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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2001

                        Commission File Number : 0-12499
                             First Financial Bancorp
             (Exact name of registrant as specified in its charter)

            California                                          94-28222858
 (State or other jurisdiction of                             (I.R.S. Employer
  incorporation or organization)                            Identification No.)

   701 South Ham Lane, Lodi, California                            95242
 (Address of principal executive offices)                       (Zip Code)

                                 (209)-367-2000
              (Registrant's telephone number, including area code)

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

           Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, no par value
                                (Title of Class)
                         Preferred Share Purchase Rights
                                (Title of Class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] 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 the  registrant's  knowledge,  in definitive proxy or information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ X ]

         As of March 1, 2002,  there were 1,624,419  shares of Common Stock,  no
par value,  outstanding.  The aggregate market value of the Common Stock held by
non-affiliates  of the registrant was  approximately  $18,031,051  (based on the
$11.10 average of bid and ask prices per share on March 1, 2002).

Documents Incorporated by Reference    Part of Form 10-K into which Incorporated
-----------------------------------    -----------------------------------------

Proxy Statement for the Annual
  Meeting of Shareholders to be
  held on April 23, 2002.                  Part III, Items 10, 11, 12, 13

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                                       1
<PAGE>

                             FIRST FINANCIAL BANCORP
                                 2001 FORM 10-K
                                TABLE OF CONTENTS

PART 1

ITEM 1.    BUSINESS ......................................................... 3
           General .......................................................... 3
           The Bank ......................................................... 3
           Bank Services .................................................... 3
           Sources of Business .............................................. 4
           Competition ...................................................... 4
           Employees ........................................................ 4
           Supervision and Regulation ....................................... 5
                  The Company ............................................... 5
                  The Bank .................................................. 5
                  Officers .................................................. 6
                  Recent Legislation and Regulations Affecting Banking ...... 6
ITEM 2.    PROPERTIES .......................................................10
ITEM 3.    LEGAL PROCEEDINGS ................................................10
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..............10

Part II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS ..............................................11
ITEM 6.    SELECTED FINANCIAL DATA ..........................................11
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS ........................................12
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ......................31
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
           ACCOUNTING AND FINANCIAL DISCLOSURE ..............................31

PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...............32
ITEM 11.   EXECUTIVE COMPENSATION ...........................................32
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ...32
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...................32

PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ..32

Signatures ..................................................................60
Index to Exhibits............................................................61


                                       2
<PAGE>

                                     PART I

ITEM 1. BUSINESS

General:

First Financial  Bancorp (the "Company") was incorporated  under the laws of the
State of California on May 13, 1982, and operates  principally as a bank holding
company for its wholly owned  subsidiary,  Bank of Lodi, N.A. (the "Bank").  The
Company is  registered  under the Bank Holding  Company Act of 1956, as amended.
The Bank is the  principal  source of income for the Company.  The Bank owns the
office  building  where the Bank's  Lodi Branch and  administrative  offices are
located,  and the Company owns the land upon which the Bank's  Woodbridge Branch
is located. The Company receives income from the Bank under the lease associated
with the Woodbridge property. The Company also holds all of the capital stock of
Western Auxiliary Corporation (WAC), a California Corporation which functions as
trustee on deeds of trust securing  mortgage  loans  originated by the Bank. All
references  herein to the "Company" include the Bank and WAC, unless the context
otherwise requires.

The Bank:

The Bank was organized on May 13, 1982 as a national  banking  association.  The
application  to organize the Bank was accepted for filing by the  Comptroller of
the  Currency  (the "OCC") on  September 8, 1981,  and  preliminary  approval to
organize was granted on March 27, 1982.  On July 18, 1983 the Bank received from
the OCC a  Certificate  of  Authority  to  Commence  the  Business  of  Banking.
Subsequently,  the Bank  opened  branch  offices in  Woodbridge  and  Lockeford,
California.  Effective  February 22, 1997, the Bank acquired the Galt,  Plymouth
and San Andreas offices of Wells Fargo Bank. A loan production office in Folsom,
California  was  opened in  January  1998,  and was  approved  to  operate  as a
full-service  branch in July 1999.  In July 2001 the Bank  relocated  the Folsom
branch.  A  full-service  branch was opened in Elk Grove,  California  in August
1998. In March 2001, the Bank established a Small Business  Administration  loan
production office in Folsom, California.

The Bank's headquarters is located at 701 South Ham Lane, Lodi, California.  The
Bank's primary  service area,  from which the Bank attracts 50% of its business,
is the city of Lodi and the  surrounding  area. This area is estimated to have a
population  approaching  60,000  persons,  with a median annual family income of
approximately $40,000. The area includes residential developments,  neighborhood
shopping  centers,  business  and  professional  offices and  manufacturing  and
agricultural concerns.

Bank Services:

The Bank offers a wide range of commercial  banking  services to individuals and
business concerns located in and around its primary service area. These services
include  personal  and  business   checking  and  savings  accounts   (including
interest-bearing negotiable order of withdrawal ("NOW") accounts and/or accounts
combining  checking and savings  accounts with  automatic  transfers),  and time
certificates  of deposit.  The Bank also offers  extended  banking  hours at its
drive-through window, night depository and bank-by-mail services, and travelers'
checks (issued by an independent entity). Each branch location has a 24-hour ATM
machine,  and the Bank has 24 hour telephone  banking and bill paying  services.
The Bank issues  MasterCard  credit cards and acts as a merchant  depository for
cardholder drafts under both VISA and MasterCard.  In addition, it provides note
and  collection  services  and  direct  deposit  of  social  security  and other
government  checks.  During 2000, the Bank introduced  Internet banking and bill
payment services, which are located at www.bankoflodi.com.

During  1998,  the Bank entered into an  agreement  with  Investment  Centers of
America to offer stocks,  bonds, mutual funds,  annuities and insurance products
through offices located on-site at Bank branches.  The first Investment  Centers
of America office was  established at the Lodi branch  location,  and additional
offices are planned for Elk Grove and Folsom.

The  Bank  engages  in  a  full  complement  of  lending  activities,  including
commercial,   Small  Business   Administration   (SBA),   residential  mortgage,
consumer/installment, and short-term real estate loans, with particular emphasis
on short and medium-term obligations. Commercial lending activities are directed
principally  toward  businesses  whose  demand for funds falls within the Bank's
lending limit,  such as small to  medium-sized  professional  firms,  retail and
wholesale outlets and manufacturing and agricultural concerns.  Consumer lending
is oriented primarily to the needs of the Bank's customers,  with an emphasis on
automobile  financing and leasing.  Consumer loans also include loans for boats,
home  improvements,  debt  consolidation,  and other personal needs. Real estate
loans include  short-term  "swing"  loans and  construction  loans.  Residential
mortgages are  generally  sold into the  secondary  market for these loans.  SBA
loans are made available to small to medium-sized businesses. The Bank generates
noninterest  income  through  premiums  received  on the sale of the  guaranteed
portions of SBA loans and the  resulting  on-going  servicing  income on its SBA
portfolio.


                                       3
<PAGE>

Sources of Business:

Management seeks to obtain sufficient market penetration  through the full range
of services described above and through the personal  solicitation of the Bank's
officers,  directors and  shareholders.  All officers are responsible for making
regular  calls on  potential  customers  to  solicit  business  and on  existing
customers  to  obtain  referrals.   Promotional   efforts  are  directed  toward
individuals and small to medium-sized businesses.  The Bank's customers are able
in their dealings with the Bank to be served by bankers who have commercial loan
experience, lending authority, and the time to serve their banking needs quickly
and  competently.  Bankers are assigned to customers  and not  transferred  from
office to office as in many major chain or regional  banks. In order to expedite
decisions on lending transactions,  the Bank's loan committee meets on a regular
basis  and is  available  where  immediate  authorization  is  important  to the
customer.

The risk of non-payment (or deferred payment) of loans is inherent in commercial
banking.  Furthermore,  the  Bank's  marketing  focus on  small to  medium-sized
businesses  may involve  certain  lending  risks not inherent in loans to larger
companies.  Smaller companies generally have shorter operating  histories,  less
sophisticated internal record keeping and financial planning  capabilities,  and
greater  debt-to-equity  ratios.  Management of the Bank carefully evaluates all
loan  applicants  and  attempts to minimize  its credit risk  through the use of
thorough loan application and approval procedures.

Consistent with the need to maintain liquidity,  management of the Bank seeks to
invest the largest  portion of the Bank's assets in loans of the types described
above.  Loans are  generally  limited to less than 80% of  deposits  and capital
funds. The Bank's surplus funds are invested in the investment  portfolio,  made
up of both taxable and non-taxable debt securities of the U.S. government,  U.S.
government agencies, states, and municipalities.  On a day-to-day basis, surplus
funds  are  invested  in  federal  funds  and  other   short-term  money  market
instruments.

Competition:

The banking  business in California  generally,  and in the northern  portion of
central California where the Bank is located, is highly competitive with respect
to both loans and deposits  and is  dominated  by a  relatively  small number of
major  banks  with  branch  office  networks  and other  operating  affiliations
throughout the State. The Bank competes for deposits and loans with these banks,
as well as with  savings and loan  associations,  thrift and loan  associations,
credit  unions,  mortgage  companies,  insurance  companies  and  other  lending
institutions.  Among the advantages  certain of these institutions have over the
Bank are their ability (i) to finance extensive advertising  campaigns,  (ii) to
allocate a substantial  portion of their  investment  assets in securities  with
higher  yields  (not  available  to  the  Bank  if  its  investments  are  to be
diversified)  and (iii) to make funds available for loans in geographic  regions
with the greatest demand. In competing for deposits,  the Bank is subject to the
same  regulations  with respect to interest rate limitations on time deposits as
other depository institutions. See "Supervision and Regulation" below.

Many of the major  commercial  banks  operating in the Bank's service area offer
certain services,  such as international  banking and trust services,  which are
not offered  directly by the Bank,  and such banks,  by virtue of their  greater
capitalization,  have  substantially  higher  lending  limits than the Bank.  In
addition,  other  entities,  both public and private,  seeking to raise  capital
through the  issuance  and sale of debt and equity  securities  compete with the
Bank for the acquisition of funds for deposit.

In order to compete with other  financial  institutions  in its primary  service
area, the Bank relies  principally  on local  promotional  activities,  personal
contacts by its officers, directors, employees and shareholders,  extended hours
and  specialized  services.  The Bank's  promotional  activities  emphasize  the
advantages  of  dealing  with  a  locally-owned  and  headquartered  institution
sensitive  to the  particular  needs of the  community.  The Bank  also  assists
customers in obtaining  loans in excess of the Bank's  lending limit or services
not offered by the Bank by  arranging  such loans or  services in  participation
with or through its correspondent banks.

The State  Bank  Parity  Act,  effective  January 1,  1996,  eliminated  certain
existing  disparities  between  California  state  chartered  banks and national
banking   associations,   such  as  the  Bank,  by  authorizing  the  California
Commissioner  of Financial  Institutions  (the  "Commissioner")  to address such
disparities through a streamlined rule-making process.

Employees:

As  of  December  31,  2001,  the  Company  employed  120  full-time  equivalent
employees,  including  four  executive  officers.  Management  believes that the
Company's relationship with its employees is good.


                                       4
<PAGE>

Supervision and Regulation

The Company:

The common stock of the Company is subject to the  registration  requirements of
the Securities Act of 1933, as amended,  and the  qualification  requirements of
the California Corporate Securities Law of 1968, as amended. The Company is also
subject  to  the  periodic  reporting  requirements  of  Section  13(d)  of  the
Securities Exchange Act of 1934, as amended,  which include, but are not limited
to, annual, quarterly and other current reports with the Securities and Exchange
Commission.

The Company is a bank holding company  registered under the Bank Holding Company
Act of 1956 (the "Act") and is subject to  supervision by the Board of Governors
of the Federal  Reserve System (the  "Board").  As a bank holding  company,  the
Company must file with the Board quarterly  reports,  annual  reports,  and such
other  additional  information as the Board may require pursuant to the Act. The
Board may also make examinations of the Company and its subsidiaries.

The Act  requires  prior  approval  of the Board for,  among other  things,  the
acquisition by a bank holding company of direct or indirect ownership or control
of more than 5% of the voting shares,  or substantially  all the assets,  of any
bank, or for a merger or  consolidation by a bank holding company with any other
bank holding  company.  The Act also prohibits the acquisition by a bank holding
company or any of its subsidiaries of voting shares,  or  substantially  all the
assets,  of any  bank  located  in a state  other  than the  state in which  the
operations of the bank holding  company's  banking  subsidiaries are principally
conducted,  unless the statutes of the state in which the bank to be acquired is
located expressly authorize such acquisition.

With certain  limited  exceptions,  a bank holding  company is  prohibited  from
acquiring direct or indirect  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 any activity  other than banking or managing
or controlling banks or furnishing  services to, or performing services for, its
authorized  subsidiaries.  A bank  holding  company may,  however,  engage in or
acquire an interest in a company that engages in  activities  that the Board has
determined  to be so closely  related to banking or to managing  or  controlling
banks as to be properly  incident thereto.  In making such a determination,  the
Board is  required  to  consider  whether  the  performance  of such  activities
reasonably  can be expected to produce  benefits to the public,  such as greater
convenience,  increased  competition,  or gains in  efficiency,  which  outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair  competition,  conflicts of interest or unsound  banking  practices.  The
Board is also empowered to differentiate  between  activities  commenced de novo
and  activities  commenced by the  acquisition,  in whole or in part, of a going
concern.

Additional  statutory  provisions  prohibit  a  bank  holding  company  and  any
subsidiary banks from engaging in certain tie-in arrangements in connection with
the  extension of credit,  sale or lease of property or  furnishing of services.
Thus,  a  subsidiary  bank may not extend  credit,  lease or sell  property,  or
furnish any services,  or fix or vary the consideration for any of the foregoing
on the condition  that: (i) the customer must obtain or provide some  additional
credit,  property or service  from or to such bank other than a loan,  discount,
deposit or trust  service;  or (ii) the  customer  must  obtain or provide  some
additional  credit,  property  or  service  from or to the  company or any other
subsidiary  of the  company;  or (iii) the  customer  may not obtain  some other
credit, property to service from competitors,  except reasonable requirements to
assure soundness of the credit  extended.  These  anti-tying  restrictions  also
apply to bank holding companies and their non-bank  subsidiaries as if they were
banks.

The Company's ability to pay cash dividends is subject to restrictions set forth
in the California  General  Corporation Law. The Bank is a legal entity separate
and  distinct  from  the  Company,  and is  subject  to  various  statutory  and
regulatory restrictions on its ability to pay dividends to the Company. See Note
14(c) to the consolidated financial statements for further information regarding
the payment of cash dividends by the Company and the Bank.

The Company is a bank holding  company within the meaning of Section 3700 of the
California Financial Code. As such, the Company and its subsidiaries are subject
to examination  by, and may be required to file reports with, the  Commissioner.
Regulations   have  not  yet  been   proposed  or  adopted  to   implement   the
Commissioner's powers under this statute.

The Bank:

The Bank, is a national banking  association  whose deposit accounts are insured
by the Federal  Deposit  Insurance  Corporation  (the  "FDIC") up to the maximum
legal  limits and the Bank is subject to  regulation,  supervision,  and regular
examination by the OCC. The Bank is a member of the Federal Reserve System, and,
as such,  is  subject to  certain  provisions  of the  Federal  Reserve  Act and
regulations  issued  by the  Board.  The  Bank is  also  subject  to  applicable
provisions  of  California  law,  insofar as they are not in conflict  with,  or
preempted by, federal law. The regulations of these various agencies govern most
aspects of the Bank's business,  including  reserves against deposits,  interest
rates  payable  on  deposits,  loans,  investments,  mergers  and  acquisitions,
borrowings, dividends and location of branch offices.


                                        5
<PAGE>

Officers:

Leon Zimmerman, age 59, is President and Chief Executive Officer of the Bank and
of the Company;  Robert H. Daneke,  age 48 is Executive Vice President and Chief
Credit Officer of the Bank and of the Company;  Allen R. Christenson,  age 44 is
Senior Vice-President,  Chief Financial Officer and Secretary of the Bank and of
the Company and; Lance Gallagher, age 57 is Senior Vice President and Operations
Administrator of the Bank and the Company.

Mr.  Zimmerman  joined the Company in April 1990. He was promoted from Executive
Vice  President and Chief Credit Officer of Bank of Lodi to President and CEO in
August of 1994. Mr. Zimmerman became President and CEO of the Company  effective
August  1995.  He lives in Lodi with his wife and has  resided and worked in the
San Joaquin-Sacramento  Valley since 1960, serving in various banking capacities
since  1962.  Mr.  Zimmerman  serves on many  community  boards and  committees,
including the Lodi Police Chaplaincy  Association,  San Joaquin County Education
Foundation,  Chamber of Commerce - Agribusiness Committee, and LEED - Sacramento
Steering  Committee.  He  is a  member  of  Lodi  Rotary  Club,  Sutter  Club  -
Sacramento, World Trade Club - San Francisco,  Independent Order of Odd Fellows,
Lodi Grape Festival and Harvest Fair and several other community groups.

Mr.  Daneke  joined the Company in December  1999  bringing on board 23 years of
banking  experience.  Prior to joining the Company,  Mr.  Daneke was employed at
Clovis  Community  Bank  for  eight  years  and  was  promoted  to  Senior  Vice
President/Senior  Credit Officer in 1997. In addition,  his career has included:
seven years with the  Correspondent  Bank Division of Community  Bank in Redwood
City and seven years with Bank of America  Corporate  Banking Group.  Mr. Daneke
holds a B.B.A.  Degree in  Finance  from the  University  of Iowa.  He is also a
graduate of Pacific Coast Banking School at the  University of  Washington,  the
California  Intermediate  Banking  School at the University of San Diego and the
Lodi Chamber of Commerce  Leadership  Lodi Program.  He currently is a member of
the Lodi Chapter of Independent  Order of Odd Fellows and serves on Lodi Unified
School District's Budget Advisory Committee. Mr. Daneke resides in Lodi with his
wife and two children.


Mr. Christenson joined the Company in August 1999. Prior to joining the Company,
Mr.  Christenson was Senior Vice President and Chief Financial  Officer of River
City Bank, located in Sacramento, California (1994-1999). Prior to joining River
City Bank, Mr. Christenson was Senior Vice President and Chief Financial Officer
of CapitolBank Sacramento, which was acquired by another bank (1993-1994). Prior
to joining CapitolBank Sacramento,  Mr. Christenson was in public accounting for
over eight years,  specializing  in financial  audits and consulting  within the
financial  services  industry.  Mr. Christenson is a Certified Public Accountant
and has a Bachelors  degree from California  State  University,  Sacramento.  He
resides in South  Sacramento with his wife and five children.  He is a life-long
resident  of the  greater  Sacramento  area and  continues  to serve in  various
community and civic organizations.


Mr.  Gallagher  joined the Bank in  February  1991.  He was  promoted  from Vice
President of Compliance to Senior Vice President and Operations Administrator in
January 1997. As a graduate of the American Bankers Associations Graduate School
of Compliance, he is responsible for the Bank's regulatory compliance program in
addition to Bank operations and item  processing.  Prior to joining the Company,
Mr.  Gallagher  was with  Wells  Fargo  Bank for 22  years in  various  customer
service, operations, and human resource capacities of increasing responsibility.
He lives in San  Joaquin  County with his wife and has four boys and a grandson.
Mr. Gallagher is a banking  instructor for The American Institute of Banking and
Delta Community  College,  serves as a member of the Colleges  Banking  Advisory
Board, a member of the HEALD College  Employer  Advisory  Committee,  and is the
Initiation Coaching Program Director with U. S. Hockey Pacific District.

Recent Legislation and Regulations Affecting Banking:

From  time to time,  new  laws  are  enacted  which  increase  the cost of doing
business,  limit  permissible  activities,  or affect  the  competitive  balance
between banks and other financial institutions. Proposals to change the laws and
regulations  governing the  operations  and taxation of bank holding  companies,
banks and other financial  institutions are frequently made in Congress,  in the
California  legislature  and  before  various  bank  holding  company  and  bank
regulatory  agencies.  The  likelihood  of any major changes and the impact such
changes  might have are  impossible  to predict.  Certain  significant  recently
proposed or enacted laws and regulations are discussed below.

Interstate Banking.  Since 1986,  California has permitted  California banks and
bank holding  companies to be acquired by banking  organizations  based in other
states on a  "reciprocal"  basis (i.e.,  provided the other  state's laws permit
California banking  organizations to acquire banking organizations in that state
on  substantially  the same terms and  conditions  applicable  to local  banking
organizations).  Since  October 2, 1995,  California  law  implementing  certain
provisions  of  prior  federal  law  have  (1)   permitted   interstate   merger
transactions;  (2) prohibited  interstate branching through the acquisition of a
branch business unit located in California without acquisition of the whole unit
of the California bank; and (3) prohibited  interstate branching through de novo
establishment of California branch offices.  Initial entry into California by an
out-of-state  institution  must be accomplished by acquisition of or merger with
an existing whole bank, which has been in existence for at least five years.


                                       6
<PAGE>

Capital Requirements. Federal regulation imposes upon all FDIC-insured financial
institutions a variable system of risk-based capital guidelines designed to make
capital  requirements  sensitive to  differences  in risk profiles among banking
organizations,  to take into account  off-balance  sheet exposures and to aid in
making the definition of bank capital uniform  internationally.  Under the OCC's
risk-based capital guidelines, the Bank is required to maintain capital equal to
at least 8 percent of its assets, weighted by risk. Assets and off-balance sheet
items are  categorized by the  guidelines  according to risk, and certain assets
considered to present less risk than others permit  maintenance of capital below
the 8 percent  level.  The guidelines  established  two categories of qualifying
capital: Tier 1 capital comprising core capital elements,  and Tier 2 comprising
supplementary  capital  requirements.  At least one-half of the required capital
must be maintained in the form of Tier 1 capital.  For the Bank,  Tier 1 capital
includes only common stockholders' equity and retained earnings,  but qualifying
perpetual  preferred stock would also be included without limit if the Bank were
to issue such stock.  Tier 2 capital includes,  among other items,  limited life
(and in the case of banks,  cumulative)  preferred stock,  mandatory convertible
securities, subordinated debt and a limited amount of the allowance for loan and
lease losses.

The  guidelines  also  require  all insured  institutions  to maintain a minimum
leverage  ratio of 3  percent  Tier 1 capital  to total  assets  (the  "leverage
ratio").  The OCC  emphasizes  that the  leverage  ratio  constitutes  a minimum
requirement  for the most well run  banking  organizations.  All  other  banking
organizations  are  required  to  maintain  a  minimum  leverage  ratio  ranging
generally from 4 to 5 percent.  The Bank's required  minimum leverage ratio is 4
percent.

The federal banking  agencies during 1996 issued a joint agency policy statement
regarding the management of interest-rate  risk exposure  (interest rate risk is
the risk that changes in market interest rates might  adversely  affect a bank's
financial  condition)  with the goal of  ensuring  that  institutions  with high
levels of interest-rate  risk have sufficient  capital to cover their exposures.
This  policy  statement  reflected  the  agencies'  decision at that time not to
promulgate a standardized  measure and explicit capital charge for interest rate
risk, in the expectation  that industry  techniques for measurement of such risk
will evolve.

However,  the Federal Financial  Institutions  Examination  Council ("FFIEC") on
December  13,  1996,   approved  an  updated  Uniform  Financial  Rating  System
("UFIRS").  In addition  to the five  components  traditionally  included in the
so-called  "CAMEL"  rating  system which has been used by bank  examiners  for a
number of years to classify and evaluate the soundness of financial institutions
(including capital adequacy, asset quality, management, earnings and liquidity),
UFIRS  includes  for all  bank  regulatory  examinations  conducted  on or after
January 1, 1997, a new rating for a sixth category  identified as sensitivity to
market  risk.  Ratings in this  category  are  intended to reflect the degree to
which changes in interest rates,  foreign  exchange rates,  commodity  prices or
equity prices may adversely  affect an institution's  earnings and capital.  The
rating system henceforth will be identified as the "CAMELS" system.

As of  December  31,  2001,  the  Bank's  total  risk-based  capital  ratio  was
approximately  10.24  percent  and its  leverage  ratio was  approximately  7.45
percent.  The Bank does not presently expect that compliance with the risk-based
capital  guidelines  or minimum  leverage  requirements  will have a  materially
adverse effect on its business in the reasonably  foreseeable  future.  Nor does
the Bank expect that its  sensitivity to market risk will  adversely  affect its
overall  CAMELS  rating as compared  with its  previous  CAMELS  ratings by bank
examiners.

Deposit  Insurance  Assessments.  In 1995, the FDIC,  pursuant to  Congressional
mandate,  reduced bank deposit insurance  assessment rates to a range from $0 to
$.27 per $100 of deposits,  dependent upon a bank's risk. The FDIC has continued
these reduced  assessment  rates through 2001.  Based upon the above  risk-based
assessment rate schedule,  the Bank's current capital ratios, the Bank's current
level of  deposits,  and  assuming  no  further  change in the  assessment  rate
applicable  to the  Bank  during  2002,  the  Bank  estimates  that  its  annual
noninterest  expense  attributed  to the regular  assessment  schedule  will not
increase during 2002.


                                       7
<PAGE>

Prompt  Corrective  Action.  Prompt  Corrective  Action  Regulations  (the  "PCA
Regulations") of the federal bank regulatory  agencies  established five capital
categories  in  descending  order  (well  capitalized,  adequately  capitalized,
undercapitalized,      significantly     undercapitalized     and     critically
undercapitalized),  assignment  to which  depends upon the  institution's  total
risk-based  capital ratio, Tier 1 risk-based  capital ratio, and leverage ratio.
Institutions  classified  in one of the three  undercapitalized  categories  are
subject  to certain  mandatory  and  discretionary  supervisory  actions,  which
include increased  monitoring and review,  implementation of capital restoration
plans,  asset growth  restrictions,  limitations upon expansion and new business
activities, requirements to augment capital, restrictions upon deposit gathering
and interest rates,  replacement of senior executive officers and directors, and
requiring  divestiture or sale of the institution.  The Bank has been classified
as a well-capitalized bank since adoption of the PCA Regulations.

Community  Reinvestment  Act.  Community  Reinvestment  Act ("CRA")  regulations
effective as of July 1, 1995 evaluate  banks' lending to low and moderate income
individuals  and  businesses  across a four-point  scale from  "outstanding"  to
"substantial   noncompliance,"   and  are  a  factor  in  regulatory  review  of
applications to merge, establish new branches or form bank holding companies. In
addition, any bank rated in "substantial noncompliance" with the CRA regulations
may be  subject to  enforcement  proceedings.  The Bank has a current  rating of
"satisfactory" CRA compliance.

Safety and  Soundness  Standards.  Federal  bank  regulatory  agency  safety and
soundness standards for insured financial  institutions  establish standards for
(1) internal controls,  information systems and internal audit systems; (2) loan
documentation;  (3) credit underwriting;  (4) interest rate exposure;  (5) asset
growth;  and (6)  compensation,  fees and benefits.  In addition,  the standards
prohibit the payment of  compensation  which is excessive or which could lead to
material  financial loss. If an agency  determines that an institution  fails to
meet any  standard  established  by the  guidelines,  the agency may require the
financial  institution  to submit to the  agency an  acceptable  plan to achieve
compliance with the standard.  Agencies may elect to initiate enforcement action
in  certain  cases  where  failure  to meet one or more of the  standards  could
threaten the safe and sound operation of the institution.  The Bank has not been
and does not expect to be required to submit a safety and  soundness  compliance
plan because of a failure to meet any of the safety and soundness standards.

Permitted Activities. In recent years, the Federal banking agencies,  especially
the OCC and the Board,  have taken steps to increase the types of  activities in
which  national  banks and bank  holding  companies  can engage,  and to make it
easier to engage in such activities.  On November 20, 1996, the OCC issued final
regulations  permitting  national banks to engage in a wider range of activities
through  subsidiaries.  "Eligible  institutions"  (those national banks that are
well capitalized,  have a high overall rating and a satisfactory CRA rating, and
are not subject to an  enforcement  order) may engage in  activities  related to
banking  through  operating  subsidiaries  after going  through a new  expedited
application  process.  In  addition,  the new  regulations  include a  provision
whereby a national bank may apply to the OCC to engage in an activity  through a
subsidiary  in which the bank  itself may not engage.  Although  the Bank is not
currently intending to enter into any new type of business,  this OCC regulation
could  be  advantageous  to the  Bank  if the  Bank  determines  to  expand  its
operations  in the  future,  depending  on the  extent to which the OCC  permits
national banks to engage in new lines of business and whether the Bank qualifies
as an "eligible institution" at the time of making application.

Monetary Policies.  Banking is a business in which profitability depends on rate
differentials. In general, the differences between the interest rate received by
a bank on loans  extended to its  customers and  securities  held in that bank's
investment  portfolio  and the interest  rate paid on its deposits and its other
borrowings  constitute the major portion of the bank's  earnings.  To the extent
that a bank is not able to compensate  for increases in the cost of deposits and
other  borrowings  with greater income from loans,  securities and fees, the net
earnings of that bank will be reduced.  The interest  rates paid and received by
any bank are highly  sensitive  to many  factors  that are beyond the control of
that bank,  including the influence of domestic and foreign economic conditions.
See Item 7 herein,  Management's  Discussion and Analysis of Financial Condition
and Results of Operations.

The earnings  and growth of a bank are also  affected by the monetary and fiscal
policy of the United States Government and its agencies, particularly the Board.
These agencies can and do implement  national monetary policy,  which is used in
part to curb inflation and combat  recession.  Among the instruments of monetary
policy used by these  agencies  are open market  transactions  in United  States
Government securities,  changes in the discount rates of member bank borrowings,
and  changes  in  reserve  requirements.  The  actions  of the Board  have had a
significant effect on banks' lending, investments and deposits, and such actions
are expected to continue to have a  substantial  effect in the future.  However,
the nature and timing of any further  changes in such  policies and their impact
on banks cannot be predicted.


                                       8
<PAGE>

Financial  Services  Modernization  Legislation.  On November 12, 1999 President
Clinton signed into law the  Gramm-Leach-Bliley  Act of 1999 (the "Modernization
Act").  The  Modernization  Act repeals the two  affiliation  provisions  of the
Glass-Steagall  Act:  Section 20, which  restricts  the  affiliation  of Federal
Reserve member banks with firms "engaged  principally"  in specified  securities
activities;  and Section 32,  which  restricts  officer,  director,  or employee
interlocks  between a member bank and any company or person "primarily  engaged"
in specified  securities  activities.  In addition,  the  Modernization Act also
expressly  preempts any state law  restricting  the  establishment  of financial
affiliations,   primarily   related  to   insurance.   The  law   establishes  a
comprehensive framework to permit affiliations among commercial banks, insurance
companies,  securities  firms, and other financial service providers by revising
and expanding the BHC Act framework to permit a holding company system to engage
in a full  range  of  financial  activities  through  a new  entity  known  as a
Financial Holding Company.  "Financial activities" is broadly defined to include
not only  banking,  insurance,  and  securities  activities,  but also  merchant
banking and additional activities that the nature,  incidental to such financial
activities,  or complementary  activities that do not pose a substantial risk to
the safety and soundness of  depository  institutions  or the  financial  system
generally.

In order for the  Company  to take  advantage  of the  ability  provided  by the
modernization Act to affiliate with other financial service  providers,  it must
become a  "Financial  Holding  Company."  To do so,  the  Company  would  file a
declaration  with  the  Federal  Reserve,   electing  to  engage  in  activities
permissible for Financial  Holding  companies and certifying that it is eligible
to do so because its insured  depository  institution  subsidiary  (the Bank) is
well-capitalized  and well-managed.  In addition,  the Federal Reserve must also
determine  that an  insured  depository  institution  subsidiary  has at least a
"satisfactory"  rating  under  the  Community  Reinvestment  Act.  [The  Company
currently meets the  requirements  for Financial  Holding Company  status].  The
Company  will  continue  to monitor its  strategic  business  plan to  determine
whether,  based on market  conditions and other  factors,  the Company wishes to
utilize any of its expanded powers provided in the Modernization Act.

Under the Modernization Act, securities firms and insurance companies that elect
to become  Financial  Holding  Companies may acquire  banks and other  financial
institutions.  The Company does not believe that the Modernization Act will have
a material  adverse effect on its operations in the near-term.  However,  to the
extent that it permits  banks,  securities  firms,  and  insurance  companies to
affiliate, the financial services industry may experience further consolidation.
The  Modernization Act is intended to grant to community banks certain powers as
a matter of right that larger  institutions have accumulated on an ad hoc basis.
Nevertheless,  this  act may  have  the  result  of  increasing  the  amount  of
competition  that the  Company and the Bank face from  larger  institutions  and
other types of companies  offering  financial  products,  many of which may have
substantially more financial resources than the Company and the Bank.

Proposed   Legislation  and  Regulation.   Certain  legislative  and  regulatory
proposals  that could  affect the Bank and the  banking  business in general are
pending or may be introduced  before the United States Congress,  the California
State Legislature and Federal and state government  agencies.  The United States
Congress  is   considering   numerous  bills  that  could  reform  banking  laws
substantially.

It is not known  whether  any of these  current  legislative  proposals  will be
enacted and what effect such legislation would have on the structure, regulation
and competitive relationships of financial institutions.  It is likely, however,
that many of these  proposals  would  subject the Bank to increased  regulation,
disclosure and reporting requirements and would increase competition to the Bank
and its cost of doing business.

In addition to pending  legislative  changes,  the  various  banking  regulatory
agencies  frequently  propose  rules and  regulations  to implement  and enforce
already existing legislation. It cannot be predicted whether or in what form any
such rules or  regulations  will be  enacted  or the effect  that such rules and
regulations may have on the Bank's business.

The above  description of the business of the Bank should be read in conjunction
with Item 7 herein,  Management's Discussion and Analysis of Financial Condition
and Results of Operations.


                                       9
<PAGE>

ITEM 2. PROPERTIES

The Bank  owns a 0.861  acre lot  located  at the  corner  of Ham Lane and Tokay
Street,  Lodi,  California.  A 34,000 square foot, tri-level commercial building
for the main branch and  administrative  offices of the Company and the Bank was
constructed  on the lot. The Company and the Bank use  approximately  75% of the
leasable  space in the  building  and the  remaining  area is  either  leased or
available for lease as office space to other tenants.  The  construction of this
building in 1991 has enabled the Bank to better  serve its  customers  with more
teller windows, four drive-through lanes and expanded safe deposit box capacity.

The Company owns a 10,000  square foot lot located on Lower  Sacramento  Road in
the unincorporated San Joaquin County community of Woodbridge,  California.  The
entire parcel has been leased to the Bank on a long-term  basis at market rates.
The Bank has  constructed,  furnished  and  equipped a 1,437  square foot branch
office on the  parcel  and  commenced  operations  of the  Woodbridge  Branch on
December 15, 1986.

The Bank  assumed a long-term  ground  lease on 1.7 acres of land at 19000 North
Highway 88, Lockeford,  California.  The building previously  occupying the Lodi
site at 701 South Ham Lane was moved to  Lockeford,  California,  and has become
the permanent  branch  office of the Bank at that  location.  A temporary  1,000
square  foot  office had been used by the Bank at the  Lockeford  location.  The
permanent office was opened on April 1, 1991. The temporary office, along with a
portion of the permanent building, is leased by the Bank to two tenants.

On February  22,  1997,  the Bank  acquired  the Galt,  Plymouth and San Andreas
branches of Wells Fargo Bank.  The  transaction  included the  assumption of the
6,000  square foot branch  building  lease in Galt with a remaining  term of two
years, and the purchase of the branch building and land for the Plymouth and San
Andreas offices.  The Plymouth and San Andreas offices are  approximately  1,200
and 5,500 square feet,  respectively.  In November 1998,  upon expiration of the
Galt lease,  the Galt  branch was  relocated  to a new 3,000  square foot leased
facility  one block west of the old  location.  The new Galt  location is leased
under a five-year lease with three successive five-year renewal options.

In January 1998, the Bank opened a 1,220 square foot loan  production  office in
Folsom,  California.  The office was leased for one year with a one-year renewal
option that has been  exercised  by the Bank.  In July 1999,  the Bank  received
approval  to operate the Folsom  office as a  full-service  branch.  In December
1999,  the lease was  extended for one year to allow the Bank time to identify a
permanent  location in the Folsom  community.  In December  2000,  the  Landlord
agreed to extend the lease on a  month-to-month  basis while the Bank  completed
the process of moving into a new full-service branch location.  In January 2001,
the Bank  entered  into a 10-year  lease for a 2,426  square  foot  full-service
branch  location in the Folsom area. In July 2001,  the new Folsom branch became
fully operational and the former branch was subsequently closed.

In August 1998,  the Bank opened a 4,830 square foot full service  branch in Elk
Grove,  California.  The  office is leased  under a  three-year  lease  with two
successive  three-year renewal options. In January 2001, the Bank entered into a
three-year  lease for a 1,557  square foot Small  Business  Administration  loan
production office in the Folsom area.

ITEM 3. LEGAL PROCEEDINGS

         Not Applicable

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

         Not Applicable


                                       10
<PAGE>

                                     PART II

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

There is no  established  public  trading  market  for the  common  stock of the
Company. The Company's common stock is traded in the over-the-counter market and
is not presently  listed on a national  exchange or reported by the NASDAQ Stock
Market. Trading of the stock has been limited and has been principally contained
within the Company's general service area. As of March 1, 2002, there were 1,048
shareholders  of record of the Company's  common  stock.  Set forth below is the
range of high and low bid prices for the common stock during 2001 and 2000.

                                        2001                         2000
Bid Price of Common Shares        High         Low             High        Low
First Quarter                   $ 10.13        9.00            12.00       9.50
Second Quarter                     9.87        9.12            10.75       8.00
Third Quarter                     10.42        9.00            10.38       8.50
Fourth Quarter                    11.15        9.90            10.88       9.75

The  foregoing  prices are based on trades of which Company is aware and reflect
inter-dealer prices, without retail mark-up,  mark-down or commissions,  and may
not necessarily represent actual transactions.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
         (in  thousands except per share amounts)
         Consolidated Statement of Income                 2001         2000         1999         1998          1997
-------------------------------------------------------------------------------------------------------------------

<S>                                              <C>                 <C>          <C>          <C>           <C>
         Interest Income                         $      13,858       13,496       12,526       11,508        10,592
         Interest Expense                                4,644        4,613        3,699        4,028         3,785
         Net Interest Income                             9,214        8,883        8,827        7,480         6,807
         Provision for Loan Losses                         391          135        1,051         250            (60)
         Noninterest Income                              3,828        2,690        2,461        1,878         1,423
         Noninterest Expense                            11,226        9,855        8,803        7,712         6,796
         Net Income                              $       1,207        1,283        1,159        1,052         1,015

         Per Share Data

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

         Basic Earnings                          $         .75          .81          .75          .69           .67
         Diluted Earnings                                  .73          .79          .72          .65           .64
         Cash Dividends Declared                 $           -          .05          .20          .20           .20

         Consolidated Balance Sheet Data

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

         Federal Funds Sold                      $       6,129       10,115          100        4,800         4,900
         Investment Securities                          41,015       29,560       36,096       45,647        61,917
         Loans held for sale                             3,876        1,292          647        2,619         1,807
         Loans, net of loss reserve and
            deferred fees                              135,430      110,793      108,947       88,459        60,421
         Total Assets                                  226,175      185,064      176,334      164,400       147,850
         Total Deposits                                201,571      162,261      156,161      149,544       133,891
         Other Borrowings                                4,000        4,588        4,300            -             -
         Total Stockholders' Equity              $      17,863       16,454       14,521       13,857        12,861
</TABLE>


                                       11
<PAGE>

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

Certain  statements in this Annual  Report on Form 10-K include  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  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  becoming less  favorable than expected and 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;  volatility of rate sensitive deposits; operational risks, including
data  processing  system failures or fraud;  asset/liability  matching risks and
liquidity risks; and changes in the securities markets.

Prospective Accounting Pronouncements

In July 2001, the Financial  Accounting  Standards Board (FASB) issued Statement
No. 142,  Goodwill and Other Intangible  Assets.  Statement No. 142 will require
that goodwill and intangible  assets with  indefinite  useful lives no longer be
amortized,  but instead  tested for  impairment at least  annually in accordance
with the  provisions of Statement  No. 142.  Statement No. 142 will also require
that  intangible  assets with  definite  useful  lives be  amortized  over their
respective  estimated  useful  lives to their  estimated  residual  values,  and
reviewed for impairment in accordance with Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
Company  is  required  to adopt  Statement  No. 142  effective  January 1, 2002.
Furthermore,  any  goodwill  and  any  intangible  asset  determined  to have an
indefinite  useful  life that are  acquired in a purchase  business  combination
completed  after June 30, 2001, but prior to the effective date of Statement No.
142, will not be amortized,  but will continue to be evaluated for impairment in
accordance with the  appropriate  pre-statement  No. 142 accounting  literature.
Goodwill  and  intangible  assets  acquired in business  combinations  completed
before  July 1, 2001 will  continue  to be  amortized  prior to the  adoption of
Statement No. 142. The only  exception to Statement No. 142 is the  amortization
of goodwill and intangible assets acquired under the provisions of Statement No.
72, Accounting of Certain  Acquisitions of Banking or Thrift  Institutions.  The
Company will continue to amortize  goodwill and intangible assets acquired under
this statement.

The FASB recently  issued  Statement No. 143,  Accounting  for Asset  Retirement
Obligations,  in August 2001. This Statement addresses financial  accounting and
reporting for obligations  associated with the retirement of tangible long-lived
assets and the associated  asset retirement  costs. As a result,  FASB Statement
No. 143 applies to all entities that have legal obligations  associated with the
retirement  of  long-lived  tangible  assets that  result from the  acquisition,
construction, development or normal use of the asset. As used in this Statement,
a legal obligation  results from existing law,  statute,  ordinance,  written or
oral  contract,  or by legal  construction  of a contract  under the doctrine of
promissory estoppels.

Statement  No. 143 requires an  enterprise  to record the fair value of an asset
retirement  obligation  as a liability  in the period in which it incurs a legal
obligation  associated with the retirement of a tangible long-lived asset. Since
the  requirement is to recognize the obligation  when incurred,  approaches that
have been used in the past to accrue the asset  retirement  obligation  over the
life of the asset are no longer acceptable.  Statement No. 143 also requires the
enterprise to record the contra to the initial  obligation as an increase to the
carrying  amount of the related  long-lived  asset (i.e.,  the associated  asset
retirement  costs) and to depreciate that cost over the remaining useful life of
the asset.  The  liability  is changed at the end of each  period to reflect the
passage of time (i.e.,  accretion  expense) and changes in the estimated  future
cash flows  underlying  the  initial  fair value  measurement.  Enterprises  are
required to adopt  Statement No. 143 for fiscal years  beginning  after June 15,
2002. Early adoption is encouraged.

On  October  3,  2001,the  Financial  Accounting  Standards  Board  issued  FASB
Statement  No. 144,  Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets, which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement
No.121,  Accounting for the  Impairment of Long-Lived  Assets and for Long-Lived
Assets to Be Disposed Of, it retains many of the fundamental  provisions of that
Statement.

Statement No.144 also supersedes the accounting and reporting  provisions of APB
Opinion  No.30,  Reporting the Results of  Operations--Reporting  the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions,  for the Disposal of a Segment of a Business.
However,  it  retains  the  requirement  in  Opinion  30  to  report  separately
discontinued  operations  and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment,  or in a distribution to
owners) or is classified as held for sale. By  broadening  the  presentation  of
discontinued  operations  to include more  disposal  transactions,  the FASB has
enhanced  management's  ability


                                       12
<PAGE>

to  provide  information  that  helps  financial  statement  users to assess the
effects of a disposal  transaction on the ongoing  operations of an entity.  The
statement is required to be adopted for fiscal years  beginning  after  December
15, 2001 and interim  periods  within  those  fiscal  years.  Early  adoption is
encouraged.

The Company does not expect adoption of Statements No. 142, 143 or 144 to have a
material impact on the financial condition or operating results of the Company.

Critical Accounting Policies and Estimates

The Company's  discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting  principles  generally accepted
in the United States. The preparation of these financial statements requires the
Company to make  estimates  and  judgments  that affect the reported  amounts of
assets,  liabilities,  income and expenses, and related disclosure of contingent
assets  and  liabilities.  On an  on-going  basis,  the  Company  evaluates  its
estimates,  including those related to the allowance for loan losses, other real
estate owned,  investments and income taxes.  The Company bases its estimates on
historical  experience and on various other  assumptions that are believed to be
reasonable  under the  circumstances,  the  results  of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent from other  sources.  Actual results may differ from these
estimates under different assumptions or conditions.

The Company believes the following critical  accounting policies affect its more
significant  judgments and estimates used in the preparation of its consolidated
financial statements. The Company maintains allowances for loan losses resulting
from the inability to make required loan payments.  If the financial  conditions
of the Company's  customers were to  deteriorate,  resulting in an impairment of
their  ability to make  payments,  additional  allowances  may be required.  The
Company  invests in debt and equity  securities.  If the Company  believes these
securities have experienced a decline in value that is other than temporary,  an
investment  impairment  charge is  recorded.  Future  adverse  changes in market
conditions or poor operating  results of underlying  investments could result in
losses or an inability to recover the carrying value of the investments that may
not be  reflected  in an  investment's  carrying  value,  thereby  requiring  an
impairment charge in the future.

The  following  discussion  addresses  information  pertaining  to the financial
condition  and results of  operations  of the Company  that may not be otherwise
apparent  from a review of the  consolidated  financial  statements  and related
footnotes.  It should be read in  conjunction  with those  statements  and notes
found on pages 35 through 59, as well as other information  presented throughout
this report.

Summary of Earnings Performance

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                       For the Year Ended December 31:
                                       ------------------------------------------------------------------
                                                   2001                     2000                   1999
<S>                                        <C>                             <C>                    <C>
Earnings (in thousands)                    $      1,207                    1,283                  1,159

---------------------------------------------------------------------------------------------------------
Basic earnings per share                   $        .75                      .81                    .75
Diluted earnings per share                 $        .73                      .79                    .72
Return on average assets                          0.59%                    0.71%                   0.69%
Return on average equity                          7.03%                    8.74%                   8.19%
Dividend payout ratio                                 -                    5.88%                  24.19%
---------------------------------------------------------------------------------------------------------
Average equity to average assets                  8.34%                    8.10%                   8.40%
---------------------------------------------------------------------------------------------------------
</TABLE>

Net income  totaled  $1,207  thousand  for the year  ended  December  31,  2001,
resulting  in a decrease of $76  thousand,  or 5.9%,  over the prior  year.  The
Company  experienced growth in earning assets and deposits during 2001 resulting
in a $331  thousand  increase in net interest  income.  Net interest  income was
negatively  impacted  during 2001 as a result of an overall  decline in interest
rates. As a result of increases in loans during 2001, the Company  increased the
provision for loan losses by $256 thousand as compared to 2000. In addition, the
Company  experienced a $1,138 thousand increase in noninterest  income which was
offset by an increase of $1,371  thousand in noninterest  expense.  Furthermore,
the  Company's  provision  for income  taxes  declined  $82  thousand in 2001 as
compared to 2000.


                                       13
<PAGE>

Basic  earnings  per share in 2001 were $.75,  compared to $.81 and $.75 in 2000
and 1999,  respectively.  For the year ended December 31, 2001,  interest income
increased $362 thousand and interest expense increased $31 thousand resulting in
an increase in net interest  income  totaling  $331  thousand as compared to the
prior year. During 2001, the Company  experienced growth rates of 23.9% in gross
loans (total portfolio loans plus loans held for sale) and 24.2% in deposits. In
addition, during 2001 the Company experienced a significant decline in its prime
lending  rate as a result of eleven  interest  rate  reductions  by the  Federal
Reserve. While the Company experienced  significant growth in loans and deposits
during the year,  the  reductions  in the prime lending rate reduced the overall
earnings  potential  generated by the increases in the Company's earning assets.
Furthermore,  the Company was  successful in collecting  interest  totaling $423
thousand  and $224  thousand  on loans that had  previously  been on  nonaccrual
during  2001 and  2000,  respectively.  Interest  forgone  on  nonaccrual  loans
amounted to $310 thousand during 2001 compared to $542 thousand during 2000.

The  Provision  for Loan Losses for the year ending  December  31, 2001 was $391
thousand,  an increase of $256 thousand over 2000's  provision of $135 thousand.
The  increase  in the  provision  was  primarily  related  to the  growth in the
Company's loans.  Noninterest income totaled $3,828 thousand for the year ending
December 31, 2001 resulting in an increase of $1,138,  or 42.3%,  over the prior
year.  The increase  resulted  primarily  from four areas;  gains on the sale of
investment  securities,  loans and other real estate,  increased  service charge
revenue which resulted from the increase in total deposits,  increased  mortgage
lending  activity and an increase in the cash surrender value of life insurance.
Total noninterest  expense  increased $1,371 thousand,  or 13.9% during the year
primarily as a result of additions  to personnel  and the  upgrading of existing
positions in addition to general  overall  increases  in the cost of  operations
incurred with strategic expansion projects.

During  2000,  the Company  experienced  growth rates of 2.1% in gross loans and
3.9% in deposits  resulting in an increase in net interest income.  In addition,
the  Provision  for Loan Losses for the year ending  December  31, 2000 was $135
thousand,  a decrease of $916 thousand over 1999's provision of $1,051 thousand.
Furthermore,  noninterest  income  increased  9.3% during  2000,  primarily as a
result of changes in the pricing of some of the Bank's deposit  products  (which
were  implemented  during the third quarter of 1999) and a $149 thousand gain on
the sale of investment securities. Additionally, the Company experienced a 12.0%
increase in  noninterest  expense  during the year.  The increase in noninterest
expense is attributable  to general overall  increases in the cost of operations
combined with expenses incurred with strategic  expansion  projects and expenses
associated with the resolution of non-performing loans.  Additionally,  interest
forgone on nonaccrual  loans  amounted to $542 thousand  during 2000 compared to
$76 thousand during 1999.

Branch Expansion and Acquisitions

In January  2001,  the Bank entered  into a three-year  lease for a 1,557 square
foot Small Business  Administration  loan production  office in the Folsom area.
During 2001,  the Bank was approved as a Certified  Lender by the Small Business
Administration   (SBA)  thereby  allowing  the  department  to  provide  quicker
responses to customer's requests for SBA loans.

In  August  1998,  the  Bank  opened a  full-service  branch  in the Elk  Grove,
California  market.  The Elk Grove office is approximately 30 miles north of the
Bank's corporate headquarters in Lodi, California and it effectively expands the
Bank's trade area into South Sacramento County.

In January 1998, the Bank opened a loan production  office in the growing market
of Folsom,  California.  The location was converted to a full-service  branch in
July 1999 and in July 2001 was  relocated  to a new site in  Folsom.  The Folsom
office is approximately 45 miles northeast of the Bank's corporate  headquarters
in Lodi,  California  and  effectively  expanded  the Bank's trade area into the
greater Sacramento area.

On February 22, 1997, the Bank completed the acquisition of the Galt,  Plymouth,
and San Andreas,  California,  branches of Wells Fargo Bank.  The Bank purchased
the premises and equipment of the Plymouth and San Andreas  branches and assumed
the building  lease for the Galt branch.  The Bank also  purchased the furniture
and equipment of all three  branches and paid a premium for the deposits of each
branch.  The total cost of acquiring the branches,  including  payments to Wells
Fargo Bank as well as other direct costs associated with the purchase, was $2.86
million.  The  transaction  was  accounted  for  using  the  purchase  method of
accounting.  Accordingly, the purchase price was allocated first to identifiable
tangible  assets based upon those  assets'  fair value and then to  identifiable
intangible  assets based upon the assets' fair value. The excess of the purchase
price  over  identifiable  tangible  and  intangible  assets  was  allocated  to
goodwill.  Allocations to identifiable tangible assets,  identifiable intangible
assets,  and goodwill  were $856  thousand,  $1.98  million,  and $24  thousand,
respectively. Deposits totaling $34 million were acquired in the transaction.


                                       14
<PAGE>

Net Interest Income

The following table provides a detailed  analysis of net interest spread and net
interest  margin  for the  years  ended  December  31,  2001,  2000,  and  1999,
respectively:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                For the Year Ended              For the Year Ended                For the Year Ended
                                December 31, 2001                December 31, 2000                December 31, 1999
                          (Dollar amounts in thousands)    (Dollar amounts in thousands)    (Dollar amounts in thousands)
                          --------------------------------------------------------------------------------------------------
                           Average     Income/             Average    Income/               Average     Income/
                           Balance    Expenses    Yield    Balance   Expenses     Yield     Balance     Expense     Yield
                           -------    --------    -----    -------   --------     -----     -------     -------     -----
<S>                       <C>          <C>        <C>       <C>         <C>        <C>        <C>        <C>         <C>
Earning Assets:

Investment securities (1) $  35,260     2,073      5.88%     34,690      2,214      6.38%      41,050     2,413       5.88%

Federal funds sold           11,360       481      4.23%      5,090        329      6.46%       4,150       202       4.86%

Loans (2)                   123,600    11,304      9.15%    114,690     10,953      9.55%     101,120     9,911       9.80%
                            -------    ------      -----    -------     ------      -----     -------     -----       -----

                          $ 170,220    13,858      8.14%    154,470     13,496      8.74%     146,320    12,526       8.56%
                            =======    ======      =====    =======     ======      =====     =======    ======       =====

Liabilities:

Noninterest bearing
deposits                  $  25,350         -          -     21,240          -          -      19,830         -           -

Savings, money market,
& NOW deposits               91,600     1,297      1.42%     83,970      1,350      1.61%      82,110     1,358       1.65%

Time deposits                66,630     3,342      5.02%     53,020      2,801      5.28%      50,690     2,330       4.60%

Other borrowings                120         5      4.17%      7,000        462      6.60%         170        11       6.25%
                            -------    ------      -----    -------     ------      -----     -------     -----       -----

Total Liabilities         $ 183,700     4,644      2.53%    165,230      4,613      2.79%     152,800     3,699       2.42%
                            =======     =====      =====    =======      =====      =====     =======     =====       =====

Net Spread                                         5.61%                            5.95%                             5.73%
                                                   =====                            =====                             =====
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                          Earning      Income             Earning     Income                  Earning     Income
                           Assets    (Expense)    Yield    Assets    (Expense)    Yield        Assets    (Expense)    Yield
                           ------    ---------    -----    ------    ---------    -----        ------    ---------    -----
<S>                     <C>          <C>          <C>       <C>       <C>          <C>         <C>        <C>         <C>
Yield on average
earning assets          $ 170,220    13,858       8.14%     154,470   13,496       8.74%       146,320    12,526      8.56%

Cost of funds for
average earning assets    170,220    (4,644)     (2.73%)    154,470   (4,613)     (2.99%)      146,320    (3,699)    (2.53%)
                                      -----      -------              ------       -----                   -----     -------

Net Interest Margin       170,220     9,214       5.41%     154,470    8,883       5.75%       146,320     8,827      6.03%
                                      =====       =====                =====       =====                   =====      =====
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Income on tax-exempt  securities  has not been adjusted to a tax  equivalent
    basis.
(2) Loans held for sale and nonaccrual loans are included in the loan totals for
    each year.

Net interest income  increased $331 thousand,  or 4% in 2001 after increasing 1%
in 2000. The increase in 2001 is  attributable  to an increase of 10% in average
earning assets  combined with a 16% increase in average  deposits.  In addition,
during 2001,  the Company's  base lending rate  decreased 475 basis points.  The
decrease in the base lending rate was consistent  with the national  decrease in
the prime  lending  rate during 2001 from 9.50% at December 31, 2000 to 4.75% at
December  31, 2001.  The decline in the prime  lending  rate  resulted  from the
eleven interest rate reductions by the Federal Reserve during 2001. Furthermore,
while the Company  recorded $423 thousand in interest income on nonaccrual loans
during the year, interest forgone on nonaccrual loans totaled $310 thousand.


                                       15
<PAGE>

The mix of earning  assets at December  31, 2001 changed as compared to December
31, 2000 as a result of year-over-year loan growth of 24% in 2001 as compared to
2% in 2000. During 2001, average loans,  investment securities and federal funds
sold increased $8,910 thousand, $570 thousand and $6,270 thousand, or 8%, 2% and
123%,  respectively,  compared to 2000.  Average  earnings assets increased as a
result of a $25,350 thousand,  or 16%, increase in average deposits during 2001.
As average  deposit  growth  outpaced  average loan growth during the year,  the
average  loan to deposit  ratio  decreased to 67% for 2001 as compared to 73% in
2000.  Average  investment  securities  decreased  $6,360,  or  16%,  in 2000 as
compared  to 1999 as a result  of the  $13,570  thousand,  or  13.4%,  growth in
average loans outpacing a $5,600,  or 4%, growth in average  deposits in 2000 as
compared to 1999.

Net interest  margin  decreased 34 basis points in 2001 after  decreasing  by 28
basis points in 2000. This decrease in 2001 was the result of several key items:

   -   Interest  forgone on nonaccrual  loans during 2001 totaled $310 thousand.
       This  reduced the yield on loans by 25 basis  points and the net interest
       margin by 19 basis points.

         o      Interest   collected  on  loans  that  had  previously  been  on
                nonaccrual  status  totaled $423  thousand.  This  increased the
                yield on loans by 35 basis points and the net interest margin by
                25 basis points.

   -   Changes in the mix of the investment  portfolio during 2001 resulted in a
       decrease of 50 basis points in the average  yield  earned on  investments
       securities.

   -   The general decrease in interest rates during 2001 resulted in a decrease
       of 223 basis points in the average yield earned on federal funds sold.

   -   The general decrease in interest rates during 2001 resulted in a decrease
       of 26 basis points in the cost of average certificates of deposit.

Net interest income increased $56 thousand, or 1%, in 2000. The increase in 2000
is  attributable  to an increase of 6% in average earning assets combined with a
4% increase in average  deposits.  In addition,  during 2000, the Company's base
lending rate  increased 100 basis points.  The increase in the base lending rate
was consistent  with the national  increase in Bank's prime lending rates during
2000 from 8.5% at December 31, 1999 to 9.5% at December  31, 2000.  Furthermore,
while the Company  recorded $224 thousand in interest income on nonaccrual loans
during the year, interest forgone on nonaccrual loans totaled $542 thousand.

The mix of earning  assets in 2000  changed as a result of  year-over-year  loan
growth  of 2%  compared  to 21% in 1999.  Average  loans in 2000  increased  13%
compared to 1999.  The increase in loans  absorbed the liquidity  created by the
growth in deposits  during 2000 and the proceeds  from  maturities  and sales of
investment  securities.  The loan growth  also  increased  the  average  loan to
deposit  ratio  to 73% in 2000  compared  to 66% in  1999.  Average  investments
decreased 16% in 2000 as compared to 1999 as a result of the increase in loans.

Net interest  margin  decreased 28 basis points in 2000 after  increasing  by 44
basis points in 1999. This decrease in 2000 was the result of several key items:

   -   Interest  forgone on nonaccrual  loans during 2000 totaled $542 thousand.
       This  reduced the yield on loans by 47 basis  points and the net interest
       margin by 35 basis points.

   -   Changes in the mix of the investment portfolio during 2000 resulted in an
       increase of 50 basis points in the average  yield  earned on  investments
       securities.

   -   The general  increase in  interest  rates  resulted in an increase of 160
       basis points in the average yield earned on federal funds sold.

   -   The  general  increase in  interest  rates  resulted in an increase of 68
       basis points in the cost of average certificates of deposit.


                                       16
<PAGE>

The following table presents the monetary impact of the  aforementioned  changes
in earning  asset and  deposit  volumes,  yields and mix for the two years ended
December 31, 2001 and 2000.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                     2001 compared to 2000                              2000 compared to 1999
                                        (in thousands)                                     (in thousands)

                                          Change due to:                                   Change due to:

Interest Income:          Volume         Rate          Mix        Total     Volume         Rate          Mix        Total
                          ------         ----          ---        -----     ------         ----          ---        -----
                       -----------------------------------------------------------------------------------------------------

<S>                    <C>               <C>          <C>          <C>       <C>             <C>          <C>       <C>
Investment securities  $      36         (175)          (2)        (141)       (341)         165          (23)        (199)

Federal funds sold           405         (113)        (140)         152          46           66           15          127

Loans                        851         (464)         (36)         351       1,149          (96)         (11)       1,042
                             ---          ---          ---          ---       -----           --           --        -----

Total interest income  $   1,292         (752)        (178)         362         854          135          (19)         970
                           =====          ===          ===          ===         ===          ===           ===         ===

Interest Expense:

Savings, money
market, & NOW
accounts               $     111         (151)         (13)         (53)         36          (42)          (2)          (8)

Time deposits                719         (142)         (36)         541         107          348           16          471

Other borrowings            (454)        (170)         167         (457)          -           12          439          451
                            -----        ----          ---          ---       -----           --          ---          ---

Total interest
expense                $     376         (463)         118           31         143          318          453          914
                             ===          ===          ===           ==        ====          ===          ===          ===

Net interest income    $     916         (289)        (296)         331         711         (183)        (472)          56
                             ===          ===         =====         ===         ===          ===          ===           ==
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

The volume variances for total interest income in 2001 compared to 2000 indicate
that increases in average loans, investment securities and federal funds sold of
8%, 2% and 123%,  respectively  combined to increase  interest  income by $1,292
thousand.  However,  the declining interest rate environment during 2001 reduced
interest income $752 thousand, as compared to the prior year, with $464 thousand
of the decrease  resulting  from a 40 basis point decline in the yield earned on
loans,  $175 thousand  decrease  resulting from a 50 basis points decline in the
yield earned on investment  securities  and a $113 thousand  decrease  resulting
from a 223 basis  points  decrease  in the yield  earned on federal  funds sold.
Additionally,  while average interest bearing  liabilities  increased 11% during
2001,  the  average  rate paid on  interest  bearing  liabilities  decreased  9%
resulting in a net increase in total interest expense.

The volume,  rate, and mix variances for net interest income in 2000 compared to
1999  indicate  that the 13%  increase  in  average  loans,  the 50 basis  point
increase  in the  yield of the  investment  portfolio  and the 160  basis  point
increase  in the rate  earned  on  federal  funds  sold was  offset  by the $542
thousand  interest  forgone on nonaccrual  loans  combined with a 68 basis point
increase in the average cost of funding  certificates  of deposit.  During 2000,
average  earning assets  increased 6%. Average loans,  the primary  component of
earning  assets,  comprised 74% and 69% of total earning  assets during 2000 and
1999, respectively.  While average federal funds sold increased 23% during 2000,
average  investment  securities  decreased 16%.  Additionally,  average interest
bearing liabilities  increased 8% during 2000 and the average rate paid on those
liabilities increased 15% resulting in an increase in total interest expense.


                                       17
<PAGE>

Allowance for Loan Losses

The following  table  reconciles  the  beginning  and ending  allowance for loan
losses for the previous five years. Reconciling activity is broken down into the
three principal items that impact the reserve:  (1) reductions from charge-offs;
(2) increases from  recoveries;  and (3) increases or decreases from positive or
negative provisions for loan losses.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
(in thousands)                                     2001             2000             1999            1998             1997

<S>                                             <C>                <C>              <C>             <C>              <C>
Balance at beginning of period                  $ 2,499            2,580            1,564           1,313            1,207

Charge-offs:

  Commercial                                        226              201               90              67              249

  Real estate                                         -                -                               25                -

  Consumer                                           57               45               20              40               41
                                                 ------          -------          -------         -------          -------

  Total Charge-offs                                 283              246              110             132              290

Recoveries:

  Commercial                                         21               15               68             112              434

  Real estate                                         -                -                -               -                -

  Consumer                                           40               15                7              21               22
                                                 ------          -------          -------         -------          -------

  Total Recoveries                                   61               30               75             133              456
                                                 ------          -------          -------         -------          -------

Net charge-offs                                    (222)            (216)             (35)             (1)            (166)

Additions charged to operations                     391              135            1,091             250              (60)
                                                 ------          -------          -------         -------          -------

Balance at end of period                        $ 2,668            2,499            2,580           1,564            1,313
                                                 ======           ======          =======         =======          =======

Ratio of net charge-offs to average
loans outstanding                                 0.16%           (0.19%)          (0.03%)        (0.001%)          (0.28%)
                                                 ======           ======          =======         =======          =======
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Footnote 1(g) to the consolidated financial statement discusses the factors used
in  determining  the provision for loan losses and the adequacy of the allowance
for loan losses.

Net charge-offs  during 2001 totaled $222 thousand and represents an increase of
$6 thousand,  or 3%, over 2000.  This activity was comprised of $283 thousand in
gross  charge-offs  combined  with $61 thousand in  recoveries  representing  an
increase  of 15% in gross  charge-offs  and an  increase  of 103% in  recoveries
compared  to 2000,  respectively.  The  increase in  charge-offs  during 2001 is
related to  measures  taken by the  Company  to reduce  the level of  nonaccrual
loans. The Bank has not modified or  significantly  compromised its underwriting
standards despite growing competition within the industry.

The loan loss  provision  for 2001  totaled  $391  thousand  and  represents  an
increase of $256  thousand,  or 190%,  over 2000.  The increase in the provision
resulted primarily from three events; increases in loan growth and the potential
for  declines  in  the  economy   combined   with  the   resolution  of  several
nonperforming loans. While average loans increased 8% during 2001 as compared to
2000, gross loans (including loans held for sale) at December 31, 2001 increased
24% as compared to December 31,  2000.  In  addition,  during  2001,  management
became  increasingly  concerned over the potential for possible  declines in the
credit quality of its borrowers resulting from declines in the national economy.
Furthermore,  the Company eliminated several nonperforming loans during the year
without sustaining substantial charge-offs.

Net  charge-offs  totaling $216 thousand  during 2000  represents an increase of
$181 thousand,  or 517%, over 1999. This activity was comprised of $246 thousand
in gross  charge-offs  combined with $30 thousand in recoveries  representing an
increase  of 124% in  gross  charge-offs  and a  decrease  of 60% in  recoveries
compared  to 1999,  respectively.  The  increase in  charge-offs  during 2000 is
related to  measures  taken by the  Company  to reduce  the level of  nonaccrual
loans. The Bank has not modified or  significantly  compromised its underwriting
standards despite growing competition within the industry.

The loan loss provision for 2000 totaled $135 thousand and represents a decrease
of $916 thousand, or 87%, over 1999. The reason for the decrease is attributable
primarily to three factors.  First,  during 1999, the Company identified certain
loans which had  deteriorating  conditions in their credit quality and, in 1999,
established specific loan loss reserves for those loans. During 2000, management
continued  to actively  monitor the  non-performing  loans and  determined  that
reserves previously established in 1999 continued to be adequate at December 31,
2000.  Secondly,  while  nonaccrual loans increased $3,352 thousand during 2000,
the majority of these loans were  identified  as problem  loans during 1999;  at
which time, the specific


                                       18
<PAGE>

reserves for potential loan losses were established.  In addition,  the majority
of the  nonaccrual  loans are  secured by  collateral  that,  in the  opinion of
management,  possess adequate value to minimize any potential  losses, in excess
of the specific  loss reserves  previously  established  by the Company.  Third,
while average loans increased 13% during 2000, as compared to 1999,  balances as
of December 31, 2000 increased only 2% compared to December 31, 1999.

Noninterest Income

Noninterest  income  increased  42% and 9% in 2001 and 2000,  respectively.  The
primary  components of noninterest  income consist of: service charges,  SBA and
mortgage income,  and other noninterest  income.  The following table summarizes
the significant elements of service charge, SBA, mortgage and Farmer Mac revenue
for the three years ending 2001, 2000, and 1999:

<TABLE>
<CAPTION>
         ----------------------------------------------------------------------------------------------------------------
         (in thousands)                                                       2001             2000              1999
         ----------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                <C>              <C>
         Periodic deposit account charges                                  $   492              477               407
         Returned item charges                                                 624              561               463
         Ancillary services charges                                             95               99                98
         Other service charges                                                 203              124               110
                                                                     ---------------- ----------------- -----------------
              Total service charge revenue                                   1,414            1,261             1,078
                                                                     ================ ================= =================

         Gain on sale of SBA loans                                              95              114               177
         SBA loan servicing revenue                                            223              224               207
                                                                     ---------------- ----------------- -----------------
              Total SBA revenue                                                318              338               384

         Gain on sale of mortgage loans                                        458              132               133
         Mortgage loan servicing revenue                                       127              123               122
                                                                     ---------------- ----------------- -----------------
              Total mortgage revenue                                           585              255               255

         Farmer Mac origination, sale and servicing                             29               31                42
                                                                     ---------------- ----------------- -----------------

             Total loan origination, sale and servicing revenue            $   932              624               681
         ----------------------------------------------------------------------------------------------------------------
</TABLE>

Service  charge  revenue  increased 12% in 2001 compared to 2000 and 17% in 2000
compared to 1999.  The growth in service  charge income during 2001 and 2000 was
driven by deposit  growth  combined with changes to the fee structure of certain
deposit  products  implemented  during the third quarter of 2000.  While average
deposits  grew 16% in 2001 and 4% in 2000,  average  noninterest-bearing  demand
deposits increased 19% and 7% and NOW accounts increased 15% and 9%, during 2001
and 2000 as compared to 2000 and 1999, respectively.

SBA  revenue  declined  6% and 12% during  2001 and 2000.  The  declines  in SBA
revenue  resulted  primarily  from a decrease in the production of SBA 7a and an
increase in the level of SBA 504 loans.  The Company  typically sells the SBA 7a
loans to the secondary  market  whereas the SBA 504 loans are typically  held in
the Company's loan portfolio.

As a result of declines in  mortgage  lending  rates  during  2001,  the Company
experienced   increased  mortgage  lending  activity  for  both  new  loans  and
refinancing of existing loans.  The increased  lending  activity  resulted in an
increase in the Company's  mortgage revenue  totaling $330 thousand,  or 129% in
2001 as  compared to 2000 after being  unchanged  from 2000 to 1999.  Farmer Mac
revenue  declined 7% in 2001 as compared to 2000 and declined 26% during 2000 as
compared to 1999.

The Company  purchased  single-premium  life insurance  policies  written on the
lives of  certain  officers  and  directors  of the  Company  and the Bank.  The
increase  in the cash  surrender  value of these  policies  is included in other
noninterest  income and totaled $658  thousand,  $458 thousand and $206 thousand
during 2001,  2000 and 1999,  respectively.  During 1999,  one of the  insurance
companies  converted  from a mutual to a stock based  company,  which process is
referred  to  as   "demutualization."   As  a  result  of  the  demutualization,
policyholders  of the insurance  company  received shares of common stock of the
insurance  company.  The number of shares of stock received by policyholders was
based upon the cash  surrender  value of the  individual  policies.  The Company
received and  subsequently  sold the stock in December 1999. The gain recognized
upon the receipt of the stock totaled $287 thousand.


                                       19
<PAGE>

Noninterest Expenses

Noninterest  expenses  increased  14% in 2001  compared  to 2000 and 12% in 2000
compared  to 1999.  Several  events  had a  significant  impact on  year-to-year
comparability.  During 2001 the Company  experienced  increases  in salaries and
employee benefits as a result of increases in the number of full time equivalent
employees  combined  with  increases in the salaries of a few officer  positions
within the Company  resulting from upgrades to certain officers  titles,  duties
and responsibilities. During 2000, the company incurred expenses associated with
the resolution of non-performing loans.

Noninterest expense is broken down into four primary categories each of which is
discussed in this section.

Salaries and Employee Benefits

The following  table  provides the detail for each major segment of salaries and
employee benefits together with relevant statistical data:

<TABLE>
<CAPTION>
         -----------------------------------------------------------------------------------------------------------------------
         (in thousands except full time equivalents)                                   2001             2000              1999
         -----------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                  <C>               <C>
         Regular payroll, contract labor, and overtime                            $   4,038            3,325             2,970
         Incentive compensation and profit sharing                                      465              246               407
         Payroll taxes and employment benefits                                        1,177              935               655
                                                                            ----------------------------------------------------
              Total Salaries and Employee Benefits                                $   5,680            4,506             4,032
                                                                            ====================================================
         Number of full-time equivalent employees                                       117              109               104
                                                                            ----------------------------------------------------
         Regular payroll per full-time equivalent employee                            34.51            30.50             28.56
                                                                            ----------------------------------------------------
         Incentive compensation to regular payroll                                     11.5%             7.4%             13.7%
                                                                            ----------------------------------------------------
         Payroll taxes and benefits per full-time equivalent employee                 10.04             8.70              6.28
         -----------------------------------------------------------------------------------------------------------------------
</TABLE>

The number of full-time  equivalent  employees  increased 7% in 2001 compared to
2000 and 5% in 2000  compared  to 1999.  Regular  payroll,  contract  labor  and
overtime  increased  21% in 2001  compared  to 2000 and 12% in 2000  compared to
1999. Total salaries and benefits expense increased 26% in 2001 compared to 2000
and 12% in 2000  compared to 1999.  The average  regular  payroll per  full-time
equivalent  employee  increased 13% in 2001 compared to 2000 and increased 7% in
2000 compared to 1999.

Incentive  compensation includes compensation to commissioned  employees,  bonus
awards to employees under the Incentive Compensation Plan,  contributions to the
Employee  Stock  Ownership Plan and matching  contributions  to the 401(k) Stock
Ownership Plan. The Incentive  Compensation  Plan pays bonuses to officers based
upon the actual results of departmental and Bank-wide  performance in comparison
to predetermined targets. Contributions to the Employee Stock Ownership Plan are
made at the  discretion  of the board of  directors  based  upon  profitability.
Matching  contributions  to the 401(k) Stock Ownership Plan are made at the rate
of 50% of the first 4% of compensation contributed by employees.

Payroll taxes and employee  benefits per full-time  equivalent  increased 15% in
2001 as compared to 2000 and 39% in 2000 as compared to 1999.  The increases are
related  primarily to a $132 thousand and $293 thousand increase during 2001 and
2000, respectively,  in the supplemental  compensation accruals made pursuant to
the  agreements  summarized  in  Footnote 9 to the 2001  Consolidated  Financial
Statements,  combined  with  increases  in  the  Company's  contribution  to the
Employee  Stock  Ownership  Plan,  general  increases in the cost of medical and
other  related  insurance  benefits and  education  and training  expenses.  The
accruals for the  supplemental  compensation  agreements were initiated in April
1999.


                                       20
<PAGE>

Occupancy Expense

The  following  table  provides  the detail for each major  segment of occupancy
expense:

<TABLE>
<CAPTION>
         ----------------------------------------------------------------------------------------------------------------
         (in thousands except square footage and cost per sq. ft.)             2001               2000              1999
         ----------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                  <C>               <C>
         Depreciation                                                      $    347                335               366
         Property taxes, insurance, and utilities                               245                213               230
         Property maintenance                                                   181                184               124
         Net rental expense  (income)                                           177                 93                90
                                                                     ----------------------------------------------------
              Total Occupancy                                              $    950                825               810
                                                                     ====================================================
         Square footage of occupied and unoccupied space                     45,708             42,945            42,945
                                                                     ----------------------------------------------------
         Occupancy cost per square foot                                    $  20.78              19.21             18.86
                                                                     ----------------------------------------------------
         Locations                                                                9                  8                 8
         ----------------------------------------------------------------------------------------------------------------
</TABLE>

Occupancy  expenses  increased  15% in  2001  compared  to  2000  and 2% in 2000
compared to 1999.

The primary reason for the increases in 2001 and 2000 are the expansion into new
offices  combined  with  general  increases in the  maintenance  of the existing
locations.  In  January  2001 the  Company  entered  into a long  term  lease to
relocate its existing  Folsom  branch to a permanent  site. In July 2001 the new
branch opened for service and in August 2001, the former Folsom site was closed.
In  addition,   in  January  2001  the  Company  established  a  Small  Business
Administration loan production office in Folsom, California.

Equipment Expense

The  following  table  provides  the detail for each major  segment of equipment
expense:

<TABLE>
<CAPTION>
         ----------------------------------------------------------------------------------------------------------------
         (in thousands)                                                         2001              2000              1999
         ----------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                    <C>               <C>
         Depreciation                                                       $    684               506               488
         Maintenance                                                             237               259               188
         Rental expense                                                            8                16                11
                                                                     ----------------------------------------------------
              Total Equipment                                               $    929               781               687
         ----------------------------------------------------------------------------------------------------------------
</TABLE>

Equipment  expense  increased  19% in 2001 compared to 2000 and increased 14% in
2000 compared to 1999.

The increases in 2001 and 2000 are primarily attributable to investments made in
the Company's  computer  hardware and software  systems.  In addition,  as noted
above,  during 2001 the Company opened an SBA loan production  office in Folsom,
California and relocated its Folsom branch to a larger full service facility.


                                       21
<PAGE>

Other Noninterest Expense

Other noninterest expense decreased 2% in 2001 as compared to 2000 and increased
14% in 2000 compared to 1999.  The following  table provides the detail for each
major segment of other noninterest expense:

<TABLE>
<CAPTION>
         ----------------------------------------------------------------------------------------------------------------
         (in  thousands)                                                       2001             2000              1999
         ----------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                    <C>               <C>
         Third party data processing                                    $       877              869               821
         Professional fees                                                      403              771               554
         Marketing                                                              413              422                23
         Nonperforming loan costs                                                77              246                25
         Telephone and postage                                                  296              232               271
         Intangible amortization                                                171              215               282
         Director fees and retirement                                           385              193               158
         Office supplies                                                        247              189               193
         Printing                                                               121              105               109
         Other real estate owned losses and holding costs                        83               94                (8)
         Regulatory assessments                                                  91               87                85
         Business development                                                    90               82                78
         Year 2000 date change                                                    -                4               152
         Other                                                                  413              234               231
                                                                     ----------------------------------------------------
              Total Other Noninterest Expense                           $     3,667            3,743             3,274
         ----------------------------------------------------------------------------------------------------------------
</TABLE>

Professional  fees increased  during 2000 as a result of the Company  increasing
its use of third  parties in the  development  and  implementation  of  specific
strategic  initiatives.  The two  primary  initiatives  included  enhancing  the
Company's use of technology and opportunities to increase noninterest income.

The amortization of the core deposit and goodwill intangible assets purchased in
the  acquisition  of the Wells Fargo  Branches in 1997  declined  20% in 2001 as
compared  to 2000  and 24% in 2000 as  compared  to  1999.  The Bank is using an
accelerated  method of amortization  for these assets over an eight year period.
Accordingly,  the  amortization  expense is expected to continue to decline over
the remaining amortization period.

During 2000 the Company  expensed  $246  thousand in costs  associated  with the
resolution of non-performing loans. Included in these costs are amounts paid for
legal  representation,  past due rent of borrowers,  security and other property
maintenance expenses. The past due rent, security and other property maintenance
expenses  were  incurred  by the Company in order to protect  and  preserve  the
quality of assets pledged as collateral for the non-performing loans.

During 2001 the Company  expensed $385 thousand for director fees and retirement
expense which  represented an increase of $192 thousand,  or 99%, as compared to
2000.  The  increase  is  primarily  attributable  to three  events;  a one time
increase in the accrual for retirement  benefits of certain emeritus  directors,
payment of  insurance  premiums for long term care  insurance  paid on behalf of
certain  directors and an increase in director fees  associated with an increase
in the total number of outside directors.

Income Taxes

The provision for income taxes as a percentage of pretax income for 2001,  2000,
and 1999 was 15%, 19%, and 19%,  respectively.  The effective rate is lower than
the  combined  marginal  rate for state and federal  taxes due  primarily to the
level of tax exempt  income  relative to total pre-tax  income.  The two primary
components of tax exempt income are income from tax exempt investment securities
and increases in the cash surrender value of life insurance.

Total tax exempt  income  decreased  in 2001 as compared  to 2000 and  increased
during  2000 as  compared  to 1999.  Interest  income on tax  exempt  investment
securities  decreased $287 thousand in 2001 as compared to 2000 as a result of a
$4,989 thousand  decrease in average tax exempt  securities.  Interest income on
tax exempt investment  securities increased $260 thousand in 2000 as compared to
1999 as a result of a $5,440 thousand increase in average tax exempt securities.
Tax exempt  income  increased  $200 thousand in 2001 and $57 thousand in 2000 as
compared to 2000 and 1999, respectively, as a result of an investment of $12,690
thousand and $10,032 thousand, respectively, in the cash surrender value of life
insurance as discussed  below under  Balance  Sheet  Review.  Footnote 13 to the
Consolidated Financial Statements contains a detailed presentation of the income
tax provision and the related current and deferred tax assets and liabilities.


                                       22
<PAGE>

Balance Sheet Review

The following table presents average balance sheets for the years ended December
31, 2001, 2000 and 1999.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                  For the Year Ended         For the Year Ended        For the Year Ended
                                                   December 31, 2001          December 31, 2000        December 31, 1999
                                                    (in thousands)             (in thousands)            (in thousands)
                                               -----------------------------------------------------------------------------
                                                    Amount       Percent        Amount      Percent      Amount     Percent
----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                <C>          <C>          <C>         <C>         <C>
Assets:

Cash & Due from banks                          $    11,310        5.59%          8,150        4.50%       7,488       4.45%

Federal funds sold                                  11,360        5.61%          5,090        2.81%       4,150       2.47%

Investment securities                               35,260       17.42%         34,690       19.16%      41,050      24.39%

Loans held for sale                                  3,130        1.55%          1,144        0.63%         564       0.34%
Loans (net of allowance for loan losses and

  deferred income)                                 117,320       57.95%        111,490       60.93%      98,196      58.35%

Premises and equipment, net                          6,800        3.35%          6,860        3.79%       6,863       4.08%

Other assets                                        17,260        8.53%         14,810        8.18%       9,969       5.92%
                                                    ------        -----         ------        -----       -----       -----

Total Assets                                   $   202,440      100.00%        181,090      100.00%     168,280     100.00%
                                                   =======      =======        =======      =======     =======     =======

Liabilities & Stockholders' Equity:

Deposits                                       $   183,580       90.68%        158,230       87.37%     152,630      90.70%

Short term borrowings                                  120         .06%          7,000        3.87%           -           -

Other liabilities                                    1,730         .85%          1,190        0.66%       1,507       0.90%

Stockholders' equity                                17,010        8.40%         14,670        8.10%      14,143       8.40%
                                                    ------        -----         ------        -----      ------       -----

Total Liabilities & Stockholders' Equity       $   202,440      100.00%        181,090      100.00%     168,280     100.00%
                                                   =======      =======        =======      =======     =======     =======

----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Average  total  assets  increased  12% in 2001  compared  to 2000 and 8% in 2000
compared to 1999.  Year-end  asset totals at December 31, 2001 reached  $226,175
thousand and represented an increase of 22% over December 31, 2000. The increase
in 2001 and 2000 is a function of deposit  growth  throughout  the Bank's branch
network, as average deposits increased 16% and 4%, respectively.

During 2001 average  gross loans  increased  8%. This increase was funded by the
growth in deposits.  During 2000 average gross loans  increased  13%,  which was
funded by the growth in deposits combined with a 12% reduction in fed funds sold
and investment securities.

Other assets at December 31, 2001 and 2000  increased 17% and 49% as compared to
December  31,  2000  and  1999,   respectively.   The  increases  are  primarily
attributable  to an increase in the cash surrender value of life insurance which
averaged  $11,831  thousand and $9,652 during 2001 and 2000,  respectively.  The
cash  surrender  value  of  life  insurance  consists  primarily  of the  Bank's
contractual rights under  single-premium  life insurance policies written on the
lives of certain  officers and the  directors  of the Company and the Bank.  The
policies  were  purchased in order to  indirectly  offset  anticipated  costs of
certain benefits payable upon the retirement, and the death or disability of the
directors and officers pursuant to deferred  compensation  agreements.  The cash
surrender  value  accumulates  tax-free based upon each policy's  crediting rate
which is adjusted by the insurance company on an annual basis.


                                       23
<PAGE>

Investment Securities

The following table presents the investment portfolio at December 31, 2001, 2000
and 1999 by security type, maturity, and yield:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                     Book  Value at December 31 (dollars in thousands):

                                                                     2001                  2000                   1999
                                                                     ----                  ----                   ----
                                                                Amount   Yield(a)     Amount    Yield(a)    Amount    Yield(a)
                                                                ------   --------     ------    --------    ------    --------
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>       <C>          <C>       <C>          <C>
U.S. Agency Securities:

Within 1 year                                                $  3,501       6.46%     3,520        6.34%      1,044       6.67%

After 1 year, within 5 years                                    8,099       5.66%     8,018        6.26%     12,622       6.40%

After 5 years, within 10 years                                      -           -       932        7.71%      1,500       7.18%

After 10 years                                                      -           -     1,500        6.85%      1,500       6.85%
                                                             -------------------------------------------------------------------
Total U.S. Agency                                            $ 11,600       5.90%    13,970        6.46%     16,666       6.53%

Collateralized Mortgage Obligations:

Within 1 year                                                $  1,192       4.27%     4,121        6.09%         57       3.37%

After 1 year, within 5 years                                   21,741       4.76%     1,975        7.09%      5,477       6.52%

After 5 years, within 10 years                                      -           -         -            -        961       6.87%

After 10 years                                                    131       3.42%       131        8.31%        132       8.17%
                                                             -------------------------------------------------------------------
Total Collateralized Mortgage Obligations                    $ 23,064       4.72%     6,227        6.46%      6,627       6.58%

Municipal Securities:

Within 1 year                                                $    100      10.24%     1,048        5.28%      1,053       6.66%

After 1 year, within 5 years                                    2,133       6.86%     1,630        7.42%      2,445       7.17%

After 5 years, within 10 years                                    476       7.44%     1,564        7.40%      2,444       6.08%

After 10 years                                                  2,309       8.20%     3,750        8.42%      6,245       5.69%
                                                             -------------------------------------------------------------------
Total Municipal Securities                                   $  5,018       7.60%     7,992        7.60%     12,187       6.15%

Other Debt Securities:

Within 1 year                                                $    202       7.41%       116       14.24%         10       7.57%

After 1 year, within 5 years                                      194       6.33%       338        9.41%        938       7.32%

After 5 years, within 10 years                                    274       4.48%       300            -          -           -

After 10 years                                                      -           -         -            -          -           -
                                                             -------------------------------------------------------------------
Total Other Debt Securities                                  $    670       5.90%       754        8.15%        948       7.32%

Money Market Mutual Fund                                            -           -         -            -          -           -

Federal Agency Stock                                              126       6.00%       126        6.00%        126       6.00%

Unrealized Holding (Loss) / Gain                                  537           -       491            -       (458)          -
                                                             -------------------------------------------------------------------
Total                                                        $ 41,015       6.66%    29,560        6.66%  $  36,096       6.43%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)  The  yields  on  tax-exempt   obligations  have  not  been  computed  on  a
     tax-equivalent basis.

The  investment  portfolio  increased  $11,455,  or 39%, at December 31, 2001 as
compared to December 31, 2000 and declined $6,536 thousand,  or 18%, at December
31, 2000 as  compared  to December  31,  1999.  The  increase in the  investment
portfolio  during 2001  occurred as a result of deposit  growth  outpacing  loan
growth.  The  decline in the  portfolio  during 2000  funded  increases  in loan
volume.  During 2001 and 2000,  investment  securities totaling $18,381 thousand
and  $4,375  matured  or  were  called  prior  to  maturity   during  the  year,
respectively.  During  2001,  proceeds  from the sale of  investment  securities
totaled $3,578  thousand and resulted in gains  totaling $267  thousand.  During
2000,  proceeds from the sale of investment  securities  totaled $4,391 thousand
and resulted in gains totaling $149 thousand.


                                       24
<PAGE>

Loans

The following  table  summarizes  gross loans and the  components  thereof as of
December 31, for each of the last five years (includes loans held for sale):

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                          Outstanding at December 31 (in thousands):

                                              2001             2000              1999              1998              1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                    <C>               <C>                <C>               <C>
Commercial and other real estate     $     125,274           99,377            95,509            77,956            53,684

Real estate construction                    13,703           12,124            13,919            11,743             6,900

Installment and other                        3,674            3,605             3,301             3,463             3,525
                                             -----            -----             -----             -----             -----

Total Gross Loans                    $     142,651          115,106           112,729            93,162            64,109
                                           =======          =======           =======            ======            ======
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Gross loans outstanding as of December 31, 2001 and 2000 exceeded the comparable
prior year-end totals by 24% and 2%, respectively. Improving economic conditions
combined with increased business development efforts were the foundation for the
growth in both years.  With the  acquisition of the Wells Fargo Branches in 1997
combined with the entry into the Folsom and Elk Grove areas in 1998, the Company
entered  into  new  market  areas  that  substantially  enhanced  its  marketing
capabilities.

The most significant  segment of the loan portfolio is commercial  loans,  which
represented  88% and 86% of the total  portfolio  at December 31, 2001 and 2000,
respectively. Commercial loans include agricultural loans, working capital loans
to businesses in a number of industries,  and loans to finance  commercial  real
estate.  Agricultural  loans  represented  approximately  17%  and  17%  of  the
commercial  loan  portfolio  at  December  31,  2001  and  2000,   respectively.
Agricultural loans are diversified  throughout a number of agricultural business
segments,  including dairy, orchards, row crops, vineyards,  cattle and contract
harvesting.  Agricultural  lending risks are generally  related to the potential
for volatility of agricultural  commodity prices.  Commodity prices are affected
by government programs to subsidize certain  commodities,  weather,  and overall
supply and demand in wholesale  and  consumer  markets.  Excluding  agricultural
loans, the remaining  portfolio is principally  dependent upon the health of the
local economy and the related real estate market.

The maturity and repricing characteristics of the loan portfolio at December 31,
2001 are as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Due:  (in thousands) (1)                                      Fixed Rate             Floating Rate                    Total
                                                              ----------             -------------                    -----
<S>                                                             <C>                        <C>                      <C>
In 1 year or less                                               $ 16,765                    23,862                   40,627

After 1 year through 5 years                                      15,873                     9,751                   25,624

After 5 years                                                      8,106                    68,294                   76,400
                                                                  ------                    ------                   ------
Total Loans                                                     $ 40,744                   101,907                  142,651
                                                                 =======                   =======                  =======
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Scheduled  repayments  are reported in the  maturity  category in which the
     payment is due.

Approximately  29% of the loan portfolio  carries a fixed rate of interest as of
December 31, 2001, while  approximately 46% of the portfolio matures within five
years.


                                       25
<PAGE>

Deposits

The following table summarizes  average deposit balances and rates for the years
ended December 31, 2001, 2000, and 1999:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                            For the Year Ended           For the Year Ended          For the Year Ended
(in thousands)                               December 31, 2001            December 31, 2000           December 31, 1999

         Type                             Average        Average        Average       Average       Average       Average
                                          Amount          Rate          Amount          Rate        Amount          Rate
----------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>           <C>            <C>            <C>           <C>
Demand - non-interest bearing             $   25,350          N/A          21,240          N/A          19,830          N/A

NOW accounts                                  47,600        1.01%          41,267        1.13%          37,985        1.14%

Money market accounts                         15,050        1.98%          14,194        2.25%          17,028        2.23%

Savings                                       28,950        1.78%          28,509        1.97%          27,097        2.06%

Time deposits                                 66,630        5.02%          53,020        5.28%          50,690        4.60%
                                              ------        -----          ------        -----          ------        -----
Total Deposits                            $  183,580        2.53%         158,230        2.62%         152,630        2.42%
                                             =======        =====         =======        =====         =======        =====
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Average  deposits  increased   approximately  16%  and  4%  in  2001  and  2000,
respectively. Due to a decreasing rate environment during 2001, the average rate
decreased 9 basis points when comparing 2001 to 2000. Due to an increasing  rate
environment  during  2000,  the  average  rate  increased  20 basis  points when
comparing  2000 to 1999.  The deposit  growth in 2001 and 2000 came from account
growth at all branches  throughout  the  Company's  network.  The growth was the
result  of  business  development  efforts  in the  lending  area  as  well as a
continued  influx of bank customers  seeking a higher level of customer  service
than that experienced at major financial institutions. In addition, during 2001,
with the anticipated growth in the Company's loan portfolio,  management elected
to increase the ratio of total  certificates of deposit to total  deposits.  The
growth in  certificates  of deposit during 2001 was  consistent  with the budget
established  by  management  and the ratio of  certificates  of deposit to total
deposits as compared to the Bank's peer group.

Certificates  of deposit  contain  regular  and  individual  retirement  account
balances.  There are no  brokered  certificates  of  deposit  in the  portfolio.
Certificates  of $100,000  or more  represent  approximately  36% and 29% of the
certificate  of deposit  portfolio at December 31, 2001 and 2000,  respectively.
The following table summarizes the maturities of those  certificates of $100,000
or more:

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

(in thousands)                                                         2001
                                                                       ----

Three months or less                                                $ 7,694

Four months to six months                                             9,484

Seven months to twelve months                                         5,981

Over twelve months                                                    2,304
                                                                      -----
Total time deposits of $100,000 or more                             $25,463
                                                                     ======
--------------------------------------------------------------------------------

Short Term Borrowings

The Bank has two lines of credit with correspondent banks totaling $4 million at
December 31, 2001.  At December 31, 2000,  the Bank had two lines of credit with
correspondent  banks totaling $7 million.  The lines of credit are unsecured and
renew  annually.  At  December  31,  2001 and  2000  the  Bank  had  outstanding
borrowings  under these lines  totaling  $4 million  and $0,  respectively.  The
maximum amount  outstanding  was $4 million and $7 million,  the average balance
outstanding was $50 thousand and $485 thousand and the weighted average interest
rate was  3.02%  and 5.57% for the  years  ending  December  31,  2001 and 2000,
respectively.

At December 31, 2001 and 2000  securities  sold under  agreements  to repurchase
totaled $0 and $4,588 thousand, respectively. The maximum amount outstanding was
$4,588 thousand and $9,835  thousand,  the average  balance  outstanding was $70
thousand and $6,523  thousand and the weighted  average  interest rate was 6.79%
and 6.62% for the years ending December 31, 2001 and 2000,  respectively.  These
agreements generally mature within 30 days.

These short term  borrowings  are used as  temporary  resources  in managing the
Bank's overall  liquidity.  The Bank's liquidity  management is discussed in the
Liquidity section below.


                                       26
<PAGE>

Asset Quality

The following table contains asset quality  information with respect to the loan
portfolio and other real estate owned:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                    Asset Quality Statistics at December 31

(in thousands except multiples and percentages)              2001          2000           1999           1998          1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>            <C>              <C>           <C>
Nonaccrual loans                                        $   3,246         5,655          2,303            248           340

Accruing loans past due more than 90 days                       -             -            374            191            65
                                                            -----         -----            ---            ---            --

Total non-performing loans                              $   3,246         5,655          2,677            439           405
                                                            =====         =====          =====            ===           ===

Allowance for loan losses                               $   2,668         2,499          2,580          1,564         1,313

Allowance for loan losses to non-performing loans              82%           44%            96%           356%          324%

Total loan portfolio delinquency                             3.30%         5.14%          3.32%          1.40%         1.09%

Allowance for loan losses to total gross loans               1.87%         2.17%          2.29%          1.69%         2.05%

Other real estate owned                                 $     809           405            129            129           159

----------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Company's  nonaccrual  policy is discussed in note 1(c) to the  consolidated
financial  statements.  Interest income recorded on these  nonaccrual  loans was
approximately $423 thousand,  $224 thousand,  $76 thousand, $2 thousand,  and $8
thousand in 2001,  2000,  1999,  1998, and 1997,  respectively.  Interest income
foregone  or  reversed  on these loans was  approximately  $310  thousand,  $542
thousand,  $76 thousand,  $43 thousand,  and $45 thousand in 2001,  2000,  1999,
1998, and 1997,  respectively.  At December 31, 2001, there were no individually
material or a material amount of loans in the aggregate for which management had
serious  doubts  as to the  borrower's  ability  to  comply  with  present  loan
repayment  terms and which may result in the subsequent  reporting of such loans
as nonaccrual.

Non-performing loans decreased $2,409 thousand, or 43%, in 2001 while increasing
$2,978  thousand,  $2,238  thousand  and $34  thousand  in 2000,  1999 and 1998,
respectively.  Portfolio  delinquency  also  decreased  to 3.30%  in 2001  after
increasing to 5.14%, 3.32% and 1.40% in 2000, 1999 and 1998,  respectively.  The
dollar amount of the allowance for loan losses  increased  $169 thousand  during
2001 and  decreased $81 thousand  during 2000 after having  increased in each of
the prior three years.  The reasons for the increase in the  allowance  for loan
losses in 2001 as  compared  to 2000 is  explained  in the  "Allowance  for Loan
Losses" section above.

The following  table  summarizes the allocation of the allowance for loan losses
at December 31, for each of the last five years:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) December 31, 2001    December 31, 2000    December 31, 1999   December 31, 1998   December 31, 1997
                       -----------------    -----------------    -----------------   -----------------   -----------------
                                    %                   %                      %                   %                   %
Loan Category           Amount    Loans      Amount   Loans       Amount     Loans     Amount    Loans     Amount   Loans
                        ------    -----      ------   -----       ------     -----     ------    -----     ------   -----

<S>                   <C>          <C>        <C>     <C>          <C>      <C>       <C>       <C>        <C>    <C>
Commercial and
other real estate     $ 2,122      87.82%     1,752    86.46%      1,943    84.72%    1,174     83.68%      986    83.74%

Real estate
construction              466       9.61%       666    10.41%        560    12.35%      342     12.60%      287    10.76%

Installment and
other                      80       2.57%        81     3.13%         77     2.93%       48      3.72%       40     5.50%
                           --       -----        --     -----         --     -----       --      -----       --     -----

                      $ 2,668     100.00%     2,499   100.00%      2,580   100.00%    1,564    100.00%    1,313   100.00%
                        =====     =======     =====   =======      =====   =======    =====    =======    =====   =======
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Please also see "Allowance for Loan Losses."


                                       27
<PAGE>

Market Risk

Market risk is the risk to a company's financial position resulting from adverse
changes in market  rates or prices,  such as interest  rates,  foreign  exchange
rates or equity prices. The Company has no exposure to foreign currency exchange
risk or any specific  exposure to commodity price risk. The Company's major area
of market risk exposure is interest rate risk ("IRR"). The Company's exposure to
IRR can be explained as the potential for change in its reported earnings and/or
the market value of the Company's net worth. Variations in interest rates affect
earnings   by   changing   net   interest   income   and  the   level  of  other
interest-sensitive  income and  operating  expenses.  Interest rate changes also
affect the underlying  economic value of the Company's  assets,  liabilities and
off-balance sheet items. These changes arise because the present value of future
cash flows, and often the cash flows themselves, change with the interest rates.
The effects of the  changes in these  present  values  reflect the change in the
Company's  underlying economic value and provide a basis for the expected change
in future earnings  related to the interest rate. IRR is inherent in the role of
banks as  financial  intermediaries,  however  a bank  with a high IRR level may
experience lower earnings,  impaired liquidity and capital  positions,  and most
likely,  a greater  risk of  insolvency.  Therefore,  the  Company and bank must
carefully evaluate IRR to promote safety and soundness in their activities.

The responsibility for the Company's market risk sensitivity management has been
delegated to the Asset/Liability Committee ("ALCO"). Specifically, ALCO utilizes
computerized modeling techniques to monitor and attempt to control the influence
that market  changes have on rate  sensitive  assets  ("RSA") and rate sensitive
liabilities ("RSL").

Market  risk  continues  to be a major focal point of  regulatory  emphasis.  In
accordance  with  regulation,  each  Company is  required to develop its own IRR
management  program depending on its structure,  including  certain  fundamental
components  which are mandatory to ensure sound IRR  management.  These elements
include  appropriate  board and management  oversight as well as a comprehensive
risk management  process that  effectively  identifies,  measures,  monitors and
controls risk. Should a company have material  weaknesses in its risk management
process or high exposure relative to its capital,  the regulatory  agencies will
take action to remedy these shortcomings. Moreover, the level of a company's IRR
exposure and the quality of its risk management  process is a determining factor
when evaluating a company's capital adequacy.

The Company  utilizes the tabular  presentation  alternative  in complying  with
quantitative  and qualitative  disclosure  rules. The following tables summarize
the expected maturities,  principal repayment and fair values of other financial
instruments that are sensitive to changes in interest rates at December 31, 2001
and 2000.

As of December 31, 2001:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                               Expected Maturity / Principal Repayment                    Total        Fair
(in thousands)                        2002        2003        2004        2005        2006  Thereafter   Balance       Value
--------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>              <C>         <C>         <C>         <C>        <C>        <C>           <C>
Interest-Sensitive Assets:
Federal funds sold              $    6,129          --          --          --          --          --       6,129        6,129
Fixed rate investments (1)          10,908       8,342       6,476       4,339       4,214       6,128      40,407       40,407
Floating rate investments (1)           90          76          63          51          40         288         608          608
Fixed rate loans (2)                16,765       4,715       2,940       4,842       3,376       8,106      40,744       41,375
Floating rate loans (2)             23,862       3,028       2,495         903       3,325      68,294     101,907       99,663

Interest-Sensitive
Liabilities:
NOW account deposits (3)            19,571       3,259       3,259       3,259       3,259      16,321      48,928       48,928
Money market deposits (3)            8,448       1,407       1,407       1,407       1,407       7,043      21,119       21,119
Savings deposits (3)                12,717       2,117       2,117       2,117       2,117      10,608      31,793       31,793
Certificates of deposit             63,788       4,538         626         559         462          --      69,973       70,906
Short term borrowings                4,000          --          --          --          --          --       4,000        4,000

Interest-Sensitive
Off-Balance Sheet Items:
Commitments to lend                     --          --          --          --          --          --      41,822          418
Standby letters of credit               --          --          --          --          --          --         920            1
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       28
<PAGE>

As of December 31, 2000:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                               Expected Maturity / Principal Repayment                    Total        Fair
(in thousands)                     2001        2002        2003        2004        2005     Thereafter   Balance       Value
--------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>             <C>          <C>         <C>         <C>        <C>         <C>          <C>
Interest-Sensitive Assets:
Federal funds sold              $   10,115           -           -           -           -           -      10,115       10,115
Fixed rate investments (1)           8,227       6,074       4,423         992       1,048       8,008      28,772       28,772
Floating rate investments (1)          120          99          83          68          55         363         788          788
Fixed rate loans (2)                 1,489      12,446       5,681       5,769       2,447      15,091      42,923       44,929
Floating rate loans (2)              2,581      14,302       2,674       4,527       2,694      45,405      72,183       70,208

Interest-Sensitive
Liabilities:
NOW account deposits (3)            17,726       2,954       2,954       2,954       2,954      14,774      44,316       44,316
Money market deposits (3)            6,144       1,024       1,024       1,024       1,024       5,121      15,361       15,361
Savings deposits (3)                10,656       1,776       1,776       1,776       1,776       8,880      26,640       26,640
Certificates of deposit             46,313       4,517         528         111         252           -      51,721       52,491
Short term borrowings                4,588           -           -           -           -           -       4,588        4,588

Interest-Sensitive
Off-Balance Sheet Items:
Commitments to lend                      -           -           -           -           -           -      25,306          253
Standby letters of credit                -           -           -           -           -           -       1,034            1
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Expected  maturities  for investment  securities are based upon  anticipated
    prepayments as evidenced by historical prepayment patterns.

(2) Expected  maturities for loans are based upon  contractual  maturity  dates.
    Amounts reported include loans held for sale.

(3) NOW,  money market and savings  deposits do not carry  contractual  maturity
    dates;  therefore  the  expected  maturities  reflect  estimates  applied in
    evaluating the Company's  interest rate risk. The actual  maturities of NOW,
    money  market,  and  savings  deposits  could vary  substantially  if future
    prepayments differ from the Company's historical experience.

At December  31, 2001,  federal  funds sold of $6,129  thousand  with a yield of
1.46%   and   investment   securities   totaling   $10,854   thousand   with   a
weighted-average,  tax-equivalent yield of 4.89% were scheduled to mature within
one  year.  In  addition,   gross  loans  totaling   $40,627   thousand  with  a
weighted-average  yield of 6.88% were  scheduled to mature  within the same time
frame.  Overall,  interest-earning  assets  scheduled to mature  within one year
totaled $57,610 thousand with a weighted-average,  tax-equivalent yield of 5.93%
at December 31, 2001.

With respect to  interest-bearing  liabilities,  based on historical  withdrawal
patterns,  NOW accounts,  money market and savings  deposits of $40,736 thousand
with a weighted-average  cost of 1.34% were scheduled to mature within one year.
Certificates of deposit totaling $63,788 thousand with a  weighted-average  cost
of 4.06% were  scheduled to mature in the same time frame.  In  addition,  short
term  borrowings  totaling  $4,000  with a  weighted-average  cost of 1.96% were
scheduled  to  mature  within  one  year.  Total  interest-bearing   liabilities
scheduled  to  mature  within  one  year  totaled   $108,524   thousand  with  a
weighted-average rate of 2.96%.

Historical   withdrawal   patterns   with   respect  to   interest-bearing   and
noninterest-bearing  transaction  accounts  are not  necessarily  indicative  of
future  performance  as the volume of cash flows may increase or decrease.  Loan
information is presented based on payment due dates, which may materially differ
from actual  results  due to  prepayments  caused by changes in interest  rates,
sociological conditions, demographics, and the economic climate.

Models  that  consider  repricing  frequencies  of RSA  and RSL in  addition  to
maturity distributions are also used to monitor IRR. One such technique utilizes
a static gap  report,  which  attempts to measure the  Company's  interest  rate
exposure  by  calculating  the net  amount  of RSA and RSL that  reprice  within
specific time intervals.


                                       29
<PAGE>

The Company's  interest rate sensitivity gap position,  illustrating RSA and RSL
at their  related  carrying  values,  is  summarized  in the  table  below.  The
distributions  in the table  are  based on a  combination  of  maturities,  call
provisions,  repricing  frequencies  and  prepayment  patterns.  Adjustable-rate
assets are distributed based on the repricing frequency of the instrument.

As of December 31, 2001:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                By Repricing Interval
----------------------------------------------------------------------------------------------------------------------------
(in thousands)                 Within      After three    After six    After one     After five    Noninterest     Total
                                three        months,       months,       year,         years      bearing funds
                               months      within six    within one   within five
                                             months         year         years
----------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                <C>          <C>            <C>            <C>           <C>         <C>
Assets

Federal funds sold         $     6,129            --           --             --             --            --        6,129

Investment securities            5,520         1,874        3,460         23,290          6,871            --       41,015

Loans (including loans
held for sale)                  46,357        20,534       10,371         59,036          6,353            --      142,651

Noninterest earning
assets and allowance for
loan losses                         --            --           --             --             --        37,057       37,057
                           -------------------------------------------------------------------------------------------------
Total Assets               $    58,006        22,408       13,831         82,326         13,224        37,057      226,175
                           =================================================================================================

Liabilities and
Stockholders' Equity

Savings, money market &
NOW deposits               $   101,840            --           --             --             --            --      101,840

Time deposits                   21,126        22,635       20,027          6,185             --            --       69,973

Short term borrowings            4,000            --           --             --             --            --        4,000

Other liabilities and
stockholders' equity                --            --           --             --             --        50,362       50,362
                           -------------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity       $   126,966        22,635       20,027          6,185             --       (13,305)     226,175
                           =================================================================================================
Interest Rate
Sensitivity Gap            $   (68,960)         (227)      (6,196)        76,141         11,870          (677)          --
                           =================================================================================================
Cumulative Interest Rate
Sensitivity Gap            $   (68,960)      (69,187)     (75,383)           758         13,982            --           --
                           =================================================================================================
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

The interest  rate gaps  reported in the table arise when assets are funded with
liabilities having different repricing intervals.  Since these gaps are actively
managed and change daily as adjustments  are made in interest rate forecasts and
market outlook,  positions at the end of any period may not be reflective of the
Company's  interest rate sensitivity in subsequent  periods.  Active  management
dictates that  longer-term  economic  views are balanced  against  prospects for
short-term interest rate changes in all repricing intervals. For purposes of the
above  analysis,   repricing  of  fixed-rate   instruments  is  based  upon  the
contractual maturity of the applicable  instruments.  In addition,  repricing of
assets  and  liabilities  is assumed in the first  available  repricing  period.
Actual payment patterns may differ from contractual payment patterns, and it has
been management's  experience that repricing does not always correlate  directly
with market changes in the yield curve.

Fluctuations  in interest  rates can also impact the market  value of assets and
liabilities either favorably or adversely  depending upon the nature of the rate
fluctuations  as well as the maturity and repricing  structure of the underlying
financial  instruments.  To the extent that  financial  instruments  are held to
contractual maturity, market value fluctuations related to interest rate changes
are realized only to the extent that future net interest margin is either higher
or lower  than  comparable  market  rates for the  period.  To the  extent  that
liquidity  management  dictates  the need to liquidate  certain  assets prior to
contractual  maturity,  changes in market value from fluctuating  interest rates
will be realized in income to the extent of any gain or loss  incurred  upon the
liquidation of the related assets.


                                       30
<PAGE>

Liquidity

The Company's  primary source of liquidity is dividends from the Bank. It is the
Company's  general  policy to  maintain  liquidity  levels at the  parent  which
management  believes  to be  consistent  with the  safety and  soundness  of the
Company as a whole.  Federal regulatory  agencies have the authority to prohibit
the  payment of  dividends  by the Bank to the Company if a finding is made that
such payment would constitute an unsafe or unsound practice or if the Bank would
be  undercapitalized  as a result.  The Company's  primary uses of liquidity are
associated  with  dividend  payments  made to the  shareholders,  and  operating
expenses.

The Bank's  liquidity is managed on a daily basis by maintaining  cash,  federal
funds sold, and short-term investments at levels commensurate with the estimated
requirements  for loan  demand and  fluctuations  in  deposits.  Loan demand and
deposit  fluctuations  are affected by a number of factors,  including  economic
conditions,  seasonality  of the  borrowing and deposit  bases,  and the general
level  of  interest  rates.   The  Bank  maintains  two  lines  of  credit  with
correspondent  banks as a  supplemental  source of  short-term  liquidity in the
event that saleable  investment  securities  and loans or available new deposits
are not adequate to meet liquidity needs. The Bank has also established  reverse
repurchase  agreements  with two  brokerage  firms,  which allow for  short-term
borrowings that are secured by the Bank's  investment  securities.  Furthermore,
the Bank may also borrow on a short-term  basis from the Federal  Reserve in the
event that other liquidity sources are not adequate.

At December 31, 2001 liquidity was considered  adequate,  and funds available in
the local deposit market and scheduled  maturities of investments are considered
sufficient to meet long-term liquidity needs and commitments (see Notes 8 and 10
to the consolidated  financial statements for further information).  Compared to
2000 liquidity decreased in 2001 as a result of the growth in loans,  investment
securities  and cash surrender  value of life insurance  exceeding the growth in
deposits.

Capital Resources

Consolidated  capital  increased  $1,409  thousand,  or 8.6%,  during 2001.  The
increase was due primarily to net income of $1,207 thousand. Capital was further
increased  by $70  thousand  as a result of an  increase  in the net  unrealized
holding gain on  available-for-sale  securities and $136 thousand as a result of
stock options exercised.  The consolidated  capital to assets ratio decreased 99
basis points,  or 11.1%, to 7.90% from 8.89%.  This decrease is primarily due to
the effect of asset growth  exceeding the growth in capital.  During 2001, total
assets increased 22.2% while capital increased 8.6%.

The Bank's total  risk-based and leverage  capital ratios were 10.24% and 7.45%,
respectively,  at December 31, 2001 compared to 11.27% and 7.99%,  respectively,
at December 31, 2000. The decrease in the total risk-based ratio resulted as the
growth in total assets outpaced the growth in capital.  The total risk-based and
leverage  capital  ratios at December  31,  2001,  are in excess of the required
regulatory  minimums  of  10%  and  5%,   respectively,   for   well-capitalized
institutions.

At the February 28, 2002 regular Board of Directors Meeting,  the Board approved
a $5 million  participation in a floating rate pooled trust preferred securities
offering.  The Company  anticipates  receiving the proceeds from the sale of the
trust  preferred  securities on March 26, 2002.  The Company  intends to use the
proceeds to increase the Bank's capital levels and for other corporate purposes.
Under applicable  regulatory  guidelines,  the Company expects that a portion of
the trust preferred securities will qualify as Tier I Capital, and the remainder
as Tier II Capital.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Item 14(a) herein.

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

         Not Applicable


                                       31
<PAGE>

                                    PART III

ITEMS 10, 11, 12 and 13

The information required by these items is contained in the Company's definitive
Proxy  Statement for the Annual Meeting of  Shareholders to be held on April 23,
2002, and is incorporated  herein by reference.  The definitive  Proxy Statement
will be filed  with  the  Commission  within  120 days  after  the  close of the
Company's fiscal year pursuant to Regulation 14A of the Securities  Exchange Act
of 1934.

                                     PART IV

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

         (a) Financial Statements and Schedules                   Page Reference

               Independent Auditors' Report                            35
               Consolidated Balance Sheets as of
                 December 31, 2001 and 2000                            36
               Consolidated Statements of Income
                 Years Ended 2001, 2000, and 1999                      37
               Consolidated Statements of Stockholders' Equity
                 and Comprehensive Income
                 Years Ended 2001, 2000, and 1999                      38
               Consolidated Statements of Cash Flows
                 Years Ended 2001, 2000, and 1999                      39
               Notes to Consolidated Financial Statements              40

         (b) Reports on Form 8-K

               None

         (c) Exhibits

             Exhibit No.        Description
             -----------        -----------

                3(a)            Articles of Incorporation,  as amended, filed as
                                Exhibit 3.1 to the  Company's  General  Form for
                                Registration  of Securities on Form 10, filed on
                                September  21, 1983, is hereby  incorporated  by
                                reference.

                3(b)            Bylaws, as amended, filed as Exhibit 3(b) to the
                                Company's  Annual  Report  on Form  10-K for the
                                year  ended   December  31,   1998,   is  hereby
                                incorporated by reference.

                4(a)            Specimen  Common  Stock  Certificate,  filed  as
                                Exhibit 4.1 to the  Company's  General  Form for
                                Registration  of Securities on Form 10, filed on
                                September  21, 1983, is hereby  incorporated  by
                                reference.

                4(b)            Rights Agreement between First Financial Bancorp
                                and Mellon  Investor  Services LLC,  dated as of
                                June   15,   2001,   including   Form  of  Right
                                Certificate, filed as Exhibit 4 to the Company's
                                Form  8-K  filed  on June 28,  2001,  is  hereby
                                incorporated by reference.

                10(a)*          First  Financial  Bancorp  1991  Director  Stock
                                Option  Plan  and  form of  Non-statutory  Stock
                                Option  Agreement,  filed as Exhibit  4.1 to the
                                Company's   Form  S-8   Registration   Statement
                                (Registration  No.  33-40954),  filed on May 31,
                                1991, is hereby incorporated by reference.

                10(b)*          Amendment  to  First   Financial   Bancorp  1991
                                Director Stock Option Plan, filed as Exhibit 4.3
                                to the Company's  Post-Effective Amendment No. 1
                                to Form S-8 Registration Statement


                                       32
<PAGE>

                                (Registration No. 33-40954), filed as Exhibit 10
                                to the Company's  Quarterly  Report on Form 10-Q
                                for the period ended March 31,  1995,  is hereby
                                incorporated by reference.

                10(c)*          First  Financial  Bancorp  1991  Employee  Stock
                                Option Plan and forms of Incentive  Stock Option
                                Agreement   and   Non-statutory   Stock   Option
                                Agreement, filed as Exhibit 4.2 to the Company's
                                Form S-8  Registration  Statement  (Registration
                                No. 33-40954),  filed on May 31, 1991, is hereby
                                incorporated by reference.

                10(d)*          Bank  of Lodi  Employee  Stock  Ownership  Plan,
                                filed  as  Exhibit  10 to the  Company's  Annual
                                Report on Form 10-K for the year ended  December
                                31, 1992, is hereby incorporated by reference.

                10(e)*          First Financial  Bancorp 1997 Stock Option Plan,
                                filed as Exhibit 10 to the  Company's  Quarterly
                                Report  on  Form  10-Q  for  the  period   ended
                                September  30, 1997, is hereby  incorporated  by
                                reference.

                10(f)*          Bank of Lodi Incentive  Compensation Plan, filed
                                as Exhibit 10(f) to the Company's  Annual Report
                                on Form  10-K for the year  ended  December  31,
                                1997, is hereby incorporated by reference.

                10(g)           First  Financial  Bancorp  401(k) Profit Sharing
                                Plan,  filed as Exhibit  10(g) to the  Company's
                                Annual  Report on Form  10-K for the year  ended
                                December 31,  1997,  is hereby  incorporated  by
                                reference.

                10(h)*          Employment  Agreement  dated as of September 30,
                                1998,  between First Financial  Bancorp and Leon
                                J.  Zimmerman.,  filed as  Exhibit  10(h) to the
                                Company's  Quarterly Report on Form 10-Q for the
                                quarter  ended  September  30,  1998,  is hereby
                                incorporated by reference.

                10(i)*          Executive  Supplemental  Compensation  Agreement
                                effective  as of April 3, 1998,  between Bank of
                                Lodi,  N.A.  and  Leon J.  Zimmerman,  filed  as
                                Exhibit 10(j) to the Company's  Quarterly Report
                                on Form 10-Q for the quarter ended September 30,
                                1998, is hereby incorporated by reference.

                10(j)*          Life Insurance  Endorsement  Method Split Dollar
                                Plan  Agreement  effective  as of April 3, 1998,
                                between   Bank  of  Lodi,   N.A.   and  Leon  J.
                                Zimmerman,   filed  as  Exhibit   10(l)  to  the
                                Company's  Quarterly Report on Form 10-Q for the
                                quarter  ended  September  30,  1998,  is hereby
                                incorporated by reference.

                10(k)*          Form  of  Director   Supplemental   Compensation
                                Agreement,  effective  as of April 3,  1998,  as
                                executed  between Bank of Lodi, N.A. and each of
                                Benjamin R. Goehring,  Michael D. Ramsey, Weldon
                                D.  Schumacher  and Dennis R. Swanson,  filed as
                                Exhibit 10(n) to the Company's  Quarterly Report
                                on Form 10-Q for the quarter ended September 30,
                                1998, is hereby incorporated by reference.

                10(l)*          Form of Life Insurance  Endorsement Method Split
                                Dollar Plan Agreement,  effective as of April 3,
                                1998, as executed between Bank of Lodi, N.A. and
                                each of Benjamin R. Goehring, Michael D. Ramsey,
                                Weldon D.  Schumacher  and  Dennis  R.  Swanson,
                                filed  as   Exhibit   10(o)  to  the   Company's
                                Quarterly  Report on Form  10-Q for the  quarter
                                ended September 30, 1998, is hereby incorporated
                                by reference.

                10(m)*          Form  of  Director   Supplemental   Compensation
                                Agreement,  effective  as of April 3,  1998,  as
                                executed  between Bank of Lodi, N.A. and each of
                                Angelo J. Anagnos,  Raymond H.  Coldani,  Bozant
                                Katzakian and Frank M. Sasaki,  filed as Exhibit
                                10(p) to the Company's  Quarterly Report on Form
                                10-Q for the quarter  ended  September 30, 1998,
                                is hereby incorporated by reference.

                10(n)*          Form of Life Insurance  Endorsement Method Split
                                Dollar Plan Agreement,  effective as of April 3,
                                1998, as executed between Bank of Lodi, N.A. and
                                each of Angelo J.  Anagnos,  Raymond H. Coldani,
                                Bozant  Katzakian and Frank M. Sasaki,  filed as
                                Exhibit 10(q) to the


                                       33
<PAGE>

                                Company's  Quarterly Report on Form 10-Q for the
                                quarter  ended  September  30,  1998,  is hereby
                                incorporated by reference.

                10(o)*          Form of Long Term Care  Agreement by and between
                                Bank of Lodi,  N.A.  and certain  directors  and
                                executive  officers  filed as  Exhibit 10 to the
                                Company's  Quarterly Report on Form 10-Q for the
                                quarter   ended  March  31,   2001,   is  hereby
                                incorporated by reference.

                11              Statement re  computation  of earnings per share
                                is incorporated herein by reference to Footnotes
                                1(j)  and  14  to  the  consolidated   financial
                                statements included in this report.

                21              Subsidiaries  of the  Company:  The Company owns
                                100  percent  of the  capital  stock  of Bank of
                                Lodi, National  Association,  a national banking
                                association,  and  100  percent  of the  capital
                                stock of Western Auxiliary Corporation.

                23              Consent of KPMG LLP, independent auditors

         (d)   Financial Statement Schedules

               No financial  statement  schedules are included in this report on
               the basis that they are either  inapplicable  or the  information
               required to be set forth  therein is contained  in the  financial
               statements included in this report.

---------------------
* Management contract or compensatory plan or arrangement


                                       34
<PAGE>

Independent Auditors' Report

The Board of Directors

First Financial Bancorp:

We have audited the accompanying  consolidated balance sheets of First Financial
Bancorp  and  subsidiaries  as of December  31,  2001 and 2000,  and the related
consolidated statements of income, stockholders' equity and comprehensive income
and cash flows for each of the years in the three-year period ended December 31,
2001. 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 auditing standards generally accepted
in the  United  States of  America.  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 First  Financial
Bancorp and  subsidiaries  as of December 31, 2001 and 2000,  and the results of
their  operations  and their cash flows for each of the years in the  three-year
period  ended  December 31,  2001,  in  conformity  with  accounting  principles
generally accepted in the United States of America.


                                  /s/ KPMG LLP

Sacramento, California
February 28, 2002


                                       35
<PAGE>

                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES

                           Consolidated Balance Sheets
                      (in thousands, except share amounts)
                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
         Assets                                                                       2001                2000
-------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                     <C>
         Cash and due from banks                                               $    13,328              10,909

         Federal funds sold                                                          6,129              10,115

         Investment securities available-for-sale, at fair value
              (includes securities pledged to creditors with the right
              to sell or pledge of  $0 and $4,588, respectively)                    41,015              29,560

         Loans held for sale                                                         3,876               1,292

         Loans, net of deferred loan fees and allowance for loan losses of
              $3,345 and $3,021 in 2001 and 2000, respectively                     135,430             110,793

         Premises and equipment, net                                                 7,185               7,002

         Accrued interest receivable                                                 1,265               1,447

         Other Assets                                                               17,947              13,946
-------------------------------------------------------------------------------------------------------------------
                                                                               $   226,175             185,064
===================================================================================================================

         Liabilities and Stockholders' Equity
-------------------------------------------------------------------------------------------------------------------

         Liabilities:

         Deposits:

              Noninterest bearing                                              $    29,758              24,223

              Interest bearing                                                     171,813             138,038
-------------------------------------------------------------------------------------------------------------------
                  Total deposits                                                   201,571             162,261

         Accrued interest payable                                                      307                 316

         Short term borrowings                                                       4,000               4,588

         Other liabilities                                                           2,434               1,445
-------------------------------------------------------------------------------------------------------------------
                  Total liabilities                                                208,312             168,610

         Stockholders' equity:

         Preferred stock - no par value; authorized 1,000,000 shares;
           no shares issued and outstanding                                              -                   -

         Common stock - no par value; authorized 9,000,000 shares; issued and
           outstanding in 2001, 1,622,300 shares; in 2000, 1,526,063 shares         10,191               9,338

         Retained earnings                                                           7,317               6,831

         Accumulated other comprehensive income, net                                   355                 285
-------------------------------------------------------------------------------------------------------------------
                  Total stockholders' equity                                        17,863              16,454
-------------------------------------------------------------------------------------------------------------------
                  Commitments and contingencies                                $   226,175             185,064
===================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       36
<PAGE>

                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                        Consolidated Statements of Income
                     (in thousands except per share amounts)

                  Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                   2001                  2000                  1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                           <C>                    <C>
         Interest income:
              Loans, including fees                      $       11,304                10,953                 9,911
              Interest on investment securities
                available for sale:
                  Taxable                                         1,832                 1,686                 2,145
                  Exempt from Federal taxes                         241                   528                   268
              Federal funds sold                                    481                   329                   202
-------------------------------------------------------------------------------------------------------------------
                  Total interest income                          13,858                13,496                12,526

         Interest expense:
              Deposit accounts                                    4,639                 4,151                 3,688
              Other borrowings                                        5                   462                    11

-------------------------------------------------------------------------------------------------------------------
                  Total interest expense                          4,644                 4,613                 3,699

                      Net interest income                         9,214                 8,883                 8,827

         Provision for loan losses                                  391                   135                 1,051
-------------------------------------------------------------------------------------------------------------------
                  Net interest income after provision
                      for loan losses                             8,823                 8,748                 7,776

         Noninterest income:
              Service charges                                     1,414                 1,261                 1,078
              Gain on sale of investment securities
                  available-for-sale                                267                   149                     -
              Gain on sale of other real estate owned               255                     -                     -
              Gain on stock issued in insurance
                  company demutualization                             -                     -                   287
              Gain on sale of loans                                 553                   246                   310
              Premiums and fees from SBA and
                  mortgage operations                               379                   378                   371
              Increase in cash surrender value
                  of life insurance                                 658                   458                   206
              Other                                                 302                   198                   209
-------------------------------------------------------------------------------------------------------------------
                  Total noninterest income                        3,828                 2,690                 2,461

         Noninterest expense:
              Salaries and employee benefits                      5,680                 4,506                 4,032
              Occupancy                                             950                   825                   810
              Equipment                                             929                   781                   687
              Other                                               3,667                 3,743                 3,274
-------------------------------------------------------------------------------------------------------------------
                  Total noninterest expense                      11,226                 9,855                 8,803
-------------------------------------------------------------------------------------------------------------------
         Income before provision for income taxes                 1,425                 1,583                 1,434

         Provision for income taxes                                 218                   300                   275
-------------------------------------------------------------------------------------------------------------------
                  Net income                             $        1,207                 1,283                 1,159
===================================================================================================================

         Earnings per share:
-------------------------------------------------------------------------------------------------------------------
              Basic                                      $          .75                   .81                   .75
===================================================================================================================
              Diluted                                    $          .73                   .79                   .72
===================================================================================================================
         Dividends per share                             $            -                   .05                   .20
===================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       37
<PAGE>

                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
    Consolidated Statements of Stockholders' Equity and Comprehensive Income
                       (in thousands except share amounts)
                  Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                                       Accumulated
                                           Common        Common                                           Other
                                            Stock         Stock        Comprehensive    Retained      Comprehensive
Description                                Shares        Amounts          Income        Earnings   Income (Loss), net     Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>            <C>                 <C>                <C>         <C>
Balance at December 31, 1998            1,349,292      $    7,584                         5,971               302        13,857

Comprehensive income:
   Net income                                                         $      1,159        1,159                           1,159
                                                                       -----------
Other comprehensive loss:
   Unrealized holding loss arising
     during the current period,
     net of tax benefit of $410                                               (568)
                                                                       ------------
       Total other comprehensive lo ss                                        (568)                          (568)         (568)
                                                                       -----------
   Comprehensive income                                               $        591
                                                                       ===========

Options exercised                           43,582            359                                                           359
Stock dividend                              40,860            490                          (490)
Cash issued in lieu of stock dividend                                                        (7)                             (7)
Cash dividend                                                                              (279)                           (279)
                                         ------------------------                        --------------------------------------
Balance at December 31,1999              1,433,734          8,433                         6,354              (266)       14,521

Comprehensive income:
   Net income                                                         $      1,283        1,283                           1,283
                                                                       -----------
   Other comprehensive income:
     Unrealized holding gain arising
       during the current period,
       net of tax effect of $459                                               639
     Reclassification adjustment
       due to gains realized,
       net of tax effect of $61                                                (88)
         Total other comprehensive
           income, net of
                                                                       -----------
           tax effect of $398                                                  551                            551           551
                                                                       -----------
     Comprehensive income                                             $      1,834
                                                                       ===========

Options exercised                           20,565            173                                                           173
Stock dividend                              71,764            732                          (732)
Cash dividend                                                                               (74)                            (74)
                                         ------------------------                        --------------------------------------
Balance at December 31, 2000             1,526,063          9,338                         6,831               285        16,454

Comprehensive income:
   Net income                                                         $      1,207        1,207                           1,207
                                                                       -----------
   Other comprehensive income:
     Unrealized holding gain arising
       during the current period,
       net of tax effect of $133                                               228
     Reclassification adjustment
       due to gains realized,
       net of tax effect of $109                                              (158)
         Total other comprehensive
           income, net of
                                                                       -----------
           tax effect of $24                                                    70                             70            70
                                                                       -----------
     Comprehensive income                                             $      1,277
                                                                       ===========

Options exercised                           20,392            136                                                           136
Stock dividend                              75,845            717                          (717)
Cash in lieu of stock dividend                                                               (4)                             (4)
                                         ------------------------                        --------------------------------------
Balance at December 31, 2001             1,622,300     $   10,191                         7,317               355        17,863
                                         ========================                        ======================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       38
<PAGE>

                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                 (in thousands)
                  Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                            2001             2000              1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>               <C>
         Cash flows from operating activities:
              Net income                                                 $ 1,207            1,283             1,159
              Adjustments to reconcile net income to net cash flows
              (used in) provided by operating activities:
                  Loans held for sale:
                      Loans originated                                   (33,950)         (13,896)          (15,918)
                      Proceeds from sale                                  31,919           13,821            17,630
                      Gain on sale of loans                                 (553)            (246)             (310)
                  Increase (decrease) in deferred loan income                155              (34)               36
                  Depreciation and amortization                            1,366              826             1,126
                  Provision for loan losses                                  391              135             1,051
                  Gain on sale of available-for-sale securities             (267)            (149)                -
                  Gain on sale of other real estate owned                   (255)               -                 -

                  Provision for deferred taxes                              (401)             (46)             (673)
                  Decrease (increase) in accrued interest receivable         182               40              (134)
                  (Decrease) increase in accrued interest payable             (9)              12               (85)
                  Increase in cash surrender value of life insurance        (658)            (458)             (206)
                  Increase in other assets                                  (685)            (258)             (519)
                  Increase in other liabilities                              989              397               438
-------------------------------------------------------------------------------------------------------------------
                  Net cash (used in) provided by operating activities       (569)           1,427             3,595

         Cash flows from investing activities:
              Investment securities available-for-sale:
                  Purchases                                              (33,269)            (906)          (43,666)
                  Proceeds from prepayments                                8,833              821               909
                  Proceeds from maturity                                   9,548            3,554             8,271
                  Proceeds from sale                                       3,578            4,391            43,054
              Increase in loans made to customers                        (26,269)          (2,676)          (21,006)
              Proceeds from the sale of other real estate                    937              160                11
              Purchases of bank premises, equipment and intangible assets (1,210)            (743)             (684)
              Purchase of cash surrender value life insurance             (2,000)            (900)           (4,194)
-------------------------------------------------------------------------------------------------------------------
              Net cash (used in) provided by investing activities        (39,852)           3,701           (17,305)

         Cash flows from financing activities:
              Net increase in deposits                                    39,310            6,100             6,617
             (Decrease) increase in short term borrowings                   (588)             288             4,300
              Proceeds received upon exercise of stock options               136              173               359
              Dividends paid                                                  (4)             (74)             (286)
-------------------------------------------------------------------------------------------------------------------
              Net cash provided by financing activities                   38,854            6,487            10,990
-------------------------------------------------------------------------------------------------------------------
         Net (decrease) increase in cash and cash equivalents             (1,567)          11,615            (2,720)
         Cash and cash equivalents at beginning of year                   21,024            9,409            12,129
-------------------------------------------------------------------------------------------------------------------
         Cash and cash equivalents at end of year                       $ 19,457           21,024             9,409
===================================================================================================================

         Supplemental Disclosures of Cash Flow Information:
              Cash paid during the year for:
                  Interest                                              $  4,653            4,601             3,784
                  Income taxes                                               372              586               663
              Loans transferred to other real estate owned                 1,086              405                 -
              Stock dividend                                                 717              732               490
</TABLE>

See accompanying notes to consolidated financial statements.


                                       39
<PAGE>

                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 2001, 2000 and 1999

(1)  Summary of Significant Accounting Policies

     The  accounting  and  reporting  policies of First  Financial  Bancorp (the
     Company) and its  subsidiaries,  Bank of Lodi, N.A., (the Bank) and Western
     Auxiliary  Corporation (WAC) conform with accounting  principles  generally
     accepted in the United States of America and  prevailing  practices  within
     the banking industry.  In preparing the consolidated  financial statements,
     management is required to make  estimates and  assumptions  that affect the
     reported  amounts of assets and  liabilities  as of the date of the balance
     sheet and revenue and expense for the period.  Actual  results could differ
     from  those  estimates  applied  in the  preparation  of  the  consolidated
     financial  statements.  The most  significant  accounting  estimate for the
     Company is the allowance for loan losses. The following are descriptions of
     the significant accounting and reporting policies:

     (a)  Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
     and its subsidiaries for all periods presented.  All material inter-company
     accounts and transactions have been eliminated in consolidation.

     (b)  Investment Securities

     The Company designates a security as held-to-maturity or available-for-sale
     when a  security  is  purchased.  The  selected  designation  is based upon
     investment  objectives,  operational needs, intent and ability to hold. The
     Company does not engage in trading activity.

     Held-to-maturity  securities are carried at cost, adjusted for accretion of
     discounts and amortization of premiums.  Available-for-sale  securities are
     recorded at fair value with unrealized holding gains and losses, net of the
     related tax effect reported as a separate component of stockholders' equity
     until realized.

     To the  extent  that the fair  value of a  security  is below  cost and the
     decline is other than temporary,  a new cost basis is established using the
     current  market  value,  and the  resulting  loss is charged  to  earnings.
     Premiums  and  discounts  are  amortized  or accreted  over the life of the
     related held-to-maturity or available-for-sale security as an adjustment to
     yield using the effective interest method.

     Gains and losses realized upon  disposition of securities are recorded as a
     component  of  noninterest  income on the trade  date,  based  upon the net
     proceeds  and the  adjusted  carrying  value of the  securities  using  the
     specific identification method.

     (c)  Loans

     Loans  are  stated  at  principal  balances  outstanding,  net of  deferred
     origination  fees,  costs  and loan  sale  premiums.  A loan is  considered
     impaired when 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.  For a loan that has been restructured,  the contractual terms of
     the loan agreement refer to the contractual terms specified by the original
     loan agreement,  not the contractual  terms specified by the  restructuring
     agreement.  An impaired  loan is measured  based upon the present  value of
     future  cash flows  discounted  at the loan's  effective  rate,  the loan's
     observable  market  price,  or the fair value of  collateral if the loan is
     collateral  dependent.  Interest on impaired  loans is recognized on a cash
     basis.  Large groups of small balance,  homogenous  loans are  collectively
     evaluated for  impairment.  If the measurement of the impaired loan is less
     than the recorded  investment  in the loan,  an impairment is recognized by
     increasing  the allowance for loan losses.  Loans held for sale are carried
     at the lower of aggregate cost or market.

     Interest on loans is accrued daily. Nonaccrual loans are loans on which the
     accrual of interest  ceases when the collection of principal or interest is
     determined to be doubtful by  management.  It is the general  policy of the
     Company to  discontinue  the accrual of interest when principal or interest
     payments are delinquent 90 days or more unless the loan is well secured and
     in the process of collection.  When a loan is placed on non-accrual status,
     accrued and unpaid  interest is reversed  against  current period  interest
     income.  Interest  accruals are resumed  when such loans are brought  fully
     current with respect to interest and principal and when, in the judgment of
     management,  the loans are  estimated  to be fully  collectible  as to both
     principal and interest.


                                       40
<PAGE>

     (d)  Loan Origination Fees and Costs

     Loan  origination  fees,  net of  certain  direct  origination  costs,  are
     deferred and amortized as a yield  adjustment  over the life of the related
     loans  using the  interest  method,  which  results in a  constant  rate of
     return.  Loan  commitment  fees  are  also  deferred.  Commitment  fees are
     recognized  over the life of the  resulting  loans if the  commitments  are
     funded or at the expiration of the  commitments if the  commitments  expire
     unexercised.  Origination fees and costs related to loans held for sale are
     deferred  and  recognized  as a component  of gain or loss when the related
     loans are sold.

     (e)  Gain or Loss on Sale of Loans and Servicing Rights

     Transfers  and  servicing  of  financial  assets  and   extinguishments  of
     liabilities are accounted for and reported based on consistent  application
     of a  financial-components  approach that focuses on control.  Transfers of
     financial assets that are sales are  distinguished  from transfers that are
     secured  borrowings.  Retained  interests  in loans  sold are  measured  by
     allocating the previous  carrying amount of the transferred  assets between
     the loans sold and retained interests, if any, based on their relative fair
     value at the date of transfer.  Fair values are estimated using  discounted
     cash flows based on a current market interest rate.

     The Company recognizes a gain and a related asset for the fair value of the
     rights to  service  loans for  others  when  loans  are sold.  The  Company
     measures the  impairment  of the  servicing  asset based on the  difference
     between the  carrying  amount of the  servicing  asset and its current fair
     value.  The  servicing  asset  totaled  $79  thousand  and $37  thousand at
     December 31, 2001 and 2000, respectively. As of December 31, 2001 and 2000,
     there was no impairment in servicing asset.

     A sale is recognized when the transaction closes and the proceeds are other
     than beneficial  interests in the assets sold. A gain or loss is recognized
     to the extent that the sales  proceeds and the fair value of the  servicing
     asset exceed or are less than the book value of the loan. Additionally, the
     fair value of servicing  rights is considered in the  determination  of the
     gain or loss. When servicing  rights are sold, a gain or loss is recognized
     at the closing  date to the extent that the sales  proceeds,  less costs to
     complete  the  sale,  exceed  or are less  than the  carrying  value of the
     servicing rights held.

     (f)  Allowance for Loan Losses

     The allowance for loan losses is established through a provision charged to
     expense.  Loans are charged off against the  allowance for loan losses when
     management  believes that the  collectibility of the principal is unlikely.
     Recoveries  of  amounts  previously  charged  off  are  added  back  to the
     allowance.  The  allowance is an amount that  management  believes  will be
     adequate to absorb losses  inherent in existing loans and overdrafts  based
     on evaluations of collectibility and prior loss experience. The evaluations
     take into consideration such factors as changes in the nature and volume of
     the portfolio,  overall portfolio quality,  loan  concentrations,  specific
     problem loans, commitments, and current and anticipated economic conditions
     that may affect the borrowers'  ability to pay. While management uses these
     evaluations to recognize the provision for loan losses,  future  provisions
     may be necessary  based on changes in the factors used in the  evaluations.
     The allowance for loan losses is also subject to review by the  Comptroller
     of the Currency, the Bank's principal regulator.

     (g)  Premises and Equipment

     Premises and  equipment are carried at cost less  accumulated  depreciation
     and  amortization.  Depreciation  and  amortization is calculated using the
     straight-line method over the estimated useful lives of the related assets.

     Estimated useful lives are as follows:

          Building                                           35 years
          Improvements, furniture, and equipment             3 to 10 years

     Expenditures  for repairs and  maintenance  are  charged to  operations  as
     incurred;   significant  betterments  are  capitalized.   Interest  expense
     attributable to construction-in-progress is capitalized.


                                       41
<PAGE>

     (h)  Intangible Assets

     Goodwill,  representing the excess of purchase price over the fair value of
     net assets acquired,  results from branch acquisitions made by the Company.
     Goodwill is being amortized on an accelerated  basis over eight years. Core
     deposit intangibles are amortized on an accelerated basis over eight years.
     Intangible assets are reviewed on a periodic basis for other than temporary
     impairment. If such impairment is indicated, recoverability of the asset is
     assessed based upon expected undiscounted net cash flows. Intangible assets
     totaled  $514  thousand  and $685  thousand at December  31, 2001 and 2000,
     respectively, and are included in Other Assets.

     (i)  Other Real Estate Owned (OREO)

     Other real estate is comprised  of property  acquired  through  foreclosure
     proceedings  or  acceptance  of   deeds-in-lieu   of  foreclosure.   Losses
     recognized   at  the  time  of  acquiring   property  in  full  or  partial
     satisfaction  of debt are charged  against the  allowance  for loan losses.
     Other real estate is recorded at the lower of the related  loan  balance or
     fair value,  less  estimated  disposition  costs.  Fair value of other real
     estate is generally based on an independent appraisal of the property.  Any
     subsequent  costs or losses are  recognized  as  noninterest  expense  when
     incurred.  Subsequent  operating  expenses  or income,  changes in carrying
     value,  and gains or losses on  disposition  of OREO are reflected in other
     noninterest expense.

     Revenue  recognition  on the  disposition  of OREO is  dependent  upon  the
     transaction meeting certain criteria relating to the nature of the property
     sold and the  terms  of the  sale.  Under  certain  circumstances,  revenue
     recognition may be deferred until these criteria are met.

     (j)  Earnings Per Share

     Basic  earnings  per share (EPS)  includes  no dilution  and is computed by
     dividing income  available to common  stockholders by the  weighted-average
     number of common shares  outstanding  for the period.  Diluted EPS reflects
     the potential dilution of securities that could share in the earnings of an
     entity.

     On May 8, 2001, the Company  effected a five percent stock dividend payable
     to stockholders of record as of May 22, 2001. All share, per share,  Common
     Stock and stock  option  amounts  herein have been  restated to reflect the
     effects of the stock dividend.

     (k)  Income Taxes

     Deferred  tax  assets and  liabilities  are  recognized  for the future tax
     consequences  attributable to differences  between the financial  statement
     carrying  amounts of existing assets and  liabilities and their  respective
     tax bases and  operating  loss and tax credit  carryforwards.  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.

     Income tax expense is  allocated  to each entity of the Company  based upon
     analyses of the tax consequences of each company on a stand-alone basis.

     (l)  Statements of Cash Flows

     For purposes of the statements of cash flows,  cash, short term (90 days or
     less) deposits in other banks, and federal funds sold, which generally have
     maturities of one day, are considered to be cash equivalents.

     (m)  Impairment of Long-Lived  Assets and Long-Lived  Assets to Be Disposed
          Of

     Long-lived assets are reviewed for impairment whenever events or changes in
     circumstances  indicate  that the  carrying  amount  of an asset may not be
     recoverable.  Recoverability of assets to be held and used is measured by a
     comparison  of the  carrying  amount of an asset to future  net cash  flows
     expected to be generated by the asset.  If such assets are considered to be
     impaired,  the  impairment  to be  recognized  is measured by the amount by
     which  the  carrying  amount of the  assets  exceed  the fair  value of the
     assets.  Assets to be disposed of are reported at the lower of the carrying
     amount or fair value less costs to sell.


                                       42
<PAGE>

     (n)  Stock Based Compensation

     The Company  accounts for its stock option plan using the  intrinsic  value
     method.  Compensation  expense is recorded on the date of grant only if the
     current market price of the underlying  stock exceeds the exercise price of
     the stock options.

     (o)  Impact Of Recently Issued Accounting Standards

     Effective  April 1, 2001,  the  Company  adopted  FASB  Statement  No. 140,
     Accounting   for   Transfers   and   Servicing  of  Financial   Assets  and
     Extinguishments  of  Liabilities,  a replacement of FASB Statement No. 125,
     which  supersedes  the guidance in FASB  Statement No. 125,  Accounting for
     Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
     Liabilities.  Statement No. 140 revises the standards  for  accounting  for
     securitizations  and other transfers of financial assets and collateral and
     requires certain disclosures, but it carries over most of the provisions of
     Statement No. 125 without  reconsideration.  Statement No. 140 is effective
     for  transfers of financial  assets  occurring  after March 31, 2001; it is
     applied  prospectively.  The adoption of  Statement  No. 140 did not have a
     material  impact on the  financial  condition or  operating  results of the
     Company as of and for the year ending December 31, 2001.

     In July 2001, the FASB issued Statement No. 141, Business Combinations, and
     Statement No. 142, Goodwill and Other Intangible Assets.  Statement No. 141
     requires  that the purchase  method of  accounting be used for all business
     combinations  initiated  after June 30, 2001 as well as all purchase method
     business combinations completed after June 30, 2001. Statement No. 141 also
     specifies criteria intangible assets acquired in a purchase method business
     combination  must meet to be recognized  and reported  apart from goodwill,
     noting that any purchase price allocable to an assembled  workforce may not
     be accounted for  separately.  Statement No. 142 will require that goodwill
     and intangible  assets with indefinite useful lives no longer be amortized,
     but instead tested for impairment at least annually in accordance  with the
     provisions of Statement  No. 142.  Statement No. 142 will also require that
     intangible  assets  with  definite  useful  lives be  amortized  over their
     respective  estimated useful lives to their estimated  residual values, and
     reviewed for impairment in accordance  with  Statement No. 121,  Accounting
     for the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be
     Disposed Of.

     The Company adopted the provisions of Statement No. 141 in July 2001 and is
     required to adopt Statement No. 142 effective January 1, 2002. Furthermore,
     any goodwill and any  intangible  asset  determined  to have an  indefinite
     useful life that are acquired in a purchase business combination  completed
     after June 30, 2001,  but prior to the effective date of Statement No. 142,
     will not be amortized,  but will continue to be evaluated for impairment in
     accordance   with  the   appropriate   pre-Statement   No.  142  accounting
     literature.   Goodwill   and   intangible   assets   acquired  in  business
     combinations  completed  before July 1, 2001 will  continue to be amortized
     prior to the adoption of Statement  No. 142. The adoption of Statement  No.
     141 did not have a material impact on the financial  condition or operating
     results of the Company as of and for the year ending December 31, 2001. The
     adoption  of  Statement  No.  142 will not have a  material  impact  on the
     financial condition or operating results of the Company. The only exception
     to Statement No. 142 is the amortization of goodwill and intangible  assets
     acquired  under the  provisions of Statement No. 72,  Accounting of Certain
     Acquisitions of Banking or Thrift  Institutions.  The Company will continue
     to amortize goodwill and intangible assets acquired under this statement.

     (p)  Reclassifications

     Certain  amounts in prior years'  presentations  have been  reclassified to
     conform  with the current  presentation.  These  reclassifications  have no
     effect on previously reported income.

(2)  Restricted Cash Balances

     The  Bank is  required  to  maintain  certain  daily  reserve  balances  in
     accordance with Federal Reserve Board  requirements.  Aggregate reserves of
     $3,819  thousand  and $2,956  thousand  were  necessary  to  satisfy  these
     requirements at December 31, 2001 and 2000, respectively.


                                       43
<PAGE>

(3)  Investment Securities

     Investment  securities  at  December  31,  2001 and 2000  consisted  of the
     following:

<TABLE>
<CAPTION>
                                                                   December 31, 2001
                                            Estimated            Gross            Gross
                                            Amortized         Unrealized        Unrealized       Market
(in thousands)                                 Cost              Gains            Losses          Value
--------------------------------------------------------------------------------------------------------
<S>                                          <C>                  <C>                <C>         <C>
Available for Sale
U.S. Agency securities                       $11,600              144               --           11,744
Municipal securities                           5,018              256               --            5,274
Collateralized mortgage obligations           23,064              143                4           23,203
Other debt securities                            670                1                3              668
Investment in Federal Agency stock               126               --               --              126
--------------------------------------------------------------------------------------------------------
Total                                        $40,478              544                7           41,015
========================================================================================================

<CAPTION>
                                                                   December 31, 2000
                                            Estimated            Gross            Gross
                                            Amortized         Unrealized        Unrealized       Market
(in thousands)                                 Cost              Gains            Losses          Value
--------------------------------------------------------------------------------------------------------
<S>                                          <C>                  <C>               <C>          <C>
Available for Sale
U.S. Agency securities                       $13,970               46               59           13,957
Municipal securities                           7,992              450               --            8,442
Collateralized mortgage obligations            6,227               48                4            6,271
Other debt securities                            754               10               --              764
Investment in Federal Agency stock               126               --               --              126
--------------------------------------------------------------------------------------------------------
Total                                        $29,069              554               63           29,560
========================================================================================================
</TABLE>

     Investment  securities  totaling  $13,806 thousand and $7,719 thousand were
     pledged as collateral to secure Local Agency  Deposits as well as treasury,
     tax and loan  accounts  with the Federal  Reserve at December  31, 2001 and
     2000, respectively.

     Proceeds from the sale of Available for Sale  securities  during 2001, 2000
     and 1999 were $3,578 thousand,  $4,391 thousand and $43,054  thousand.  The
     Company realized gross gains totaling $267 thousand and $149 on the sale of
     Available for Sale  securities  during the year ended December 31, 2001 and
     2000, respectively.

     Federal Agency dividends paid to the Company were $7 thousand in 2001, 2000
     and 1999.

     The amortized cost and estimated fair value of debt  securities at December
     31, 2001, by contractual  maturity,  or expected maturity where applicable,
     are  shown  below.   Expected   maturities  will  differ  from  contractual
     maturities  because certain securities provide the issuer with the right to
     call or prepay obligations with or without call or prepayment penalties.

                                                           December 31, 2001
                                                     Amortized            Market
(in thousands)                                         Cost               Value
--------------------------------------------------------------------------------
Due in one year or less                              $ 4,995              5,011
Due after one year through five years                 32,167             32,542
Due after five years through 10 years                    750                772
Due after 10 years                                     2,440              2,564
--------------------------------------------------------------------------------
                                                     $40,352             40,889
================================================================================


                                       44
<PAGE>

(4)  Loans

     The Bank grants commercial, installment, real estate construction and other
     real estate loans to  customers  primarily in the trade areas served by its
     branches.  Commercial  loans include  agricultural  loans,  working capital
     loans to  businesses  in a  number  of  industries,  and  loans to  finance
     commercial real estate.  Generally, the loans are secured by real estate or
     other  assets.  Although  the  Bank has a  diversified  loan  portfolio,  a
     significant  portion of its  debtors'  ability to honor their  contracts is
     dependent  upon the condition of the local real estate markets in which the
     loans are made.

     Outstanding loans consisted of the following at December 31:

(in thousands)                                         2001                2000
-------------------------------------------------------------------------------
Commercial                                        $ 115,402              91,994
Real estate construction                             13,703              12,124
Other real estate                                     5,996               6,091
Installment and other                                 3,674               3,605
-------------------------------------------------------------------------------
                                                    138,775             113,814

Deferred loan fees and loan sale premiums              (677)               (522)
Allowance for loan losses                            (2,668)             (2,499)
-------------------------------------------------------------------------------
                                                  $ 135,430             110,793
===============================================================================

     SBA and  mortgage  loans  serviced by the Bank  totaled  $83,252  thousand,
     $73,607  thousand and $73,154 thousand at December 31, 2001, 2000 and 1999,
     respectively.

     Changes in the allowance for loan losses were as follows:

(in thousands)                              2001           2000          1999
------------------------------------------------------------------------------
Balance, beginning of year               $ 2,499          2,580         1,564
Loans charged off                           (283)          (246)         (110)
Recoveries                                    61             30            75
Provision charged to operations              391            135         1,051
------------------------------------------------------------------------------
Balance, end of year                     $ 2,668          2,499         2,580
==============================================================================

     Nonaccrual  loans  totaled  $3,246  thousand,  $5,655  thousand  and $2,303
     thousand  at  December  31,  2001,  2000 and 1999,  respectively.  Interest
     income,  which  would have been  recorded  on  nonaccrual  loans,  was $310
     thousand,  $542  thousand  and $76  thousand,  in  2001,  2000,  and  1999,
     respectively.

     Impaired loans are loans for which it is probable that the Bank will not be
     able to collect all amounts  due. At December  31, 2001 and 2000,  the Bank
     had outstanding balances of $3,246 thousand and $5,655 thousand in impaired
     loans  which had  valuation  allowances  of $464  thousand in 2001 and $744
     thousand in 2000.  The average  outstanding  balances of impaired loans for
     the years ended  December  31,  2001,  2000 and 1999 were $4,871  thousand,
     $5,847  thousand and $805 thousand  respectively,  on which $423  thousand,
     $224 thousand and $76 thousand,  respectively,  was  recognized as interest
     income.

     At December  31, 2001 and 2000,  the  collateral  value  method was used to
     measure impairment for all loans classified as impaired.  Impaired loans at
     December 31, 2001 and 2000 consisted solely of commercial loans.

(5)  Premises and Equipment

     Premises and equipment consisted of the following at December 31:

(in thousands)                                          2001               2000
--------------------------------------------------------------------------------
Land                                                $    874                874
Building                                               5,725              5,725
Leasehold improvements                                 1,952              1,874
Furniture and equipment                                5,198              4,089
--------------------------------------------------------------------------------
                                                      13,749             12,562
--------------------------------------------------------------------------------
Accumulated depreciation and amortization             (6,564)            (5,560)
--------------------------------------------------------------------------------
                                                    $  7,185              7,002
================================================================================


                                       45
<PAGE>

     The Bank  leases a portion  of its  building  to  unrelated  parties  under
     operating  leases which expire in various years. The minimum future rentals
     to be  received  on  non-cancelable  leases  as of  December  31,  2001 are
     summarized as follows:

(in thousands)             Year Ending December 31,
--------------------------------------------------------------------------------
                             2002                                    $    68
                             2003                                         39
                             2004                                         23
                             2005                                         19
                             2006                                          7
--------------------------------------------------------------------------------
                             Total minimum future rentals            $   156
================================================================================

(6)  Other Assets

     Other assets includes the cash surrender  value of life insurance  totaling
     $12,690  thousand  and  $10,032  thousand  at  December  31,  2001 and 2000
     respectively. The cash surrender value of life insurance consists primarily
     of the  Bank's  contractual  rights  under  single-premium  life  insurance
     policies  written on the lives of certain officers and the directors of the
     Company and the Bank. The policies,  for which the Bank is the beneficiary,
     were purchased in order to indirectly  offset  anticipated costs of certain
     benefits  payable upon the  retirement,  and the death or disability of the
     directors and officers pursuant to deferred  compensation  agreements.  The
     cash  surrender  value  accumulates   tax-free  based  upon  each  policy's
     crediting  rate,  which is adjusted by the  insurance  company on an annual
     basis.

     Other  real  estate  owned is also  included  in other  assets and was $809
     thousand  and $405  thousand at December  31, 2001 and 2000,  respectively.
     Other real estate owned of $1,086  thousand and $405  thousand was acquired
     through   foreclosure  as  settlement  for  loans  during  2001  and  2000,
     respectively.   These  amounts   represent   non-cash   transactions,   and
     accordingly,  have been excluded from the  Consolidated  Statements of Cash
     Flows.

(7)  Deposits

     The following is a summary of deposits at December 31:

(in thousands)                                        2001                  2000
--------------------------------------------------------------------------------
Demand                                            $ 29,758                24,223
--------------------------------------------------------------------------------
NOW and Super NOW Accounts                          48,928                44,316
Money Market                                        21,119                15,361
Savings                                             31,793                26,640
Time, $100,000 and over                             25,463                14,783
Other Time                                          44,510                36,938
--------------------------------------------------------------------------------
                                                  $201,571               162,261
================================================================================

     Interest  paid on time deposits in  denominations  of $100 thousand or more
     was $1,069  thousand,  $943  thousand and $765  thousand in 2001,  2000 and
     1999, respectively.

     At December 31, 2001,  the  aggregate  maturities  for time  deposits is as
     follows:

(in thousands)
--------------------------------------------------------------------------------
2002                                         $  63,924
2003                                             4,538
2004                                               626
2005                                               559
2006                                               326
--------------------------------------------------------------------------------
Total                                        $  69,973
================================================================================


                                       46
<PAGE>

(8)  Operating Leases

     The Bank has  non-cancelable  operating  leases with unrelated  parties for
     office  space and  equipment.  The lease  payments  for future years are as
     follows:

Year Ending December 31, (in thousands)                           Lease Payments
--------------------------------------------------------------------------------
2002                                                                 $       223
2003                                                                         198
2004                                                                         107
2005                                                                          84
2006                                                                          86
--------------------------------------------------------------------------------
                                                                     $       698
================================================================================

     Total rental expense for operating leases was $254 thousand,  $158 thousand
     and $101 thousand in 2001, 2000 and 1999 respectively.

(9)  Supplemental Compensation Agreements

     Effective April 3, 1999 the Company and the Bank entered into  nonqualified
     supplemental  compensation agreements with all of the directors and certain
     executive   officers   for  the   provision   of  death,   disability   and
     post-employment/retirement  benefits. The agreement with directors includes
     elective   provisions  for  service  as  a  director   emeritus   following
     termination  of  service  as a member  of the  Bank's  Board of  Directors.
     Directors  who  elect to  serve  as a  director  emeritus  receive  certain
     benefits  during such period of service in addition to benefits  applicable
     to all directors  which commence upon expiration of the three year emeritus
     period. The Company accrues for the compensation based on anticipated years
     of service and the vesting schedule provided in the agreements.

     During 2000, the Company converted its existing  nonqualified  supplemental
     compensation  agreements from a defined  contribution  retirement and death
     benefit plan to a defined  benefit plan (Plan).  The Plan is unsecured  and
     unfunded and there are no Plan assets. The Company has purchased  insurance
     on the  lives  of the  directors  and  executive  officers  in the Plan and
     intends to use the cash values of these policies as a funding source to pay
     the  supplemental  compensation  obligations.  (See Note 6 for  information
     regarding  the cash  values of the life  insurance).  The  accrued  pension
     obligation  was $948 thousand and $456 thousand as of December 31, 2001 and
     2000, respectively. The Company did not recognize any additional expense as
     a result of the conversion.  The Company  recognized expense related to the
     Plan  during  2001 and  2000  totaling  $493  thousand  and $286  thousand,
     respectively.  The net  periodic  benefits  cost of $456  thousand  was all
     related to service  cost.  The net  periodic  cost was  determined  using a
     discount rate of 7.50%.

(10) Financial Instruments with Off-Balance Sheet Risk

     In the normal  course of  business,  the  Company  is a party to  financial
     instruments  with  off-balance  sheet  risk.  These  financial  instruments
     include commitments to extend credit and standby letters of credit.

     The Company's exposure to credit loss in the event of nonperformance by the
     other party to the financial  instrument  for  commitments to extend credit
     and standby  letters of credit is represented by the  contractual  notional
     amount of those  instruments.  The Company uses the same credit policies in
     making  commitments and  conditional  obligations as it does for on-balance
     sheet instruments.

     At December 31, 2001 and 2000, financial instruments whose contract amounts
     represent credit risk are as follows:

(in thousands)                                     2001              2000
--------------------------------------------------------------------------------
Commitments to extend credit                  $  41,822            25,306
================================================================================
Standby letters of credit                     $     920             1,034
================================================================================


                                       47
<PAGE>

     Commitments  to extend credit are  agreements to lend to a customer as long
     as there is no  violation of any  condition  established  in the  contract.
     Commitments  generally  have  fixed  expiration  dates,  other  termination
     clauses  and may  require  payment of a fee.  Many of the  commitments  are
     expected  to expire  without  being drawn upon and  accordingly,  the total
     commitment  amounts do not necessarily  represent future cash requirements.
     The Company  evaluates each customer's  creditworthiness  on a case-by-case
     basis. Upon extension of credit, the amount of collateral obtained, if any,
     is based on management's credit evaluation of the counter-party. Collateral
     varies but may include accounts receivable,  inventory, property, plant and
     equipment, and income-producing or other real estate.

     Standby letters of credit are conditional commitments issued by the Company
     to  guarantee  the  performance  of a  customer  to a  third  party.  These
     guarantees are primarily issued to support private borrowing  arrangements.
     The credit risk involved in issuing  letters of credit is  essentially  the
     same as that involved in extending loan facilities to customers. Collateral
     obtained, if any, is varied.

(11) Non-interest Income

     During 1998, the Company purchased  single-premium  life insurance policies
     written on the lives of certain  officers and the  directors of the Company
     and the Bank. During 1999, one of the insurance  companies converted from a
     mutual  to  a  stock  based  company,  which  process  is  referred  to  as
     "demutualization." As a result of the demutualization, policyholders of the
     insurance company received shares of common stock of the insurance company.
     The number of shares of stock received by policyholders  was based upon the
     cash surrender value of the individual  policies.  The Company received and
     subsequently sold the shares in December 1999. The gain recognized upon the
     receipt of the stock totaled $287 thousand.

(12) Other Non-interest Expense

     Other  noninterest  expense for the years 2001,  2000 and 1999 included the
     following significant items:

(in thousands)                                   2001         2000         1999
--------------------------------------------------------------------------------
Third party data processing expense            $  877          869          821
Professional fees                                 403          771          554
Marketing                                         413          422          323
Non-performing loan costs                          77          246           25
Telephone and postage                             296          232          271
Intangible amortization                           171          215          282
Directors' fees and retirement                    385          193          158
Supplies                                          247          189          193
Printing                                          121          105          109
Other                                             677          501          538
--------------------------------------------------------------------------------
     Total                                     $3,667        3,743        3,274
================================================================================


                                       48
<PAGE>

(13) Income Taxes

     The provision for income taxes for the years 2001,  2000 and 1999 consisted
     of the following:

2001 (in thousands)                   Federal            State            Total
--------------------------------------------------------------------------------
Current                                 $ 487              132              619
Deferred, net                            (358)             (43)            (401)
--------------------------------------------------------------------------------
     Income tax expense                 $ 129               89              218
================================================================================

2000 (in thousands)                   Federal            State            Total
--------------------------------------------------------------------------------
Current                                 $ 204              142              346
Deferred, net                             (29)             (17)             (46)
--------------------------------------------------------------------------------
     Income tax expense                 $ 175              125              300
================================================================================

================================================================================

1999 (in thousands)                   Federal            State            Total
--------------------------------------------------------------------------------
Current                                 $ 716              232              948
Deferred, net                            (608)             (65)            (673)
--------------------------------------------------------------------------------
     Income tax expense                 $ 108              167              275
================================================================================

     Income taxes  receivable  of $12 thousand and $251 thousand are included in
     other assets at December 31, 2001 and 2000, respectively.

     The provision  for income taxes  differs from amounts  computed by applying
     the  statutory  Federal  income tax rate to operating  income before income
     taxes. The reasons for these differences are as follows:

<TABLE>
<CAPTION>
                                                          2001                      2000                      1999
(dollars in thousands)                            Amount         Rate       Amount         Rate       Amount        Rate
--------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>         <C>           <C>         <C>           <C>
Federal income tax expense, at statutory
  income tax rates                                $ 485           34%         538           34%         488           34%
State franchise tax expense, net of federal
  income tax benefits                                75            7%          98            7%         103            7%
Tax-free interest income                           (299)         (21%)       (319)         (20%)       (157)         (11%)
Change in the beginning of the year deferred
  tax asset valuation allowance                      --           --           --           --          (85)          (6%)
Other                                               (43)          (5%)        (17)          (2%)        (74)          (5%)
--------------------------------------------------------------------------------------------------------------------------
                                                  $ 218           15%         300           19%         275           19%
==========================================================================================================================
</TABLE>


                                       49
<PAGE>

     The tax  effects of  temporary  differences  that give rise to  significant
     portions  of the  deferred  tax  assets and  deferred  tax  liabilities  at
     December 31, 2001 and 2000 are presented below.

(dollars in thousands)                                       2001          2000
--------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses                                 $   912           853
Interest on nonaccrual loans                                  115           115
Deferred loan income                                          121           162
Accumulated depreciation                                      107            --
Accumulated Amortization                                      377           361
Deferred compensation                                         448           225
Other                                                          95            77
--------------------------------------------------------------------------------
    Total gross deferred tax assets                         2,175         1,793
    Less valuation allowance                                  (35)          (35)
--------------------------------------------------------------------------------
    Deferred tax assets, net of allowance                   2,140         1,758
--------------------------------------------------------------------------------

Deferred tax liabilities:
Accumulated depreciation                                       --            (9)
Deferred loan origination costs                              (247)         (272)
Unrealized gain on available-for-sale securities, net        (182)         (206)
Other                                                        (136)         (121)
--------------------------------------------------------------------------------
    Total gross deferred tax liabilities                     (565)         (608)
--------------------------------------------------------------------------------
    Net deferred tax asset                                $ 1,575         1,150
================================================================================

     In assessing the realizability of deferred tax assets, management considers
     whether it is more likely than not that some portion or all of the deferred
     tax assets will not be realized.  The ultimate  realization of deferred tax
     assets is dependent upon the generation of future taxable income during the
     periods in which those temporary differences become deductible.  Management
     considers the  scheduled  reversal of deferred tax  liabilities,  projected
     future  taxable  income,  and  tax  planning   strategies  in  making  this
     assessment.   Based  upon  the  level  of  historical  taxable  income  and
     projections  for  future  taxable  income  over the  periods  for which the
     deferred tax assets are deductible,  management  believes it is more likely
     than  not the  Company  will  realize  the  benefits  of  these  deductible
     differences,  net of the existing valuation allowances at December 31, 2001
     and 2000.


                                       50
<PAGE>

(14) Stockholders' Equity

     (a)  Stock Options

     In  February  1997,  the Board of  Directors  adopted  the First  Financial
     Bancorp 1997 Stock Option Plan. The maximum number of shares issuable under
     the Plan is 446,516 less any shares  reserved for issuance  pursuant to the
     1991 Plans.  Options are granted at an exercise  price of at least 100% and
     85% of the fair market value of the stock on the date of grant for employee
     stock options and director stock options,  respectively. The options issued
     in 2001, 2000 and 1999 were not issued at less than 100% of market value.

     The per share  weighted-average  fair value of stock options granted during
     2001,  2000 and 1999 was  $2.53,  $2.12 and $3.12,  respectively.  The fair
     value of each  option  grant is  estimated  on the date of grant  using the
     Black-Sholes  option-pricing  model  with  the  following  weighted-average
     assumptions  used for  grants  as of  December  31,  2001,  2000 and  1999,
     respectively: dividend yield of 0.00%, 0.00% and 0.00%; expected volatility
     of 18.4% and 18.4%;  risk-free interest rate of 4.46%, 5.17% and 6.19%; and
     an expected life of five years in each of the years.

     Stock option plan activities are summarized as follows:

                                                                    Weighted
                                                                     Average
                                                 Options          Exercise Price
                                                 -------          --------------
Balance, December 31, 1998                       207,355             $ 6.98
     Options granted                              37,375              10.78
     Options exercised                           (49,130)              6.00
     Options expired                             (26,475)             10.24
--------------------------------------------------------------------------------
Balance, December 31, 1999                       169,125               7.35
     Options granted                              68,775               8.96
     Options exercised                           (22,187)              6.03
     Options expired                             (13,774)             10.82
--------------------------------------------------------------------------------
Balance, December 31, 2000                       201,939               7.82
     Options granted                              66,100               9.50
     Options exercised                           (20,425)              5.95
     Options expired                             (10,448)              6.84
--------------------------------------------------------------------------------
Balance, December 31, 2001                       237,166               8.69
================================================================================

     At December  31,  2001,  the range of exercise  prices for all  outstanding
     options ranged from $5.06 to $10.88.  The following table provides  certain
     information with respect to stock options outstanding at December 31, 2001:

                                                  Weighted          Weighted
                               Stock               Average           Average
Range of                      Options             Exercise         Remaining
Exercise Prices             Outstanding             Price       Contractual Life
--------------------------------------------------------------------------------
Under $6.00                    22,070            $   5.64                2.12
$6.00 to $8.99                122,350                8.42                7.45
$9.00 to $9.50                 73,555                9.48                9.31
Over $9.50                     19,191               10.88                7.57
--------------------------------------------------------------------------------
                              237,166            $   8.69                7.70
================================================================================

     At December 31, 2001 and 2000, the weighted-average  remaining  contractual
     life  of  all   outstanding   options   was  7.70  years  and  5.50  years,
     respectively.  The number of options  exercisable was 140,992,  122,928 and
     117,424 and the weighted-average exercise price of those options was $8.12,
     $7.64 and $7.11 at December 31, 2001, 2000 and 1999, respectively.


                                       51
<PAGE>

     The following  table  provides  certain  information  with respect to stock
     options exercisable at December 31, 2001:

                                                                    Weighted
                                                Stock                Average
Range of                                       Options              Exercise
Exercise Prices                              Exercisable              Price
--------------------------------------------------------------------------------
Under $6.00                                    21,736              $   5.65
$6.00 to $8.99                                 91,539                  8.11
$9.00 to $9.50                                 16,202                  9.47
Over $9.50                                     11,515                 10.88
--------------------------------------------------------------------------------
                                              140,992              $   8.12
================================================================================

     No  compensation  cost  has  been  recognized  for  stock  options  in  the
     accompanying consolidated financial statements.  Had the Company determined
     compensation  cost  based on the fair value at the grant date for its stock
     options,  the Company's net income would have been reduced to the pro forma
     amounts indicated below for the period ended December 31:

                                              2001           2000           1999
--------------------------------------------------------------------------------
Net Income (in thousands)
     As reported                         $   1,207          1,283          1,159
     Pro forma                               1,157          1,258          1,138

Basic Net Income Per Share
     As reported                              0.75           0.81           0.75
     Pro forma                                0.72           0.79           0.73

Diluted Net Income Per Share
     As reported                              0.73           0.79           0.72
     Pro forma                                0.70           0.77           0.71

     Pro forma net income reflects only options  granted after 1994.  Therefore,
     the full impact of  calculating  compensation  cost for stock options using
     the fair value method is not reflected in the pro forma net income  amounts
     presented  above because  compensation  cost is reflected over the options'
     vesting  period of five years and  compensation  cost for  options  granted
     prior to January 1, 1995 is not considered.

     (b)  Employee Stock Ownership Plan

     Effective  January 1, 1992, the Bank  established the Bank of Lodi Employee
     Stock  Ownership  Plan.  The plan  covers all  employees,  age 21 or older,
     beginning with the first plan year in which the employee completes at least
     1,000 hours of service.  The Bank's  annual  contributions  to the plan are
     made in cash and are at the discretion of the Board of Directors based upon
     a review of the Bank's profitability. Contributions for 2001, 2000 and 1999
     totaled  approximately  $171  thousand,  $156  thousand and $149  thousand,
     respectively.

     Contributions  to the plan are  invested  primarily  in the Common Stock of
     First  Financial  Bancorp and are allocated to participants on the basis of
     salary in the year of  allocation.  Benefits  become 20%  vested  after the
     third year of credited  service,  with an additional  20% vesting each year
     thereafter  until 100% vested after seven  years.  As of December 31, 2001,
     the plan owned  164,187  shares of Company  Common  Stock.  Of that amount,
     113,032 shares were unallocated to participants at December 31, 2001.

     (c)  Dividends and Dividend Restrictions

     The Company's  principal source of funds for dividend payments is dividends
     received from the Bank. Under applicable Federal laws,  permission to pay a
     dividend  must be granted to a bank by the  Comptroller  of the Currency if
     the total  dividend  payment of any  national  banking  association  in any
     calendar  year exceeds the net profits of that year,  as defined,  combined
     with net profits for the two preceding  years. At December 31, 2001,  there
     were Bank retained earnings of $3,706 thousand free of this condition.


                                       52
<PAGE>

     (d)  Weighted Average Shares Outstanding

     Basic and diluted earnings per share for the years ended December 31, 2001,
     2000, and 1999 were computed as follows:

<TABLE>
<CAPTION>
                                               Income         Shares     Per-Share
                                             (numerator)  (denominator)    Amount
2001                                       (in thousands)
--------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>
Basic earnings per share                     $   1,207      1,609,236      $0.75
Effect of dilutive stock options                    --         44,965         --
                                             ------------------------
Diluted earnings per share                   $   1,207      1,654,201      $0.73
                                             ========================

<CAPTION>
                                               Income         Shares     Per-Share
                                             (numerator)  (denominator)    Amount
2000                                       (in thousands)
--------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>
Basic earnings per share                     $   1,283      1,591,357      $0.81
Effect of dilutive stock options                    --         39,206         --
                                             ------------------------
Diluted earnings per share                   $   1,283      1,630,563      $0.79
                                             ========================

<CAPTION>
                                               Income         Shares     Per-Share
                                             (numerator)  (denominator)    Amount
2000                                       (in thousands)
--------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>
Basic earnings per share                     $   1,159      1,545,342      $0.75
Effect of dilutive stock options                    --         55,932         --
                                             ------------------------
Diluted earnings per share                   $   1,159      1,601,274      $0.72
                                             ========================
</TABLE>

     (e)  Preferred Stock Rights Plan

     On May 31, 2001,  the  Company's  Board of Directors  adopted a Shareholder
     Rights Plan (the "Rights Plan")  pursuant to which preferred stock purchase
     rights  ("Rights")  were granted as a dividend to shareholders of record at
     the rate of one Right for each  outstanding  share of common  stock held of
     record as of the close of business on July 6, 2001. The Rights will also be
     attached to certain  future  issuances of common stock.  Subject to certain
     exceptions,  each Right,  when  exercisable,  will  entitle the  registered
     holder  to  buy  one  one-hundredth  of  a  share  of  a  Series  A  Junior
     Participating  Preferred  Stock  of  the  Company  (the  "Series  A  Junior
     Preferred  Stock") at an  exercise  price of $47.50  per Right,  subject to
     adjustment.

     The Rights will become exercisable upon the occurrence of certain specified
     events,  including an announcement  that a person or group of affiliated or
     associated persons ("Acquiring  Person") has acquired beneficial  ownership
     of 10% or more of the outstanding  common stock. In such event, each holder
     of a Right (other than Rights  beneficially  owned by the Acquiring Person)
     will thereafter have the right to purchase,  at the  then-current  exercise
     price,  a number of shares of common  stock of the Company  having a market
     value equal to twice the exercise  price of the Right.  For purposes of the
     Rights Plan,  the  Company's  Board of Directors has  designated  1,000,000
     shares of Series A Junior Preferred Stock, which amount may be increased or
     decreased  by the Board of  Directors.  All Rights  expire on May 31, 2011,
     unless the Rights are  earlier  redeemed  or  exchanged  by the  Company in
     accordance with the Rights Plan or expire earlier upon the  consummation of
     certain transactions as set forth in the Rights Plan.

(15) Related Party Transactions

     During the normal  course of  business,  the Bank enters into  transactions
     with related parties, including directors,  officers, and affiliates. These
     transactions  include  borrowings from the Bank with substantially the same
     terms,  including rates and collateral,  as loans to unrelated parties.  At
     December 31, 2001 and 2000,  respectively,  such borrowings  totaled $1,403
     thousand and $1,366  thousand,  respectively.  Deposits of related  parties
     held by the Bank  totaled $463  thousand and $324  thousand at December 31,
     2001 and 2000, respectively.


                                       53
<PAGE>

     The  following  is an analysis of activity  with  respect to the  aggregate
     dollar  amount  of  loans  made by the  Bank  to  directors,  officers  and
     affiliates for the years ended December 31:

(in thousands)                                          2001               2000
--------------------------------------------------------------------------------
Balance, beginning of year                           $ 1,366              1,177
Loans funded                                             475                550
Principal repayments                                    (438)              (361)
--------------------------------------------------------------------------------
Balance, end of year                                 $ 1,403              1,366
================================================================================

(16) Parent Company Financial Information

     This information  should be read in conjunction with the other notes to the
     consolidated  financial statements.  The following presents summary balance
     sheets as of December 31, 2001 and 2000, and statements of income, and cash
     flows information for the years ended December 31, 2001, 2000, and 1999.

<TABLE>
<CAPTION>
Balance Sheets: (in thousands)
--------------------------------------------------------------------------------------
Assets                                                             2001           2000
--------------------------------------------------------------------------------------
<S>                                                            <C>                 <C>
Cash in bank                                                   $    128            206
Investment securities available-for-sale, at fair value               6              6
Premises and equipment, net                                          60             60
Investment in wholly-owned subsidiaries                          17,300         15,923
Other assets                                                        369            259
--------------------------------------------------------------------------------------
                                                               $ 17,863         16,454
======================================================================================

<CAPTION>
Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------------
<S>                                                            <C>               <C>
Stockholders' equity
Common stock                                                   $ 10,191          9,338
Retained earnings                                                 7,317          6,831
Accumulated other comprehensive income, net                         355            285
--------------------------------------------------------------------------------------
     Total stockholders' equity                                  17,863         16,454
--------------------------------------------------------------------------------------
                                                               $ 17,863         16,454
======================================================================================
<CAPTION>
Statements of Income: (in thousands)                               2001           2000           1999
------------------------------------------------------------------------------------------------------
<S>                                                            <C>                   <C>            <C>
Rent from subsidiary                                           $      6              6              6
Other expenses                                                     (213)          (150)          (218)
Equity in income of subsidiaries                                  1,292          1,360          1,252
Income tax benefit                                                  122             67            119
------------------------------------------------------------------------------------------------------
     Net income                                                $  1,207          1,283          1,159
======================================================================================================

<CAPTION>
Statements of Cash Flows: (in thousands)                           2001           2000           1999
------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>            <C>
Net Income                                                     $  1,207          1,283          1,159
Adjustments to reconcile net income to net cash
     flows (used in) provided by operating activities:
         Depreciation and amortization                               --              3              1
         Provision for deferred taxes                               (21)           (10)           (29)
         (Increase) decrease in other assets                        (89)           122           (196)
         Increase in equity of subsidiaries                      (1,307)        (1,367)        (1,052)
------------------------------------------------------------------------------------------------------
         Net cash (used in) provided by operating activit          (210)            31           (117)

Cash flows from investing activities:
     Purchases of available-for-sale securities                      --             --             (1)
------------------------------------------------------------------------------------------------------
     Net cash used in investing activities                           --             --             (1)

Cash flows from financing activities:
     Proceeds received upon exercise of stock options               136            173            359
     Dividends paid                                                  (4)           (74)          (286)
------------------------------------------------------------------------------------------------------
     Net cash provided by financing activities                      132             99             73
------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash                                     (78)           130            (45)
------------------------------------------------------------------------------------------------------
Cash at beginning of year                                           206             76            121
------------------------------------------------------------------------------------------------------
Cash at end of year                                            $    128            206             76
======================================================================================================
</TABLE>


                                       54
<PAGE>

(17) Short Term Borrowings

     The Bank has two lines of  credit  with  correspondent  banks  totaling  $4
     million at December 31, 2001. At December 31, 2000,  the Bank had two lines
     of credit with correspondent banks totaling $7 million. The lines of credit
     are  unsecured and renew  annually.  At December 31, 2001 and 2000 the Bank
     had  outstanding  borrowings  under these lines totaling $4 million and $0,
     respectively. The maximum amount outstanding was $4 million and $7 million,
     the average balance  outstanding was $50 thousand and $485 thousand and the
     weighted  average  interest  rate was 3.02% and 5.57% for the years  ending
     December 31, 2001 and 2000, respectively.

     At  December  31,  2001  and  2000  securities  sold  under  agreements  to
     repurchase totaled $0 and $4,588 thousand, respectively. The fair value and
     carrying value of securities  sold under  agreements to repurchase  totaled
     $4,600 at December  31, 2000.  The maximum  amount  outstanding  was $4,588
     thousand  and $9,835  thousand,  the average  balance  outstanding  was $70
     thousand and $6,523  thousand and the weighted  average  interest  rate was
     6.79%  and  6.62%  for  the  years  ending  December  31,  2001  and  2000,
     respectively. These agreements generally mature within 30 days.

(18) Regulatory Matters

     The Bank is subject to various regulatory capital requirements administered
     by  the  federal  banking   agencies.   Failure  to  meet  minimum  capital
     requirements can initiate mandatory and possibly  additional  discretionary
     actions by regulators  that, if  undertaken,  could have a direct  material
     effect  on  the  Bank's  financial   statements.   Under  capital  adequacy
     guidelines and the regulatory  framework for prompt corrective  action, the
     Bank  must meet  specific  capital  guidelines  that  involve  quantitative
     measure of the Bank's assets,  liabilities,  and certain  off-balance-sheet
     items as  calculated  under  regulatory  accounting  practices.  The Bank's
     capital  amounts  and   classification  are  also  subject  to  qualitative
     judgments by the regulators about  components,  risk weightings,  and other
     factors.

     Quantitative  measures established by regulation to ensure capital adequacy
     require the Bank to maintain  minimum  amounts and ratios (set forth in the
     table below).

     First, a bank must meet a minimum Total Risk-Based Capital to risk-weighted
     assets ratio of 8%. Risk-based  capital and asset guidelines vary from Tier
     I capital guidelines by redefining the components of capital,  categorizing
     assets into different  classes,  and including  certain  off-balance  sheet
     items in the calculation of the capital ratio. The effect of the risk-based
     capital  guidelines  is that banks with high  exposure  will be required to
     raise additional  capital while  institutions with low risk exposure could,
     with the  concurrency  of regulatory  authorities,  be permitted to operate
     with lower  capital  ratios.  In addition,  a bank must meet minimum Tier I
     Capital to average assets ratio.

     Management  believes,  as of  December  31,  2001,  that the Bank meets all
     capital  adequacy  requirements to which it is subject.  As of December 31,
     2001,  the  most  recent   notification,   the  Federal  Deposit  Insurance
     Corporation  (FDIC)  categorized  the Bank as well  capitalized  under  the
     regulatory  framework for prompt  corrective  action.  To be categorized as
     adequately capitalized,  the Bank must meet the minimum ratios as set forth
     below.  There are no  conditions  or events  since that  notification  that
     management believes have changed the Bank's category.


                                       55
<PAGE>

     The Bank's actual capital amounts and ratios as of December 31, 2001 are as
     follows:

<TABLE>
<CAPTION>
                                                                                                          To Be Well Capitalized
                                                                                   For Capital            Under Prompt Corrective
                                                 Actual                          Adequacy Purposes           Action Provisions
(dollars in thousands)                           Amount         Ratio          Amount         Ratio        Amount          Ratio
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>            <C>            <C>           <C>           <C>
Total Risk-based Capital
(to Risk Weighted Assets)                       $18,461         10.24%         14,425         >8.0%         18,031        >10.0%

Tier I Capital (to Risk Weighted Assets)        $16,202          8.99%          7,212         >4.0%         10,819         >6.0%

Tier I Capital  (to Average Assets)             $16,202          7.45%          8,703         >4.0%         10,878         >5.0%
</TABLE>

     The Bank's actual capital amounts and ratios as of December 31, 2000 are as
     follows:

<TABLE>
<CAPTION>
                                                                                                          To Be Well Capitalized
                                                                                   For Capital            Under Prompt Corrective
                                                 Actual                          Adequacy Purposes           Action Provisions
(dollars in thousands)                           Amount         Ratio          Amount         Ratio        Amount          Ratio
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>            <C>            <C>           <C>           <C>
Total Risk-based Capital
(to Risk Weighted Assets)                       $16,560         11.27%         11,698         >8.0%         14,622        >10.0%

Tier I Capital (to Risk Weighted Assets)        $14,724         10.02%          5,849         >4.0%          8,773         >6.0%

Tier I Capital  (to Average Assets)             $14,724          7.99%          7,374         >4.0%          9,218         >5.0%
</TABLE>

(19) Fair Values of Financial Instruments

     The  following  methods  and  assumptions  were  used  by  the  Company  in
     estimating its fair value disclosures for financial instruments:

     Cash and cash  equivalents:  The carrying  amounts  reported in the balance
     sheet for cash and due from banks and federal  funds sold are a  reasonable
     estimate of fair value.

     Investment  securities:  Fair values for investment securities are based on
     quoted  market  prices,  where  available.  If quoted market prices are not
     available,  fair  values are based on quoted  market  prices of  comparable
     instruments. (See Note 3).

     Loans:  For  variable-rate  loans  that  re-price  frequently  and  with no
     significant  change in  credit  risk,  fair  values  are based on  carrying
     values. The fair values for fixed-rate loans are estimated using discounted
     cash flow analyses,  using interest rates currently being offered for loans
     with similar terms to borrowers of similar credit quality.

     Commitments to extend credit and standby letters of credit:  The fair value
     of commitments is estimated using the fees currently  charged to enter into
     similar  agreements,  taking  into  account  the  remaining  terms  of  the
     agreement  and the present  creditworthiness  of the counter  parties.  For
     fixed-rate  loan  commitments,  fair value also  considers  the  difference
     between current levels of interest rates and the committed  rates. The fair
     value of letters of credit is based upon fees currently charged for similar
     agreements or on the estimated cost to terminate  them or otherwise  settle
     the obligation with the counter parties at the reporting date.

     Deposit  liabilities:  The fair values disclosed for demand deposits (e.g.,
     interest and  non-interest  checking,  savings,  and money market accounts)
     are, by definition,  equal to the amount payable on demand at the reporting
     date (i.e.,  their carrying  amounts).  The fair values for fixed-rate time
     deposits  are  estimated  using a  discounted  cash flow  calculation  that
     applies  interest  rates  currently  being  offered on time  deposits  to a
     schedule of aggregated expected monthly maturities on time deposits.


                                       56
<PAGE>

     Short-term  borrowings:  The discounted  value of contractual cash flows at
     market  interest  rates for short term  borrowings  with similar  terms and
     remaining  maturities  are  used to  estimate  the fair  value of  existing
     short-term borrowings.

     Limitations:  Fair value  estimates  are made at a specific  point in time,
     based on relevant market  information  and information  about the financial
     instrument.  These  estimates  do not reflect any premium or discount  that
     could  result  from  offering  for sale at one time  the  Company's  entire
     holdings of a particular financial instrument. Because no market exists for
     a significant  portion of the Company's financial  instruments,  fair value
     estimates are based on judgments regarding future expected loss experience,
     current economic  conditions,  risk  characteristics  of various  financial
     instruments,  and other factors.  These  estimates are subjective in nature
     and involve uncertainties and matters of significant judgment and therefore
     cannot  be  determined  with  precision.   Changes  in  assumptions   could
     significantly affect the estimates.

     Fair  value  estimates  are  based on  existing  on and off  balance  sheet
     financial   instruments   without  attempting  to  estimate  the  value  of
     anticipated  future business and the value of assets and  liabilities  that
     are not considered  financial  instruments.  Other  significant  assets and
     liabilities that are not considered financial assets or liabilities include
     deferred  tax  assets,  premises,  and  equipment.  In  addition,  the  tax
     ramifications related to the realization of the unrealized gains and losses
     can have a  significant  effect on fair value  estimates  and have not been
     considered in many of the estimates.

     The  estimated  fair  values  of the  Company's  financial  instruments  at
     December 31, 2001 are approximately as follows:

                                                                  2001
                                                       Carrying           Fair
(in thousands)                                          Amount            Value
--------------------------------------------------------------------------------
Financial assets:
    Cash and due from banks and federal funds sold     $ 19,457          19,457
    Investment securities                                41,015          41,015
    Loans held for sale                                   3,876           3,900
    Loans, net                                          135,430         137,138

Financial liabilities:
    Deposits:
        Demand                                           29,758          29,758
        Now and Super Now accounts                       48,928          48,928
        Money Market                                     21,119          21,119
        Savings                                          31,793          31,793
        Time                                             69,973          70,906
        ------------------------------------------------------------------------
        Total deposits                                  201,571         202,504
    Short term borrowings                                 4,000           4,000

                                                 Contract   Carrying       Fair
(in thousands)                                    Amount     Amount        Value
--------------------------------------------------------------------------------
Unrecognized financial instruments:
    Commitments to extend credit                 $41,822        --          418
    Standby letters of credit                        920        --            1


                                       57
<PAGE>

                                                                   2000
                                                          Carrying        Fair
(in thousands)                                             Amount         Value
--------------------------------------------------------------------------------
Financial assets:
    Cash and due from banks and federal funds sold        $ 21,024        21,024
    Investment securities                                   29,560        29,560
    Loans held for sale                                      1,292         1,300
    Loans, net                                             110,793       113,837

Financial liabilities:
    Deposits:
        Demand                                              24,223        24,223
        Now and Super Now accounts                          44,316        44,316
        Money Market                                        15,361        15,361
        Savings                                             26,640        26,640
        Time                                                51,721        52,491
        ------------------------------------------------------------------------
        Total deposits                                     162,261       163,031
    Short term borrowings                                    4,588         4,601

                                                 Contract   Carrying       Fair
(in thousands)                                    Amount     Amount        Value
--------------------------------------------------------------------------------
Unrecognized financial instruments:
    Commitments to extend credit                 $25,306        --           253
    Standby letters of credit                      1,034        --             1

(20) Legal Proceedings

     The bank is  involved  in various  legal  actions  arising in the  ordinary
     course of business.  In the opinion of management,  after  consulting  with
     legal  counsel,  the ultimate  disposition of these matters will not have a
     material effect on the Bank's financial  condition,  results of operations,
     or liquidity.

(21) Derivative Financial Instruments

     As of December  31, 2001 and 2000,  the  Company has no  off-balance  sheet
     derivatives.  The Company  held  $23,203  thousand  and $6,271  thousand in
     collateralized  mortgage  obligations  as of  December  31,  2001 and 2000,
     respectively.  These  investments  are  held  in  the  available  for  sale
     portfolio.


                                       58
<PAGE>

(22) Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data and price range of common stock)           March 31,      June 30,  September 30,  December 31,
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>            <C>           <C>           <C>
2001
Interest income                                                             $      3,310         3,383          3,563         3,602
Net interest income                                                                2,204         2,153          2,377         2,480
Provision for loan losses                                                            190            --             55           146
Noninterest income                                                                   953           758          1,030         1,087
Noninterest expense                                                                2,665         2,782          2,933         2,846
Income before taxes                                                                  302           129            419           575
Net income                                                                           255           153            322           477
Basic earnings per share                                                             .15           .10            .20           .30
Diluted earnings per share                                                           .15           .09            .19           .30
Dividends paid per share                                                               -             -              -             -
Price range, common stock                                                   10.13 - 9.00   9.87 - 9.12   10.42 - 9.00  11.15 - 9.90
------------------------------------------------------------------------------------------------------------------------------------
2000
Interest income                                                             $      3,196         3,278          3,370         3,652
Net interest income                                                                2,161         2,123          2,145         2,454
Provision for loan losses                                                             35            65             35             -
Noninterest income                                                                   662           629            638           761
Noninterest expense                                                                2,339         2,519          2,471         2,526
Income before taxes                                                                  449           168            277           689
Net income                                                                           346           196            247           494
Basic earnings per share                                                             .22           .12            .15           .32
Diluted earnings per share                                                           .21           .12            .15           .31
Dividends paid per share                                                             .05            --             --            --
Price range, common stock                                                   12.00 - 9.50  10.75 - 8.00   10.38 - 8.50  10.88 - 9.75
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(23) Subsequent Event

     At the  February 28, 2002 regular  Board of  Directors  Meeting,  the Board
     approved  a $5  million  participation  in a  floating  rate  pooled  trust
     preferred  securities  offering.  The  Company  anticipates  receiving  the
     proceeds from the sale of the trust preferred securities on March 26, 2002.
     The Company  intends to use the  proceeds to  increase  the Bank's  capital
     levels and for other corporate purposes.


                                       59
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 of 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned,  thereunto duly authorized,  on the 20th day of March
2002.

                                           FIRST FINANCIAL BANCORP

                                                 /s/ LEON J. ZIMMERMAN
                                           -----------------------------------
                                           Leon J. Zimmerman
                                           President and Chief Executive Officer

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated have signed this report.

<TABLE>
<CAPTION>
                                             Capacity                               Date
                                             --------                               ----
<S>                              <C>                                            <C>
  /s/ BENJAMIN R. GOEHRING       Director and Chairman of the Board             March 20, 2002
-----------------------------
Benjamin R. Goehring

  /s/ WELDON D. SCHUMACHER       Director and Vice Chairman of the Board        March 20, 2002
-----------------------------
Weldon D. Schumacher

  /s/ ANGELO J. ANAGNOS          Director                                       March 20, 2002
-----------------------------
Angelo J. Anagnos

  /s/ STEVE M. COLDANI           Director                                       March 20, 2002
-----------------------------
Steve M. Coldani

  /s/ DAVID M. PHILIPP           Director                                       March 20, 2002
-----------------------------
David M. Philipp

  /s/ ROBERT H. MILLER, III      Director                                       March 20, 2002
-----------------------------
Robert H. Miller, III

  /s/ KEVIN VAN STEENBERGE       Director                                       March 20, 2002
-----------------------------
Kevin Van Steenberge

  /s/ LEON J. ZIMMERMAN          Director, President and                        March 20, 2002
-----------------------------    Chief Executive Officer
Leon J. Zimmerman                (Principal Executice Officer)

  /s/ ROBERT H. DANEKE           Director, Executive Vice President and         March 20, 2002
-----------------------------    Chief Credit Officer
Robert H. Daneke

  /s/ ALLEN R. CHRISTENSON       Senior Vice President,                         March 20, 2002
-----------------------------    Chief Financial Officer and Secretary
Allen R. Christenson             (Principal Financial and Accounting Officer)
</TABLE>


                                       60
<PAGE>

                                INDEX TO EXHIBITS

Exhibit                                                                     Page
-------                                                                     ----

  23           Consent of Independent Auditors                               62


                                       61