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

                       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, 1998

                        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

         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 January 31, 1999, there were 1,349,292 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  $11,356,000  (based on the
$11.50 average of bid and ask prices per share on February 2, 1999.)


                                                   Part of Form 10-K into
Documents Incorporated by Reference                  which Incorporated
-----------------------------------                  ------------------
Proxy Statement for the Annual Meeting of
Shareholders to be held on May 18, 1999.         Part III, Items 10, 11, 12, 13

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

                                       1
<PAGE>


                             FIRST FINANCIAL BANCORP
                                 1998 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 ............................................................5
         Supervision and Regulation ...........................................5
                  The Company .................................................5
                  The Bank ....................................................6
                  Officers ....................................................6
                  Recent Legislation and Regulations Affecting Banking ........7
ITEM 2. PROPERTIES ............................................................9
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 ..................................................10
ITEM 6. SELECTED FINANCIAL DATA ..............................................11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS ............................................11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..........................33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE ..................................33

PART III
--------
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...................33
ITEM 11 EXECUTIVE COMPENSATION ...............................................33
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .......33
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......................33

PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K .....34

Signatures ...................................................................63
Index to Exhibits  ...........................................................64

                                       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 a full-service branch was opened in
Elk Grove, California in August, 1998.

The Bank's  headquarters  is located  at 701 South Ham Lane,  Lodi,  California.
There is a loan production  office in Folsom,  California and branch offices are
located in Woodbridge,  Lockeford,  Galt, Plymouth,  San Andreas, and Elk Grove,
California. The Bank's primary service area, from which the Bank attracts 75% of
its  business,  is the  city of Lodi  and the  surrounding  area.  This  area is
estimated to have a population  approaching 70,000 persons, with a median annual
family  income  of  approximately   $30,000.   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  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.

                                       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 75% 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.

                                       4

<PAGE>


Employees:

As of December 31, 1998, the Company employed 97 full-time equivalent employees,
including  four  executive  officers.  Management  believes  that the  Company's
relationship with its employees is good.

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
13(c) to the 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.

                                       5

<PAGE>


The Bank:

The Bank, as 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.

Officers:

Leon Zimmerman, age 56, is President and Chief Executive Officer of the Bank and
of the Company;  David M. Philipp,  age 36, is Executive  Vice-President,  Chief
Financial Officer and Secretary of the Bank and of the Company; Lance Gallagher,
age 53, is Senior Vice  President and Operations  Administrator  of the Bank and
the Company: and David Redman, age 54, is Senior Vice President and Chief Credit
Officer of the Bank and of 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 San Joaquin County  Education  Foundation,  Economic  Development Task
Force  and LEED -  Sacramento  Steering  Committee.  He is an  active  member of
Rotary, Chamber of Commerce and several other community groups.

Mr. Philipp joined the Company in April, 1992. Prior to joining the Company, Mr.
Philipp was the Budget  Director and Financial  Analyst for Merksamer  Jewelers,
Inc., at that time the eighth  largest  jewelry  retailer in the United  States,
headquartered in Sacramento,  California.  Prior to joining Merksamer  Jewelers,
Inc., Mr. Philipp was a Supervising  Senior  Accountant in the Sacramento office
of KPMG, LLP. While at KPMG, LLP, Mr. Philipp specialized in providing audit and
accounting  services to financial  institution,  agribusiness,  and broadcasting
clients.  Mr.  Philipp  is a CPA and holds a Bachelor  of  Science  in  Business
Administration,  Accountancy  from California State  University.  He lives in El
Dorado  Hills  with  his  wife  and two  children,  having  been in the  Greater
Sacramento  area for over 25 years.  On March 1, 1999 Mr. Philipp gave notice to
the Company and the Bank of his  intention to resign and pursue  other  business
interests.

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.

Mr. Redman joined the Company in December  1997. He has over 33 years of banking
experience  in  central  California.  He was  previously  President  and  CEO of
Citizens Bank of Paso Robles,  N.A. (1990 to 1995).  Mr. Redman  assisted in the
start up of  Commerce  Bank of San Luis  Obispo  and  served as  Executive  Vice
President (1985 to 1990). Most recently, he was the organizing President and CEO
for Central California Bank (in organization).  His banking experience  includes
several years with two major California banks. Mr. Redman's  education  includes
Porterville  Community College and the University of Washington  Graduate School
of Banking.  Community involvement has included the Jaycees, Lions Club, Kiwanis
Club, Rotary,  Chamber of Commerce,  Downtown Merchants Association and the Elks
Lodge. He lives in Valley Springs with his wife and has three grown children.

                                       6

<PAGE>


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.

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.

                                       7

<PAGE>


As of  December  31,  1998,  the  Bank's  total  risk-based  capital  ratio  was
approximately  11.17  percent  and its  leverage  ratio was  approximately  7.35
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  CAMEL  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 1998.  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  1999,  the  Bank  estimates  that  its  annual
noninterest  expense  attributed  to the regular  assessment  schedule  will not
increase during 1999.

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.

Year 2000 Compliance. The Federal Financial Institutions Examination Council has
issued an interagency statement to the chief executive officers of all federally
supervised  financial  institutions,  including  the Bank,  regarding  Year 2000
project  management  awareness.   Unless  financial   institutions  address  the
technology issues associated with Year 2000, the Council anticipates there could
occur  major  disruptions  in the  operations  of  financial  institutions.  The
interagency statement provides guidance to financial institutions,  to providers
of data services,  and all examining  personnel of the federal banking  agencies
regarding Year 2000 issues.  The federal banking agencies intend to conduct Year
2000 compliance  examinations,  and the failure to implement a Year 2000 program
may  constitute an unsafe and unsound  banking  practice.  See the discussion of
this  subject  at the  heading  "Year  2000  Preparedness"  under Item 7 herein,
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations,   and  at  footnote  23  to  the  Company's  Consolidated  Financial
Statements.

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

                                       8

<PAGE>


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 in 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  which 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.

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.  For  example,  proposed  bank  modernization  legislation  under
consideration would, among other matters, include a repeal of the Glass-Steagall
Act  restrictions  on banks that now prohibit the  combination of commercial and
investment banks.

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.


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.

                                       9

<PAGE>


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, are 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 which has been exercised by the Bank. 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.


ITEM 3. LEGAL PROCEEDINGS

         Not Applicable


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

         Not Applicable


                                     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, 1999, there were 1,037
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 1997 and 1998.

                                          1998                  1997
Bid Price of Common Shares          High        Low        High        Low

First Quarter                   $   13.25      13.00   $   10.25       9.50
Second Quarter                      14.50      13.63       10.25       9.63
Third Quarter                       14.63      13.25       12.75       9.81
Fourth Quarter                      13.38      12.00       13.00      12.13

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.


                                       10
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA

<CAPTION>
         (in  thousands except per share amounts)
         Consolidated Statement of Income               1998      1997     1996      1995      1994
------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>      <C>       <C>       <C>
         Interest Income                          $    11,508    10,592    8,045     8,089     7,462
         Interest Expense                               4,028     3,785    3,254     3,138     2,767
         Net Interest Income                            7,480     6,807    4,791     4,951     4,695
         Provision for Loan Losses                        250       (60)     310       115       323
         Noninterest Income                             1,878     1,423    1,067       940     1,050
         Noninterest Expense                            7,712     6,796    4,654     4,534     5,137
         Net Income                               $     1,052     1,015      640       843       338

         Per Share Data
------------------------------------------------------------------------------------------------------

         Basic Earnings                           $       .78       .77      .49       .65       .26
         Diluted Earnings                                 .74       .73      .48       .64       .26
         Cash Dividends Declared                  $       .20       .20      .20       .15        --

         Consolidated Balance Sheet Data
------------------------------------------------------------------------------------------------------

         Federal Funds Sold                       $     4,800     4,900    1,100     3,300     2,000
         Investment Securities                         45,647    61,917   36,913    36,945    33,100
         Loans, net of loss reserve and
            deferred fees                              91,078    62,228   52,672    50,524    55,812
         Total Assets                                 164,400   147,850  104,913   103,972   105,167
         Total Deposits                               149,544   133,891   92,207    89,216    89,979
         Note Payable                                      --        --       --     2,585     2,618
         Total Stockholders' Equity               $    13,857    12,861   11,889    11,564    10,610
</TABLE>


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.

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 36 through 63, as well as other information  presented throughout
this report.


                                       11
<PAGE>
<TABLE>
<CAPTION>
Summary of Earnings Performance

----------------------------------------------------------------------------------------------------------------------------
                                                                         For the Year Ended December 31:
                                                      ----------------------------------------------------------------------
<S>                                                                 <C>                      <C>                     <C>
                                                                       1998                    1997                    1996

Earnings (in thousands)                                             $ 1,052                   1,015                     640

----------------------------------------------------- ---------------------- ----------------------- -----------------------
Basic earnings per share                                            $   .78                     .77                     .49

Diluted earnings per share                                          $   .74                     .73                     .48

Return on average assets                                              0.68%                   0.75%                   0.60%

Return on average equity                                              7.90%                   8.18%                   5.44%

Dividend payout ratio                                                25.57%                  26.11%                  42.55%

----------------------------------------------------- ---------------------- ----------------------- -----------------------
"Cash" earnings (in thousands) (1)                                  $ 1,268                   1,293                     640

Diluted "cash" earnings per share                                   $   .89                     .93                     .48

"Cash" return on average assets                                       0.82%                   0.96%                   0.60%

"Cash" return on average equity                                       9.52%                  10.42%                   5.44%

----------------------------------------------------- ---------------------- ----------------------- -----------------------
Operating "Cash" earnings (in thousands) (2)                        $ 1,375                   1,293                     640

Diluted operating "cash" earnings per share                         $   .97                     .93                     .48

Operating "Cash" return on average assets                             0.89%                   0.96%                   0.60%

Operating "Cash" return on average equity                            10.32%                  10.42%                   5.44%

----------------------------------------------------- ---------------------- ----------------------- -----------------------
Average equity to average assets                                      8.64%                   9.12%                  11.12%
----------------------------------------------------- ---------------------- ----------------------- -----------------------
<FN>
(1)  "Cash" earnings represent earnings based upon generally accepted accounting
     principles  plus  the  after-tax,   non-cash  effect  on  earnings  of  the
     amortization of intangible assets.  Following the 1997 acquisition of three
     branches from Wells Fargo Bank, the "cash" earnings,  return on assets, and
     return on equity are the most  comparable to prior year  numbers.  They are
     also the more relevant  performance  measures for shareholders because they
     measure the Company's ability to support growth and pay dividends.
(2)  Operating  "Cash" net income is computed by excluding the after-tax  impact
     of  significant  elements of revenue or costs that  obscure  the  operating
     results  of core  operations.  Adjustments  for  the  twelve  months  ended
     December 31, 1998 have been made to exclude from net income the preliminary
     costs of a strategic growth initiative for which the company ceased further
     pursuit in May, 1998.
</FN>
</TABLE>

During  1998,  the Company  aggressively  pursued a number of  strategic  growth
opportunities.  One such  opportunity  significantly  impacted  expenses and the
amount of expenses  related  thereto  has been added back to "cash"  earnings to
determine  operating  "cash"  earnings.  Operating  "cash"  earnings  per  share
increased by 4% in 1998 compared to 1997. If  significant  loan loss  recoveries
were  excluded  from the  computation  of  operating  "cash"  earnings  in 1997,
operating "cash" earnings in 1998 would be approximately  50% greater than 1997.
The  increase  is  attributable  to loan  and  deposit  growth  of 45% and  12%,
respectively,  as well as record levels of mortgage loan  origination  and sales
volumes. As a result of the earnings in 1998, the Company continued the practice
of paying a quarterly dividend of $.05 per share that began in the first quarter
of 1995.

Diluted  earnings  per share for 1998  increased  by 1.4% over 1997,  while 1998
"cash"  earnings  per share  declined by 4%  compared to 1997.  Diluted and cash
earnings per share for 1997 were 52% and 94%, respectively, above the comparable
levels for 1996.  "Cash"  return on equity for 1998  decreased by 9% compared to
1997,  while  "cash"  return on equity  in 1997 was 92%  above  1996.  Financial
leverage  improved as a result of deposit growth in both 1998 and 1997.  Average
equity to  average  assets was  reduced  by 48 and 200 basis  points in 1998 and
1997,  respectively.  As a result each dollar of equity supported $12 and $11 in
assets in 1998 and 1997, respectively,  compared to $11 and $9 in 1997 and 1996,
respectively.  Deposits grew in connection with business  development efforts in
both 1998 and 1997 as well as the acquisition of three branches from Wells Fargo
Bank on February 22, 1997. The acquisition  increased deposits by $34 million as
of the closing date of the transaction.


                                       12
<PAGE>

Earnings  per share  increased in 1997 versus 1996 as a result of a 30% increase
in net interest  income, a 120% reduction in the provision for loan losses and a
31% increase in noninterest  income.  The foregoing  improvements were partially
offset by a 45% increase in  noninterest  expenses.  While net  interest  income
increased in part because of significant loan loss recoveries, the growth in net
interest  income was also the result of both  increases in the volume of earning
assets and deposits and an increase in net interest margin.  Noninterest  income
in 1997 increased due in part to record volumes in both SBA and mortgage lending
of the Bank. Service charges and noninterest expenses increased principally as a
result of the  acquisition  of three  branches from Wells Fargo Bank on February
22, 1997.

Branch Expansion and Acquisitions

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 Folsom office is approximately 45 miles Northeast of
the Bank's corporate  headquarter's 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.



                                       13
<PAGE>
<TABLE>
Net Interest Income

The following table provides a detailed  analysis of net interest spread and net
interest  margin  for the  years  ended  December  31,  1998,  1997,  and  1996,
respectively:
<CAPTION>
------------------------- ------------------------------- -------------------------------- ---------------------------------

                                For the Year Ended              For the Year Ended                For the Year Ended
                                December 31, 1998                December 31, 1997                December 31, 1996
                                  (in thousands)                  (in thousands)                    (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)   $ 53,370       3,431    6.43%     53,580      3,519      6.57%      34,700       2,233     6.44%


Federal funds sold            6,780         348    5.13%      8,400        461      5.49%       3,790         199     5.25%

Loans (2)                    73,720       7,729   10.48%     58,600      6,612     11.28%      54,520       5,613    10.30%
                           --------      ------   ------    -------     ------     ------      ------       -----    ------

                            133,870      11,508    8.60%    120,580     10,592      8.78%      93,010       8,045     8.65%
                           ========      ======   ======    =======     ======     ======      ======       =====     =====

Liabilities:

Noninterest bearing        $ 17,080          --       --     13,470         --         --       8,280          --        --
deposits

Savings, money market,       76,600       1,652    2.16%     67,520      1,660      2.46%      47,820       1,193     2.49%
& NOW deposits

Time deposits                46,800       2,376    5.08%     41,550      2,125      5.11%      34,320       1,799     5.24%

Note payable                     --          --      --         --         --          --       2,440         262    10.74%
                           --------      ------    -----    -------     ------     ------      ------       -----    ------
                         
Total Liabilities          $140,480       4,028    2.87%    122,540      3,785      3.09%      92,860       3,254     3.50%
                           ========      ======    =====    =======     ======     ======      ======       =====    ======

Net Spread                                         5.73%                            5.69%                             5.15%
                                                   =====                           ======                            ======
------------------------- ---------- ----------- -------- ---------- ---------- ---------- ----------- ----------- ---------

                            Earning     Income              Earning    Income                 Earning    Income
                             Assets   (Expense)    Yield     Assets  (Expense)      Yield      Assets   (Expense)     Yield

Yield on average earining                                                    
assets                      133,870      11,508    8.60%    120,580     10,592      8.78%      93,010       8,045     8.65%
                           --------      ------    -----    -------     ------     ------      ------       -----    ------
Cost of funds for average   
earning assets              133,870      (4,028)   3.01%    120,580     (3,785)    (3.13%)     93,010      (3,254)  (3.50)%
                           --------      ------    -----    -------     ------     ------      ------       -----    ------
                                               

Net Interest Margin       $ 133,870       7,480    5.59%    120,580      6,807      5.65%      93,010       4,791     5.15%
                           ========      ======    =====    =======     ======     ======      ======       =====     =====
------------------------- ---------- ----------- -------- ---------- ---------- ---------- ----------- ----------- ---------
<FN>
(1) Income on tax-exempt  securities  has not been adjusted to a tax  equivalent basis.
(2) Nonaccrual loans are included in the loan totals for each year.
</FN>
</TABLE>
Net interest  income  increased by 10% in 1998 after  increasing by 42% in 1997.
The  increase  in 1998 was the  result of both  growth  in  earning  assets  and
deposits as well as decreased  deposit costs.  The increase in 1997 was also the
result of both  growth in  earning  assets  and  deposits  as well as  increased
earning  asset yields and  decreased  deposit  costs.  The increase in 1997 also
included $445 thousand in interest  received in connection with significant loan
loss recoveries. Excluding these recoveries from 1997, net interest income would
have increased by 18% in 1998.

Average earning assets increased by 11% in 1998 compared to 1997 and 30% in 1997
compared to 1996. The increase in average earning assets was driven by growth in
average deposits during both years.  Average  deposits  increased by 15% in 1998
compared to 1997 and 36% in 1997 compared to 1996.

The mix of earning  assets in 1998  changed as a result of  year-over-year  loan
growth of 45%  compared  to 18% in 1997.  Average  loans in 1998  increased  26%
compared to 1997. The increase  absorbed the liquidity  created by the growth in
deposits  during  1998 and offset the  impact of falling  interest  rates in all
asset  categories.  The loan growth also  increased the average


                                       14
<PAGE>

loan-to-deposit   ratio  to  52%  in  1998   compared   to  48%  in  1997.   The
loan-to-deposit  ratio  declined  to 48% in 1997 from 60% in 1996 as a result of
the  deposits  acquired in branch  purchases.  Average  investments  were nearly
unchanged in 1998 compared to 1997.  The  investment  portfolio,  into which the
proceeds from the 1997 branch acquisition were initially invested,  increased on
average by 54% in 1997.

Net interest  margin  declined by 6 basis points in 1998 after  increasing by 50
basis points in 1997. Excluding the impact of interest from the recovery of loan
losses in 1997,  net interest  margin would have increased by 31 basis points in
1998. This adjusted increase in 1998 was the result of several key items:

   o      The impact on average earning asset yields of declining interest rates
          was  overcome  by the  growth in loans  that had  higher  yields  than
          investments and federal funds sold.  While the yields on federal funds
          and  investments  declined  by 36 and 14 basis  points,  respectively,
          earning asset yields decreased by 18 basis points.
   o      The general decline in interest rates helped to bring down the cost of
          average  NOW,  savings  and  certificates  of deposit by 32, 26, and 3
          basis points, respectively.
   o      The mix of noninterest  bearing  deposits  increased to 12% of average
          deposits in 1998 from 11% in 1997.

Net interest  margin  increased by 50 basis points in 1997 after declining by 37
basis points in 1996. The increase in 1997 was the result of several key items:

   o      The general  level of  short-term  interest  rates as indicated by the
          comparative yields on federal funds sold increased by approximately 24
          basis points.
   o      Approximately  $445  thousand in loan interest  income was  recognized
          during 1997 as a result of nonaccrual  loan  payoffs.  The recovery of
          nonaccrual  interest increased loan yields and net interest margin for
          the year by 76 basis points and 37 basis points respectively.
   o      The general decline in interest rates helped to bring down the cost of
          average certificates of deposit by 13 basis points, while a new tiered
          rate pricing  structure for savings,  money  market,  and NOW accounts
          reduced the cost of those funds by 3 basis points.
   o      In addition to changes in the pricing  structure of deposits,  the mix
          of noninterest  bearing and lower cost transaction  accounts increased
          for  1997,  while  the mix of  higher  cost  certificates  of  deposit
          declined.
   o      The mortgage note payable,  which carried a yield of 10.45%,  was paid
          off during November 1996.



                                       15
<PAGE>

<TABLE>
The following table presents the monetary impact of the  aforementioned  changes
in earning asset and deposit  volumes,  yields and mix for the three years ended
December 31, 1998, 1997, and 1996
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------

                                1998 compared to 1997             1997 compared to 1996              1996 compared to 1995
                                   (in thousands)                    (in thousands)                     (in thousands)

                                 Change due to:                     Change due to:                     Change due to:

Interest Income:          Volume     Rate      Mix    Total   Volume    Rate      Mix    Total  Volume    Rate       Mix    Total
                          ------     ----      ---    -----   ------    ----      ---    -----  ------    ----       ---    -----
                         --------------------------------------------------------------------------------------------------------
<S>                      <C>         <C>      <C>     <C>      <C>       <C>   <C>       <C>        <C>    <C>      <C>       <C>
Investment securities    $   391      (79)    (398)     (86)     661      46      578    1,285       67     135      255      457

Federal funds sold            51      (30)    (134)    (113)      59       9      194      262        7     (17)       8       (2)

Loans                        735     (470)     850    1,115    1,664     539   (1,203)   1,000      229    (300)    (428)    (499)
                         -------  -------  -------  -------  ------- -------  -------  -------  ------- -------  -------  -------

Total interest income    $ 1,177     (579)     318      916    2,384     594     (431)   2,547      303    (182)    (165)     (44)
                         =======  =======  =======  =======  ======= =======  =======  =======  ======= =======  =======  =======

Interest Expense:

Noninterest-bearing
deposits                      --       --       --       --       --      --       --       --       --      --       --       --

Savings, money market,   $   243     (206)     (45)      (8)     382     (16)     103      469       56     (27)     (22)       7
& NOW accounts

Time deposits                311      (15)     (45)     251      573     (44)    (205)     324       79      35       13      127

Note payable                  --       --       --       --       84    (262)     (84)    (262)      13      --      (30)     (17)
                         -------  -------  -------  -------  ------- -------  -------  -------  ------- -------  -------  -------


Total interest expense   $   554     (221)     (90)     243    1,039    (322)    (186)     531      148       8      (39)     117
                         =======  =======  =======  =======  ======= =======  =======  =======  ======= =======  =======  =======


Net interest income      $   623     (358)     408      673    1,345     916     (245)   2,016      155    (190)    (126)    (161)
                         =======  =======  =======  =======  ======= =======  =======  =======  ======= =======  =======  =======
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The volume,  rate, and mix variances for net interest income in 1998 compared to
1997 indicate that a negative rate variance driven by falling interest rates was
offset by a positive  mix variance  driven by a 26%  increase in average  loans.
That left the net increase in net  interest  income  approximately  equal to the
positive volume variance from the 11% growth in average earning assets.  The net
interest income rate variance is significantly impacted by $445 thousand in 1997
interest income  recognized in connection with loan loss  recoveries.  Excluding
the recovered  interest from 1997,  the rate variance would have been a positive
$87 thousand  despite falling  earning asset yields.  The benefit from declining
deposit rates more than offsets  declines in interest  income that resulted from
falling earning asset yields.

The  increase  in net  interest  income  for  1997  attributable  to  volume  is
illustrative  of the principal  impact of acquiring  the new branches.  Interest
income  increased by $2.4 million as a result of volume,  while interest expense
increased by $1.0  million.  Approximately  49% of the positive rate variance of
$916 thousand for 1997 compared to 1996 is the result of the nonaccrual interest
recoveries   realized  during  the  year.  The  remainder  of  the  variance  is
principally  the  result of  paying  off the  mortgage  note  payable  and yield
increases for loans and  investments.  The negative  impact of earning asset mix
variances  with respect to loans was  minimized for 1997 relative to 1996 due to
favorable mix changes in the deposit base.  Noninterest  bearing demand deposits
increased  to 11% of average  deposits  for 1997  compared  to 9% for 1996.  NOW
accounts increased to 37% of average deposits compared to 34% in 1996.



                                       16
<PAGE>

Allowance for Loan Losses
<TABLE>
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.
<CAPTION>
--------------------------------------------------------------------------------------------
(in thousands)                           1998        1997        1996       1995       1994
<S>                                   <C>           <C>         <C>        <C>        <C>  
Balance at beginning of period        $ 1,313       1,207         959      1,127        924

Charge-offs:

  Commercial                               67         249         237        357         98

  Real estate                              25        --          --           30       --

  Consumer                                 40          41          97         95         77
                                      -------     -------     -------    -------    -------

  Total Charge-offs                   $   132         290         334        482        175

Recoveries:

  Commercial                              112         434         260        174         37

  Real estate                            --          --          --         --         --

  Consumer                                 21          22          12         25         18
                                      -------     -------     -------    -------    -------

  Total Recoveries                        133         456         272        199         55
                                      -------     -------     -------    -------    -------

Net charge-offs                       $    (1)       (166)         62        283        120

Additions charged to operations           250         (60)        310        115        323
                                      -------     -------     -------    -------    -------

Balance at end of period              $ 1,564       1,313       1,207        959      1,127
                                      =======     =======     =======    =======    =======

Ratio of net charge-offs to average
loans outstanding                       (.001%)      (.28%)      0.11%      0.50%      0.20%
                                      =======     =======     =======    =======    =======
--------------------------------------------------------------------------------------------
<FN>
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.
</FN>
</TABLE>

Charge-off  activity  declined by 54% in 1998 compared to 1997, while recoveries
declined by 71% for the same period.  The decline in  charge-offs  is consistent
with the asset quality statistics  discussed below in the Asset Quality section.
The Bank has not modified or significantly  excepted its underwriting  standards
despite growing competition within the industry.  The decline in recoveries is a
function of the significant recoveries that were realized in 1997.

Charge-off  activity  declined by 31% and 13%,  respectively,  in 1996 and 1997,
while recoveries increased by 37% and 68%,  respectively,  for the same periods.
These trends are consistent with the  improvements  discussed below in the Asset
Quality  section.  The  principal  reason for the  increases in  recoveries  was
improvement  in the repayment  capacity of certain  credits that had  previously
been  charged off  combined  with the Bank's  continued  efforts  subsequent  to
charge-off to work diligently toward collection.



                                       17
<PAGE>





The loan loss provision for 1998 increased  significantly  relative to 1997. The
reason for the increase was twofold.  With  year-over-year  increase in the loan
portfolio of 45%, a larger provision was necessitated by the significant  growth
in lending volume and the losses inherent in that volume. In addition,  the 1997
provision  was  negative  as  a  result  of  the  significant   recoveries  that
effectively  amplified the year-to-year  change in the provision with respect to
both 1998 and 1996. The declining  charge-offs and larger recoveries during 1997
increased the loan loss reserve by more than  management  believed was necessary
to provide for loss  potential in the loan  portfolio.  Accordingly,  a negative
provision resulted from the reversal of a portion of the reserve.  The loan loss
provision  for 1996  exceeded  the  provision  for 1995 by  170%.  Although  net
charge-offs declined from 1995 to 1996, management determined that the loan loss
provision of $310 thousand was necessary to provide for the loss  potential with
respect to a  specific  group of loan  relationships  that  exhibited  increased
credit risk at that time.

Noninterest Income
<TABLE>
Noninterest income increased by 32% and 33% in 1998 and 1997, respectively.  SBA
revenue for 1998 was even with 1997.  The  increases in 1998 came from growth in
the other major  components of noninterest  income:  service  charges,  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 1998, 1997, and 1996:
<CAPTION>
         -------------------------------------------------------------------------------------------------------------
         (in thousands)                                                        1998             1997             1996
         -------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>              <C>
         Periodic deposit account charges                                     $ 352              307              192
         Returned item charges                                                  344              332              259
         Ancillary services charges                                              82               70               33
         Other service charges                                                   68               57               75
                                                                     -------------------------------------------------
              Total service charge revenue                                      846              766              559
                                                                     =================================================

         Gain on sale of SBA loans                                              191              217              163
         SBA loan servicing revenue                                             226              199              183
                                                                     -------------------------------------------------
              Total SBA revenue                                                 417              416              346

         Gain on sale of mortgage loans                                         243               77               44
         Mortgage loan servicing revenue                                         92               53               41
                                                                     -------------------------------------------------
              Total mortgage revenue                                            335              130               85

         Farmer Mac origination, sale and servicing                              32               29               20
                                                                     -------------------------------------------------

               Total loan origination, sale and servicing revenue             $ 784              575              451
         -------------------------------------------------------------------------------------------------------------
</TABLE>

Service charge revenue increased by 10% in 1998 compared to 1997 and 37% in 1997
compared  to 1996.  The growth in service  charge  income for 1998 was driven by
deposit growth.  Average deposits grew 15% in 1998. The growth in service charge
revenue for 1997 resulted  primarily  from the  acquisition of three branches as
discussed above in "Branch  Acquisition." The acquisition  increased deposits by
approximately  37%. In addition to deposit  growth,  the Bank's  service  charge
schedule was reviewed  during 1997,  and certain  rates were  increased in areas
where the Bank's rates were more than competitive.

Revenue  from SBA loan sales was nearly  comparable  to the record  level set in
1997,  when SBA loan sales  revenue  increased by 33% over 1996.  While SBA loan
originations  increased in 1998 relative to 1997, the production  cycle for many
of these loans extended  relative to 1997, and fewer loans were sold.  Partially
disbursed  SBA loans at  December  31, 1998 were $6.4  million  compared to $1.1
million at December  31,  1997.  The 33% increase in 1997 was the result of both
increases  in the  volume  of loans  originated  and  sold as well as a  general
increase in the loan sale premiums realized in the secondary market for SBA loan
sales. During 1996, a new incentive compensation program was put into place. The
program was designed to provide  incentives for increasing levels of production.
As production  increased,  the SBA servicing portfolio increased and resulted in
the  13%  and  9%  increases  in  SBA  servicing  revenue  for  1998  and  1997,
respectively.



                                       18
<PAGE>




Revenue from mortgage loan sales  reached a new record in 1998,  surpassing  the
previous record by 216%.  Mortgage  revenue for 1997 increased by 75% over 1996.
Mortgage  operations were  reorganized in 1994, and part of the annual increases
since that time are the  result of the  relationships  that have been  developed
with  builders,  realtors,  and title  companies.  In  addition  to  reorganized
operations,  housing  activity in the Bank's trade area  continued to improve in
1998,  building on the  improvements in 1997. The Bank continues to package home
construction  and  mortgage  take-out  loans  in a  competitive  manner  and has
successfully  marketed this product in the new trade areas that were opened as a
result of the  acquisition  of branches from Wells Fargo Bank in early 1997 (see
"Branch Acquisition" above).  Finally,  declining mortgage rates during 1998 and
1997 had a favorable impact on mortgage loan refinance volumes.

The Bank began to participate in the Federal  Agricultural  Mortgage Corporation
("Farmer Mac") lending program in late 1994, whereby  qualifying  mortgage loans
on agricultural property are originated and sold.


Noninterest Expenses

Noninterest  expenses  increased by 13% in 1998 compared to 1997 and 46% in 1997
compared  to 1996.  Growth in the Bank's  branch  network in 1998 and 1997 had a
significant  impact  on  year-to-year  comparability  as did  certain  strategic
expenses incurred in 1998.  Noninterest  expenses for 1998 included 12 months of
expenses for the three new branches purchased in 1997 compared to ten months for
those  branches  in 1997.  In  addition,  a loan  production  office in  Folsom,
California was opened in January,  1998, and a full service branch in Elk Grove,
California was opened in August, 1998. Excluding the above factors,  noninterest
expense increased by 5.5% in 1998 compared to 1997.

The single  biggest  factor behind the increase in 1997 compared to 1996 was the
acquisition  of three  branches  from Wells Fargo Bank on  February  22, 1997 as
discussed above in "Branch Acquisition."  Excluding the expenses associated with
the three new  branches in 1997  noninterest  expenses  increased by 17% in 1997
compared to 1996.

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

Salaries and Employee Benefits
<TABLE>
The following  table  provides the detail for each major segment of salaries and
employee benefits together with relevant statistical data:
<CAPTION>
         ---------------------------------------------------------------------------------------------------------------
         (in thousands except full time equivalents)                            1998             1997             1996
        ----------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>              <C>
         Regular payroll, contract labor, and overtime                        $ 2,641            2,298            1,699
         Incentive compensation and profit sharing                                339              335              125
         Payroll taxes and employment benefits                                    576              459              381
                                                                      --------------------------------------------------
              Total Salaries and Employee Benefits                            $ 3,556            3,092            2,205
                                                                      ==================================================
         Number of full-time equivalent employees                               95.00            82.00            62.25
                                                                      --------------------------------------------------
         Regular payroll per full-time equivalent employee                      27.80            28.02            27.29
                                                                      --------------------------------------------------
         Incentive compensation to regular payroll                              12.8%            14.6%             7.4%
                                                                      --------------------------------------------------
         Payroll taxes and benefits per full-time equivalent employee            6.06             5.60             6.12
         ---------------------------------------------------------------------------------------------------------------
</TABLE>                                                              

Total  salaries and benefits  expense  increased by 15% in 1998 and 40% in 1997.
Excluding the timing of expenses from new branches,  the increases  were 10% and
4%  respectively.  The  adjusted  rate of  change  for 1998  includes  both wage
adjustments,  additional  positions added in the mortgage and SBA departments to
support  growth and  supplemental  compensation  accruals  made  pursuant to the
agreements  summarized  in  Footnote  9  to  the  1998  Consolidated   Financial
Statements.  The adjusted rate of change for 1997 reflects wage  adjustments and
higher  incentive  compensation  accruals  related to  increased  profitability.
Regular  payroll  increased by 35% in 1997 compared to 1996 due primarily to the
increase in personnel  from the three  branches  purchased from Wells Fargo Bank
(see "Branch Acquisition  above").  At the closing date of the transaction,  the
branch acquisition added 20 full-time equivalents. Regular payroll per full-time
equivalent declined by less than 1% in 1998 after increasing by 2.7% in 1997.


                                       19
<PAGE>

Incentive  compensation  includes bonus awards 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. The rate of incentive compensation for 1997 was nearly
double the rate in 1996 based upon increased profitability.

Payroll taxes and employee benefits per full-time  equivalent  increased in 1998
compared to 1997 and declined in 1997 compared to 1996.  The increase in 1998 is
related  primarily to  supplemental  compensation  accruals made pursuant to the
agreements  summarized  in  Footnote  9  to  the  1998  Consolidated   Financial
Statements.  The decline in 1997 was because  certain  benefit  expenses did not
increase proportionately with the increase in full-time equivalents.  Despite an
increase of 20 full-time  equivalents,  workers compensation  insurance declined
slightly in 1997,  and medical  insurance per full-time  equivalent  declined by
$377.

Occupancy Expense
<TABLE>
The  following  table  provides  the detail for each major  segment of occupancy
expense:
<CAPTION>
         -------------------------------------------------------------------------------------------------
         (in thousands except square footage and cost per sq. ft.)              1998      1997     1996
         -------------------------------------------------------------------------------------------------
<S>                                                                             <C>       <C>      <C>  
         Depreciation                                                             $289       265      251
         Property taxes, insurance, and utilities                                  220       204      168
         Property maintenance                                                      144       154      109
         Net rental expense  (income)                                               62      (30)     (45)
                                                                               ---------------------------
              Total Occupancy                                                     $715       593      483
                                                                               ===========================
         Square footage of occupied and unoccupied space                        42,945    40,725   28,312
                                                                               ---------------------------
          Occupancy cost per square foot                                        $16.65     14.56    17.06
                                                                               ---------------------------
         Locations                                                                   8         6        3
         -------------------------------------------------------------------------------------------------
</TABLE>

Occupancy  expenses  increased  by 21% in 1998  compared to 1997 and 23% in 1997
compared to 1996.

The  primary  reason  for the  increase  in 1998 is the  increase  in net rental
expense.  The  increase is related to the January  opening of a loan  production
office in Folsom,  California and the August opening of a full service branch in
Elk Grove,  California.  In addition, the Galt branch was relocated in November,
1998.  While the new  rental  expense  in Galt is lower  than it would have been
absent a relocation, it is higher per month than it was in 1997. With respect to
the three  branches  acquired  from Wells Fargo Bank in 1997,  1998 includes two
additional months of occupancy expenses compared to 1997.

The increase in 1997 is  attributable  to the acquisition of three branches from
Wells Fargo Bank (see "Branch Acquisition"). Approximately 13,500 square feet of
space was added by the branch  acquisition.  Two of the locations were purchased
and the third,  representing  6,000 square feet, was leased.  The occupancy cost
per square foot  declined by 15% as the acquired  locations had a lower cost per
square foot than existing locations.


Equipment Expense

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

         -------------------------------------------------------------------
         (in thousands)                    1998          1997          1996
         -------------------------------------------------------------------
         Depreciation                     $ 406           318           232
         Maintenance                        104           136           109
         Rental expense                      26             1            26
                                     ---------------------------------------
              Total Equipment             $ 536           455           367
         -------------------------------------------------------------------

Equipment expense increased by 18% in 1998 compared to 1997 and increased by 24%
in 1997 compared to 1996.


                                       20
<PAGE>

The  increase in 1998 was driven by two  additional  months of costs in 1998 for
the  three  branches  acquired  from  Wells  Fargo  Bank  in 1997  and the  loan
production  office and full service  branch opened in the  communities of Folsom
and  Elk  Grove  California,  respectively,  in  January  and  August  of  1998,
respectively.  The Galt branch was also  relocated in November,  1998,  and some
equipment was replaced.

The increase in 1997 was a function of the  equipment  acquired in, or purchased
as a result of, the  acquisition  of three  branches  from Wells Fargo Bank (see
"Branch  Acquisition").  The  increase  in  1997  was  also  due in  part to the
depreciation expense taken on when a new banking information system, the Phoenix
Banking System, was put into place in June of 1996. 1997 was the first full year
of depreciation  and followed six months of depreciation in 1996. The old system
was no longer operationally or technologically  current. As such, it was subject
to significant  maintenance and repair expenses.  Those costs declined by 24% in
1996 as a result of the new system.  Concurrent  with  conversion to the Phoenix
Banking  System,  the bank also  contracted  with an  outside  vendor to process
customer  checks  and  statements.  These  functions  had  previously  been done
internally with rented  equipment.  As a result of this change,  rental expenses
for equipment were nearly eliminated in 1997 compared to 1996.


 Other Noninterest Expense
<TABLE>
The  following  table  provides  the  detail  for each  major  segment  of other
noninterest expense:
<CAPTION>
         ------------------------------------------------------------------------------------------------------
         (in thousands)                                                 1998             1997             1996
         ------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>              <C>
         Third party data processing                                 $   719              642              371
         Intangible amortization                                         372              479              ---
         Professional fees                                               423              401              372
         Telephone and postage                                           217              182              132
         Director fees and retirement                                    223              150              124
         Office supplies                                                 176              142              113
         Marketing                                                       213              120              121
         Printing                                                        145              117               86
         Other real estate owned losses and holding costs               (12)               94               49
         Business development                                             57               55               43
         Regulatory assessments                                           51               53               40
         Other                                                           320              220              148
                                                               ------------------------------------------------
              Total Other Noninterest Expense                        $ 2,905            2,656            1,599
         ------------------------------------------------------------------------------------------------------
</TABLE>

Other noninterest  expenses increased by 10% in 1998 compared to 1997 and 66% in
1997 compared to 1996.

Approximately  3% out of the 10% increase in 1998 compared to 1997 is the result
of the new branches in 1998 and the inclusion of the three branches  acquired in
1997 for twelve months in 1998 compared to 10 months for 1997.  The remainder of
the increase is driven  primarily by volume  related  costs.  Average  loans and
deposit volumes increased by 26% and 15%, respectively.

The most significant  items behind the increase for 1997 were the acquisition of
three branches from Wells Fargo Bank (see Branch  Acquisition),  the outsourcing
of more  functions to third party  processors  and increased  losses and holding
costs on other real estate owned.

The acquisition of new branches in 1997 affected noninterest expenses in varying
degrees  depending  upon the  fixed or  variable  nature of  expenses.  The most
definitive  impact  was  the  amortization  of the  core  deposit  and  goodwill
intangible  assets purchased in the acquisition.  Amortization for 1997 amounted
to 24% of the purchase  price of the related assets and  represented  45% of the
increase in other  noninterest  expense for 1997  compared to 1996.  The Bank is
using an accelerated  method of amortization for these assets over an eight year
period.  Excluding  intangible  amortization,  the increase in other noninterest
expenses in 1997 was 36%.


                                       21
<PAGE>


As discussed under "Equipment Expense" above, the Bank outsourced the processing
of customer  checks and statements to a third party in June of 1996. As a result
of this change in mid 1996,  third party data processing costs increased in both
1996 and 1997. The acquisition of new branches  approximately doubled the Bank's
customer base and added to the increase in third party data  processing  volumes
for 1997 compared to 1996.

Losses and holding  costs for other real  estate  owned  nearly  doubled in 1997
compared  to 1996.  The Bank  moved  aggressively  in 1997 to reduce  other real
estate owned. In connection with that effort,  carrying values and asking prices
were reduced to facilitate the sale of properties.  In addition,  new properties
were  brought in during  1997 and  increased  holding  costs,  such as taxes and
bonds, compared to 1996.


Income Taxes

The provision for income taxes as a percentage of pretax income for 1998,  1997,
and 1996 was 25%, 32%, and 28%,  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.  Tax exempt income
increased in 1998  compared to 1997 due to an  investment of $4.2 million in the
cash surrender  value of life  insurance as discussed  below under Balance Sheet
Review.  Tax  exempt  income  declined  during  1997 and 1996 in order to recoup
alternative  minimum  taxes paid in previous  periods.  As of December 31, 1998,
substantially all of these credits have been recovered,  and the Company is in a
position to benefit from tax exempt  income on a current  basis.  Footnote 12 to
the Consolidated  Financial  Statements contains a detailed  presentation of the
income  tax  provision  and the  related  current  and  deferred  tax assets and
liabilities.

Balance Sheet Review
<TABLE>
The following table presents average balance sheets for the years ended December
31, 1998, 1997 and 1996.
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                    For the Year Ended          For the Year Ended        For the Year Ended
                                                     December 31, 1998           December 31, 1997         December 31, 1996
                                                      (in thousands)              (in thousands)            (in thousands)
                                               -----------------------------------------------------------------------------
                                                    Amount       Percent        Amount      Percent      Amount     Percent
                                                    ------       -------        ------      -------      ------     -------
----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>          <C>          <C>         <C>         <C>
Assets:

Cash & Due from banks                             $  6,701         4.32%         5,362        3.94%       4,020       3.80%

Federal funds sold                                   6,780         4.37%         8,400        6.17%       3,790       3.58%

Investment securities                               53,370        34.42%        53,580       39.36%      34,700      32.82%

Loans (net of allowance for loan losses and         71,752        46.29%        56,744       41.68%      53,213      50.33%
  deferred income)

Premises and equipment, net                          7,188         4.64%         7,227        5.31%       7,044       6.66%

Other assets                                         9,220         5.96%         4,830        3.54%       2,966       2.81%
                                                  --------       ------        -------      ------      -------     ------  
Total Assets                                      $155,011       100.00%       136,143      100.00%     105,733     100.00%
                                                  ========       ======        =======      ======      =======     ======

Liabilities & Stockholders' Equity:

Deposits                                          $140,480        90.63%       122,540       90.00%      90,420      85.52%

Note payable                                            --           --             --          --        2,440       2.31%

Other liabilities                                    1,215          .78%         1,193         .88%       1,113       1.05%

Stockholders' equity                                13,316         8.59%        12,410        9.12%      11,760      11.12%
                                                  --------       ------        -------      ------      -------     ------ 

Total Liabilities & Stockholders' Equity          $155,011       100.00%       136,143      100.00%     105,733     100.00%
                                                  ========       ======        =======      ======      =======     ======
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       22
<PAGE>

Average  total assets  increased by 14% in 1998 compared to 1997 and 29% in 1997
compared to 1996.  Year-end  asset totals at December  31, 1998  reached  $164.4
million and  represented an increase of 11% over December 31, 1997. The increase
in 1998 is a function of deposit growth throughout the Bank's branch network, as
average  deposits  increased  by 15% in 1998.  The  increase  in 1997 is largely
attributable  to $34  million  in  deposits  acquired  in  connection  with  the
acquisition of three branches from Wells Fargo Bank (see "Branch  Acquisition").
Deposits at December 31, 1997  increased by 45%, or $41.6  million,  compared to
December 31, 1996.  Average deposits for 1997 exceeded 1996 by 36%. The increase
in deposits  reduced the ratio of average  equity to average assets by 200 basis
points in 1997 to 9.12% and provided for a more efficient use of capital.

The  liquidity  generated by the growth in deposits  funded  growth in the loans
during 1998 and both loans and  investment  securities  in 1997.  Average  loans
increased by 26% and 7% in 1998 and 1997, respectively,  while loans at December
31, 1998 and 1997 were 45% and 18%,  respectively,  above the  comparable  prior
year-end totals. The average  investment  portfolio for 1997 was 54% larger than
in 1996.


                                       23
<PAGE>
Investment Securities
<TABLE>
The following table presents the investment portfolio at December 31, 1998, 1997
and 1996 by security type, maturity, and yield:
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                         Book Value at December 31 (in thousands):

                                                                     1998                 1997                   1996
                                                                     ----                 ----                   ----

                                                               Amount    Yield(a)    Amount   Yield(a)     Amount   Yield(a)
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>      <C>         <C>       <C>        <C>
U.S. Treasury Securities:

Within 1 year                                                 $ 1,000       5.87%     2,995      5.94%        600      8.09%

Ater 1 year, within 5 years                                       --         --       1,000      5.87%      3,972      5.93%

After 5 years, within 10 years                                    --         --         --        --          --        --
  
After 10 years                                                    --         --         --        --          --        --
                                                              ---------------------------------------------------------------     

Total U.S. Treasury                                           $ 1,000       5.87%     3,995      5.92%      4,572      6.21%

U.S. Agency Securities:

Within 1 year                                                   1,512       5.68%     2,101      7.06%      4,023      5.94%

After 1 year, within 5 years                                   13,482       6.50%    13,997      6.46%      8,537      6.71%

After 5 years, within 10 years                                  3,000       6.93%     9,986      7.07%      5,038      7.04%

After 10 years                                                  1,500       6.85%     4,993      7.63%        483      8.30%
                                                              --------------------------------------------------------------

Total U.S. Agency                                             $19,494       6.53%    31,077      6.88%     18,081      6.67%

Collateralized Mortgage Obligations:

Within 1 year                                                     --         --         --        --          --        --

After 1 year, within 5 years                                      --         --         225      6.08%        329      5.65%

After 5 years, within 10 years                                    153       5.51%       277      6.27%        376      5.84%

After 10 years                                                    304       8.34%       534      6.57%        534      6.40%
                                                              --------------------------------------------------------------

Total Collateralized Mortgage Obligations                     $   457       7.39%     1,036      6.38%      1,239      6.03%

Municipal Securities:

Within 1 year                                                   1,196       6.20%       688      6.67%        250      6.33%

After 1 year, within 5 years                                    2,439       7.08%     3,118      6.94%      3,455      6.88%

After 5 years, within 10 years                                    --         --         530      7.60%        886      6.14%

After 10 years                                                    --         --         --        --          --        --
                                                              --------------------------------------------------------------

Total Municipals                                              $ 3,635       6.79%     4,336      6.98%      4,591      6.71%

Other Debt Securities:

Within 1 year                                                      93       8.50%        22      7.86%         27      8.57%

After 1 year, within 5 years                                      113       6.83%     2,748      7.41%        492      8.25%

After 5 years, within 10 years                                  2,509       7.28%         7      9.73%      1,097      7.33%

After 10 years                                                    --         --         972      7.67%         33      8.15%
                                                              --------------------------------------------------------------

Total Other Debt Securities                                   $ 2,813       7.36%     3,749      7.48%      1,649      7.64%

Money Market Mutual Fund                                       17,602       4.83%    17,200      6.12%      6,482      5.28%

Federal Agency Stock                                              126       6.00%       126      6.00%         83      6.00%

Unrealized Holding Gain/(Loss)                                    520        --         398        --         216       --
                                                              --------------------------------------------------------------

Total                                                         $45,647       5.93%    61,917      6.59%     36,913      6.39%
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(a)  The yields on tax-exempt obligations have not been computed on a tax-equivalent basis.
</FN>
</TABLE>
                                       24
<PAGE>


The investment portfolio at December 31, 1998 was 26% below the prior year total
after  increasing by 68% in 1997 compared to 1996.  The decline in the portfolio
during 1998 funded increases in loan volume.  The growth in the portfolio during
1997 resulted from the  investment  of the deposit  liquidity  that was received
when the Bank  purchased  three  branches  from Wells  Fargo  Bank (see  "Branch
Acquisition").

With the exception of the sale of money market  mutual fund shares,  the decline
in the portfolio  during 1998 came solely from maturities and calls. The general
decline  in  interest  rates  during  1998  led to the  call of  several  agency
securities  that were  purchased in 1997.  Maturities and calls during 1998 were
approximately  $20.9 million.  At December 31, 1998, the portfolio included $9.0
million in callable agency securities with an average maturity,  months-to-call,
and yield of 8.33%, 7.0%, and 6.9%, respectively.

The growth in the portfolio during 1997 was focused primarily in the U.S. Agency
segment and more  specifically  callable U.S.  Agency bonds.  The callable bonds
provide  attractive  yields  relative  to  noncallable  securities  for the same
contractual maturity.  In a rising rate scenario,  the call option to the issuer
loses economic advantage. As a result, the securities estimated life extends but
the yield in excess of  non-callable  yields at the purchase  date provides some
compensation for the extended life. In a falling rate scenario,  the call option
to the issuer gains economic advantage.  As a result, the likelihood of the bond
being  called  increases.  While the  proceeds  from the call  would  need to be
reinvested at lower rates,  the higher  coupon on the callable bond  compensates
for the risk of the bond  being  called.  The  callable  U.S  Agency  securities
purchases were diversified.  Final maturities ranged from three to fifteen years
with call  protection  from three months to two years. At December 31, 1997, the
Bank's  callable U.S.  Agency  portfolio  totaled $21 million and had an average
final maturity of nine years with average call protection of ten months.

A portion of the investment  portfolio  contains  structured  notes.  Structured
notes generally carry terms that reference some index or predefined  schedule as
a means of  determining  the coupon rate of interest to be paid on the security,
and there may also be  interest  rate caps or floors  that  limit the  extent to
which the coupon rate can adjust in any given period  and/or for the life of the
security.  Depending upon the referenced index or predefined schedule as well as
the interest rate cap or floor,  the coupon rate of a structured  note can lead,
lag, move in tandem with, or move in the opposite  direction of market  interest
rates.  As a result,  the market value of the note can be favorably or adversely
impacted depending upon the direction and magnitude of change in market interest
rates.  Structured  notes may also contain  provisions  that give the issuer the
right to call  the  security  away  from the  owner  at a  predetermined  price;
therefore, the contractual, expected, and actual final maturity of the notes may
differ. Both the collateralized  mortgage  obligations and the structured agency
bonds are considered to be derivative  securities under the broadest definitions
of  derivatives,  however,  derivative  investments in the Bank's  portfolio are
structured  such that they fall on the  conservative  end of the derivative risk
spectrum.

The amortized cost of the Bank's  structured note portfolio at December 31, 1998
and 1997 was  $.50  million  and $1.0  million,  respectively,  and  represented
approximately  1.1% and 1.6%,  respectively,  of the investment  portfolio.  The
market value of the structured  note portfolio at December 31, 1998 and 1997 was
$.50 million and $1.0 million,  respectively.  All of the structured  notes were
issued by Federal  Agencies and therefore carry the implied AAA credit rating of
the Federal  Government.  The structured note portfolio at December 31, 1998 and
1997 carries only floating rate coupons that generally lag overall  movements in
market interest rates.


                                       25
<PAGE>

Loans
<TABLE>
The following  table  summarizes  gross loans and the  components  thereof as of
December 31 for each of the last five years:
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                              Outstanding at December 31 (in thousands):
                                   -----------------------------------------------------------------------------------------
                                             1998              1997              1996              1995              1994
                                             ----              ----              ----              ----              ----
----------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>               <C>               <C>                <C>
Commercial                                 $77,956            53,684            45,322            41,538             44,847

Real estate construction                    11,743             6,900             5,802             7,549              9,809

Installment and other                        3,463             3,525             3,155             2,757              2,656
                                           -------            ------            ------            ------             ------

                                           $93,162            64,109            54,279            51,844             57,312
                                           =======            ======            ======            ======             ======
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Gross loans outstanding as of December 31, 1998 and 1997 exceeded the comparable
prior  year-end  totals  by  45%  and  18%,  respectively.   Improving  economic
conditions and business  development  efforts were the foundation for the growth
in both years. A significant amount of effort was put forth by management during
1994 to improve  the credit  quality of the loan  portfolio  and alter the labor
intensiveness  of certain  segments  of the  portfolio.  The  portfolio  dollars
declined  in 1995 as a result  of these  efforts.  During  1995 and  thereafter,
management's focus expanded to business development and the approach to business
development  was refined.  The growth in 1996 through  1998 is  attributable  to
diligent application of those business development disciplines.

The most significant  segment of the loan portfolio is commercial  loans,  which
represented 84% of the total portfolio at December 31, 1998 and 1997. 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 14% and 21% of the commercial loan portfolio at
December 31, 1998 and 1997,  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 related to the real estate market.
<TABLE>
The maturity and repricing characteristics of the loan portfolio at December 31,
1998 are as follows:
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Due:  (1)                                             Fixed Rate           Floating Rate                 Total
                                                      ----------           -------------                 -----
<S>                                                     <C>                       <C>                   <C>
In 1 year or less                                       $ 13,039                  18,294                31,333

After 1 year through 5 years                              20,867                  15,916                36,783

After 5 years                                              9,705                  15,341                25,046
                                                        --------                  ------                ------

Total Loans                                             $ 43,611                  49,551                93,162
                                                        ========                  ======                ======
---------------------------------------------------------------------------------------------------------------
<FN>
(1)  Scheduled  repayments  are reported in the  maturity  category in which the payment is due.
</FN>
</TABLE>

Approximately  47% of the loan portfolio  carries a fixed rate of interest as of
December 31, 1998, while  approximately 73% of the portfolio matures within five
years.



                                       26
<PAGE>

Deposits
<TABLE>
The following table summarizes  average deposit balances and rates for the years
ended December 31, 1998, 1997, and 1996:
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
(in thousands)                               For the Year Ended          For the Year Ended            For the Year Ended
                                              December 31, 1998           December 31, 1997             December 31, 1996

         Type                                Average      Average         Average     Average          Average       Average
                                              Amount         Rate          Amount        Rate           Amount         Rate
----------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>            <C>          <C>             <C>           <C>
Demand - non-interest bearing               $ 17,080          N/A          13,470         N/A            8,280          N/A

NOW accounts                                  34,311        1.31%          27,520       1.68%           19,561        1.89%

Money market accounts                         16,829        3.13%          17,870       3.09%           12,469        2.95%

Savings                                       25,460        2.66%          22,130       2.92%           15,790        2.89%

Time deposits                                 46,800        5.08%          41,550       5.11%           34,320        5.24%
                                            --------        -----         -------       -----           ------        -----

Total Deposits                              $140,480        2.87%         122,540       3.09%           90,420        3.31%
                                            ========        =====         =======       =====           ======        =====
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Average  deposits  increased  by  approximately  15% and 36% in 1998  and  1997,
respectively,  while the average rate  declined by 22 basis points in each year.
The deposit growth in 1998 came from account  growth at all branches  throughout
the Bank's network. The growth was the result of business development efforts in
the lending area as well as a continued  influx of "large" bank  customers  that
have grown tired of merger  activity among large  institutions.  The majority of
the deposit growth in 1997 came from the  acquisition of three branches with $34
million in  deposits  from Wells Fargo Bank on  February  22, 1997 (see  "Branch
Acquisition").  Deposits also grew as a result of internal  growth that resulted
from the focused business development efforts of Bank officers and staff.

The reduced  rates on the deposit  portfolio  in 1998 and 1997 are a function of
changes in mix,  pricing,  and the general level of interest  rates.  The mix of
deposits has become more cost  efficient  over the past three years.  The mix of
noninterest  bearing  deposits was 12%,  11%, and 9% for 1998,  1997,  and 1996,
respectively.  The mix of certificates of deposit  declined  significantly  from
1996 to 1997 in favor of NOW,  money market and savings  accounts.  The savings,
money market,  and NOW accounts  were repriced in early 1997.  The basis used to
pay  interest  on  these  accounts  was  changed  from a flat  rate of  interest
regardless  of balance to a tiered rate of  interest  with  increasingly  higher
rates paid on  incrementally  higher  balances.  The base  rates in the  pricing
mechanism for these accounts have been reduced in  conjunction  with the overall
decline in market interest rates.

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 32% of the certificate
of  deposit  portfolio  at  December  31,  1998,  and the  maturities  of  those
certificates are as follows:

------------------------------------------------------------------------------
(in thousands)                                                           1998
                                                                         ---- 
Three months or less                                                  $ 9,054

Four months to six months                                               2,609

Seven months to twelve months                                           2,694

Over twelve months                                                        608

Total time deposits of $100,000 or more                               $14,965
                                                                      =======
------------------------------------------------------------------------------



                                       27
<PAGE>

Asset Quality
<TABLE>
The following table contains asset quality  information with respect to the loan
portfolio and other real estate owned:
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                    Asset Quality Statistics at December 31

(in thousands except multiples and percentages)             1998           1997           1996           1995          1994
----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>            <C>            <C>           <C>
Nonaccrual loans                                          $  248            340            898            987           765

Accruing loans past due more than 90 days                    191             65             52            118            40
                                                          ------          -----          -----          -----         -----

Total nonperforming loans                                 $  439            405            950          1,105           805
                                                          ======          =====          =====          =====         =====

Allowance for loan losses                                  1,564          1,313          1,207            959         1,127

Allowance for loan losses to nonperforming loans            356%           324%           127%            87%          140%

Total loan portfolio delinquency                           1.40%          1.09%          2.14%          2.57%         2.71%

Allowance for loan losses to total gross loans             1.69%          2.05%          2.22%          1.85%         1.97%

Other real estate owned                                   $  129            159            400            357           175
----------------------------------------------------------------------------------------------------------------------------
</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 $2,000,  $8,000,  $7,000, $13,000 and $14,000 in 1998, 1997, 1996,
1995 and 1994, respectively. Interest income foregone or reversed on these loans
was  approximately  $43,000,  $45,000,  $149,000,  $161,000 and $74,000 in 1998,
1997,  1996, 1995 and 1994,  respectively.  At December 31, 1998,  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.
<TABLE>
Nonperforming  loans increased by 8%, or $34 thousand,  after having declined in
1997 and 1996.  Portfolio  delinquency also declined in 1997 and 1996, while the
1998 level increased to 1.4% The allowance for loan losses increased for each of
the last three  years after  declining  by 15% in 1995  compared  to 1994.  As a
result, the allowance coverage ratio for nonperforming  loans increased in 1996,
1997, and 1998,  reaching 3.56 times at December 31, 1998.  Notwithstanding  the
stable asset quality  statistics in 1998 and 1997, the allowance for loan losses
was  increased  in order to provide for the inherent  loss  potential in the new
loan  portfolio  growth.  The following  table  summarizes the allocation of the
allowance for loan losses at December 31 for each of the last five years:
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------

(in thousands)        December 31, 1998    December 31, 1997   December 31, 1996    December 31, 1995    December 31, 1994
                      -----------------    -----------------   -----------------    -----------------    -----------------
except percentages

Loan Category           Amount         %    Amount          %    Amount         %     Amount         %     Amount         %
                        ------              ------               ------               ------               ------
                                   Loans                Loans               Loans                Loans                Loans
                                   -----                -----               -----                -----                -----
<S>                      <C>      <C>        <C>       <C>        <C>     <C>            <C>   <C>          <C>     <C>
Commercial              $  240    63.16%       309     60.95%       490    91.42%        295    84.29%        376    78.25%

Real estate                129    33.95%       192     37.87%        45     8.40%         38    10.86%        121    17.12%

Consumer                    11     2.89%         6      1.18%         1     0.19%         17     4.86%          4     4.63%

Unallocated              1,184    N/A          806     N/A          671    N/A           609    N/A           629    N/A
                         -----   -------     -----    -------     -----   -------        ---   -------      -----   -------

                        $1,564   100.00%     1,313    100.00%     1,207   100.00%        959   100.00%      1,127   100.00%
                         =====   =======     =====    =======     =====   =======        ===   =======      =====   =======
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Please also see "Allowance for Loan Losses".



                                       28
<PAGE>




Market Risk
<TABLE>
While there are several  varieties of market risk,  the market risk  material to
the Company and the Bank is interest  rate risk.  Within the context of interest
rate risk,  market  risk is the risk of loss due to  changes in market  interest
rates that have an adverse effect on net interest income,  earnings,  capital or
the fair  value of  financial  instruments.  Exposure  to this type of risk is a
regular part of a financial institution's operations. The fundamental activities
of making  loans,  purchasing  investment  securities,  and  accepting  deposits
inherently  involve  exposure  to interest  rate risk.  As  described  in "Asset
Liability  Management," the Company monitors the repricing  differences  between
assets and liabilities on a regular basis and estimates exposure to net interest
income,  net income,  and capital based upon assumed changes in the market yield
curve. The following table summarizes the expected maturity, principal repayment
and fair value of the  financial  instruments  that are  sensitive to changes in
interest rates as of December 31, 1998.

<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                  Expected Maturity / Principal Repayment                   Total        Fair
In Thousands                          1999        2000        2001        2002        2003     after 03    Balance       Value
--------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>            <C>         <C>         <C>         <C>        <C>         <C>          <C>
Interest-Sensitive Assets:
Federal funds sold                $  4,800         --          --          --          --          --        4,800        4,800
Fixed rate investments (1)           3,346       1,982       4,554       5,233       1,585       9,315      26,015       26,015
Floating rate investments (1)       18,102         --          --           91         --        1,439      19,632       19,632
Fixed rate loans (2)                13,039       3,333       5,066       6,628       5,840       9,705      43,611       44,481
Floating rate loans (2)             18,294       4,862       1,633       3,700       5,721      15,341      49,551       49,551

Interest-Sensitive Liabilities:
NOW account deposits (3)               --          --          --          --          --       36,181      36,181       36,181
Money market deposits (3)              --          --          --          --          --       19,482      19,482       19,482
Savings deposits (3)                   --          --          --          --          --       25,987      25,987       25,987
Certificates of deposit             45,799       2,234         371         615         340         --       49,359       49,447

Interest-Sensitive Off-Balance
Sheet Items:
Loans serviced for others              --          --          --          --          --          --       66,903          670
Commitments to lend                    --          --          --          --          --          --       21,290          213
Standby letters of credit              --          --          --          --          --          --          156            2
--------------------------------------------------------------------------------------------------------------------------------
<FN>
(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.
(3)  NOW, money market and savings  deposits do not carry  contractual  maturity
     dates;  therefore,  they have been shown in the "after  03"  category.  The
     actual  maturities of NOW,  money market,  and savings  deposits could vary
     substantially if future  prepayments  differ from the Company's  historical
     experience.
</FN>
</TABLE>




                                       29
<PAGE>




Asset Liability Management
<TABLE>
The primary goal of the Company's  asset and liability  management  system is to
maximize net interest  margin within  reasonable risk parameters with respect to
the  maturity  and  pricing  structure  of assets and  liabilities.  The Company
monitors the repricing  differences  between assets and liabilities on a regular
basis and estimates  exposure to net interest  income,  net income,  and capital
based upon  assumed  changes in the market  yield  curve.  The  following  table
summarizes the repricing intervals for the balance sheet at December 31, 1998:

----------------------------------------------------------------------------------------------------------------------------
                                                                By Repricing Interval
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(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           $   4,800            --            --            --            --            --          4,800

Investment securities           19,225            148         4,126        16,473         5,675           --         45,647

Loans                           51,324          3,881         3,369        22,285        12,303           --         93,162

Noninterest earning assets
and allowance for loan
losses                             --             --            --            --            --         20,791        20,791
                           -------------------------------------------------------------------------------------------------

Total Assets                 $  75,349          4,029         7,495        38,758        17,978        20,791       164,400
                           =================================================================================================

Liabilities and
Stockholders' Equity

Savings, money market &
NOW deposits                 $  81,650            --            --            --            --            --         81,650

Time deposits                   25,573         10,097        10,129         3,560           --            --         49,359

Other liabilities and
stockholders' equity               --             --            --            --            --         33,391        33,391
                           -------------------------------------------------------------------------------------------------

Total Liabilities and        $ 107,223         10,097        10,129         3,560           --         33,391       164,400
Stockholders' Equity
                           =================================================================================================

Interest Rate                $ (31,874)        (6,068)       (2,634)       35,198        17,978       (12,600)          --
Sensitivity Gap
                           =================================================================================================

Cumulative Interest Rate     $ (31,874)       (37,942)      (40,576)       (5,378)      (12,600)         --             --
Sensitivity Gap
---------------------------=================================================================================================
</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.



                                       30
<PAGE>


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.

Liquidity

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 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, 1998, 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.  Compared  to 1997,  liquidity
declined in 1998 as a result of the growth in loans.  The growth was  adequately
funded by investment portfolio maturities and deposit portfolio growth.

Capital Resources

Consolidated  capital increased by $1 million,  or 8%, during 1998. The increase
was due  primarily  to net  income of $1.05  million.  The  increase  in the net
unrealized gain on available for sale  securities of $84 thousand  together with
capital  paid in upon  exercise of stock  options of $129  thousand  offset $269
thousand in capital used to pay dividends.  The  consolidated  capital to assets
ratio  declined by 27 basis  points,  to 8.43% from 8.70%,  due to the growth in
assets related to the growth in deposits.

The Bank's total  risk-based  and leverage  capital  ratios at December 31, 1998
were 11.17% and 7.35%, respectively,  at December 31, 1998 compared to 12.9% and
7.1%,  respectively,  at December 31, 1997. The decline in the total  risk-based
ratio reflects the additional leverage created by the growth in deposits as well
as increased lending which moves assets from lower risk-weight categories to the
higher  risk-weight  categories  of loans.  The total  risk-based  and  leverage
capital  ratios at December 31, 1998,  are in excess of the required  regulatory
minimums of 10% and 5%, respectively, for well-capitalized institutions.

Year 2000 Preparedness

Preparedness  for the year 2000 date change with respect to computer  systems is
recognized as a serious issue throughout the banking industry.  Both the Company
and the Bank have a detailed year 2000 compliance plan that has been approved by
their  respective  boards of directors.  The  potential  impact of the Year 2000
compliance  issue on the  financial  services  industry  could be  material,  as
virtually  every aspect of the industry and processing of  transactions  will be
affected. Due to the size of the task facing the financial services industry and
the  interdependent  nature of its  transactions,  the Company may be  adversely
affected by this problem, depending on whether it and the entities with which it
does business address this issue successfully. The impact of Year 2000 issues on
the Company will depend not only on corrective  actions that the Company  takes,
but also on the way in which Year 2000  issues  are  addressed  by  governmental
agencies,  businesses and other third parties that provide  services or data to,
or receive services or data from, the Company,  or whose financial  condition or
operational capability is important to the Company.


                                       31
<PAGE>

The Company's State of Readiness

The Company  engages the services of  third-party  software  vendors and service
providers for  substantially  all of its electronic data  processing.  Thus, the
focus  of the  Company  is to  monitor  the  progress  of its  primary  software
providers toward Year 2000 compliance and prepare to test future-data  sensitive
data of the Company in simulated processing.

The Company's Year 2000 compliance  program has been divided into phases, all of
them common to all  sections of the  process:  (1)  inventorying  date-sensitive
information  technology and other business systems;  (2) assigning priorities to
identified  items and assessing the efforts required for Year 2000 compliance of
those  determined  to be material to the  Company;  (3)  upgrading  or replacing
material  items that are  determined  not to be Year 2000  compliant and testing
material items; (4) assessing the status of third party risks; and (5) designing
and implementing contingency and business continuation plans.

As part of the on-going  supervision of the banking  industry,  bank  regulatory
agencies are  continuously  surveying the Company's  progression  and results of
each one of these phases.

In the first  phase,  the  Company  conducted a thorough  evaluation  of current
information technology systems, software and embedded technologies, resulting in
the identification of 21 Mission Critical Systems that could be affected by Year
2000 issues. Non-information technology systems such as climate control systems,
elevators and vault security  equipment,  were also surveyed.  This stage of the
Year 2000 process is complete.

In phase  two of the  process,  results  from the  inventory  were  assessed  to
determine  the Year 2000 impact and what  actions  were  required to obtain Year
2000  compliance.  For the Company's  mission-critical  systems,  actions needed
consist principally of upgrades to application versions that vendors have tested
for Year 2000  compliance.  The Bank's  core  information  system is The Phoenix
Banking System (PBS) from Phoenix International Ltd., which was developed in the
early  1990's.  The Bank  converted  to PBS in 1996.  PBS was  developed  with a
four-digit  year field.  Phoenix  International  Ltd.  has  completed  year 2000
testing  on  version  2.01 of PBS.  No code  changes  to PBS were  necessary  to
complete those tests.

The third  phase  includes  the  upgrading,  replacement  and/or  retirement  of
systems,  and  testing.  This stage of the Year 2000  process was  substantially
completed for mission critical systems by February 28, 1999. The Company and the
Bank  upgraded  to version  2.01 of PBS  during  the fourth  quarter of 1998 and
completed  on-site  testing by January 31, 1999.  Each of the  upgrades,  to the
extent  economically  feasible,  is run through a test environment  before it is
implemented.  It is also tested to see how well it integrates with the Company's
overall  data  processing  environment.  Final  "future-date"  testing of system
upgrades and replacements is scheduled to be completed by March 31, 1999.

The  fourth  phase,  assessing  third  party  risks,  includes  the  process  of
identifying  and  prioritizing  critical  suppliers  and customers at the direct
interface  level,  as well as other  material  relationship  with third parties,
including various  exchanges,  clearing houses,  other banks,  telecommunication
companies and public utilities.  This evaluation includes communicating with the
third  parties  about their plans and progress in  addressing  Year 2000 issues.
Detailed  evaluations  of the most critical  third parties have been  initiated.
These evaluations will be followed with contingency plans, which are ongoing and
scheduled to be completed in the second quarter of 1999,  with follow up reviews
scheduled through the remainder of 1999.

Contingency Plan

The  final  phase of the  Company's  Year 2000  compliance  program  relates  to
contingency plans. The Company maintains  contingency plans in the normal course
of business designed to be deployed in the event of various  potential  business
interruptions.  These  plans have been  expanded to address  Year  2000-specific
interruptions such as power and telecommunication  infrastructure  failures, and
will continue to be supplemented if and when the results of systems  integration
testing identify  additional business functions at risk. The Company is defining
core business  processes  that are dependent upon  mission-critical  systems and
reviewing  the business  impact on those  processes  from the failure of mission
critical systems in order to develop specific  business  resumption  contingency
plans.



                                       32
<PAGE>

Costs

As the Company relies upon third-party  software  vendors and service  providers
for substantially all of its electronic data processing, the primary cost of the
Year 2000 Project has been and will continue to be the  reallocation of internal
resources and, therefore, does not represent incremental expense to the Company.
Management  estimates  that the  incremental  cost of mitigating  Year 2000 risk
exclusive of  management  time that has been  redirected to focus on this matter
will be approximately $50 thousand.

Risks

Failure to correct a material Year 2000 problem could result in an  interruption
in, or a failure of,  certain  normal  business  activities or  operations.  The
Company believes that, with the  implementation of upgraded business systems and
completion of the Year 2000 Project as scheduled, the possibility of significant
interruptions  of normal  operations due to the failure of those systems will be
reduced.   However,   the  Company  is  also   dependent   upon  the  power  and
telecommunications  infrastructure within the United States, and processes large
volumes of transactions through various clearing houses and correspondent banks.
The most  reasonably  likely worst case  scenario  would be that the Company may
experience  disruption in its operations if any of these  third-party  suppliers
reported a system failure.  Although the Company's Year 2000 Project will reduce
the level of  uncertainty  about the  compliance  and  readiness of its material
third-party  providers,  due to the general uncertainty over Year 2000 readiness
of these third-party suppliers,  the Company is unable to determine at this time
whether the consequences of Year 2000 failures will have a material impact.


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


                                    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 May 18,
1999, 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.


                                       33
<PAGE>

                                     PART IV

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

        (a)    Financial Statements and Schedules                 Page Reference

               Independent Auditors' Report                               37
               Consolidated Balance Sheets as of
                 December 31, 1998 and 1997.                              38
               Consolidated Statements of Changes in Equity
                 Years Ended 1998, 1997, and 1996                         39
               Consolidated Statements of Income
                 Years Ended 1998, 1997, and 1996                         40
               Consolidated Statements of Cash Flows
                 Years Ended 1998, 1997, and 1996                         41
               Notes to Consolidated Financial Statements                 42


        (b)    Reports on Form 8-K

               On October 30, 1998 the  Company  filed a Current  Report on Form
               8-K regarding  its press release of the same date,  reporting the
               Company's  results of operations for the quarter ended  September
               30,  1998  and the  declaration  of a cash  dividend  of $.05 per
               share,  payable  November 27, 1998 to  shareholders  of record on
               November 13, 1998.

               On January 29, 1999 the  Company  filed a Current  Report on Form
               8-K regarding  its press release of the same date,  reporting the
               Company's  results of operations  for the year ended December 31,
               1998 and the  declaration  of a cash  dividend of $.05 per share,
               payable  February 26, 1999 to  shareholders of record on February
               12, 1999.

        (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.

                  4             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.

                  10(a)         First  Financial  Bancorp  1991  Director  Stock
                                Option  Plan  and  form  of  Nonstatutory  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.


                                       34
<PAGE>

                  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 (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   Nonstatutory    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)         Employment  Agreement  dated as of September 30,
                                1998,  between First Financial Bancorp and David
                                M.  Philipp,  filed  as  Exhibit  10(i)  to  the
                                Company's  Quarterly Report on Form 10-Q for the
                                quarter  ended  September  30,  1998,  is hereby
                                incorporated by reference.

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

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


                                       35
<PAGE>

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

                  11            Statement re  computation  of earnings per share
                                is incorporated herein by reference to Footnotes
                                1(k)  and  13  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.

                  27            Financial Data Schedule.

        (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.



                                       36
<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,  1998 and 1997,  and the related
consolidated statements of income,  stockholders' equity and cash flows for each
of  the  years  in  the  three-year   period  ended  December  31,  1998.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of First  Financial
Bancorp and  subsidiaries  as of December 31, 1998 and 1997,  and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.


                                                     /s/ KPMG LLP


Sacramento, California

February 19, 1999



                                       37
<PAGE>



<TABLE>

                              FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                                    Consolidated Balance Sheets
                                           (in thousands)
                                     December 31, 1998 and 1997

<CAPTION>
Assets                                                                     1998       1997
------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>
Cash and due from banks (note 2)                                       $  7,329      7,183
Federal funds sold                                                        4,800      4,900
Investment Securities:  (note 3)
     Held-to-maturity securities (at amortized cost, market
     value of $1,785 in 1997)                                              --        1,716
     Available-for-sale securities at fair value                         45,647     60,201
------------------------------------------------------------------------------------------
         Total investments                                               45,647     61,917

Loans, net of deferred loan fees and allowance for loan losses of
$2,084 and $1,881 in 1998 and 1997, respectively (notes 4 & 14)          91,078     62,228

Premises and equipment, net (note 5)                                      7,261      7,233
Accrued interest receivable                                               1,353      1,473
Other Assets (note 6)                                                     6,932      2,916
------------------------------------------------------------------------------------------
                                                                       $164,400    147,850
==========================================================================================

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

Liabilities:
Deposits (notes 7 & 14):
     Noninterest bearing                                               $ 18,535     14,928
     Interest bearing                                                   131,009    118,963
------------------------------------------------------------------------------------------
         Total deposits                                                 149,544    133,891


Accrued interest payable                                                    389        429
Other liabilities                                                           610        669
------------------------------------------------------------------------------------------

         Total liabilities                                              150,543    134,989

Stockholders' equity (notes 13 & 17):
Common stock - no par value; authorized 9,000,000 shares, issued and
outstanding in 1998, 1,349,292 shares;  in 1997, 1,332,842 shares         7,584      7,455
Retained earnings                                                         5,971      5,188
Accumulated other comprehensive income                                      302        218
------------------------------------------------------------------------------------------
         Total stockholders' equity                                      13,857     12,861
------------------------------------------------------------------------------------------
         Commitments and contingencies (notes 8, 9, 10 & 19)
                                                                       $164,400    147,850
==========================================================================================
<FN>
           See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


<PAGE>



<TABLE>

                                      FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                                         Statements of Stockholders' Equity
                                        (in thousands except share amounts)
                                    Years Ended December 31, 1998, 1997 and 1996

<CAPTION>
                                                                                           Accumulated
                                        Common       Common                                   Other
                                         Stock        Stock     Comprehensive   Retained  Comprehensive
            Description                 Shares       Amounts        Income      Earnings     Income          Total
------------------------------------- ------------ ------------ --------------- -------- ---------------- ------------
<S>                                     <C>         <C>           <C>           <C>             <C>         <C>
Balance at December 31, 1995            1,306,996   $  7,314                    4,059           191         11,564


Comprehensive income:
   Net income                                                     $     640       640                          640
                                                                ---------------
   Other comprehensive loss:
      Unrealized holding losses arising
      during the current period, net of tax                          
      effect of $48                                                     (64)
                                                                ---------------
          Total other comprehensive loss                                (64)                    (64)           (64)
                                                                ---------------
   Comprehensive income                                           $     576                                     
                                                                ===============
Options exercised (Note 13)                 1,954         10                                                    10
Cash dividend declared (Note 13)                                                 (261)                        (261)
                                      -------------------------                 --------------------------------------
Balance at December 31, 1996            1,308,950      7,324                    4,438           127         11,889
Comprehensive income:
   Net income                                                     $   1,015     1,015                        1,015
                                                                ---------------
   Other comprehensive income:
      Unrealized holding gains arising
      during the current period, net of tax
      effect of $92                                                      91
                                                                ---------------
          Total other comprehensive income                               91                      91             91
                                                                ===============
   Comprehensive income                                           $   1,106
                                                                ===============
Options exercised (Note 13)                23,892        131                                                   131
Cash dividend declared (Note 13)                                                 (265)                        (265)
                                      --------------------------------------------------------------------------------
Balance at December 31, 1997            1,332,842      7,455                    5,188           218         12,861
Comprehensive income:
   Net income                                                     $   1,052     1,052                        1,052
                                                                ---------------
   Other comprehensive income:
      Unrealized holding gains arising
      during the current period, net of tax                              
      effect of $39                                                      84
                                                                ---------------
          Total other comprehensive income                               84                      84             84
                                                                ---------------
   Comprehensive income                                           $   1,136
                                                                ===============
Options exercised (Note 13)                16,450        129                                                   129
Cash dividend declared (Note 13)                                                 (269)                        (269)
                                      -------------------------                 --------------------------------------
Balance at December 31, 1998            1,349,292   $  7,584                    5,971           302         13,857
                                      =========================                 ======================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>



                                       39
<PAGE>




<TABLE>
                                      FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                                         Consolidated Statements of Income
                                      (in thousands except per share amounts)
                                    Years Ended December 31, 1998, 1997 and 1996


<CAPTION>
                                                         1998                1997               1996
--------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                      <C>                 <C>
         Interest income:
              Loans, including fees                $     7,729               6,612              5,613
              Interest on investment securities 
              availablefor sale:
                  Taxable                                3,191               3,252              1,918
                  Exempt from Federal taxes                240                 150                202
              Interest on investment securities held
              to maturity:
                  Exempt from Federal taxes                --                  117                113
         Federal funds sold                                348                 461                199
--------------------------------------------------------------------------------------------------------------------
                  Total interest income                 11,508              10,592              8,045
         Interest expense:
              Deposit accounts                           4,028               3,785              2,992
              Other                                        --                  --                 262
--------------------------------------------------------------------------------------------------------------------
                  Total interest expense                 4,028               3,785              3,254
--------------------------------------------------------------------------------------------------------------------
                  Net interest income                    7,480               6,807              4,791
--------------------------------------------------------------------------------------------------------------------
         Provision for loan losses (note 4)                250                 (60)               310
                  Net interest income after provision
                      for loan losses                    7,230               6,867              4,481
         Noninterest income:
              Service charges                              846                 766                559
              Premiums and fees from SBA and
                      mortgage operations                  784                 575                451
              Other                                        248                  82                 57
--------------------------------------------------------------------------------------------------------------------
                  Total noninterest income               1,878               1,423              1,067
         Noninterest expense:
              Salaries and employee benefits             3,556               3,092              2,205
              Occupancy                                    715                 593                483
              Equipment                                    536                 455                367
              Other (Note 11)                            2,905               2,656              1,599
--------------------------------------------------------------------------------------------------------------------
                  Total noninterest expense              7,712               6,796              4,654
--------------------------------------------------------------------------------------------------------------------
         Income before provision for income
              taxes                                      1,396               1,494                894
         Provision for income taxes (note 12)              344                 479                254
--------------------------------------------------------------------------------------------------------------------
                  Net income                       $     1,052               1,015                640
====================================================================================================================

         Earnings per share:
--------------------------------------------------------------------------------------------------------------------
              Basic (Note 13)                      $       .78                 .77                .49
====================================================================================================================
              Diluted  (Note 13)                   $       .74                 .73                .48
====================================================================================================================
<FN>
         See accompanying notes to consolidated financial statements.
</FN>
</TABLE>



                                       40
<PAGE>




<TABLE>
                                      FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                                       Consolidated Statements of Cash Flows
                                                   (in thousands)
                                   Years Ended December 31, 1998, 1997, and 1996
<CAPTION>
                                                                            1998      1997       1996
---------------------------------------------------------------------------------------------------------

         Cash flows from operating activities:
---------------------------------------------------------------------------------------------------------
<S>                                                                  <C>           <C>      <C>  
              Net income                                             $     1,052     1,015      640
              Adjustments to reconcile net income to net cash flows
              provided by operating activities:
                  Increase in loans held for resale                         (811)   (1,318)    (166)
                  (Decrease)  increase in deferred loan income               (49)      168       40
                  Provision for other real estate owned losses               (16)       60       35
                  Depreciation and amortization                            1,071     1,066      481
                  Provision for loan losses                                  250       (60)     310
                  Provision for deferred taxes                               (52)      (28)     (98)
                  Decrease (increase) in accrued interest receivable         120      (413)      79
                  (Decrease) increase in accrued interest payable            (40)      105      (84)
                  Increase in cash surrender value of life insurance        (149)      --       --
                  Increase in other assets                                  (145)     (492)     (79)
                  (Decrease) increase in other liabilities                   (59)      176      294
---------------------------------------------------------------------------------------------------------
                  Net cash provided by operating activities                1,172       279    1,610

         Cash flows from investing activities:
              Proceeds from maturity of held-to-maturity securities          540        70      249
              Proceeds from maturity of available-for-sale securities     20,317    19,230   30,780
              Proceeds from sale of available-for-sale securities          8,500    28,077      --
              Purchases of available-for-sale securities                  12,964)  (72,201) (31,107)
              Increase in loans made to customers                        (28,240)   (7,928)  (2,629)
              Proceeds from the sale of other real estate                     45       285      209
              Purchases of bank premises, equipment and intangible assets   (712)   (3,127)  (1,207)
              Purchase of cash surrender value life insurance             (4,125)      --       --
---------------------------------------------------------------------------------------------------------
              Net cash used in investing activities                      (16,639)  (35,594)  (3,705)

         Cash flows from financing activities:
              Net increase in deposits                                    15,653    41,684    2,991
              Payments on notes payable                                      --        --     2,585)
              Proceeds received upon exercise of stock options               129       131       10
              Dividends paid                                                (269)     (265)    (261)
---------------------------------------------------------------------------------------------------------
                  Net cash provided by financing activities               15,513     41,550     155
---------------------------------------------------------------------------------------------------------
         Net increase (decrease) in cash and cash equivalents                 46      6,235  (1,940)
         Cash and cash equivalents at beginning of year                   12,083      5,848   7,788
---------------------------------------------------------------------------------------------------------
         Cash and cash equivalents at end of year                    $    12,129    12,083    5,848
=========================================================================================================

         Supplemental Disclosures of Cash Flow Information:
              Cash paid during the year for:
                  Interest                                           $     4,068     3,680    3,338
                  Income taxes                                               677       476      242
<FN>
           See accompanying notes to consolidated financial statements.
</FN>
</TABLE>



                                       41
<PAGE>

                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1998, 1997 and 1996


(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 generally  accepted
         accounting  principles  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 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
         intercompany   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,  which are  recognized as
         adjustments   to   interest   income   using   the   interest   method.
         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.  Effective October 1, 1998, all  held-to-maturity  securities
         with  an  amortized  cost  of  $1,174,000,   were  transferred  to  the
         available-for-sale  category  when  Statement of  Financial  Accounting
         Standards  (SFAS) No. 133,  Accounting for Derivative  Instruments  and
         Hedging  Activities was adopted.  For the year ended December 31, 1997,
         there were no transfers between classifications.

         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.

         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.



                                       42
<PAGE>

         (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  Bank  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.

         (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.  Servicing  assets  and other
         retained interests in transferred assets are measured by allocating the
         previous  carrying amount of the transferred  assets between the assets
         sold, if any and retained  interests,  if any,  based on their relative
         fair  value  at the  date  of  transfer.  Liabilities  and  derivatives
         incurred or obtained by  transferors as part of a transfer of financial
         assets are to be initially measured at fair value. Servicing assets and
         liabilities are to be subsequently  amortized in proportion to and over
         the period of estimated net  servicing  income or loss and assessed for
         asset impairment or increased obligation based on fair value.

         The Bank  recognizes  a gain and a related  asset for the fair value of
         the rights to service  loans for others  when loans are sold.  The fair
         value of the servicing assets is estimated based upon the present value
         of the  estimated  expected  future cash flows.  The Bank  measures the
         impairment of the servicing  asset based on the difference  between the
         carrying  amount of the servicing  asset and its current fair value. As
         of December  31,  1998 and 1997,  there was no  impairment  in mortgage
         servicing asset.

         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,  a normal cost for servicing the loan
         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.


                                       43
<PAGE>

         (g)          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,
         standby letters of credit,  overdrafts and commitments to extend credit
         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.

         (h)          Premises and Equipment

         Premises   and   equipment   are  carried  at  cost  less   accumulated
         depreciation. Depreciation 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.

         (i)           Intangible Assets

         Goodwill, representing the excess of purchase price over the fair value
         of net assets acquired,  results from branch  acquisitions  made by the
         Bank.  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.

         (j)          Other Real Estate Owned

         Other real estate owned (OREO)  consists of property  acquired  through
         foreclosure  and is  recorded  at the time of  foreclosure  at its fair
         market  value.  Thereafter,  it is carried at the lower of cost or fair
         market  value  less  estimated  completion  and  selling  costs.  If at
         foreclosure,  the loan balance is greater than the fair market value of
         the property acquired,  the excess is charged against the allowance for
         loan  losses.  Subsequent  operating  expenses  or  income,  changes in
         carrying  value,  and  gains  or  losses  on  disposition  of OREO  are
         reflected in other noninterest expense.  Fair market value is generally
         determined based upon independent appraisals.

         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.

         (k)          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.



                                       44
<PAGE>




         (l)          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.

         (m)          Comprehensive Income

         In June 1997, the Financial  Accounting  Standards  Board (FASB) issued
         SFAS No. 130, Reporting  Comprehensive Income. SFAS No. 130 established
         standards  for reporting  and display of  comprehensive  income and its
         components in a full set of general purpose financial  statements.  The
         Company  adopted  SFAS No.  130 as of  January  1,  1998 and  discloses
         comprehensive  income in the  consolidated  statements of stockholders'
         equity.

         (n)          Statements of Cash Flows

         For  purposes  of the  statements  of cash  flows,  cash,  non-interest
         bearing deposits in other banks and federal funds sold, which generally
         have maturities of one day, are considered to be cash equivalents.

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

         Long-lived assets and certain identifiable intangibles 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.

          (p)    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.

         (q)     Segment Reporting

         The Company  adopted SFAS No. 131,  "Disclosures  about  Segments of an
         Enterprise and Related Information." SFAS No. 131 establishes standards
         for the way public business enterprises are to report information about
         operating  segments in annual  financial  statements and requires those
         enterprises to report selected  information about operating segments in
         interim financial  reports issued to shareholders.  It also establishes
         standards  for  related   disclosures   about  products  and  services,
         geographic areas, and major customers. SFAS No. 131 supersedes SFAS No.
         14,  "Financial  Reporting for Segments of a Business  Enterprise"  but
         retains the requirements to report  information  about major customers.
         As of  December  31,  1998  and  1997,  the  Company  did not  have any
         reportable segments under the provisions of SFAS No. 131.


 (2)     Restricted Cash Balances

         The Bank is required  to maintain  certain  daily  reserve  balances in
         accordance with Federal Reserve Board requirements.  Aggregate reserves
         of  $1,855,000  and  $1,053,000   were   maintained  to  satisfy  these
         requirements at December 31, 1998 and 1997, respectively.


                                       45
<PAGE>

 (3)     Investment Securities
<TABLE>
         Investment  securities  at December 31, 1998 and 1997  consisted of the
following:

<CAPTION>
                                                                       December 31, 1998
                                                                               Gross             Gross          Estimated
                                                       Amortized            Unrealized         Unrealized        Market
                                                         Cost                  Gains             Losses           Value
--------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                      <C>                   <C>        <C>
         Available for Sale
         ------------------
         U.S. Treasury securities                    $  1,000,000               3,000                 --        1,003,000
         U.S. Agency securities                        19,494,000             311,000               7,000      19,798,000
         Municipal securities                           3,635,000             175,000                 --        3,810,000
         Collateralized mortgage obligations              457,000               5,000               4,000         458,000
         Other debt securities                          2,813,000              37,000                 --        2,850,000
         Money market mutual fund                      17,602,000                 --                  --       17,602,000
         Investment in Federal Agency stock               126,000                 --                  --          126,000
--------------------------------------------------------------------------------------------------------------------------

         Total                                       $ 45,127,000             531,000              11,000      45,647,000
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
                                                                       December 31, 1997
                                                                               Gross              Gross          Estimated
                                                       Amortized            Unrealized          Unrealized        Market
                                                         Cost                 Gains              Losses            Value
<S>                                                  <C>                      <C>                   <C>        <C>
--------------------------------------------------------------------------------------------------------------------------
         Held to Maturity
         ----------------
         Municipal Securities                        $  1,716,000              69,000                 --        1,785,000
--------------------------------------------------------------------------------------------------------------------------

         Available for Sale
         ------------------
         U.S. Treasury securities                       3,995,000               5,000                 --        4,000,000
         U.S. Agency securities                        31,077,000             208,000              14,000      31,271,000
         Municipal securities                           2,620,000             155,000                 --        2,775,000
         Collateralized mortgage obligations            1,036,000               5,000              17,000       1,024,000
         Other debt securities                          3,749,000              58,000               2,000       3,805,000
         Money market mutual fund                      17,200,000                 --                  --       17,200,000
         Investment in Federal Agency stock               126,000                 --                  --          126,000
-------------------------------------------------------------------------------------------------------------------------
                                                       59,803,000             431,000              33,000      60,201,000
-------------------------------------------------------------------------------------------------------------------------

         Total                                       $ 61,519,000             500,000              33,000      61,986,000
=========================================================================================================================
</TABLE>

         Investment  securities  totaling $4,559,000 and $4,631,000 were pledged
         as collateral to secure Local Agency Deposits as well as treasury,  tax
         and loan  accounts  with the Federal  Reserve at December  31, 1998 and
         1997, respectively.

         Proceeds from the sale of Available for Sale securities during 1998 and
         1997 were $8,500,000 and $28,077,000, respectively, and represented the
         sale of money market mutual fund shares at book value. Accordingly,  no
         gain or loss was  realized.  There were no sales of Available  for Sale
         securities during 1996.

         Federal Agency stock dividends paid to the Company were $7,000, $7,000,
         and $5,000 in 1998, 1997 and 1996, respectively.

         The  amortized  cost and  estimated  fair value of debt  securities  at
         December 31, 1998, 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.


                                       46
<PAGE>
<TABLE>
<CAPTION>
                                                                    December 31, 1998
                                                               Amortized            Market
                                                                 Cost                Value
------------------------------------------------------------------------------------------------
<S>                                                        <C>                  <C>
         Due in one year or less                           $  3,801,000          3,846,000
         Due after one year through five years               16,034,000         16,449,000
         Due after five years through 10 years                3,251,000          3,277,000
         Due after 10 years                                   4,313,000          4,347,000
=-----------------------------------------------------------------------------------------------
                                                           $ 27,399,000         27,919,000
================================================================================================
</TABLE>

(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. 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 contract is
         dependent  upon the condition of the local real estate markets in which
         the loans are made.
<TABLE>
         Outstanding loans consisted of the following at December 31:
<CAPTION>
                                                                  1998                1997
------------------------------------------------------------------------------------------------
<S>                                                         <C>                 <C>
         Commercial                                         $73,195,000         50,155,000
         Real estate construction                            11,743,000          6,900,000
         Other real estate                                    4,761,000          3,529,000
         Installment and other                                3,463,000          3,525,000
------------------------------------------------------------------------------------------------
                                                             93,162,000         64,109,000

         Deferred loan fees and loan sale premiums             (520,000)          (568,000)
         Allowance for loan losses                           (1,564,000)        (1,313,000)
------------------------------------------------------------------------------------------------

                                                            $91,078,000         62,228,000
================================================================================================
</TABLE>

         Included  in total  loans are  loans  held for sale of  $2,619,000  and
         $1,807,000  for 1998 and 1997,  respectively.  SBA and  mortgage  loans
         serviced  by  the  Bank  totaled   $66,903,000  and  $45,939,000,   and
         $41,319,000 in 1998, 1997, and 1996, respectively.
<TABLE>
         Changes in the allowance for loan losses were as follows:
<CAPTION>
                                               1998                1997               1996
------------------------------------------------------------------------------------------------
<S>                                     <C>                   <C>                <C>
         Balance, beginning of year     $ 1,313,000           1,207,000            959,000
         Loans charged off                 (132,000)           (290,000)          (334,000)
         Recoveries                         133,000             456,000            272,000
         Provision charged to operations    250,000             (60,000)           310,000
------------------------------------------------------------------------------------------------
         Balance, end of year           $ 1,564,000           1,313,000          1,207,000
================================================================================================
</TABLE>


         Nonaccrual loans totaled $248,000,  $340,000,  and $898,000 at December
         31, 1998, 1997 and 1996, respectively. Interest income which would have
         been recorded on nonaccrual loans was $43,000, $45,000 and $149,000, in
         1998, 1997, and 1996, 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, 1998 and 1997,
         the Bank had outstanding  balances of $248,000 and $821,000 in impaired
         loans which had valuation allowances of $32,000 in 1998 and $100,000 in
         1997. The average outstanding  balances of impaired loans for the years
         ended December 31, 1998,  1997 and 1996 were  $535,000,  $1,150,000 and
         $1,116,000  respectively,   on  which  $40,000,  $47,000  and  $45,000,
         respectively, was recognized as interest income.

         At December 31, 1998 and 1997, the collateral  value method was used to
         measure impairment for all loans classified as impaired. Impaired loans
         at December 31, 1998 and 1997 consisted solely of commercial loans.


                                       47
<PAGE>

 (5)     Premises and Equipment
<TABLE>
         Premises and equipment consisted of the following at December 31:
<CAPTION>
                                                                   1998               1997
------------------------------------------------------------------------------------------------
<S>                                                         <C>                  <C>
         Land                                               $   874,000            874,000
         Building                                             5,705,000          5,705,000
         Leasehold improvements                               1,477,000          1,258,000
         Furniture and equipment                              3,069,000          2,616,000
------------------------------------------------------------------------------------------------
                                                             11,125,000         10,453,000
------------------------------------------------------------------------------------------------
         Accumulated depreciation and amortization           (3,864,000)        (3,220,000)
------------------------------------------------------------------------------------------------
                                                            $ 7,261,000          7,233,000
================================================================================================
</TABLE>

         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 noncancelable leases as of
         December 31, 1998 are summarized as follows:

                       Year Ending December 31,
--------------------------------------------------------------------------------

                       1999                             $    63,000
                       2000                                  48,000
                       2001                                   1,000
--------------------------------------------------------------------------------
                       Total minimum future rentals     $   102,000
================================================================================


 (6)     Other Assets

         Other assets  includes the cash  surrender  value of life  insurance of
         $4,274,000  at December  31,  1998.  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.

         Other  real  estate  owned is also  included  in other  assets  and was
         $129,000  and  $159,000  at December  31, 1998 and 1997,  respectively.
         During 1998,  1997, and 1996,  other real estate owned of $0,  $170,000
         and  $297,000,   respectively,  was  acquired  through  foreclosure  as
         settlement for loans. These amounts represent noncash transactions, and
         accordingly,  have been  excluded from the  Consolidated  Statements of
         Cash Flows.


                                       48
<PAGE>

 (7)     Deposits

         The following is a summary of deposits at December 31:

                                                   1998                1997
--------------------------------------------------------------------------------

         Demand                           $  18,535,000          14,928,000
         NOW and Super  NOW Accounts         36,181,000          29,734,000
         Money Market                        19,482,000          20,456,000
         Savings                             25,987,000          24,802,000
         Time,$100,000 and over              14,965,000          13,484,000
         Other  Time                         34,394,000          30,487,000
--------------------------------------------------------------------------------
                                          $ 149,544,000         133,891,000
================================================================================


         Interest paid on time deposits in denominations of $100,000 or more was
         $737,000, $620,000 and $607,000 in 1998, 1997 and 1996, respectively.

         At December 31, 1998, the aggregate  maturities for time deposits is as
         follows:


--------------------------------------------------------------------------------
                                                             
         1999                                                   $45,799,000
         2000                                                     2,234,000
         2001                                                       371,000
         2002                                                       615,000
         2003                                                       340,000
--------------------------------------------------------------------------------
         Total                                                  $49,359,000
================================================================================
                                                           


 (8)     Operating Leases

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

                           Year Ending December 31,          Lease Payments
--------------------------------------------------------------------------------

                           1999                             $   127,000
                           2000                                 108,000
                           2001                                  67,000
                           2002                                  52,000
                           2003                                  52,000
                           Thereafter                            44,000
--------------------------------------------------------------------------------
                                                            $   450,000
================================================================================


         Total rental  expense for operating  leases was  $114,000,  $32,000 and
         $35,000 in 1998, 1997 and 1996 respectively.



(9)      Supplemental Compensation Agreements

         Effective  April  3,  1998  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  will  accrue  for the
         compensation  based on  anticipated  years of service  and the  vesting
         schedule provided in the agreements.  The executive officer  agreements
         are defined contribution  agreements whereby the benefit accruals under
         the  plan  are


                                       49
<PAGE>

         the amount by which,  if any, the increase in cash  surrender  value of
         the related  insurance  policies exceeds a predetermined  profitability
         index. At December 31, 1998, accrued  compensation under both plans was
         $72,000.  The Company  adopted  SFAS No. 132,  "Employers'  Disclosures
         about Pensions and Other Post  Retirement  Benefits." SFAS No. 132 does
         not  change  the  measurement  or  recognition  of  expenses  under the
         supplemental compensation agreements.



(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, 1998 and 1997,  financial  instruments  whose  contract
         amounts represent credit risk are as follows:

                                                    1998                1997
--------------------------------------------------------------------------------
          Commitments to extend credit        $ 21,290,000          17,950,000
================================================================================
          Standby letters of credit           $    156,000              50,000
================================================================================

         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)     Other Noninterest Expense
<TABLE>
         Other  noninterest  expense for the years 1998,  1997 and 1996 included
         the following significant items:
<CAPTION>
                                                         1998                1997                1996
-----------------------------------------------------------------------------------------------------------
<S>                                                  <C>                    <C>                 <C>
         Intangible amortization                     $  372,000             479,000                 --
         Ancillary data processing expense              385,000             326,000             105,000
         Directors'  fees                               199,000             150,000             124,000
         Legal fees                                     197,000             166,000             207,000
         Provision for other real estate owned losses   (16,000)             60,000              35,000
</TABLE>


                                       50
<PAGE>


(12)     Income Taxes
<TABLE>
         The  provision  for  income  taxes  for the years  1998,  1997 and 1996
         consisted of the following:

<CAPTION>
         1998                                        Federal               State              Total
-----------------------------------------------------------------------------------------------------------
<S>                                               <C>                     <C>                <C>

         Current                                  $   252,000             144,000            396,000
         Deferred, net                                (12,000)            (40,000)           (52,000)
-----------------------------------------------------------------------------------------------------------
              Income tax expense                  $   240,000             104,000            344,000
===========================================================================================================

         1997
-----------------------------------------------------------------------------------------------------------

         Current                                  $   312,000             195,000            507,000
         Deferred, net                                 16,000             (44,000)           (28,000)
-----------------------------------------------------------------------------------------------------------
              Income tax expense                  $   328,000             151,000            479,000
===========================================================================================================

         1996
-----------------------------------------------------------------------------------------------------------

         Current                                  $   212,000             140,000            352,000
         Deferred, net                                (66,000)            (32,000)           (98,000)
-----------------------------------------------------------------------------------------------------------
              Income tax expense                  $   146,000             108,000            254,000
===========================================================================================================
</TABLE>

         Income  taxes  receivable  of $117,000  are included in other assets at
         December  31, 1998.  Income  taxes  payable of $164,000 are included in
         other liabilities at December 31, 1997.



                                       51
<PAGE>


<TABLE>
         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:
<CAPTION>
                                                                1998               1997                 1996
                                                            Amount  Rate      Amount   Rate        Amount  Rate
-------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>          <C>       <C>       <C>       <C>      <C>
         Federal income tax expense, at statutory
           income tax rates                            $   475,000   34%      508,000   34%       304,000   34%
         State franchise tax expense, net of federal
           income tax benefits                             100,000    7%      107,000    7%        63,000    7%
         Tax-free interest income                         (136,000) (10%)     (83,000)  (6%)      (97,000) (11%)
         Change in the beginning of the year deferred
            tax asset valuation allowance                  (45,000)  (3%)      32,000    2%
         Other                                             (50,000)  (3%)     (85,000)  (5%)      (16,000)  (2%)
-------------------------------------------------------------------------------------------------------------------
                                                       $   344,000   25%      479,000   32%       254,000   28%
===================================================================================================================
</TABLE>


<TABLE>
         The tax effects of temporary  differences that give rise to significant
         portions of the deferred tax assets and  deferred  tax  liabilities  at
         December 31, 1998 and 1997 are presented below.
<CAPTION>
              Deferred tax assets:                                          1998               1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                   <C>
              Allowance for loan losses                               $   553,000            419,000
              Allowance for losses on other real estate owned              14,000             60,000
              Deferred loan income                                        145,000            157,000
              Accumulated Amortization                                    260,000            154,000
              Deferred compensation                                        74,000             53,000
              Alternative minimum tax credit carryforwards                  2,000             60,000
              Other                                                        86,000             93,000
--------------------------------------------------------------------------------------------------------------------
                  Total gross deferred tax assets                       1,134,000            996,000
                  Less valuation allowance                               (120,000)          (165,000)
--------------------------------------------------------------------------------------------------------------------

                  Deferred tax assets, net of allowance                 1,014,000            831,000
--------------------------------------------------------------------------------------------------------------------

              Deferred tax liabilities:
              Accumulated depreciation                                   (103,000)           (61,000)
              Deferred loan origination costs                            (173,000)          (108,000)
              Unrealized gain on available-for-sale securities, net      (219,000)          (180,000)
              Other                                                      (100,000)           (76,000)
--------------------------------------------------------------------------------------------------------------------
                  Total gross deferred tax liabilities                   (595,000)          (425,000)
--------------------------------------------------------------------------------------------------------------------
                  Net deferred tax asset                              $   419,000            406,000
====================================================================================================================
</TABLE>

         The valuation  allowance  for deferred tax assets  decreased by $45,000
         for the year ended December 31, 1998. 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  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, 1998 and 1997.


                                       52
<PAGE>

 (13)    Stockholders' Equity

         (a)      Stock Options

         In December  1982, the Board of Directors  adopted the First  Financial
         Bancorp 1982 Stock  Incentive  Plan.  A total of 250,000  shares of the
         Company's  common  stock were  reserved  for  issuance  under the Plan.
         Options were granted at an exercise price not less than the fair market
         value of the stock at the date of grant  and  became  exercisable  over
         varying periods of time and expired 10 years from such date.

         In February  1991, the Board of Directors  adopted the First  Financial
         Bancorp 1991 Employee Stock Option Plan and Director Stock Option Plan.
         The maximum  number of shares  issuable under the Employee Stock Option
         Plan is  178,500.  The  maximum  number  of shares  issuable  under the
         Director  Stock  Option  Plan was  55,000.  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 the  Employee  Stock Option Plan and the
         Director Stock Option Plan,  respectively.  The 1991 Plans replaced the
         1982 Plan;  however,  this does not adversely  affect any stock options
         outstanding under the 1982 Plan.

         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  393,207  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 1997 Plan replaces the 1991 Plans; however, this does
         not  adversely  affect  any stock  options  outstanding  under the 1991
         Plans.
<TABLE>
         Stock option plan activities are summarized as follows:
<CAPTION>
                                                                                                  Options Outstanding
                                                                                                     Exercise Price
                                                                          Options                       Per Share    
--------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                        <C>

         Balance, December 31, 1995                                       209,724                    $ 5.74 - 10.43
====================================================================================================================
              Options exercised                                            (3,675)                   $ 5.78 -  8.57
====================================================================================================================
              Options expired                                             (10,374)                   $ 5.74 - 10.43
====================================================================================================================

         Balance, December 31, 1996                                       195,675                    $ 5.74 -  8.57
====================================================================================================================
              Options granted                                              76,500                    $10.00 - 12.50
====================================================================================================================
              Options exercised                                           (27,600)                   $ 5.74 -  8.57
====================================================================================================================
              Options expired                                             (28,000)                   $ 6.80 - 10.00
====================================================================================================================

         Balance, December 31, 1997                                       216,575                    $ 5.74 - 12.50
====================================================================================================================
              Options exercised                                           (16,450)                   $ 5.74 -  6.80
====================================================================================================================
              Options expired                                             (17,525)                   $ 6.75 - 12.50
====================================================================================================================

         Balance, December 31, 1998                                       182,600                    $ 5.74 - 12.50
====================================================================================================================
</TABLE>



                                       53
<PAGE>

         At December 31, 1998, the weighted-average  remaining  contractual life
         of all outstanding  options was 5.16 years,  respectively.  At December
         31,  1998,  the  number of  options  exercisable  was  142,700  and the
         weighted-average exercise price of those options was $7.20.

         There were no stock options  granted during 1998 or 1996. The per share
         weighted-average  fair value of stock options  granted  during 1997 was
         $3.03.  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: dividend yield of 2.18%;
         expected  volatility of 18.4%;  risk-free interest rate of 6.2%; and an
         expected life of five years.
<TABLE>
         No  compensation  cost has been recognized for its 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:
<CAPTION>
                                                        1998            1997             1996
------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>                <C> 
         Net Income
              As reported                         $1,052,000      $1,015,000         $640,000
              Pro forma                            1,022,000         985,000          630,000

         Basic Net Income Per Share
              As reported                         $      .78      $      .77         $    .49
              Pro forma                                  .76             .75              .48

         Diluted Net Income Per Share
              As reported                         $      .74      $      .73         $    .48
              Pro forma                                  .72             .71              .47
</TABLE>


         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 1998, 1997 and 1996 totaled  approximately  $116,000,
         $98,000, and $37,000, 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,
         1998, the plan owned 34,714 shares of Company Common Stock.



         (c)      Dividends and Dividend Restrictions

         On January 28, 1999, the Company's  Board of Directors  declared a cash
         dividend  of five cents per share  payable on  February  26,  1999,  to
         shareholders of record on February 12, 1999.


                                       54
<PAGE>

         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,  1998,  there  were Bank  retained
         earnings of $2,420,000 free of this condition.



         (d)      Weighted Average Shares Outstanding
<TABLE>
         Basic and diluted  earnings per share for the years ended  December 31,
         1998, 1997, and 1996 were computed as follows:

<CAPTION>
                                                            Income              Shares        Per-Share
         1998                                             (numerator)       (denominator)       Amount
         -----------------------------------------------------------------------------------------------
<S>                                                         <C>                    <C>            <C>
         Basic earnings per share                           $  1,052,000           1,341,192      $ .78
         Effect of dilutive securities                               --               84,234        --
                                                       --------------------------------------
         Diluted earnings per share                         $  1,052,000           1,425,426      $ .74
                                                       ======================================


                                                            Income              Shares        Per-Share
         1997                                             (numerator)       (denominator)       Amount
         -----------------------------------------------------------------------------------------------
         Basic earnings per share                           $  1,015,000           1,323,398      $ .77
         Effect of dilutive securities                               --               68,678        --
                                                       --------------------------------------
         Diluted earnings per share                         $  1,015,000           1,392,076      $ .73
                                                       ======================================


                                                            Income              Shares        Per-Share
         1996                                             (numerator)       (denominator)       Amount
         -----------------------------------------------------------------------------------------------
         Basic earnings per share                            $   640,000           1,307,364      $ .49
         Effect of dilutive securities                               --               32,547        --
                                                       --------------------------------------
         Diluted earnings per share                          $   640,000           1,339,911      $ .48
                                                       ======================================
</TABLE>

(14)     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, 1998 and 1997,  respectively,  such borrowings
         totaled  $1,018,000  and  $922,000,  respectively.  Deposits of related
         parties held by the Bank totaled  $671,000 and  $1,000,000  at December
         31, 1998 and 1997, respectively.



                                       55
<PAGE>

<TABLE>
         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:
<CAPTION>
                                                                  1998                  1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                     <C>
         Balance, beginning of year                         $   922,000             1,176,000
         Loans funded                                           738,000               524,000
         Principal repayments                                  (642,000)             (778,000)
--------------------------------------------------------------------------------------------------------------------
         Balance, end of year                                $1,018,000               922,000
====================================================================================================================
</TABLE>


(15)     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, 1998 and 1997,  and  statements  of
         income,  and cash flows  information  for the years ended  December 31,
         1998, 1997, and 1996.
<TABLE>
<CAPTION>
         Balance Sheets:
--------------------------------------------------------------------------------------------------------------------
         Assets                                                             1998               1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                    <C>
         Cash in bank                                               $     121,000            139,000
         Investment securities available-for-sale, at fair value            5,000              5,000
         Premises and equipment, net                                       64,000             66,000
         Investment in wholly-owned subsidiaries                       13,521,000         12,548,000
         Other assets                                                     146,000            107,000
--------------------------------------------------------------------------------------------------------------------
                                                                    $  13,857,000         12,865,000
====================================================================================================================

         Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------------------------------------------
         Accounts payable and other liabilities                     $        --                4,000
--------------------------------------------------------------------------------------------------------------------

         Common stock                                                   7,584,000          7,455,000
         Retained earnings                                              5,971,000          5,188,000
         Accumulated other comprehensive income                           302,000            218,000
--------------------------------------------------------------------------------------------------------------------
              Total stockholders' equity                               13,857,000         12,861,000
--------------------------------------------------------------------------------------------------------------------
                                                                    $  13,857,000         12,865,000
====================================================================================================================
</TABLE>



<TABLE>
<CAPTION>
         Statements of Income:                                               1998      1997      1996
--------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>         <C>
         Rent from subsidiary                                       $       5,000      6,000   356,000
         Interest from unrelated parties                                     --        2,000     9,000
         Other expenses                                                  (316,000)  (215,000) (626,000)
         Equity in income of subsidiaries                               1,154,000  1,100,000   832,000
         Income tax benefit                                               209,000    122,000    69,000
--------------------------------------------------------------------------------------------------------------------
              Net income                                            $   1,052,000  1,015,000   640,000
====================================================================================================================
</TABLE>



                                       56
<PAGE>

<TABLE>
<CAPTION>
         Statements of Cash Flows:                                          1998      1997       1996
--------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>        <C>         <C>
         Net Income                                                   $1,052,000 1,015,000    640,000
         Adjustments to reconcile net income to net cash
              flows provided by (used in) operating activities:
              Depreciation and amortization                                2,000     2,000    125,000
              Provision for deferred taxes                                27,000   (36,000)     7,000
              (Decrease) increase in other liabilities                    (4,000)  (23,000)    27,000
              (Increase) decrease in other assets                        (66,000)  (15,000)     3,000
              Increase in equity of subsidiaries                        (879,000) (774,000)  (832,000)
--------------------------------------------------------------------------------------------------------------------

         Net cash provided by (used in) operating activities             132,000   169,000    (30,000)

         Proceeds from sale of available-for-sale securities                 --     75,000    302,000
         Investment in subsidiary                                        (10,000)      --        --
         Capital expenditures                                                --        --      (4,000)
--------------------------------------------------------------------------------------------------------------------
         Net cash (used in) provided by investing activities             (10,000)   75,000    298,000

         Payments on notes payable                                           --        --     (33,000)
         Proceeds received upon exercise of stock options                129,000   131,000     10,000
         Dividends paid                                                 (269,000) (265,000)  (261,000)
--------------------------------------------------------------------------------------------------------------------
         Net cash  used by financing activities                         (140,000) (134,000)  (284,000)
--------------------------------------------------------------------------------------------------------------------
         Net  (decrease)  increase in cash                               (18,000)  110,000    (16,000)
--------------------------------------------------------------------------------------------------------------------
         Cash at beginning of year                                       139,000    29,000     45,000
--------------------------------------------------------------------------------------------------------------------
         Cash at end of year                                         $   121,000   139,000     29,000
====================================================================================================================
</TABLE>


 (16)    Lines of Credit

         The Bank has two  lines of credit  with  correspondent  banks  totaling
         $5,000,000.  As  of  December  31,  1998  and  1997,  no  amounts  were
         outstanding under these lines of credit.


 (17)    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.



                                       57
<PAGE>




         Management  believes,  as of December 31, 1998, that the Bank meets all
         capital  adequacy  requirements to which it is subject.  As of December
         31, 1998, 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.
<TABLE>
         The Bank's  actual  capital  amounts and ratios as of December 31, 1998
         are as follows:
<CAPTION>
                                                                                                        To Be Well Capitalized
                                                                                  For Capital          Under Prompt Corrective
                                                    Actual                      Adequacy Purposes         Action Provisions
                                                    Amount          Ratio       Amount      Ratio        Amount       Ratio
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>        <C>           <C>        <C>             <C>
         Total Risk-based capital                                             less than     less than  less than       less than
         (to Risk weighted assets)                 $13,084,000     11.17%     $9,371,000    8.0%       $11,714,000     10.0%
                                                                              less than     less than  less than       less than
         Tier I Capital (to Risk Weighted assets)  $11,620,000      9.92%     $4,685,000    4.0%       $ 7,028,000      6.0%
                                                                              less than     less than  less than       less than
         Tier I Capital  (to Average Assets)       $11,620,000      7.35%     $6,324,000    4.0%       $ 7,905,000      5.0%
</TABLE> 

         The Bank's  actual  capital  amounts and ratios as of December 31, 1997
         are as follows:
<TABLE>
<CAPTION>
                                                                                                        To Be Well Capitalized
                                                                                  For Capital          Under Prompt Corrective
                                                    Actual                      Adequacy Purposes         Action Provisions
                                                    Amount          Ratio       Amount      Ratio        Amount       Ratio
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>        <C>           <C>        <C>            <C>
         Total Risk-based capital                                             less than     less than  less than      less than
         (to Risk weighted assets)                 $11,459,000     12.95%     $7,081,000    8.0%       $8,851,000     10.0%
                                                                              less than     less than  less than      less than
         Tier I Capital (to Risk Weighted assets)  $10,352,000     11.70%     $3,541,000    4.0%       $5,310,000      6.0%
                                                                              less than     less than  less than      less than
         Tier I Capital  (to Average Assets)       $10,352,000      7.11%     $5,828,000    4.0%       $7,285,000      5.0%
</TABLE>


 (18)    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 reprice  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.



                                       58
<PAGE>

         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.

         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.
<TABLE>
         The estimated fair values of the Company's  financial  instruments  are
         approximately as follows:
<CAPTION>
                                                                                          1998
                                                                                Carrying        Fair
                                                                                 Amount        Value
-----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>
              Financial assets:
                  Cash and due from banks and federal funds sold          $     12,129,000    12,129,000
                  Investment securities                                         45,647,000    45,647,000

                  Loans:
                      Gross Loans                                               93,162,000    94,032,000
                      Allowance for loan losses                                 (1,564,000)   (1,564,000)
                      Deferred loan fees and loan sale  premiums                  (520,000)     (520,000) 
                      ------------------------------------------------------------------------------------
                      Net loans                                           $     91,078,000    91,948,000

              Financial liabilities:
                  Deposits:
                      Demand                                              $     18,535,000    18,535,000
                      Now and Super Now accounts                                36,181,000    36,181,000
                      Money Market                                              19,482,000    19,482,000
                      Savings                                                   25,987,000    25,987,000
                      Time                                                      49,359,000    49,447,000
                      ----------------------------------------------------------------------------------
                      Total deposits                                      $    149,544,000   149,632,000
</TABLE>



                                       59
<PAGE>
<TABLE>
<CAPTION>

                                                               Contract           Carrying          Fair
                                                                Amount             Amount           Value
--------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                       <C>           <C>
              Unrecognized financial instruments:
                  Commitments to extend credit             $   21,290,000            --            213,000
                  Standby letters of credit                       156,000            --              2,000
</TABLE>

<TABLE>
<CAPTION>
                                                                                        1997

                                                                                 Carrying       Fair
                                                                                  Amount        Value
--------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>
              Financial assets:
                  Cash and due from banks and federal funds sold            $   12,083,000    12,083,000
                  Investment securities                                         61,917,000    61,986,000
                  Loans:
                      Gross Loans                                               64,109,000    64,556,000
                      Allowance for loan losses                                 (1,313,000)   (1,313,000)
                      Deferred loan fees and loan sale  premiums                  (568,000)     (568,000)
                      -----------------------------------------------------------------------------------
                      Net loans                                             $   62,228,000    62,675,000

              Financial liabilities:
                  Deposits:
                      Demand                                                $   14,928,000    14,928,000
                      Now and Super Now accounts                                29,734,000    29,734,000
                      Money Market                                              20,456,000    20,456,000
                      Savings                                                   24,802,000    24,802,000
                      Time                                                      43,971,000    43,911,000
                      ----------------------------------------------------------------------------------
                      Total deposits                                        $  133,891,000   133,831,000
</TABLE>



<TABLE>
<CAPTION>
                                                               Contract           Carrying          Fair
                                                                Amount             Amount           Value
--------------------------------------------------------------------------------------------------------
<S>                                                        <C>                       <C>           <C>
              Unrecognized financial instruments:
                  Commitments to extend credit             $   17,950,000            --            180,000
                  Standby letters of credit                        50,000            --              1,000
</TABLE>




(19)     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.



(20)     Derivative Financial Instruments

         As of December 31, 1998 and 1997, the Company has no off-balance  sheet
         derivatives.  The Company held $457,000 and 1,036,000 in collateralized
         mortgage  obligations and $500,000 and $1,000,00 in structured notes as
         of December 31, 1998 and 1997 respectively.  These investments are held
         in the available for sale portfolio.


                                       60
<PAGE>

 (21)    Acquisition of Branches

         On February 22, 1997,  the 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.

(22)     Western Auxiliary Corporation

         On June 9, 1998 the Company incorporated Western Auxiliary  Corporation
         (WAC). The Company capitalized WAC as a wholly-owned  subsidiary during
         the quarter ended September 30, 1998 with an initial  capitalization of
         $10,000.  WAC earns fee income by acting as trustee on the Bank's trust
         deed  transactions  and receives the  necessary  operational  resources
         under an intercompany services agreement between WAC and the Bank.

(23)     Year 2000

         Both the Company and the Bank have a detailed year 2000 compliance plan
         that has been  approved by their  respective  board of  directors.  The
         Bank's  core  banking  system,  The  Phoenix  Banking  System,  uses  a
         four-digit  date  field;  therefore,  it is  expected  to be year  2000
         compliant.  Testing to confirm this status was completed by the Bank in
         early 1999. With respect to external systems,  the Company and the Bank
         are in contact  with  vendors  and  customers  in order to monitor  the
         progress  with year 2000  compliance  efforts  and  assess the need for
         contingency  plans,  if applicable.  To date vendors and customers have
         provided  confirmations  that they are either  compliant  or are making
         progress toward planned  compliance  prior to the end of 1999. The cost
         of year 2000 compliance  efforts are not expected to be material to the
         financial  position,  the  results of  operations,  or liquidity of the
         Company.

(24)     Prospective Accounting Pronouncements

         Accounting   for   Mortgage-Backed   Securities   Retained   after  the
         Securitization  of Mortgage  Loans Held for Sale by a Mortgage  Banking
         Enterprise

         In  October  1998,  the  FASB  issued  SFAS  No.  134,  Accounting  for
         Mortgage-Backed   Securities   Retained  after  the  Securitization  of
         Mortgage Loans Held for Sale by a Mortgage Banking Enterprise. SFAS No.
         134 requires that after the  securitization  of mortgage loans held for
         sale, an entity  engaged in mortgage  banking  activities  classify the
         resulting mortgage-backed  securities or other retained interests based
         on its ability and intent to sell or hold those  investments.  SFAS No.
         134 is effective for the first fiscal quarter  beginning after December
         15, 1998.  The Company will adopt the  statement  beginning  January 1,
         1999.  Management  does not expect  that  adoption of SFAS No. 134 will
         have  a  material  impact  on  the  Company's   consolidated  financial
         statements.



                                       61
<PAGE>

         Accounting for the Costs of Computer Software Developed or Obtained for
         Internal Use

         In March 1998,  the American  Society of Certified  Public  Accountants
         (AICPA)  issued  Statement of Position  (SOP) 98-1,  Accounting for the
         Costs of Computer Software  Developed or Obtained for Internal Use. SOP
         98-1 provides guidance on accounting for the costs of computer software
         developed  or obtained for internal  use. It  specifies  that  computer
         software meeting certain  characteristics be designated as internal-use
         software  and sets forth  criteria  for  expensing,  capitalizing,  and
         amortizing  certain costs related to the  development or acquisition of
         internal-use software. SOP 98-1 is effective for fiscal years beginning
         after December 15, 1998. The Company will adopt the statement beginning
         January 1, 1999.  Management  does not expect that adoption of SOP 98-1
         will have a material  impact on the  Company's  consolidated  financial
         statements.

         Reporting on the Costs of Start-Up Activities

         In April 1998,  the AICPA  issued SOP 98-5,  Reporting  on the Costs of
         Start-Up  Activities.  SOP  98-5  provides  guidance  on the  financial
         reporting of start-up costs and  organization  costs. It requires costs
         of  start-up  activities  and  organization  costs  to be  expensed  as
         incurred.  SOP 98-5 is  effective  for  fiscal  years  beginning  after
         December  15,  1998.  The Company  will adopt the  statement  beginning
         January 1, 1999.  Management  does not expect that adoption of SOP 98-5
         will have a material  impact on the  Company's  consolidated  financial
         statements.



                                       62
<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 26th day of March,
1999.

                                           FIRST  FINANCIAL  BANCORP

                                             /s/ LEON J. ZIMMERMAN    
                                           -------------------------------
                                           Leon J. Zimmerman
                                           President and Chief Executive Officer
<TABLE>
Pursuant to the  requirements  of the Securities and Exchange Act of 1934,  this
report has been signed by the following  persons on behalf of the registrant and
in the capacities and on the dates indicated.
<CAPTION>
                                                                       Capacity                             Date
                                                                       --------                             ----
<S>                                                      <C>                                            <C>
    /s/ BENJAMIN R. GOEHRING                             Director and Chairman of the Board             March 26, 1999
--------------------------------------------
                                            
Benjamin R. Goehring                        
                                            
    /s/ WELDON D. SCHUMACHER                             Director and Vice Chairman of the Board        March 26, 1999
--------------------------------------------
                                            
Weldon D. Schumacher                        
                                            
    /s/ BOZANT KATZAKIAN                                 Director                                       March 26, 1999
--------------------------------------------
Bozant Katzakian                            
                                            
    /s/ ANGELO J. ANAGNOS                                Director                                       March 26, 1999
--------------------------------------------
Angelo J. Anagnos                           
                                            
    /s/ RAYMOND H. COLDANI                               Director                                       March 26, 1999
--------------------------------------------
Raymond H. Coldani                          
                                            
                                                         Director                                       March 26, 1999
--------------------------------------------
Michael D. Ramsey                           
                                            
                                                         Director                                       March 26, 1999
--------------------------------------------
Dennis Swanson                              
                                            
    /s/ LEON J. ZIMMERMAN                                Director, President and                        March 26, 1999
--------------------------------------------             Chief Executive Officer      
Leon J. Zimmerman                                        (Principal Executive Officer)


    /s/ DAVID M. PHILIPP                                 Executive Vice President,                      March 26, 1999
--------------------------------------------             Chief Financial Officer and Secretary
David M. Philipp                                         (Principal Financial and Accounting Officer)
                                                        
</TABLE>


                                       63
<PAGE>

                                INDEX TO EXHIBITS

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

             3(b)                    Bylaws, as amended                      65

             23                      Consent of Expert                       80

             27     Financial Data Schedule (electronic submission only)



                                       64