  discussion of asset quality and the allowance
for possible loan losses.


<PAGE>




              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,  1997,  1996 and
1995.

OTHER INCOME
(dollars in thousands)
                                                        1997                      1996                      1995
----------------------------------------------------------------------------------------------------------------------------
                                                 Amount      Percent       Amount      Percent       Amount       Percent
----------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>         <C>           <C>          <C>          <C>         <C>   
Depositor service charges                          $607        59.92%        $551         65.13%       $553        57.25%
Other operating income                              453        44.72          437         51.65         456        47.20
Net loss on securities available for sale           (47)       (4.64)        (142)       (16.78)        (43)       (4.45)
----------------------------------------------------------------------------------------------------------------------------
    Total                                        $1,013       100.00%        $846        100.00%       $966       100.00%
============================================================================================================================

</TABLE>



Other income totaled $1.013 million in 1997, $846 in 1996 and $966 in 1995. This
reduced  levels of other  income in 1996 were the result of the  recognition  of
$142 of securities losses in that year.

              Other Expense

The  components of other  expense are set forth in the  following  table for the
years ended December 31, 1997, 1996 and 1995.


<TABLE>
<CAPTION>


OTHER EXPENSE AS A PERCENT OF AVERAGE ASSETS
(dollars in thousands)
----------------------------------------------------------------------------------------------------------------------------
                                                 1997                       1996                      1995
                                                Amount       Percent       Amount      Percent       Amount      Percent
----------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>         <C>           <C>         <C>           <C>  
Salaries and benefits                            $5,725         1.82%       $5,517        2.01%       $4,339        1.95%
Occupancy                                           725          .23           701         .26           740         .33
Amortization of core deposit intangibles
  and goodwill                                      473          .15           499         .18           569         .26
Data processing                                     441          .14           554         .20           458         .20
Business promotion                                  369          .12           365         .13           314         .14
Client services                                     345          .11           247         .09           247         .11
Legal and professional fees                         331          .11           369         .13           476         .21
Directors' fees and costs                           226          .07           219         .08           239         .11
Stationery and supplies                             183          .06           183         .07           180         .08
Advertising                                         171          .05           236         .09           186         .08
Regulators' assessments                             109          .03            72         .03           283         .13
Loan and collection                                 104          .03           151         .05           215         .10
Net cost of other real estate owned                 (72)        (.02)          (48)       (.02)           45         .02
Other                                               780          .25           570         .21           506         .23
---------------------------------------------------------------------------------------------------------------------------
     Total                                       $9,910         3.15%       $9,635        3.51%       $8,797        3.95%
============================================================================================================================

</TABLE>


Total other expenses increased approximately $275 or 2.8% in 1997 as compared to
1996. This is primarily  related to the increase in salaries and benefits due to
staff growth related to the increased level of Bank's  business  activity and an
increase in the provision for incentive payments for exceeding predefined goals.
Business promotion and advertising  expenses declined due to costs of promotions
incurred in 1996. In addition,  the Bank's data processing costs declined due to
the  termination of payments for its previous data processing  software.  During
1997 the Bank acquired a new processing system for a total cost of approximately
$600. This cost will be amortized over a five year period commencing in November
1997.  Amortization of core deposit  intangibles is based on a declining balance
method, and as such, the amount charged to expense will decline each year. Costs
relating to client services increased approximately $100 during 1997 as compared
to 1996 mainly due to the addition of  significant  clients  utilizing  services
purchased by the Bank.
<PAGE>
Total other expenses increased approximately $838 or 9.5% in 1996 as compared to
1995. This is primarily  related to the increase in salaries and benefits due to
the January 1996 acquisition of Astra Financial  Corp.,  staff growth related to
the increased level of Bank's business activity and an increase in the provision
for incentive  payments for exceeding  predefined goals.  Business promotion and
advertising expenses rose due to increased  competitive  pressure.  In addition,
the Bank made  significant  investments  in  technology to support the continued
productivity of its staff.

The FDIC reduced its premium on insurable  deposits  effective June 1995 from 23
cents per $100 of deposits to 4 cents.  This  resulted in savings to the Bank of
$216 for 1996. Currently the premium on insurable deposits is 1.3 cents per $100
of insured  deposits.  In addition,  as the Bank's credit  quality  continued to
improve in 1996, there were significant  reductions in its related cost, such as
legal and  professional  fees, loan and collection  expense and the net costs of
other real estate owned, totaling $264.

              Income Taxes

The effective tax rate was 42% in 1997,  43% in 1996 and 44% in 1995.  The lower
effective  tax rates in 1997 and 1996 was  primarily due to the reduction in the
amount  and  proportion  of  amortization  of  the   nondeductible   portion  of
intangibles to pretax income  arising in connection  with the purchase of BB and
Astra Financial Corp.

              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 1997 and 1996:

<TABLE>

UNAUDITED QUARTERLY INCOME STATEMENT DATA
 (dollars in thousands, except per share amounts)
-----------------------------------------------------------------------------------------------------------------------------
                                     First quarter         Second quarter         Third quarter          Fourth quarter
                                   1997        1996       1997        1996       1997        1996       1997        1996
-----------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>        <C>         <C>        <C>         <C>        <C>         <C>        <C>   
Net interest income                  $4,208     $3,921      $4,635     $4,019      $4,675     $4,228      $4,971     $4,300
Provision for possible loan losses    -----        (20)       (180)       (30)       (215)       (50)       (310)       (90)
Other income                            268        260         221        173         247        182         277        231
Other expenses                       (2,387)    (2,473)     (2,526)    (2,340)     (2,463)    (2,423)     (2,534)    (2,399)
-----------------------------------------------------------------------------------------------------------------------------
Income before income taxes            2,089      1,688       2,150      1,822       2,244      1,937       2,404      2,042
Income taxes                           (884)      (729)       (908)      (778)       (948)      (817)     (1,033)      (874)
-----------------------------------------------------------------------------------------------------------------------------
Net income                           $1,205       $959      $1,242     $1,044      $1,296     $1,120      $1,371     $1,168
=============================================================================================================================

Net income per share - basic          $0.47      $0.40       $0.50      $0.43       $0.52      $0.45       $0.55      $0.46
=============================================================================================================================
Net income per share - diluted        $0.45      $0.37       $0.48      $0.40       $0.50      $0.42       $0.52      $0.44
=============================================================================================================================

</TABLE>

The Company  reported  net income of $1,371 for the quarter  ended  December 31,
1997,  compared  with net income of $1,168 for the fourth  quarter of 1996.  The
results for the fourth  quarter of 1996 as  compared to the same  quarter a year
ago  reflect an  increase  in volume of  earning  assets  ($287  million in 1997
compared to $251 million in 1996)  offset by a decline in net  interest  margins
(6.48% in 1997 and 6.59% in 1996), a higher loan loss provision due to growth of
loan  portfolio  and  increased  salaries and benefits  relating to the increase
volume of activity.

<PAGE>
Financial Condition and Earning Assets

              Money Market Investments

Money market investments,  which include federal funds sold and other short-term
investments  were $2.7 million at December 31, 1997 as compared to $19.8 million
at December 31, 1996.  This  decrease  relates to the reduction in the amount of
the Bank's short-term borrowings of $13.7 million.

The average  balance of money market  investments,  which include  federal funds
sold and liquid money  market  investments,  was $10.8  million in 1997 and $4.9
million in 1996.  These balances  represented 4% and 2% of average  deposits for
1997 and 1996,  respectively.  They are maintained  primarily for the short-term
liquidity needs of the Bank. The increase in money market investments related to
the growth of certain volatile deposits. See "Capital and Liquidity."

              Securities
<TABLE>
<CAPTION>

The following table shows the book value composition of the securities portfolio
at December 31, 1997,  1996 and 1995. At December 31, 1997 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.


INVESTMENT SECURITIES COMPOSITION
 (dollars in thousands)                                                             December 31,
----------------------------------------------------------------------------------------------------------------------------
                                                               1997                    1996                   1995
----------------------------------------------------------------------------------------------------------------------------
Investment securities available for sale:
<S>                                                            <C>                     <C>                    <C>   
  U. S. Treasury                                               $5,041                  $4,005                 $4,057
  U. S. Government Agencies                                    34,327                  34,285                 34,578
  Mortgage Backed                                               5,171                   5,868                      9
  Mutual funds                                                  3,766                   3,886                  3,898
----------------------------------------------------------------------------------------------------------------------------
    Investment securities available for sale                   48,305                  48,044                 42,542
----------------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
  U. S. Treasury                                                1,992                   1,975                  4,265
  U. S. Government Agencies                                     5,485                   7,463                  4,976
  State and municipal                                           3,224                   2,635                  3,060
  Mortgage Backed                                               2,518                   2,481                  2,428
  Other                                                           518                     518                    519
----------------------------------------------------------------------------------------------------------------------------
    Investment securities held to maturity                     13,737                  15,072                 15,248
----------------------------------------------------------------------------------------------------------------------------
  Total                                                       $62,042                 $63,116                $57,790
============================================================================================================================

</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,
1997 the Bank's weighted  average  maturity of the available for sale investment
portfolio  was 1.75 years.  It is estimated  that for each 1% change in interest
rates,  the value of the  Company's  securities  held to maturity will change by
approximately 1.49%.

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 condensed  consolidated  balance  sheets.  Realized
gains and  losses  are  reported  in the  condensed  consolidated  statement  of
operations.  The net unrealized  gain,  net of tax, on securities  available for
sale as of December 31, 1997 was $105.

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  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 gain on investment  securities held to maturity was $106
as of  December  31,  1997 as compared  to $159 as of  December  31,  1996.  The
reduction in unrealized gains resulted from the significant decrease in interest
rates in 1996.  Decreases in interest  rates have an inverse effect on the value
of securities for which the interest rate is fixed.  The Bank's weighted average
maturity of the held to maturity  investment  portfolio was  approximately  2.02
years as of  December  31,  1997.  It is  estimated  that for each 1%  change in
interest  rates,  the value of the  Company's  securities  held to maturity will
change by approximately 1.43%. This volatility decreases as the average maturity
shortens.  Since it is the intention of  management to hold these  securities to
maturity,  the unrealized gains will be realized over the life of the securities
as above market interest income is recognized.
<PAGE>
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's tend to
decline;  as rates increase  maturities tend to lengthen.  At December 31, 1997,
the Company had the following  securities which were  mortgage-backed or related
securities:



                                                    Fair
(dollars in thousands)                    Cost      Value
--------------------------------------- --------- ----------
Federal  Home  Loan   Mortgage   Corp.
   (U.S.     Agency)                      $4,902     $4,957
Federal National Mortgage  Association
   (U.S. Agency)                           2,712      2,762
Federated ARMs Funds *                     1,686      1,648
Overland Variable Rate
   Government Fund*                        1,129      1,046
*    The assets of these  mutual funds are invested  mainly in
     adjustable  rate U.S. Treasury or U.S. Government Agency 
     securities.


Loan Portfolio
<TABLE>
<CAPTION>

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

LOAN PORTFOLIO
(dollars in thousands)
                                                                                December 31,
----------------------------------------------------------------------------------------------------------------------------
                                                   1997            1996            1995            1994            1993
----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>             <C>             <C>    
Commercial                                        $92,693         $77,335         $52,958         $51,045         $28,267
Real estate construction                           17,818          15,451          14,488          16,343          15,492
Real estate-other                                  90,495          74,713          74,045          66,085          39,672
Consumer                                            9,042           8,622           8,800           9,461           6,857
Other                                              19,568          23,174          21,302           7,362           8,416
Unearned fee income                                  (644)           (668)           (793)           (888)           (746)
----------------------------------------------------------------------------------------------------------------------------
  Total loan portfolio                           $228,972        $198,627        $170,800        $149,407         $97,958
============================================================================================================================

Commercial                                         40.5%           38.9%           31.0%           34.2%           28.9%
Real estate construction                            7.8             7.8             8.4            11.0            15.8
Real estate-other                                  39.5            37.6            43.4            44.2            40.5
Consumer                                            3.9             4.3             5.2             6.3             7.0
Other                                               8.6            11.7            12.6             4.9             8.6
Unearned fee income                                 (.3)            (.3)            (.6)            (.6)            (.8)
----------------------------------------------------------------------------------------------------------------------------
  Total loan portfolio                            100.0%          100.0%          100.0%          100.0%          100.0%
============================================================================================================================

</TABLE>

              General

The Company's loan  portfolio  consists  primarily of short-term,  floating rate
loans for business and real estate purposes. At December 31, 1997, approximately
40% of the loan portfolio was commercial  loans  (including  non-real estate SBA
loans  and  Factoring),  8% was real  estate  construction,  and 39% was in real
estate other.  SJNB's legal lending limit for any one borrower was approximately
$4.8 million at December 31, 1997.

The  commercial  loan  portfolio   primarily  consists  of  loans  to  small  to
medium-sized  businesses with gross revenues up to $25 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.

Included in  commercial  loans as of December  31, 1997 were  factored  accounts
receivable of approximately  $4.9 million or 2.1% of total loans. As of December
31, 1996, factored accounts receivable were $4.4 million or 2.2% of total loans.
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.

In addition  commercial  loans  include  approximately  $13 million of SBA loans
which  are not made for real  estate  purposes.  These  loans  carry a 70 to 80%
guarantee by the SBA.

The real estate construction  portfolio (7.8% of the loan portfolio) consists of
64%  residential  and 36%  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-other  loans  include  term  loans  (up to a  twenty-five  year
maturity) on  income-producing  commercial  properties.  These loans include SBA
real estate type loans.

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.

Other loans include loans to real estate  developers for  short-term  investment
purposes (approximately $1.2 million), loans for real estate investment purposes
made to  non-developers  (approximately  $7.6  million),  and  loans  for  other
investments (approximately $6.8 million).

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 portfolio, a substantial
portion of its  customers'  ability  to honor  loan  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
generally made on the basis of a secure  repayment  source as the first priority
and collateral is generally a secondary source for loan qualification.

Approximately  53% of the loan  portfolio is directly  related to real estate or
real estate interests,  when real estate  construction  loans, real estate-other
loans,  Prime  equity loans  (included  in consumer  loans in the amount of $5.0
million) and certain other loans to real estate  developers and other  investors
for short-term  investment  purposes  (approximately 3.8% of the loan portfolio)
are included.  Included in the real estate-other  category are approximately $26
million of SBA real estate type loans,  of which,  70% to 80% are  guaranteed by
the SBA.  Approximately  40.5% of the loan  portfolio  is made up of  commercial
loans;  however, no particular industry represents a significant portion of such
loans.

Inherent in any loan portfolio are risks associated with certain types of loans.
The Company attempts to limit these risks through conservative loan 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 LTV
 Category of Real Estate Collateral               Ratio
--------------------------------------------- --------------
Raw land                                            50%
Land Development                                    60
Construction:
  1-4 Single family residence,
    Less than $500                                  80
    Greater than $500                               80
  Other                                             80
Term  loans  (construction   take-out
  and commercial)                                   75
Other improved property                             70
Prime equity loans                                  80

The  Company's  loan  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.

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 mitigates 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 indicated by the questionnaire or
if for any other  reason  it is  determined  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 were $229  million,  $199  million and $171  million at December 31,
1997,  1996 and 1995,  respectively.  Gross loans  averaged $213  million,  $183
million and $153 million for the years ended 1997, 1996 and 1995,  respectively.
The  increase in total loans of $30 million  during 1997  relates to the overall
growth in the Bank's loan portfolio.  The most significant  areas of growth were
the  increase  in  commercial  loans of $15  million.  In  addition  Real Estate
Construction  increased  $2.4 million,  while Real Estate - other  increased $16
million,  of which $10.9 million was SBA real estate loans. During 1996 the most
significant  areas of growth  were the  increase in SBA loans  (included  in the
commercial  and real  estate-other  loan  categories)  of $8  million  and other
commercial  loans of $16 million.  These increases were mainly due to the Bank's
business development efforts and the strength of the local economy. The increase
in loans for 1995 was primarily related to a $14 million increase in SBA loans.

The economic  climate in Northern  California has been generally  strong in 1997
and 1996. However, the competitive environment within the Bank's marketplace for
additional loan growth has become more aggressive  between lenders  resulting in
increasingly  competitive  pricing. To the extent that such competitive activity
continues during 1998 and the Bank finds it necessary to meet such  competition,
the Bank's net interest margins could decline.  In addition,  its uncertain what
impact the  economic  crisis  currently  unfolding  in Asia will have on Silicon
Valley and, potentially, the business of the Bank.

              Asset Quality

              Allowance for Possible Loan Losses

A  consequence  of lending  activities  is that losses may be  experienced.  The
amount  of such  losses  will vary  from  time to time  depending  upon the risk
characteristics of the loan portfolio as affected by economic conditions, rising
interest  rates and the financial  experience  of  borrowers.  The allowance for
possible  loan losses,  which  provides  for the risk of losses  inherent in the
credit extension process, is increased by the provision for possible loan 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  portfolio.
Similarly,  the adequacy of the allowance for possible loan losses and the level
of the related  provision for possible loan losses is determined on a judgmental
basis by management based on consideration of:

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

In addition to the internal  assessment of the loan  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  possible  loan  losses.
Examinations  of the loan  portfolio  are  also  conducted  periodically  by the
federal banking regulators.

The Company  utilizes a method of assigning a minimum and maximum loss ratio for
each grade of loan within each category of loans (commercial, real estate-other,
real estate  construction,  etc.) Loans are graded on a ranking  system based on
management's assessment of the loan'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. 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
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 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 possible loan losses, determined as described above,
was adequate for foreseeable losses at December 31, 1997.

The allowance for possible loan losses is a general  reserve  available  against
the total loan portfolio and off balance sheet credit exposure. While management
uses available information to recognize losses on loans, 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 possible loan 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.

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 possible loan losses in future periods.
<PAGE>
The following  table  summarizes the activity in the allowance for possible loan
losses for the five years ended December 31, 1997:

<TABLE>

ALLOWANCE FOR POSSIBLE LOAN LOSSES
 (dollars in thousands)                                                       Years Ended December 31,
-----------------------------------------------------------------------------------------------------------------------------
                                                                1997         1996         1995         1994         1993
-----------------------------------------------------------------------------------------------------------------------------
Balance, beginning of the year                                  $4,005       $3,847       $3,311       $2,057       $1,553
-----------------------------------------------------------------------------------------------------------------------------
Chargeoffs by loan category:
<S>                                                               <C>          <C>          <C>          <C>          <C>
  Commercial                                                       242          233          233          148          389
  Real estate construction                                       -----        -----          154        -----        -----
  Real estate-other                                                 33           70          220          637            5
  Consumer                                                          13           22           89           73           90
  Other                                                          -----           93        -----          824           26
-----------------------------------------------------------------------------------------------------------------------------
    Total chargeoffs                                               288          418          696        1,682          510
-----------------------------------------------------------------------------------------------------------------------------
Recoveries by loan category:
  Commercial                                                        67          258           42          192           21
  Real estate construction                                       -----        -----        -----        -----          200
  Real estate-other                                                  4           13           27           10            5
  Consumer                                                       -----           65           16            7           16
  Other                                                          -----        -----          102          222          147
-----------------------------------------------------------------------------------------------------------------------------
    Total recoveries                                                71          336          187          431          389
-----------------------------------------------------------------------------------------------------------------------------
Net chargeoffs                                                     217           82          509        1,251          121
-----------------------------------------------------------------------------------------------------------------------------
Provision charged to expense                                       705          190        1,045          600          625
Allowance relating to acquired businesses                        -----           50        -----        1,905        -----
-----------------------------------------------------------------------------------------------------------------------------
Balance, end of the year                                        $4,493       $4,005       $3,847       $3,311       $2,057
=============================================================================================================================
Ratios:
Net chargeoffs to average loans                                   0.10%        0.04%        0.33%        1.11%        0.14%
Allowance to total loans at the end of the year                   1.96         2.02         2.25         2.22         2.10
Allowance to nonperforming loans at end of the year           1,060.00       733.00       430.00        60.00        56.00
=============================================================================================================================

</TABLE>


Net  chargeoffs  were $217 or 0.10% of average loans during 1997. Net chargeoffs
were $82 or 0.04% of  average  loans  during  1996.  During  1995,  the  Company
experienced  net  chargeoffs of $509 or 0.33% of average loans during 1995.  The
decrease in net  chargeoffs in 1996 as compared to 1995 resulted  primarily from
improved  credit  quality of the overall  loan  portfolio.  Management  does not
believe  there  were  any  trends  indicated  by the  detail  of  the  aggregate
charge-offs for any of the periods discussed.

The allowance for possible loan losses as a percentage of total loans was 1.96%,
2.02%,  and  2.25% at  December  31,  1997,  1996 and  1995,  respectively.  The
allowance for possible loan losses as a percentage  of  nonperforming  loans was
approximately   1,060%,  733%  and  430%  at  December  31,  1997,  1996,  1995,
respectively. Nonperforming loans were $424, $546 and $894 at December 31, 1997,
1996, 1995, respectively. See "Nonperforming Loans" below.


<PAGE>

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


<TABLE>
<CAPTION>


ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
(dollars in thousands)                                       Amount of Allowance Allocation at December 31,
----------------------------------------------------------------------------------------------------------------------------
                                                  1997            1996            1995            1994            1993
----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>             <C>               <C> 
  Commercial                                      $1,741          $1,335          $1,193          $1,192            $459
  Real estate construction                           236             223             176             310             181
  Real estate-other                                1,430           1,334           1,134           1,051             567
  Consumer                                           158             126             169             219              99
  Other                                              167             236             337              94             101
  Unallocated                                        761             751             838             445             650
----------------------------------------------------------------------------------------------------------------------------
    Total                                         $4,493          $4,005          $3,847          $3,311          $2,057
============================================================================================================================
                                                                    Percent of Loans in Each Category
                                                                      to Total Loans at December 31,
  Commercial                                       40.5%           38.9%           31.0%           34.2%           28.9%
  Real estate construction                          7.8             7.8             8.4            11.0            15.8
  Real estate-other                                39.5            37.6            43.4            44.2            40.5
  Consumer                                          3.9             4.3             5.2             6.3             7.0
  Other                                             8.3            11.4            12.0             4.3             7.8
----------------------------------------------------------------------------------------------------------------------------
    Total                                         100.0%          100.0%          100.0%          100.0%          100.0%
============================================================================================================================

</TABLE>

The  allowance  for  possible  loan losses is  maintained  without any  internal
allocation  to the segments of the loan  portfolio  and the entire  allowance is
available to cover loan losses. The allocation 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
<TABLE>
<CAPTION>

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


NONPERFORMING LOANS
 (dollars in thousands)                                                                 December 31,
------------------------------------------------------------------------------------------------------------------------------
                                                                   1997         1996        1995        1994         1993
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>         <C>          <C>       <C>         <C>   
Loans accounted for on a non-accrual basis                           $360        $457         $866      $5,395      $3,678
Loans restructured and in compliance with modified terms               63          89         ----        ----        ----
Other loans with principal or interest contractually past
  due 90 days or more                                                   1        ----           28          83        ----
------------------------------------------------------------------------------------------------------------------------------
    Total                                                            $424        $546         $894      $5,478      $3,678
==============================================================================================================================
</TABLE>


Potential  nonperforming  loans  are  identified  by  management  as part of its
ongoing  evaluation and review of the loan portfolio.  Based on such reviews and
information  known to management at the date of this Report,  management has not
identified  any loans  (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  might  subsequently  be  classified  as
nonperforming.

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.



<PAGE>


              Other Real Estate Owned

At December 31, 1996, the Bank had two properties  totaling $454 (there was none
at December 31, 1997) which were acquired through the foreclosure process. Prior
to recording a  foreclosure,  the Bank  provides  for any  expected  loss in its
allowance for possible loan losses.  Any subsequent  decline in value is charged
directly to the income statement.

Commitments and Lines of Credit

It is the  Bank's  policy  not to issue  formal  commitments  or lines of credit
except to a limited number of well-established and financially responsible local
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  credit risk  through its credit  approval  process.  The same credit
policies are used when entering into such commitments.

As of December 31, 1997, the Company had undisbursed  loan commitments to extend
credit as follows:

UNDISBURSED LOAN COMMITMENTS
(dollars in thousands)
Loan Category                                     Amount
-----------------------------------------------------------
Commercial                                         $52,111
Real estate construction                            15,699
Real estate-other                                      587
Consumer                                             7,604
Other                                               16,645
-----------------------------------------------------------
    Total                                          $92,646
===========================================================

In addition,  there was  approximately  $12.2 million  available for commitments
under unused letters of credit.


Funding
<TABLE>
<CAPTION>

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, 1997, 1996 and 1995:


DEPOSIT CATEGORIES
 (dollars in thousands)                 December 31, 1997             December 31, 1996             December 31, 1995
----------------------------------------------------------------------------------------------------------------------------
                                                   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            $78,437          29.01%        $80,774        33.02%         $52,775         26.83%
Interest-bearing demand                45,655          16.89          40,113        16.40           34,641         17.61
Money market and savings               82,619          30.56          60,684        24.80           51,201         26.03
Certificates of deposit:
  Less than $100                       15,207           5.63          15,535         6.35           14,730          7.49
  $100 or more                         48,427          17.91          47,533        19.43           43,345         22.04
----------------------------------------------------------------------------------------------------------------------------
    Total                            $270,345         100.00%       $244,639       100.00%        $196,692        100.00%
============================================================================================================================
</TABLE>


Deposits increased 11% from $245 million at December 31, 1996 to $270 million at
December 31, 1997. Deposits increased 25% from $197 million at December 31, 1995
to $245  million at  December  31,  1996.  These  increases  are mainly 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 rates.

The Bank has been able to attract a  significant  proportion  of its deposits in
the form of  non-interest-bearing  deposits.  The  Bank's  primary  business  is
commercially  oriented and therefore significant  non-interest-bearing  deposits
are maintained by its 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  in such an  occurrence.  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. 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."

The Bank utilizes  short-term  borrowings in its balance sheet  management.  The
short-term borrowings  (securities sold under agreements to repurchase) are used
to fund the  acquisition  of fixed rate  available for sale  securities  with an
average  life of 1.73  years at  December  31,  1997.  The  average  cost of the
borrowings  during  1997 was 5.77%  while the  average  yield on the  assets was
6.30%. If interest rates were to increase quickly,  the cost of borrowings would
increase with no offsetting  increase in the yield on the assets purchased.  See
"Asset/Liability Management."


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  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, 1997 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."

The following table quantifies the Company's  interest rate exposure at December
31, 1997 based upon the known  repricing dates of certain assets and liabilities
and the assumed repricing dates of others. At December 31, 1997, the Company was
asset sensitive in the near term, as noted above.


<PAGE>

<TABLE>

DISTRIBUTION OF REPRICING OPPORTUNITIES
December 31, 1997
(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              $2,700                                                                      $2,700
Investment securities-taxable          1,063         $1,053         $1,118         $7,280           -----         10,514
Investment                             -----            200            532          1,538            $953          3,223
securities-non-taxable 
Securities available for sale          4,095         10,033         10,078         16,797           7,302         48,305
Loans                                178,061          4,941          9,037         24,349          12,584        228,972
----------------------------------------------------------------------------------------------------------------------------
 Total earning assets                185,919         16,227         20,765         49,964          20,839        293,714
----------------------------------------------------------------------------------------------------------------------------
Interest checking, money market
  and savings                        128,274          -----          -----          -----           -----        128,274
Certificates of deposit:
 Less than $100                        9,177          3,504          1,391          1,060              75         15,207
  $100 or more                        36,009          5,422          5,148          1,599             249         48,427
Repurchase agreements                 16,000          -----          -----          -----           -----         16,000
Other borrowings                       -----          -----          -----            137             439            576
----------------------------------------------------------------------------------------------------------------------------
 Total interest-bearing              189,460          8,926          6,539          2,796             763        208,484
liabilities
----------------------------------------------------------------------------------------------------------------------------
Interest rate gap                    ($3,541)        $7,301        $14,226        $47,168         $20,076        $85,230
============================================================================================================================
Cumulative interest rate gap         ($3,541)        $3,760        $17,986        $65,154         $85,230
=============================================================================================================
Interest rate gap ratio                 0.98           1.82           3.18          17.87           27.31
=============================================================================================================
Cumulative interest rate gap ratio      0.98           1.02           1.09           1.31            1.41
=============================================================================================================

</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.  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 $65 million in 1997.
In addition,  the Bank's total tangible capital of approximately  $29 million is
not included as a funding source in the above table.

To counter its asset sensitive interest rate position,  the Bank entered into an
interest  rate "floor" in the amount of $10 million  which  expires in May 1999.
The Bank paid a fixed  premium  of $47 for which it will  receive  the amount of
interest on $10 million  based on the  difference  of 7% and prime when prime is
less than 7%. This provides some protection to the Bank against decreases in its
net income when the prime rate  decreases.  Settlement is done quarterly and the
Bank records the impact of this hedge on an accrual basis.

The Bank has  executed  several  transactions  during  1995 and 1996  which  are
intended to mitigate its exposure to a decline in general market interest rates.
The transactions involved the purchase of three U.S. Government Agency and three
mortgage  backed  securities  for an  aggregate  cost of $30 million  which were
financed  through  the  use  of 90 day  repurchase  agreements.  The  repurchase
agreements  are shown as short-term  borrowings  on the  Company's  consolidated
balance sheet.  The securities are fixed rate with  maturities of $10 million in
May 1998,  $7 million in July 1998,  $7 million in October  2000,  $2 million in
September  2001, $2 million in March 2002 and $1 million in November  2003.  The
average yield on the securities was 6.30%. The outstanding repurchase agreements
as of December 31, 1997 had interest  rates within a range of 5.68% to 5.75% and
averaged 5.72% and mature within 90 days. As these repurchase  agreements expire
they will be renewed at the prevailing rates.  These transactions carry risks in
a  rising  rate  environment  because  of  the  potential  repricing  volatility
associated  with the  short-term  repurchase  market.  If interest rates were to
increase,  the cost of borrowings would increase with no offsetting  increase in
the yield on the assets  purchased.  At the same time it is anticipated that the
average yield on variable rate loans would increase and offset this impact.
<PAGE>
<TABLE>
<CAPTION>

The maturities  and yields of the investment  portfolio at December 31, 1997 are
shown below:


MATURITY AND YIELDS OF INVESTMENT SECURITIES
At December 31, 1997
(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                 $5,041    $1,999     5.84%    $3,042      6.21%     ----    ----         ----      ----
  U. S. Government Agencies      34,327    18,035     6.29     16,292      6.23      ----    ----         ----      ----
  Mortgage Backed                 5,171      ----      ----     4,177      6.77      $994       6.71%     ----      ----
  Mutual funds                    3,766     3,766     5.50       ----      ----      ----       ----      ----      ----
---------------------------------------------------          ----------          -----------          ----------
    Total                        48,305    23,800              23,511                 994                 ----
---------------------------------------------------          ----------          -----------          ----------
Securities held to maturity:
  U. S. Treasury                  1,992       992     7.05      1,000      6.38      ----       ----      ----      ----
  U. S. Government Agencies       5,485     2,000     6.12      3,486      6.42      ----       ----      ----      ----
  State and municipal (1)         3,224       732     7.69      1,863      7.55      ----       ----      $628      7.36%
  Mortgage Backed                 2,518      ----      ----     2,518      7.90      ----       ----      ----      ----
  Other                             518      ----      ----      ----      ----      ----       ----       518      6.00
---------------------------------------------------          ----------          -----------          ----------
    Total                        13,737     3,724               8,867                ----                1,146
---------------------------------------------------          ----------          -----------          ----------
  Total                         $62,042   $27,524     6.20%   $32,378      6.53%     $994       6.71%   $1,146      6.75%
============================================================================================================================
<FN>

(1) 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, real estate construction and real estate-other loans at December 31,
1997.  Approximately  85% of the  commercial  and real estate loan  portfolio is
priced with floating  interest  rates which limits the exposure to interest rate
risk on long-term loans.


<TABLE>

COMMERCIAL AND REAL ESTATE LOAN MATURITY AND INTEREST RATE SENSITIVITY
(dollars in thousands)                                              Balances maturing        Interest Rate Sensitivity
----------------------------------------------------------------------------------------------------------------------------
                                                                                                Predeter-
                               Balances at                         One                            mined         Floating
                               December 31,      One year        year to          Over          interest        interest
                                   1997          or less       five years      five years         rates          rates
----------------------------------------------------------------------------------------------------------------------------
<S>                               <C>              <C>            <C>              <C>             <C>            <C>    
Commercial                        $92,693          $56,004        $30,087          $6,602          $5,108         $87,585
============================================================================================================================
Real estate construction          $17,818          $14,553         $2,275            $990           -----         $17,818
============================================================================================================================
Real estate-other                 $90,495          $15,164        $25,572         $49,759         $25,009         $65,486
============================================================================================================================


</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.




<PAGE>


Capital and Liquidity

         Capital

The Company's book value per share was $13.30,  $12.14 and $11.02 as of December
31, 1997, 1996 and 1995, respectively. Tangible book value per share was $11.80,
$10.40 and $9.06 at December 31, 1997, 1996 and 1995, respectively, adjusted for
goodwill and core deposit intangibles. Shareholders' equity was $33 million, $31
million and $27 million as of December  31, 1997,  1996 and 1995,  respectively.
Tangible shareholders' equity was $29 million, $27 million and $22 million as of
December  31,  1997,  1996 and 1995,  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 funding and deposit  withdrawals.  Liquidity  requirements
are   evaluated   by  taking  into   consideration   factors   such  as  deposit
concentrations,  seasonality and maturities,  loan 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, 1997,  consolidated
liquid  assets  totaled  $62 million or 19% of  consolidated  total  assets,  as
compared  to $61 million or 20% of  consolidated  total  assets on December  31,
1996.  In addition to the liquid asset  portfolio,  SJNB also has  available $18
million  in  informal  lines  of  credit  with  three  major  commercial  banks,
approximately  $6 million of credit  available at the Federal  Reserve  Discount
Window and $14 million in SBA guaranteed  loans which are available for sale and
could  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 18% of total  deposits on December 31, 1997,  as compared to 19% for
1996.

Liquidity is also affected by investment  securities and loan maturities and the
effect of interest rate  fluctuations  on the  marketability  of both assets and
liabilities.  The loan portfolio consists primarily of floating rate, short-term
loans. On December 31, 1997,  approximately 45% of total consolidated assets had
maturities under one year and 76% of total consolidated loans had floating rates
tied to the prime rate or similar  indexes.  The  short-term  nature of the loan
portfolio,   and  loan  agreements  which  generally  require  monthly  interest
payments, provide the Company with an additional secondary source of liquidity.

There are no material commitments for capital expenditures in 1998 or beyond.

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 16 of the Notes to the
Consolidated  Financial Statements and elsewhere within this Report.  Subject to
said restrictions,  at December 31, 1997, up to $11 million could have been paid
to the parent  Company by the Bank without  regulatory  approval.  The Company's
financial  statements  are  presented  in Note 15 of the  Notes to  Consolidated
Financial Statements.  Dividends of $2.6 million were paid to the parent company
during 1997,  while no dividends were paid to the Company by the Bank in 1996 or
1995.


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 are  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 1997, 1996
or 1995.




<PAGE>


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  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, 1997 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."

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.

<TABLE>


Interest Rate Risk Analysis
(dollars in thousands)           Average  Expected Maturity/Principal Repayment December 31,
                                          ----------------------------------------------------------------------------------
                                Interest                                                                 Total      Fair
                                  Rate       1998      1999      2000      2001       2002    Thereafter Balance    Value
----------------------------------------------------------------------------------------------------------------------------
Interest-Sensitive Assets:
Fed funds sold and other short-term
<S>                                 <C>      <C>         <C>       <C>       <C>       <C>        <C>      <C>      <C>        
  investments                       5.44%    $2,700       ----      ----      ----      ----       ----    $2,700    $2,700
Investments:
   Fixed maturity                   6.18%    23,758     $9,867   $11,127      $678    $4,011       $628    50,069    49,856
   Mortgage Backed                  6.94%       400      2,471       174     1,278        74      3,292     7,689     8,008
   Mutual Funds                     5.50%     3,766       ----      ----      ----      ----       ----     3,766     3,766
   Federal Reserve Bank Stock       6.00%      ----       ----      ----      ----      ----        518       518       518
Loans:
  Fixed rate                        9.73%     9,035      3,005     3,855     2,144     1,463     15,832    35,334    35,765
  Variable rate                    10.25%    86,153     17,866    17,015    12,078    12,013     43,598   188,723   188,232
  Factoring accounts receivable    28.01%     4,915       ----      ----      ----      ----       ----     4,915     4,926
Interest Rate Floor                 7.00%       ----        13      ----      ----      ----       ----        13         1
----------------------------------------------------------------------------------------------------------------------------
Interest-Sensitive Liabilities:
Deposits:
   Interest-bearing demand          2.55%    23,974      6,504     6,504     8,673      ----       ----    45,655    44,121
   Money market                     3.60%    49,151     15,698    15,698      ----      ----       ----    80,547    79,489
   Savings                          2.53%        22        615       615       410       410       ----     2,072     1,915
   Certificates of deposit          5.08%    60,651      1,859       639       161       324       ----    63,634    63,733
Fed funds purchased  and repurchase
  agreements                        5.72%    16,000       ----      ----      ----      ----       ----    16,000    16,007
---------------------------------------------------------------------------------------------------------------------------
Interest-Sensitive Off-balance sheet
  items:
Unused lines of credit and
   undisbursed loan commitments    10.37%      ----       ----      ----      ----      ----       ----    92,646      ----


</TABLE>

<PAGE>


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, 1997
                  and 1996

            Consolidated Statements of Income for the Years
                  Ended December 31, 1997, 1996 and 1995

            Consolidated Statements of Shareholders' Equity
                  for the Years Ended December 31, 1997, 1996 and 1995

            Consolidated Statements of Cash Flows for the
                  Years Ended December 31, 1997, 1996 and 1995

            Notes to Consolidated Financial Statements.










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


KPMG Peat Marwick LLP

San Jose, California
January 15, 1998


<PAGE>


<TABLE>


----------------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Balance Sheets
December 31, 1997 and 1996
(in thousands)
----------------------------------------------------------------------------------------------------------------------------
Assets                                                                             1997                     1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                      <C>    
Cash and due from banks                                                           $22,825                  $20,208
Money market investments                                                            2,700                   19,800
Investment securities:
  Available for sale                                                               48,305                   48,044
  Held to maturity (Fair value: $13,843 at December 31, 1997
    and $15,231 at December 31, 1996)                                              13,737                   15,072
----------------------------------------------------------------------------------------------------------------------------
    Total investment securities                                                    62,042                   63,116
----------------------------------------------------------------------------------------------------------------------------
Loans                                                                             228,972                  198,627
Allowance for possible loan losses                                                 (4,493)                  (4,005)
----------------------------------------------------------------------------------------------------------------------------
  Loans, net                                                                      224,479                  194,622
----------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net                                                         3,916                    4,001
Other real estate owned                                                             -----                      454
Accrued interest receivable and other assets                                        5,202                    2,737
Intangibles, net of accumulated amortization of $1,707 at
  December 31,1997 and $1,234 at December 31, 1996.                                 3,755                    4,465
----------------------------------------------------------------------------------------------------------------------------
     Total                                                                       $324,919                 $309,403
============================================================================================================================

Liabilities and Shareholders' Equity
----------------------------------------------------------------------------------------------------------------------------
Deposits:
  Non interest-bearing                                                            $78,437                  $80,774
  Interest-bearing                                                                191,908                  163,865
----------------------------------------------------------------------------------------------------------------------------
     Total deposits                                                               270,345                  244,639
----------------------------------------------------------------------------------------------------------------------------
Other short-term borrowings                                                        16,000                   29,688
Accrued interest payable and other liabilities                                      5,415                    3,871
----------------------------------------------------------------------------------------------------------------------------
     Total liabilities                                                            291,760                  278,198
----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
  Common stock, no par value;  20,000 shares authorized ; 2,493 and 2,571 shares
     issued and outstanding
     in 1997 and 1996 respectively                                                 18,800                   20,880
  Retained earnings                                                                14,254                   10,263
  Net unrealized gain on securities available for sale                                105                       62
----------------------------------------------------------------------------------------------------------------------------
     Total shareholders' equity                                                    33,159                   31,205
----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies                                                        ----                     ----
----------------------------------------------------------------------------------------------------------------------------
     Total                                                                       $324,919                 $309,403
============================================================================================================================
<FN>

See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>


<PAGE>


<TABLE>

----------------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
----------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)                                     1997              1996              1995
----------------------------------------------------------------------------------------------------------------------------
Interest income:
<S>                                                                          <C>               <C>               <C>    
  Interest and fees on loans                                                 $22,732           $20,422           $18,016
  Interest on money market investments                                           586               258               280
  Interest and dividends on investment securities available for sale           2,982             2,907             1,847
  Interest on investment securities held to maturity                             947               949               878
  Other interest and investment income                                            (9)               (9)              (43)
----------------------------------------------------------------------------------------------------------------------------
    Total interest income                                                     27,238            24,527            20,978
----------------------------------------------------------------------------------------------------------------------------
Interest expense:
  Deposits:
    Interest-bearing demand                                                    1,178             1,155             1,158
    Money market and savings                                                   3,061             2,035             1,751
    Certificates of deposit of $100 or more                                    2,964             2,608             2,232
    Certificates of deposit of less than $100                                    792               802               826
 Other short-term borrowings                                                     754             1,459               716
----------------------------------------------------------------------------------------------------------------------------
    Total interest expense                                                     8,749             8,059             6,683
----------------------------------------------------------------------------------------------------------------------------
    Net interest income                                                       18,489            16,468            14,295
----------------------------------------------------------------------------------------------------------------------------
Provision for possible loan losses                                               705               190             1,045
----------------------------------------------------------------------------------------------------------------------------
     Net interest income after provision for
       possible loan losses                                                   17,784            16,278            13,250
----------------------------------------------------------------------------------------------------------------------------
Other income:
  Service charges on deposits                                                    607               551               553
  Other operating income                                                         453               437               456
  Net loss on sale of securities available for sale                              (47)             (142)              (43)
----------------------------------------------------------------------------------------------------------------------------
     Total other income                                                        1,013               846               966
----------------------------------------------------------------------------------------------------------------------------
Other expenses:
  Salaries and benefits                                                        5,725             5,517             4,339
  Occupancy                                                                      725               702               740
  Other                                                                        3,460             3,416             3,718
----------------------------------------------------------------------------------------------------------------------------
     Total other expenses                                                      9,910             9,635             8,797
----------------------------------------------------------------------------------------------------------------------------
     Income before income taxes                                                8,887             7,489             5,419
Income taxes                                                                   3,773             3,198             2,395
---------------------------------------------------------------------------------------------------------------------------
     Net income                                                               $5,114            $4,291            $3,024
============================================================================================================================

Basic earnings per share                                                       $2.04             $1.73             $1.27
============================================================================================================================
Diluted earnings per share                                                     $1.94             $1.64             $1.22
============================================================================================================================
Average common shares outstanding                                              2,508             2,481             2,381
============================================================================================================================
Average common share equivalents outstanding                                   2,640             2,622             2,484
============================================================================================================================
<FN>

See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>


<PAGE>


<TABLE>

----------------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997, 1996 and 1995
----------------------------------------------------------------------------------------------------------------------------
                                                                                               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, 1994                               2,363       $19,421         $4,278         $(257)       $23,442
----------------------------------------------------------------------------------------------------------------------------
Stock options exercised                                      71           351           ----          ----            351
Common stock repurchase                                     (16)         (145)          ----          ----           (145)
Cash dividends ($0.21 per share)                           ----          ----           (504)         ----           (504)
Net income for the year                                    ----          ----          3,024          ----          3,024
Net unrealized gain on securities available for sale       ----          ----           ----           490            490
----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995                               2,418        19,627          6,798           233         26,658
----------------------------------------------------------------------------------------------------------------------------
Stock options exercised                                     153           810           ----          ----            810
Tax benefit from stock options exercised                   ----           443           ----          ----            443
Cash dividends ($0.33 per share)                           ----          ----           (826)         ----           (826)
Net income for the year                                    ----          ----          4,291          ----          4,291
Net unrealized loss on securities available for sale       ----          ----           ----          (171)          (171)
----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996                               2,571        20,880         10,263            62         31,205
----------------------------------------------------------------------------------------------------------------------------
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)
Net income for the year                                    ----          ----          5,114          ----          5,114
Net unrealized gain on securities available for sale       ----          ----           ----            43             43
----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997                               2,493       $18,800        $14,254          $105        $33,159
============================================================================================================================
<FN>

See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>


<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Statements of Cash Flows
Years ended December 31, 1997,  1996 and 1995
----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                                        1997             1996              1995
----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S>                                                                           <C>              <C>               <C>   
  Net income                                                                  $5,114           $4,291            $3,024
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Provision for possible loan losses                                         705              190             1,045
      Depreciation and amortization                                              529              483               424
      Amortization of intangibles                                                473              499               569
      Deferred tax benefit                                                      (356)             121               (86)
      Loss on sale of securities available for sale                               41              142                43
      Net (gain) loss on sale of other real estate owned                         (65)             (46)               19
      Amortization of (discount) premium on investment securities, net           (48)              36              (129)
      Decrease (increase) in intangible assets                                   237              200              (412)
      (Increase) decrease in accrued interest receivable and other assets     (2,107)              (1)              418
      Increase (decrease) in accrued interest payable and other liabilities    1,722             (945)            2,470
----------------------------------------------------------------------------------------------------------------------------
          Net cash provided by operating activities                            6,245            4,970             7,385
----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Proceeds from sale or maturities of securities available for sale           18,610           22,751            14,162
  Maturities of securities held to maturity                                    2,250            5,345               425
  Purchase of securities available for sale                                  (18,850)         (28,784)          (37,148)
  Purchase of securities to be held to maturity                                 (857)          (5,101)           (1,762)
  Proceeds from the sale of other real estate owned                              519              406             1,761
  Net increase in loans                                                      (30,562)         (27,333)          (22,851)
  Capital expenditures                                                          (444)            (989)             (896)
  Cash used to acquire Astra Financial Corp.                                    -----            (650)             -----
----------------------------------------------------------------------------------------------------------------------------
          Net cash used in investing activities                              (29,334)         (34,355)          (46,309)
----------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
  Net increase in deposits                                                    25,706           47,947            16,405
  Other short-term borrowings                                                (13,688)           5,688            24,000
  Cash dividends                                                              (1,123)            (826)             (504)
  Common stock repurchased                                                    (2,495)            -----             (145)
  Proceeds from stock options exercised                                          206              810               351
----------------------------------------------------------------------------------------------------------------------------
          Net cash provided by financing activities                            8,606           53,619            40,107
----------------------------------------------------------------------------------------------------------------------------
          Net (decrease) increase in cash and equivalents                    (14,483)          24,234             1,183
Cash and equivalents at beginning of year                                     40,008           15,774            14,591
----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year                                          $25,525          $40,008           $15,774
============================================================================================================================
</TABLE>
<TABLE>
----------------------------------------------------------------------------------------------------------------------------
SJNB Financial Corp. and subsidiary
Consolidated Statements of Cash Flows
Years ended December 31, 1997,  1996 and 1995
----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                                        1997             1996              1995
----------------------------------------------------------------------------------------------------------------------------
Other cash flow information:
<S>                                                                           <C>              <C>               <C>   
  Interest paid                                                               $8,511           $8,012            $6,388
  Income taxes paid                                                           $3,445           $4,111            $1,185
============================================================================================================================
Noncash transactions:
  Transfer of loans to other real estate owned                                  -----            $150              $950
============================================================================================================================
  Purchase of Astra Financial's assets at fair value:
    Loans                                                                       -----            $676              -----
    Intangible assets                                                           -----             408              -----
    Other assets                                                                -----              93              -----
----------------------------------------------------------------------------------------------------------------------------
      Fair value of assets acquired                                             -----           1,177              -----
  Liabilities assumed:
    Other liabilities                                                           -----             527              -----
----------------------------------------------------------------------------------------------------------------------------
      Total liabilities assumed                                                 -----             527              -----
----------------------------------------------------------------------------------------------------------------------------
Cash used to acquire Astra Financial Corp.                                      -----            $650              -----
============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>



Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995

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
valued 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.

c.  Loans and Allowance for Possible Loan Losses

Loans  generally are stated at the  principal  amount  outstanding.  Interest on
loans is credited to income on a simple interest basis.  Loan  origination  fees
and direct  origination  costs 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 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 possible  loan 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  by  management  which
includes  consideration  of  changes  in the  character  of the loan  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 agreement,  including  scheduled  interest
payments.  The Company  measures such loans based on the present value of future
cash flows  discounted at the loan's  effective  interest rate, or at the loan's
market value or the fair value of the collateral if the loan is secured.  If the
measurement  of the impaired  loan is less than the recorded  investment  in the
loan,  impairment is recognized by creating or adjusting an existing  allocation
of the allowance for loan losses.

d.  Sales of Loans

When loans or participating interests in loans are sold without recourse,  gains
and losses are  recognized at the time of sale.  Gains or losses  recognized are
equal to the premium less  estimated  future  servicing  costs and profits.  Any
premiums  or  discounts  related  to loan  sales are  amortized  on a basis that
approximates the effective yield over the estimated remaining life of the loan.

e.  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

f.  Other Real Estate Owned

Other  real  estate  owned  is  comprised  of  real  estate   acquired   through
foreclosure.  Such  foreclosures are initially  recorded at the lower of cost or
fair value. Subsequent valuation adjustments are made if estimated selling costs
and the fair value falls below the carrying  amount.  Holding costs are expensed
as incurred.

g. 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 prior to any writedown of the assets.

h.  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  floor  arrangement  which  does  not  meet  the
accounting  criteria for a hedge and which  therefore is accounted for on a mark
to market basis.

i.  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.

j.  Net Income Per Share

In December  1997,  the Company  implemented  Statement of Financial  Accounting
Standards (SFAS) No. 128, Earnings Per Share. SFAS No. 128 establishes standards
for  computing  and  reporting  earnings per share (EPS) and applies to entities
with publicly held common stock. This statement supersedes Accounting Principles
Board (APB) Opinion No. 15.

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.

k.  Statement of Cash Flows

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



<PAGE>


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  statement  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. Reclassification

Certain 1996 and 1995 amounts  have been  reclassified  to conform with the 1997
presentation.

NOTE 2 - Acquisition

On January 2, 1996 the Company  acquired Astra Financial Inc.  (Astra) which was
accounted  for as a  purchase  transaction.  Astra  was an  asset-based  lending
company based in San Jose,  California.  Its outstanding  factoring  receivables
were  approximately  $2.2 million as of December 31, 1995. The purchase price of
Astra was approximately $760.

NOTE 3 - Cash and Due from Banks

The Federal Reserve  requires the Bank to maintain  average reserve balances for
certain deposit balances. Such required reserves were approximately $6.0 million
and $4.1 million as of December 31, 1997 and 1996, respectively.

<PAGE>
NOTE 4 - Investment Securities
<TABLE>
<CAPTION>

Investment  securities  as of  December  31,  1997 and 1996  are  summarized  as
follows:

(dollars in thousands)                                                     December 31, 1997
----------------------------------------------------------------------------------------------------------------------------
                                                                               Unrealized                       Fair
                                                                 ----------------------------------------
                                                    Cost                Gains              Losses              Value
----------------------------------------------------------------------------------------------------------------------------
Available for sale:
<S>                                                 <C>                    <C>                                  <C>   
  U.S. Treasury                                     $5,001                 $40               -----              $5,041
  U. S. Government Agencies                         34,148                 179               -----              34,327
  Mortgage Backed                                    5,097                  74               -----               5,171
  Mutual funds                                       3,898               -----               ($132)              3,766
----------------------------------------------------------------------------------------------------------------------------
    Total available for sale                        48,144                 293                (132)             48,305
----------------------------------------------------------------------------------------------------------------------------
Held to Maturity:
  U.S. Treasury                                      1,992                  16               -----               2,008
  U.S. Government agencies                           5,485                  34                  (7)              5,512
  State and municipal (nontaxable)                   3,224                  36                  (2)              3,258
  Mortgage Backed                                    2,518                  29               -----               2,547
----------------------------------------------------------------------------------------------------------------------------
    Total held to maturity                          13,219                 115                  (9)             13,325
Federal Reserve Bank Stock                             518               -----               -----                 518
----------------------------------------------------------------------------------------------------------------------------
    Total                                           13,737                 115                  (9)             13,843
============================================================================================================================
      Total investment securities portfolio        $61,881                $408               ($141)            $62,148
============================================================================================================================

                                                                           December 31, 1996
----------------------------------------------------------------------------------------------------------------------------
                                                                               Unrealized                         Fair
                                                                 ----------------------------------------
                                                      Cost               Gains              Losses               Value
----------------------------------------------------------------------------------------------------------------------------
Available for sale:
  U.S. Treasury                                     $3,989                 $19                 ($3)             $4,005
  U. S. Government Agencies                         34,099                 188                  (2)             34,285
  Mortgage Backed                                    5,835                  55                 (22)              5,868
  Mutual funds                                       4,018               -----                (132)              3,886
----------------------------------------------------------------------------------------------------------------------------
    Total available for sale                        47,941                 262                (159)             48,044
----------------------------------------------------------------------------------------------------------------------------
Held to Maturity:
  U.S. Treasury                                      1,975                  28               -----               2,003
  U.S. Government agencies                           7,463                  78                 (18)              7,523
  State and municipal (nontaxable)                   2,635                  20                  (2)              2,653
  Mortgage Backed                                    2,481                  53               -----               2,534
----------------------------------------------------------------------------------------------------------------------------
    Total held to maturity                          14,554                 179                 (20)             14,713
Federal Reserve Bank Stock                             518               -----               -----                 518
----------------------------------------------------------------------------------------------------------------------------
    Total                                           15,072                 179                 (20)             15,231
============================================================================================================================
      Total investment securities portfolio        $63,013                $441               $(179)            $63,275
============================================================================================================================

</TABLE>

<PAGE>


As of December 31, 1997 and 1996  investment  securities with carrying values of
approximately  $39  million  and $38  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, 1997:


 (dollars in thousands)                December 31, 1997
                                     ----------------------
                                     Amortized     Fair
   Securities available for sale       Cost       Value
                                    -----------------------
Due in one year or less                $19,988     $20,034
Due after one year through five
  years                                 23,281      23,511
Due after five years through ten
  years                                    977         994
                                    -----------------------
  Total                                 44,246      44,539
                                    -----------------------
    Securities held to maturity
Due in one year or less                  3,724       3,729
Due after one year through five          8,867       8,952
years
Due after ten years                        628         644
                                    -----------------------
  Total                                 13,219      13,325
                                    -----------------------
     Non-maturity investments
Available for sale - Mutual Funds        3,898       3,766
Held to maturity - FRB Stock               518         518
                                    -----------------------
  Total                                  4,416       4,284
                                    -----------------------
    Total Investment securities        $61,881     $62,148
                                    =======================

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


<PAGE>


Interest income earned on U. S. Treasury,  U. S.  Government  agencies and state
and municipal  securities for the years ended  December 31, 1997,  1996 and 1995
are as follows:
---------------------------------------------------------
                                   Interest income
(dollars in thousands)          1997     1996     1995
----------------------------------------------------------
Securities available for
sale:
  U.S. Treasury                  $280     $291     $417
  U.S. Government agencies      2,110    2,088    1,200
  Mortgage Backed                 373      311       (3)
  Mutual funds                    219      217      233
Securities held to maturity:
  U.S. Treasury                   132      168      214
  U.S. Government agencies        453      408      306
  State and municipal(nontaxable) 141      136      120
  Mortgage Backed                 190      206      208
  Federal Reserve Bank             31       31       30
----------------------------------------------------------
     Interest income           $3,929   $3,856   $2,725
==========================================================

NOTE 5 - Loans

A summary of loans as of December 31, 1997 and 1996 is as follows:

(dollars in thousands)                    1997         1996
-------------------------------------------------------------
Commercial                               $92,693     $77,335
Real estate construction                  17,818      15,451
Real estate-other                         90,495      74,713
Consumer                                   9,042       8,622
Other                                     19,568      23,174
Unearned fee income                         (644)       (668)
-------------------------------------------------------------
  Total loan portfolio                   228,972     198,627
Less allowance for possible loan losses   (4,493)     (4,005)
-------------------------------------------------------------
     Loans, net                         $224,479    $194,622
=============================================================

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  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 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  40% of the  Company's  loan  portfolio  is made up of real estate
other than  construction.  This category of real estate loans  includes loans on
income-bearing commercial properties. In addition, 7.8% of the loan portfolio is
made up of real estate  construction loans. These loans consist of approximately
61% residential and 39% commercial.  Included in Consumer loans are Prime equity
loans  of $4.9  million  or  approximately  2.1% of the  total  loan  portfolio.
Included  in the  category  "Other"  are  loans to real  estate  developers  for
short-term  investment  purposes  and  loans to  nondevelopers  for real  estate
investment  purposes  that  amount  to  approximately  3.8%  of the  total  loan
portfolio.  This amounts to  approximately  53% of the loan  portfolio  directly
related to real estate or real estate interests.  Approximately 40% 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 possible loan losses for the
years ended December 31, 1997, 1996 and 1995:

(dollars in thousands)          1997      1996     1995
-----------------------------------------------------------
Balance, beginning of year     $4,005    $3,847   $3,311
Provision for possible loan       705       190    1,045
losses
Charge-offs                      (288)     (418)    (696)
Recoveries                         71       336      187
Allowance relating to
  the acquisition of
  Astra Financial Corp.          ----        50      ----                    
-----------------------------------------------------------
Balance, end of year           $4,493    $4,005   $3,847
===========================================================
<PAGE>
At December 31, 1997, impaired loans totaled $706 with a corresponding valuation
allowance of $66. For the year ended  December  31, 1997,  the average  recorded
investment in impaired loans was approximately  $600. The Company recognized $46
of  interest  on  impaired  loans  (during  the  portion  of the year  they were
impaired),  of which $39 related to impaired loans for which interest  income is
recognized on the cash basis.

The  balance  of  nonaccrual  loans  as  of  December  31,  1997  and  1996  was
approximately  $360 and $457,  respectively.  The effect on interest  income had
these loans been  performing in  accordance  with  contractual  terms was $61 in
1997, $35 in 1996 and $111 in 1995.  Income  actually  recognized on these loans
was $32 in 1997, $29 in 1996 and $11 in 1995.

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, 1997, 1996 and 1995 is as follows:

(dollars in thousands)         1997      1996      1995
-----------------------------------------------------------
Balance, beginning of year     $1,652    $1,466    $3,854
New loans disbursed               495       634       471
Repayments of loans              (924)     (448)   (2,859)
-----------------------------------------------------------
Balance, end of year           $1,223    $1,652    $1,466
===========================================================

As of December  31,  1997,  loans of  approximately  $12 million were pledged as
collateral for the Federal Reserve Discount Window. The Bank did not utilize the
Discount Window for any borrowings during 1997.

NOTE 6 - Premises and Equipment

A summary of  premises  and  equipment  as of  December  31, 1997 and 1996 is as
follows:

(dollars in thousands)                             1997     1996
-------------------------------------------------------------------
Land                                                $829     $829
Buildings and improvements                         3,632    3,880
Furniture and equipment                            3,070    2,639
-------------------------------------------------------------------
     Premises and equipment                        7,531    7,348
Less accumulated depreciation and amortization    (3,615)  (3,347)
-------------------------------------------------------------------
     Premises and equipment, net                  $3,916   $4,001
===================================================================

NOTE 7 - Time Deposits

As of December 31, 1997 and 1996,  the Bank had $48 million in time  deposits in
denominations  of $100 or more.  Interest  expense for these  deposits  was $3.0
million and $2.6 million in 1997 and 1996, respectively.

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:

(dollars in thousands)               1997   1996    1995
-----------------------------------------------------------
Federal funds purchased
   Balance at December 31,           ----    ----  $2,000
                                       
   Weighted average interest rate
   at year end                       ----    ----    5.25%
                                      
   Maximum amount outstanding at
     any month end                 $6,000  $5,000   9,000

   Average outstanding balance        834     813     355

   Weighted average interest rate    
   paid                              5.93%   5.70%   6.17%

Securities sold under agreements to
  repurchase
   Balance at December 31,        $16,000 $29,688 $22,000

   Weighted average interest rate
    at year end                      5.72%   5.56%   5.77%

   Maximum amount outstanding at
    any month end                  16,000  30,067  23,553

   Average outstanding balance     11,236  23,161  10,827

The  Company's   bank   subsidiary  has  informal   arrangements   with  various
correspondents  providing  short-term  credit for liquidity  requirements;  such
informal lines aggregated $12 million at December 31, 1997.
<PAGE>
NOTE 9 - Earnings per Share

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

                                For the year ended
                                December 31, 1997
-----------------------------------------------------------                   
                          Net                     Per share
                         income      Shares        amount
-----------------------------------------------------------
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
===========================================================

                                For the year ended
                                December 31, 1996                      
--------------------------------------------------------
                                                   Per 
                          Net                     share
                         income      Shares       amount
----------------------------------------------------------
Net income and
  basic EPS              $4,291       2,481       $1.73
                                                ===========
Effect of stock
  option dilutive
  shares                                141
----------------------------------------------
Diluted EPS              $4,291       2,622       $1.64
==========================================================
                                For the year ended
                                December 31, 1995
----------------------------------------------------------
                                                 Per 
                          Net                    share 
                         income      Share       amount
----------------------------------------------------------
Net income and
  basic EPS              $3,024       2,381       $1.27
                                                ===========
Effect of stock
  option dilutive
  shares                                103
-----------------------------------------------------------
Diluted EPS              $3,024       2,484       $1.22
===========================================================

NOTE 10 - Income Taxes

Income tax expense for the years ended December 31, 1997, 1996 and 1995 consists
of the following:

(dollars in thousands)    1997        1996        1995
-----------------------------------------------------------
Current:
  Federal                  $3,208      $2,271      $2,108
  State                       921         806         373
-----------------------------------------------------------
     Total current          4,129       3,077       2,481
-----------------------------------------------------------
Deferred:
  Federal                    (281)        145         (81)
  State                       (75)        (24)         (5)
-----------------------------------------------------------
    Total deferred           (356)        121         (86)
-----------------------------------------------------------
       Income taxes        $3,773      $3,198      $2,395
===========================================================
<PAGE>
Total income tax expense differed from the amount computed by applying the U. S.
federal income tax rates in years ended December 31, 1997,  1996 and 1995 of 34%
to income before income taxes as a result of the following:

(dollars in thousands)             1997    1996     1995
-----------------------------------------------------------
Computed "expected " tax
  expense                          $3,021  $2,546  $1,842
California franchise tax, net of
  federal income tax                  558     516     368
Amortization of intangible assets     142     167     230
Federal tax-exempt investment
  income                              (42)    (46)    (42)
Other                                  94      15      (3)
-----------------------------------------------------------
     Income taxes                  $3,773  $3,198  $2,395
===========================================================

The tax effects of temporary  differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1996, are presented below:

(dollars in thousands)                    1997     1996
-----------------------------------------------------------
Deferred tax assets:
  Provision for possible loan losses      $1,421   $1,133
  Purchase accounting adjustments            181      226
  Foreclosure income                          43       43
  State taxes                                297      247
  Deferred compensation                      112       98
  Other                                      157       63
-----------------------------------------------------------
    Total gross deferred tax assets        2,211    1,810
-----------------------------------------------------------
Deferred tax liabilities:
  Securities available for sale               70       41
  Depreciation and amortization               88       43
-----------------------------------------------------------
   Total gross deferred tax liabilites       158       84
-----------------------------------------------------------
      Net deferred tax assets             $2,053   $1,726
===========================================================

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 1996 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 11 - Detail of Other Expense

Other expense for the years ended  December 31, 1997,  1996 and 1995 consists of
the following:

(dollars in thousands)              1997    1996    1995
-----------------------------------------------------------
Amortization of core deposit
intangibles
  and goodwill                       $473     $499    $569
Data processing                       441      554     458
Business promotion                    369      365     314
Client services                       345      247     247
Legal and professional fees           331      369     476
Directors' fees and costs             226      219     239
Stationery and supplies               183      183     180
Advertising                           171      236     186
Regulators' assessments               109       72     283
Loan and collection                   104      151     215
Net cost of other real estate owned   (72)     (48)     45
Other                                 780      569     506
----------------------------------------------------------
  Total                            $3,460   $3,416  $3,718
===========================================================

NOTE 12 - 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. The Company applies APB Opinion No. 25 and
related Interpretations in accounting for the Plan. Accordingly, no compensation
cost has been recognized for its 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 1997, 1996 and 1995 indicated below:

(dollars in thousands)        1997       1996      1995
---------------------------------------------------------
Net income:
    As reported               $5,114     $4,291   $3,024
    Pro forma                  4,850      4,224    2,947
---------------------------------------------------------
Net income per share:
    Basic, as reported         $2.04      $1.73    $1.27
    Basic, pro forma            1.93       1.70     1.24
---------------------------------------------------------
    Diluted, as reported       $1.94      $1.64    $1.22
    Diluted, pro forma          1.84       1.61     1.19
---------------------------------------------------------

The above amounts  include the impact on net income and net income per share for
options  granted during the years 1995,  1996 and 1997;  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:

Assumptions:                   1997      1996      1995
---------------------------- --------- --------- ----------
   Dividend yield               1.3%      1.9%      1.6%
   Volatility                  53%       50%       55%
   Risk free interest rates     6.4%      6.3%      6.5%
   Expected lives (years)       6.5       8.2       8.2
<PAGE>
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.  All 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.  Any options  granted under the prior plans
which expire  without being  exercised,  the  corresponding  common shares shall
become  available for awards under the Plan (6,710 shares became available under
this provision). The number of shares subject to outstanding options under these
plans was 153,025 as of December 31, 1997.

Activity under the stock plans is as follows:

                                                 Weighted
                                       Number    Average
                                         of      Exercise
Options                                Shares     Price
----------------------------------------------------------
Balances, December 31,  1994           260,471      $5.34
  Granted                              140,125       9.28
  Cancelled                             (8,300)      8.08
  Exercised                            (70,987)      5.14
-----------------------------------------------------------
Balances, December 31, 1995            321,309       7.03
-----------------------------------------------------------
  Granted                               93,560      16.48
  Cancelled                             (9,640)     11.58
  Exercised                           (152,711)      5.29
-----------------------------------------------------------
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
===========================================================
The  weighted-average  fair value of options  granted during 1997, 1996 and 1995
was $13.28, $6.22 and $4.32 respectively.

The following table summarizes  options  outstanding and exercisable at December
31, 1997:

--------------------------------------------------------------------------------
                                                                                
  Range of                           Weighted Average                  Weighted
                              -----------------------------              Average
  Exercise         Shares     Contractual      Exercise       Shares    Exercise
    Price       Outstanding       Life          Price      Exercisable   Price
--------------------------------------------------------------------------------
 $4.25-9.13        28,800          5.75          $6.88        25,400       $6.73
 11.50-11.50      110,120          7.56           9.35        64,960        9.35
 13.38-14.31        8,975          8.13          13.64         2,325       13.56
 16.38-16.38       53,000          8.42          16.38        20,000       16.38
 16.75-23.88       31,765          8.88          19.50         6,994       18.87
 24.00-24.88       11,800          9.31          24.33          ----        ----
 25.00-25.00       57,000          9.17          25.00         7,000       25.00
 25.38-39.81       12,500          9.81          35.89          ----        ----
--------------------------------------------------------------------------------
 $4.25-39.81      313,960          8.14         $15.92       126,679      $11.51
                  =======                                    =======


NOTE 13 - 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.
As of December 31, 1997, amounts committed to extend credit under normal lending
agreements aggregated approximately $93 million for undisbursed loan commitments
and  approximately  $12 million for commitments  under unused standby letters of
credit and other guarantees.

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.

Also at December 31, 1997,  the Bank had  outstanding  an interest rate floor in
the amount of $10 million for a remaining period of approximately 16 months. The
Bank has paid a fixed premium for which it will  receive,  through May 10, 1999,
the amount of interest on $10 million  based on the  difference  of 7% and Prime
when Prime is less than 7%. This will protect the Bank against  decreases in its
net income when Prime  decreases  to less than 7%. The current fair market value
of the floor is approximately $1.

The Company is obligated  under its lease  agreement  for 95 South Market Street
under a  noncancelable  operating  lease through  September  2004.  The lease is
subject to periodic  adjustment based on changes in the CPI. The following table
shows future minimum payments under the lease as of December 31, 1997:

------------------------------------------------------------
Years Ending December 31,(in thousands)
------------------------------------------------------------
1998-2002 ($236 each year)                     $1,180
Thereafter                                        413
------------------------------------------------------------
Total minimum lease payments                   $1,593
============================================================

Total  minimum  lease  payments to be  received  under  noncancelable  operating
subleases at December 31, 1997 are  approximately  $1.3 million;  these payments
are not reflected in the above table.

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 14 - Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Value of Financial  Instruments," requires
the Company  disclosure of estimated fair values for its 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, 1997 and 1996:
<PAGE>
<TABLE>

 (dollars in thousands)                                              1997                               1996
----------------------------------------------------------------------------------------------------------------------------
                                                           Carrying           Fair           Carrying            Fair
Financial assets                                            Value            Value             Value            Value
----------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>              <C>               <C>    
Cash and due from banks                                      $22,825          $22,825          $20,208           $20,208
Money market investments                                       2,700            2,700           19,800            19,807
Investment securities                                         62,042           62,148           63,116            63,275
Loans, net                                                   224,479          224,430          194,622           193,438
Accrued interest receivable                                    1,838            1,838            1,735             1,735
Financial liabilities
----------------------------------------------------------------------------------------------------------------------------
Deposits                                                     270,345          270,444          245,213           245,348
Federal funds purchased, securities sold under
  repurchase agreements and other borrowings                  16,576           16,583           30,286            30,318
Off-balance sheet Financial Instruments
----------------------------------------------------------------------------------------------------------------------------
Interest rate floor contract purchased                            13                1               22                 8
</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
checking, 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 - The  carrying  amount of loans is net of  unearned  fee  income  and the
reserve  for  possible  loan  losses.  The fair  valuation  calculation  process
differentiates loans based on their financial  characteristics,  such as product
classification,   loan  category,   pricing  features  and  remaining  maturity.
Prepayment  estimates  are  evaluated by product and loan 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 is  calculated  by  discounting  contractual  cash flows
using discount rates that reflect the Company's  current  pricing for loans with
similar  characteristics  and  remaining  maturity.  Most of the discount  rates
applied to these loans were between 10.6% and 11.2% at December 31, 1997.

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

Fair value for nonperforming loans 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.  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.


<PAGE>

<TABLE>
<CAPTION>


NOTE 15 - SJNB Financial Corp.
(Parent Company Only)

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

----------------------------------------------------------------------------------------------------------------------------
Balance Sheets
December 31, 1997 and 1996
(dollars in thousands)                                                            1997                      1996
----------------------------------------------------------------------------------------------------------------------------
Assets
<S>                                                                               <C>                     <C>   
Cash and equivalents                                                                 $176                    $1,050
Investment in the Bank                                                             32,662                    30,061
Other assets                                                                          321                        94
----------------------------------------------------------------------------------------------------------------------------
     Total assets                                                                 $33,159                   $31,205
============================================================================================================================
Liabilities and Shareholders' Equity
Total liabilities                                                                   -----                     -----
----------------------------------------------------------------------------------------------------------------------------
Common stock, no par value; authorized, 20,000 shares
   issued and outstanding, 2,493 shares
   in 1997 and 2,571 shares in 1996                                               $18,800                   $20,880
Retained earnings                                                                  14,254                    10,263
Net unrealized gain on securities available for sale                                  105                        62
----------------------------------------------------------------------------------------------------------------------------
     Total shareholders' equity                                                    33,159                    31,205
----------------------------------------------------------------------------------------------------------------------------
     Total liabilities and shareholders' equity                                   $33,159                   $31,205
============================================================================================================================


----------------------------------------------------------------------------------------------------------------------------
Statements of Income
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands)                                                        1997             1996              1995
----------------------------------------------------------------------------------------------------------------------------
Equity in undistributed income of the Bank                                    $2,557           $4,343            $3,010
Reduction of provision for possible loan losses                                 -----            -----              $57
Cash dividend received from Bank                                               2,600             -----             -----
Interest income and fees on loans                                                 13               23               123
Other expense                                                                    (84)            (110)             (156)
----------------------------------------------------------------------------------------------------------------------------
Income  before taxes                                                           5,086            4,256             3,034
Income tax benefit (expense)                                                      28               35               (10)
----------------------------------------------------------------------------------------------------------------------------
Net income                                                                    $5,114           $4,291            $3,024
============================================================================================================================


----------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands)                                                        1997             1996              1995
----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
  Net income                                                                  $5,114           $4,291            $3,024
    Adjustments to reconcile net income to net cash
      provided by (used in) operating activities:
        Recovery of provision for possible loan losses                          ----             ----               (57)
        (Increase) decrease in other assets                                      (19)             423              ----
        (Decrease) increase in liabilities                                      ----              (15)               10
        Equity in undistributed income of the Bank                            (5,157)          (4,343)           (3,010)
----------------------------------------------------------------------------------------------------------------------------
          Net cash used in operating activities                                  (62)             356               (33)
----------------------------------------------------------------------------------------------------------------------------
  Cash flows from investing activities:
    Decrease in loans, net                                                      ----             ----               512
    Cash dividend received from Bank                                           2,600             ----              ----
    Cash dividend                                                             (1,123)            (826)             (504)
    Common stock repurchased                                                  (2,495)            ----              (145)
    Stock options exercised                                                      206              810               351
----------------------------------------------------------------------------------------------------------------------------
          Net cash (used in) provided by investing activities                   (812)             (16)              214
----------------------------------------------------------------------------------------------------------------------------
  Net (decrease) increase in cash and equivalents                               (874)             340               181
  Cash and equivalents at beginning of year                                    1,050              710               529
----------------------------------------------------------------------------------------------------------------------------
  Cash and equivalents at end of year                                           $176           $1,050              $710
============================================================================================================================
</TABLE>




<PAGE>


NOTE 16- 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 possible loan 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>


Risk-based and Leverage Capital Ratios
(dollars in thousands)
                                                               December 31, 1997                  December 31, 1996
                                                      ----------------------------------------------------------------------
Company - Risk-based                                       Amount            Ratio            Amount            Ratio
----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>             <C>                <C>   
Tier 1 capital                                              $29,167            11.28%          $26,533            11.91%
Tier 1 capital minimum requirement                           10,344             4.00             8,910             4.00
                                                      ----------------------------------------------------------------------
  Excess                                                    $18,823             7.28%          $17,623             7.91%
                                                      ======================================================================
Total capital                                               $32,415            12.53%          $29,333            13.17%
Total capital minimum requirement                            20,689             8.00            17,820             8.00
                                                      ----------------------------------------------------------------------
  Excess                                                    $11,726             4.53%          $11,513             5.17%
                                                      ======================================================================
Risk-adjusted assets                                       $258,608                           $222,744                             
Company - Leverage
----------------------------------------------------------------------------------------------------------------------------
Tier 1 capital                                              $29,167             9.07%          $26,533             9.28%
Minimum leverage ratio requirement                           12,870             4.00            11,438             4.00
                                                      ----------------------------------------------------------------------
  Excess                                                    $16,297             5.07%          $15,095             5.28%
                                                      ======================================================================
Average total assets                                       $321,747                           $285,952                           
Bank - Risk-based
----------------------------------------------------------------------------------------------------------------------------
Tier 1 capital                                              $28,879            11.17%          $25,389            11.40%
Tier 1 capital minimum requirement                           10,341             4.00             8,907             4.00
                                                      ----------------------------------------------------------------------
  Excess                                                    $18,538             7.17%          $16,482             7.40%
                                                      ----------------------------------------------------------------------
Total capital                                               $32,126            12.43%          $28,187            12.66%
Total capital minimum requirement                            20,683             8.00            17,813             8.00
                                                      ----------------------------------------------------------------------
  Excess                                                    $11,443             4.43%          $10,374             4.66%
                                                      ======================================================================
Risk-adjusted assets                                       $258,533                           $222,668                           
Bank - Leverage
----------------------------------------------------------------------------------------------------------------------------
Tier 1 capital                                              $28,879             8.97%          $25,389             8.87%
Minimum leverage ratio requirement                           12,881             4.00            11,447             4.00
                                                      ----------------------------------------------------------------------
  Excess                                                    $15,998             4.97%          $13,942             4.87%
                                                      ----------------------------------------------------------------------
 Average total assets                                     $322,014                           $286,164


</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, 1997 and
1996.

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, 1997,  the Bank may initiate  dividend  payments  without  prior  regulatory
approval of up to $11.1 million.


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 1997 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 1997 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 caption  "Security
Ownership of Certain Beneficial Owners and Management" in the Registrant's Proxy
Statement for its 1997 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 1997 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 31 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.     The Plan of Acquisition and Merger by and between SJNB Financial Corp.
          and Business Bancorp (as amended) is hereby  incorporated by reference
          to Annex A filed with  Registration  Statement on Form S-4,  Amendment
          No. 2 Commission  File No.  33-79874,  filed with the  Securities  and
          Exchange Commission on August 3, 1994.

2)b.      The Stock  Acquisition  Agreement by and among San Jose National Bank,
          Astra  Financial Inc. and Thomas D. Griffin,  dated November 17, 1995,
          and related side letters  dated  December 14, 1995 and January 5, 1996
          are  hereby  incorporated  by  reference  to  Exhibit  (2)  b.  of the
          Registrant's  Annual  Report on Form  10-KSB for the fiscal year ended
          December 31, 1995.

3(i).     The  Registrant's  restated  Articles  of  Incorporation  are hereby
          incorporated by reference to Exhibit (3) b. of the Registrant's Annual
          Report on Form 10-K for the fiscal year ended December 31, 1988.

(3)(ii).  The Registrant's  restated  bylaws as o f February 28, 1996 are hereby
          incorporated   by  reference  to Exhibit  (3) b. of  the  Registrant's
          Quarterly  Report on Form 10-QSB for the  quarterly  period ended June
          30, 1996.

 *(10)a.  The  Registrant's  Stock  Option Plan including Amendments No. 1 and 2
          is  hereby   incorporated   by  reference  from  Exhibit  4.1  of  the
          Registrant's  Registration  Statement on Form S-8, as filed on October
          4, 1989 and amended January 24, 1992 under  Registration No. 33-31392.
          *(10)b.  The form of Incentive  Stock Option  Agreement being utilized
          under the Stock Option Plan is hereby  incorporated  by reference from
          Exhibit  4.2  of  Amendment  No.  1 to the  Registrant's  Registration
          Statement  on  Form  S-8,  as  filed  on  January  24,   1992,   under
          Registration No. 33-31392.

 *(10)c.  The  form of Stock Option  Agreement  being  utilized  under the Stock
          Option Plan is hereby  incorporated  by reference  from Exhibit 4.3 of
          Amendment  No. 1 to the  Registrant's  Registration  Statement on Form
          S-8, as filed on January 24, 1992, under Registration No. 33-31392.

 *(10)d.  Amendment No. 3 to  the Stock  Option Plan is hereby  incorporated by
          reference  from  Exhibit 4.4 of  Amendment  No. 1 to the  Registrant's
          Registration  Statement  on Form S-8,  as filed on January  24,  1992,
          under Registration No. 33-31392.

*(10)e.   Amendment No. 4  to  the  Stock Option Plan is hereby  incorporated by
          reference  from  Exhibit 4.5 of  Amendment  No. 2 to the  Registrant's
          Registration  Statement on Form S-8, as filed on June 22, 1992,  under
          Registration No. 33-31392.

*(10)f.   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)g.   Amendment  No.  1  to  the 1992  Employee  Stock Option Plan is hereby
          incorporated  by  reference  to  Exhibit  (10) f. of the  Registrant's
          Quarterly  Report on Form 10-QSB for the  quarterly  period ended June
          30, 1995.

*(10)h.   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)i.   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)j.   The   Registrant's   1992   Director   Stock  Option  Plan  is  hereby
          incorporated  by reference  from  Exhibit (10) i. of the  Registrant's
          Annual  Report on Form 10-KSB for the fiscal year ended  December  31,
          1992.

*(10)k.   Amendment  No.  1  to  the 1992  Director  Stock Option Plan is hereby
          incorporated  by  reference  to  Exhibit  (10) i. of the  Registrant's
          Quarterly  Report on Form 10-QSB for the  quarterly  period ended June
          30, 1995.

*(10)l.   The  form of  Stock  Option  Agreement  being  utilized under the 1992
          Director  Stock Option Plan is hereby  incorporated  by reference from
          Exhibit (10) j. of the  Registrant's  Annual Report on Form 10-KSB for
          the fiscal year ended December 31, 1992.

*(10)m.   The   Registrant's   1996   Stock   Option  Plan  is  incorporated  by
          reference to exhibit 99.1 of the Registrant's  Form S-8 filed July 30,
          1996.

*(10)n.   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)o.   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)p.    Systems Management Services Agreement by and between Systematics, Inc.
          and  San  Jose   National  Bank  dated March 1, 1990,  and  amendments
          dated  April 5, 1990,  July 10,  1990 and  January 27, 1992 are hereby
          incorporated  by reference  from  Exhibit (10) g. of the  Registrant's
          Annual  Report on Form 10-K for the  fiscal  year ended  December  31,
          1991.

(10)q.    Agreement  for  Item   Processing  Services by and between  Datatronix
          Financial  Services and San Jose National Bank dated April 13, 1992 is
          hereby   incorporated  by  reference  from  Exhibit  (10)  m.  of  the
          Registrant's  Annual  Report on Form  10-KSB for the fiscal year ended
          December 31, 1992.

(10)r.    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)s.    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)t.    Sublease   by and  between Greater Unified Management Businesses, Inc.
          (d.b.a.  as Logistics)  and SJNB  Financial  Corp.,  dated January 15,
          1996,  and as amended March 19, 1996,  for premises at 95 South Market
          Street,  San Jose CA is hereby  incorporated  by  reference to Exhibit
          (10) s. of the  Registrant's  Quarterly  Form 10-QSB for the quarterly
          period ended March 31, 1996.

(22) Subsidiary of Registrant.

(23) Consent of KPMG Peat Marwick LLP.

(27) Financial Data Schedule.

*    Indicates management contract or compensation plan or arrangement.

(b)  Reports on Form 8-K

         None.



<PAGE>

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

Date:  March 6, 1998                         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
James R. Kenny
President, Chief Executive Officer
and Director
March 6, 1998

  S/E.E. Blakeslee
Eugene E. Blakeslee
Executive Vice President and
Chief Financial Officer and
Chief Accounting Officer
March 6, 1998

   S/R.S. Akamine
Ray S. Akamine, Director
March 6, 1998

   S/R.A. Archer
Robert A. Archer
Chairman and Director
March 6, 1998

   S/A.B. Bruno
Albert V. Bruno, Director
March 6, 1998

   S/R. Diridon
Rod Diridon, Director
March 6, 1998

   S/F.J. Gorry
F. Jack Gorry, Director
March 6, 1998

   S/A.K. Lund
Arthur K. Lund, Director
March 6, 1998

   S/L. Oneal
Louis Oneal, Director
March 6, 1998

   S/D. Rubino
Diane Rubino, Director
March 6, 1998

   S/D.L. Shen
Douglas L. Shen, Director
March 6, 1998

   S/G.S. Vandeweghe
Gary S. Vandeweghe, Director
March 6, 1998


<PAGE>





                              SJNB Financial Corp.

                                    Form 10-K

                                    Exhibits

                                December 31, 1997


The following exhibits are filed as part of this report:
                                                                            
 (2)a.      The Plan of  Acquisition  and  Merger  by and between SJNB Financial
            Corp. and Business  Bancorp (as amended) is hereby  incorporated  by
            reference to Annex A filed with Registration  Statement on Form S-4,
            Amendment  No.  2  Commission  File  No.  33-79874,  filed  with the
            Securities and Exchange Commission on August 3, 1994.

(2)b.       The  Stock   Acquisition   Agreement by and among San Jose  National
            Bank, Astra Financial Inc. and Thomas D. Griffin, dated November 17,
            1995,  and related side letters dated  December 14, 1995 and January
            5, 1996 are hereby  incorporated  by  reference to Exhibit (2) b. of
            the  Registrant's  Annual  Report on Form 10-KSB for the fiscal year
            ended December 31, 1995.

(3)(i).     The  Registrant's  restated  Articles  of Incorporation are  hereby
            incorporated  by  reference  to Exhibit  (3) b. of the  Registrant's
            Annual  Report on Form 10-K for the fiscal year ended  December  31,
            1988.

(3)(ii).    The Registrant's restated bylaws as  of February 28, 1996 are hereby
            incorporated   by  reference  to Exhibit  (3)b. of  the Registrant's
            Quarterly Report  on Form 10-QSB for the quarterly period ended June
            30, 1996.

*(10) a.    The Registrant's Stock Option Plan including  Amendments No. 1 and 2
            is  hereby  incorporated  by  reference  from  Exhibit  4.1  of  the
            Registrant's Registration Statement on Form S-8, as filed on October
            4, 1989 and amended January 24, 1992 under Registration No.33-31392.

*(10)b.     The  form  of  Incentive Stock Option Agreement being utilized under
            the Stock  Option  Plan is hereby  incorporated  by  reference  from
            Exhibit  4.2 of  Amendment  No. 1 to the  Registrant's  Registration
            Statement  on  Form  S-8,  as  filed  on  January  24,  1992,  under
            Registration No.
            33-31392.

*(10)c.     The  form  of  Stock Option Agreement being utilized under the Stock
            Option Plan is hereby  incorporated by reference from Exhibit 4.3 of
            Amendment No. 1 to the Registrant's  Registration  Statement on Form
            S-8, as filed on January 24, 1992, under Registration No.
            33-31392.

*(10) d.    Amendment  No.3 to the Stock Option Plan is hereby  incorporated  by
            reference  from Exhibit 4.4 of Amendment No. 1 to the  Registrant's
            Registration  Statement on  Form  S-8, as filed on January 24, 1992,
            under Registration No. 33-31392.

*(10) e.    Amendment  No. 4 to the Stock Option Plan is hereby incorporated  by
            reference  from Exhibit 4.5 of Amendment No. 2 to the  Registrant's
            Registration Statement on Form S-8, as filed on June 22, 1992, under
            Registration No. 33-31392.

*(10) f.    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) g.    Amendment No. 1 to  the 1992  Employee  Stock O ption Plan is hereby
            incorporated  by reference  to Exhibit  (10) f. of the  Registrant's
            Quarterly  Report on Form 10-QSB for the quarterly period ended June
            30, 1995.

*(10) h.    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)i.     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)j.     The  Registrant's   1992  Director  Stock  Option  Plan  is   hereby
            incorporated  by reference from Exhibit (10) i. of the  Registrant's
            Annual Report on Form 10-KSB for the fiscal year ended  December 31,
            1992.

*(10) k.    Amendment No. 1  to  the  1992 Director  Stock Option Plan is hereby
            incorporated  by reference to Exhibit  (10) i. of the  Registrant's
            Quarterly Report on Form 10-QSB for the  quarterly period ended June
            30, 1995.

*(10)l.     The  form  of Stock Option  Agreement being  utilized under the 1992
            Director Stock Option Plan is hereby  incorporated by reference from
            Exhibit (10) j. of the Registrant's Annual Report on Form 10-KSB for
            the fiscal year ended December 31, 1992.

*(10)m.     The   Registrant's   1996  Stock   Option  Plan is  incorporated  by
            reference  to exhibit 99.1 of the  Registrant's  Form S-8 filed July
            30, 1996.

*(10) n.    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) o.    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)p.      Systems Management  Services Agreement  by and  between Systematics,
            Inc. and San Jose National Bank dated March 1, 1990,  and amendments
            dated  April 5, 1990,  July 10, 1990 and January 27, 1992 are hereby
            incorporated  by reference from Exhibit (10) g. of the  Registrant's
            Annual  Report on Form 10-K for the fiscal year ended  December  31,
            1991.

(10)q.      Agreement  for  Item  Processing  Services by and between Datatronix
            Financial  Services and San Jose  National Bank dated April 13, 1992
            is hereby  incorporated  by  reference  from  Exhibit (10) m. of the
            Registrant's  Annual Report on Form 10-KSB for the fiscal year ended
            December 31, 1992.

(10)r.      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)s.     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)t.      Sublease  by and  between  Greater  Unified  Management  Businesses,
            Inc. (d.b.a.  as Logistics) and SJNB Financial Corp.,  dated January
            15, 1996,  and as amended  March 19, 1996,  for premises at 95 South
            Market Street,  San Jose CA is hereby  incorporated  by reference to
            Exhibit (10) s. of the  Registrant's  Quarterly  Form 10-QSB for the
            quarterly period ended March 31, 1996.

(22)        Subsidiary of Registrant.



(23) Consent of KPMG Peat Marwick LLP.

(27)        Financial Data Schedule.

*  Indicates management contract or compensation plan or arrangement.