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

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the fiscal year ended December 31, 2002

                                       or

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the transition period from ______________ to ______________________

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

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

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

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

           Securities registered pursuant to Section 12(b) of the Act:
                                      None
           Securities registered pursuant to Section 12(g) of the Act:
                           Common Stock, no par value
                                (Title of Class)
                         Preferred Share Purchase Rights
                                (Title of Class)

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

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of the  registrant's  knowledge,  in definitive proxy or information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

         Indicate by check mark whether the Registrant is an  accelerated  filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The  aggregate  market value of the Common Stock held by  non-affiliates  of the
registrant was approximately $18,998,387 (based on the $11.75 average of bid and
ask prices per share on June 28, 2002).

         As of March 3, 2003,  there were 1,623,257  shares of Common Stock,  no
par value, outstanding.

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

  Proxy Statement for the Annual
  Meeting of Shareholders to be
     held on April 22, 2003.                Part III, Items 10, 11, 12, 13


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<PAGE>


<TABLE>
<CAPTION>
                             FIRST FINANCIAL BANCORP
                                 2002 FORM 10-K
                                TABLE OF CONTENTS
<S>         <C>                                                                          <C>
PART 1
------
ITEM 1.     BUSINESS ..................................................................  4
               General ................................................................  4
               The Bank ...............................................................  4
               Bank Services ..........................................................  4
               Sources of Business ....................................................  5
               Competition ............................................................  5
               Officers ...............................................................  6
               Employees ..............................................................  6
               Supervision and Regulation .............................................  7
                        The Company ...................................................  7
                        The Bank.......................................................  7
                        Recent Legislation and Regulations Affecting Banking ..........  8
ITEM 2.     PROPERTIES ................................................................ 14
ITEM 3.     LEGAL PROCEEDINGS ......................................................... 14
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ....................... 14

Part II
-------
ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS .................................................... 15
ITEM 6.     SELECTED FINANCIAL DATA ................................................... 16
ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS .............................................. 17
ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................. 38
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............................... 38
ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE .................................... 38

PART III
--------
ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ........................ 38
ITEM 11.    EXECUTIVE COMPENSATION .................................................... 38
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............ 38
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............................ 38
ITEM 14.    CONTROLS AND PROCEDURES ................................................... 38



PART IV
-------
ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ........... 39

Signatures ............................................................................ 67
Certifications under Section 906 of the Sarbanes-Oxley Act of 2002..................... 68
Index to Exhibits...................................................................... 70
</TABLE>

                                       2
<PAGE>

                                     PART I

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.  Forward-looking statements,  which are based on certain assumptions
and  describe  future  plans,  strategies,   and  expectations,   are  generally
identifiable  by  the  use of  words  such  as  "believe",  "expect",  "intend",
"anticipate",  "estimate", "project", "assume," "plan," "predict," "forecast" or
similar  expressions.  These  forward-looking  statements relate to, among other
things,  expectations of the business environment in which the Company operates,
projections  of future  performance,  potential  future  performance,  potential
future credit experience,  perceived opportunities in the market, and statements
regarding the Company's mission and vision.

The  Company's  actual  results,   performance,   and  achievements  may  differ
materially from the results,  performance, and achievements expressed or implied
in  such   forward-looking   statements  due  to  a  wide  range  of  risks  and
uncertainties. 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; monetary and fiscal
policies of the U.S. Government;  changes in real estate valuations;  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;  civil  disturbances or terrorist threats or acts; or
apprehension  about the possible  future  occurrences  of acts of this type; the
outbreak or escalation of hostilities  involving the United States;  and changes
in the securities markets. Also, all of the Company's operations and most of its
customers are located in California.  During recent times, the availability of a
sufficient  supply of  electrical  power in  California  has been  unreliable at
times.  In addition,  other events,  including those of September 11, 2001, have
increased  the  uncertainty  related to the  national  and  California  economic
outlook and could have an effect on the future  operations of the Company or its
customers, including borrowers.

The Company does not undertake,  and specifically  disclaims any obligation,  to
update any  forward-looking  statements to reflect  occurrences or unanticipated
events or circumstances after the date of such statements.

                                       3
<PAGE>

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 Company also
holds all of the  capital  stock of its other  subsidiaries,  Western  Auxiliary
Corporation  and First  Financial  (CA)  Statutory  Trust I.  Western  Auxiliary
Corporation  (WAC), a California  Corporation,  functions as trustee on deeds of
trust  securing  mortgage  loans  originated by the Bank.  First  Financial (CA)
Statutory Trust I is a Delaware  business trust formed in 2001 for the exclusive
purpose of issuing Company  obligated  manditorily  redeemable  cumulative trust
preferred   securities  of  Subsidiary   Grantor  Trust  holding  solely  junior
subordinated debentures. All references herein to the "Company" include the Bank
and all other subsidiaries, unless the context otherwise requires.

Information on the Company's  financial results and its products and services is
available on the Internet at http://www.bankoflodi.com.  Copies of the Company's
Annual  Report on Form 10-K,  Quarterly  Reports on 10-Q and Current  Reports on
Form 8-K filed with the Securities and Exchange  Commission will be furnished to
any shareholder,  free of charge, upon request. These reports also are available
over the Internet at http://www.sec.gov.

The Bank:

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

The Bank's headquarters is located at 701 South Ham Lane, Lodi, California.  The
Bank's primary  service area,  from which the Bank attracts 50% of its business,
is the city of Lodi and the  surrounding  area. This area is estimated to have a
population  approaching  60,000  persons,  with a median annual family income of
approximately $42,000. 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  debit  cards,  MasterCard  credit  cards and acts as a merchant
depository for cardholder drafts under both VISA and MasterCard. In addition, it
provides direct deposit of social security and other government checks. The Bank
also offers  Internet  banking and bill payment  services,  which are located at
http://www.bankoflodi.com.

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

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

                                       4
<PAGE>

Sources of Business:

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

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

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

                                       5
<PAGE>

Officers:

Leon Zimmerman, age 59, is President and Chief Executive Officer of the Bank and
of the Company;  Robert H. Daneke,  age 49 is Executive Vice President and Chief
Credit Officer of the Bank and of the Company, and; Allen R. Christenson, age 45
is Senior Vice-President,  Chief Financial Officer and Secretary 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 the Lodi Police Chaplaincy  Association,  San Joaquin County Education
Foundation,  Chamber of Commerce - Agribusiness Committee, and LEED - Sacramento
Steering  Committee.  He  is a  member  of  Lodi  Rotary  Club,  Sutter  Club  -
Sacramento, World Trade Club - San Francisco,  Independent Order of Odd Fellows,
Lodi Grape Festival and Harvest Fair and several other community groups.

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

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

Employees:

As  of  December  31,  2002,  the  Company  employed  129  full-time  equivalent
employees,  including three  executive  officers.  Management  believes that the
Company's relationship with its employees is good.

                                       6
<PAGE>

Supervision and Regulation

The Company:

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

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

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 the 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 this  determination,  the
Board is required to consider whether the performance of an activity  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) a customer obtain or provide some additional  credit,
property or service from or to the bank other than a loan, discount,  deposit or
trust service;  or (ii) the customer 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 not obtain some other credit, property or 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 consolidated financial statements for further information regarding
the payment of cash dividends by the Company and the Bank.

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

The Bank:

The Bank, is a national banking  association  whose deposit accounts are insured
by the Federal  Deposit  Insurance  Corporation  (the  "FDIC") up to the maximum
legal  limits.  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.

                                       7
<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. Beginning in 1986, California 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
financial  institution  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 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  cumulative  preferred  stock,
mandatory convertible securities, subordinated debt, and a limited amount of the
institution's allowance for loan and lease losses.

The risk-based capital guidelines also require 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.

In 1996, the federal  banking  agencies  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.  The goal of the policy is to ensure that institutions with
high  levels  of  interest-rate  risk have  sufficient  capital  to cover  their
exposures to risk. The 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.

Also in 1996, the Federal Financial  Institutions  Examination Council ("FFIEC")
approved  an  updated  Uniform  Financial  Rating  System  ("UFIRS").  The UFIRS
utilizes  the  "CAMELS"  rating  system,  which  classifies  and  evaluates  the
soundness  of  financial  institutions  based  upon  an  evaluation  of  capital
adequacy,  asset quality,  management,  earnings,  liquidity and  sensitivity to
market  risk,  which is  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.

As of  December  31,  2002,  the  Bank's  total  risk-based  capital  ratio  was
approximately  11.16  percent  and its  leverage  ratio was  approximately  8.22
percent.  The Bank does not presently expect that compliance with the risk-based
capital  guidelines,  minimum leverage  sensitivity to market risk  requirements
will  have a  materially  adverse  effect  on  its  business  in the  reasonably
foreseeable future.

During  2002  the  Holding  Company  contributed  $2  million  into  the bank as
contributed  capital which is included in Tier 1 capital for regulatory  capital
adequacy determination  purposes. The funds were made available as a result of a
$5 million trust  preferred  securities  offering.  The  securities  offering is
discussed in Note 17 to the consolidated financial statements.

                                       8
<PAGE>

Deposit Insurance  Assessments.  In 1995 the FDIC reduced bank deposit insurance
assessment  rates  to a range  from $0 to $.27 per  $100 of  deposits,  with the
assessment amount charged to a particular  financial  institution based upon the
risk the institution is perceived to present to the deposit  insurance fund. The
FDIC has continued these reduced  assessment  rates through 2002. 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 2003, the Bank estimates that its
annual noninterest  expense  attributed to the regular assessment  schedule will
not increase during 2003.

Prompt Corrective  Action.  The Prompt  Corrective Action  Regulations (the "PCA
Regulations")  of the federal bank regulatory  agencies  establish the following
five capital  categories  in  descending  order:  well  capitalized,  adequately
capitalized,  undercapitalized,  significantly  undercapitalized  and critically
undercapitalized. Assignment to a capital category depends upon an 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
evaluate  banks' lending to low and moderate  income  individuals and businesses
across a four-point scale from "outstanding" to "substantial noncompliance," and
are a factor in  regulatory  review of  applications  to  merge,  establish  new
branches  or form  bank  holding  companies.  In  addition,  any  bank  rated in
"substantial   noncompliance"  with  the  CRA  regulations  may  be  subject  to
enforcement  proceedings.  The Bank has a current rating of  "satisfactory"  CRA
compliance.

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

Permitted Activities. In recent years, the Federal banking agencies,  especially
the OCC and the Board,  have taken steps to increase the types of  activities in
which  national  banks and bank  holding  companies  can engage,  and to make it
easier  to  engage  in such  activities.  In  particular,  the  OCC  has  issued
regulations  permitting  national  banks to engage in a wide range of activities
through  subsidiaries.  "Eligible  institutions"  (national  banks that are well
capitalized,  have a high overall rating and a satisfactory CRA rating,  and are
not subject to an enforcement order) may engage in activities related to banking
through  operating  subsidiaries  after going  through an expedited  application
process.  In addition,  the 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.

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

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

                                       9
<PAGE>

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

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

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

Privacy  Provisions of the  Modernization  Act. The  Modernization  Act required
federal  banking  regulators  to adopt rules  limiting  the ability of banks and
other financial  institutions to disclose nonpublic  information about consumers
to nonaffiliated third parties. The rules require disclosure of privacy policies
to consumers and, in some  circumstances,  allow consumers to prevent disclosure
of certain  personal  information to  nonaffiliated  third parties.  The privacy
provisions of the Modernization Act also affect how consumer  information may be
transmitted  through  diversified  financial  services companies and conveyed to
outside vendors.

Regulation W. On December 12, 2002, the Federal  Reserve  adopted  Regulation W,
the rule that  comprehensively  implements  sections  23A and 23B of the Federal
Reserve Act. The rule is effective April 1, 2003.

Sections  23A  and  23B  and  Regulation  W  limit  the  risks  to a  bank  from
transactions between the bank and its affiliates and limit the ability of a bank
to transfer to its  affiliates  the benefits  arising from the bank's  access to
insured deposits,  the payment system and the discount window and other benefits
of the Federal  Reserve  system.  The statute and rule impose  quantitative  and
qualitative  limits on the  ability of a bank to extend  credit to, or engage in
certain  other  transactions  with,  an  affiliate  (and  a  nonaffiliate  if an
affiliate  benefits from the transaction).  However,  certain  transactions that
generally  do not  expose  a bank to  undue  risk or abuse  the  safety  net are
exempted from coverage under Regulation W.

Historically,  a  subsidiary  of a bank  was not  considered  an  affiliate  for
purposes  of  Sections  23A and 23B,  since  their  activities  were  limited to
activities  permissible for the bank itself.  The GLB Act authorized  "financial
subsidiaries"  that may engage in activities not permissible  for a bank.  These
financial  subsidiaries  are now  considered  affiliates.  Certain  transactions
between a financial  subsidiary and another affiliate of a bank are also covered
by sections 23A and 23B under Regulation W.

                                       10
<PAGE>

Regulation W has certain exemptions, including:

         o        For  state-chartered  banks,  an  exemption  for  subsidiaries
                  lawfully  conducting nonbank activities before issuance of the
                  final rule.

         o        An  exemption  for  extensions  of  credit  by a bank  under a
                  general purpose credit card where the borrower uses the credit
                  to purchase  goods or services  from an affiliate of the bank,
                  so long as less than 25  percent  of the  aggregate  amount of
                  purchases with the card are purchases from an affiliate of the
                  bank (a bank that  does not have  nonfinancial  affiliates  is
                  exempt from the 25 percent test).

         o        An exemption  for loans by a bank to a third party  secured by
                  securities  issued  by a  mutual  fund  affiliate  of the bank
                  (subject to a number of conditions).

         o        An  exemption  that  would  permit a banking  organization  to
                  engage   more   expeditiously   in   internal   reorganization
                  transactions  involving  a bank's  purchase  of assets from an
                  affiliate (subject to a number of conditions.


The final rule contains new  valuation  rules for a bank's  investments  in, and
acquisitions of, affiliates.

The Federal  Reserve  expects  examiners and other  supervisory  staff to review
intercompany   transactions   closely  for  compliance  with  the  statutes  and
Regulation W and to resolve any violations or potential violations quickly.

Sarbanes-Oxley  Act.  The  Sarbanes-Oxley  Act of  2002  (the  "Sarbanes-Oxley")
implemented  legislative  reforms  intended to address  corporate and accounting
fraud. In addition to the establishment of a new accounting oversight board that
will enforce  auditing,  quality control and independence  standards and will be
funded by fees from all publicly traded companies, Sarbanes-Oxley places certain
restrictions  on the scope of services that may be provided by accounting  firms
to their public company audit clients.  Any non-audit services being provided to
a public company audit client will require  preapproval  by the company's  audit
committee. In addition, Sarbanes-Oxley makes certain changes to the requirements
for  accounting  firm partner  rotation  after a period of time.  Sarbanes-Oxley
requires  chief  executive  officers  and  chief  financial  officers,  or their
equivalent,  to certify to the accuracy of periodic  reports filed with the SEC,
subject to civil and criminal  penalties if they knowingly or willingly  violate
the certification  requirement.  In addition, under Sarbanes-Oxley,  counsel are
required to report evidence of a material  violation of the securities laws or a
breach of  fiduciary  duty by a company  to its chief  executive  officer or its
chief legal officer,  and, if such officer does not  appropriately  respond,  to
report such evidence to the audit  committee or other  similar  committee of the
board of directors or to the board itself.

Under Sarbanes-Oxley, longer prison terms will apply to corporate executives who
violate federal  securities laws; the period during which certain types of suits
can be brought against a company or its officers is extended; and bonuses issued
to top executives prior to restatement of a company's  financial  statements are
subject to  disgorgement  if the  restatement  was due to corporate  misconduct.
Executives  are also  prohibited  from insider  trading during  retirement  plan
"blackout"  periods,  and  loans to  company  executives  (other  than  loans by
financial   institutions   permitted  by  federal  rules  and  regulations)  are
restricted.  In addition, a provision directs that civil penalties levied by the
SEC as a result of any judicial or administrative action under Sarbanes-Oxley be
deposited  to a fund  for the  benefit  of  harmed  investors.  The  legislation
accelerates  the time frame for  disclosures by public  companies,  as they must
immediately  disclose  any  material  changes in their  financial  condition  or
operations.  Directors and executive officers must also provide  information for
most  changes  in  ownership  in a  company's  securities  generally  within two
business days of the change.

Sarbanes-Oxley also increases responsibilities and codifies certain requirements
relating to audit  committees of public companies and how they interact with the
company's  "registered  public accounting firm." Audit Committee members must be
independent  and are absolutely  barred from accepting  consulting,  advisory or
other  compensatory fees from the issuer.  In addition,  companies must disclose
whether at least one member of the committee is a "financial expert" (as defined
by the  SEC)  and if  not,  why  not.  A  company's  public  accounting  firm is
prohibited from performing audit services for the company if the company's chief
executive  officer,  chief  financial  officer,  comptroller,  chief  accounting
officer or any person  serving in equivalent  positions had been employed by the
auditor and  participated  in the company's  audit during the year preceding the
audit initiation date.  Sarbanes-Oxley also prohibits any officer or director of
a company or any other  person  acting  under  their  direction  from taking any
action to fraudulently influence,  coerce, manipulate or mislead any independent
accountant  engaged in the audit of the company's  financial  statements for the
purpose  of  rendering   the   financial   statements   materially   misleading.
Sarbanes-Oxley  requires the SEC to prescribe rules  requiring  inclusion of any
internal  control  report and  assessment  by management in the annual report to
shareholders.  Sarbanes-Oxley  also  requires  the public  accounting  firm that
issues a  company's  audit  report  to  attest  to and  report  on  management's
assessment of the company's internal controls.

                                       11
<PAGE>

Although  the  Company  anticipates  that it will  incur  additional  expense in
complying with the provisions of Sarbanes-Oxley, management does not expect that
compliance will have a material impact on the Company's  financial  condition or
results of operations.

Source of Strength Policy.  According to FRB policy,  bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary.

USA PATRIOT Act. The terrorist attacks in September, 2001 impacted the financial
services industry and led to the Uniting and Strengthening  America by Providing
Appropriate Tools Required to Intercept and Obstruct  Terrorism Act of 2001 (the
"USA  PATRIOT  Act").  Part of the USA  Patriot Act is the  International  Money
Laundering Abatement and Financial Anti-Terrorism Act of 2001 ("IMLAFATA").

IMLAFATA  authorizes  the Secretary of the Treasury,  in  consultation  with the
heads of other  government  agencies,  to adopt special  measures  applicable to
banks,  bank holding  companies,  and/or  other  financial  institutions.  These
measures may include  enhanced  recordkeeping  and  reporting  requirements  for
certain financial transactions that are of primary money laundering concern, due
diligence  requirements  concerning the beneficial ownership of certain types of
accounts,  and  restrictions  or  prohibitions on certain types of accounts with
foreign financial institutions.

Among its other provisions, IMLAFATA requires each financial institution to: (i)
establish  an  anti-money  laundering  program;  (ii)  establish  due  diligence
policies,  procedures and controls with respect to its private banking  accounts
and correspondent  banking accounts  involving  foreign  individuals and certain
foreign banks;  and (iii) avoid  establishing,  maintaining,  administering,  or
managing  correspondent  accounts  in the United  States for, or on behalf of, a
foreign bank that does not have a physical presence in any country. In addition,
IMLAFATA   contains  a  provision   encouraging   cooperation   among  financial
institutions,  regulatory  authorities  and  law  enforcement  authorities  with
respect to  individuals,  entities and  organizations  engaged in, or reasonably
suspected  of  engaging  in,  terrorist  acts or  money  laundering  activities.
IMLAFATA  expands the  circumstances  under which funds in a bank account may be
forfeited and requires covered  financial  institutions to respond under certain
circumstances  to requests for information  from federal banking agencies within
120 hours. IMLAFATA also amends the Bank Holding Company Act and the Bank Merger
Act to require the federal banking  agencies to consider the  effectiveness of a
financial  institution's  anti-money  laundering  activities  when  reviewing an
application under these acts.

Treasury regulations  implementing the due diligence requirements must be issued
no later than April 24, 2002.  Whether or not regulations are adopted,  IMLAFATA
becomes effective July 23, 2002. Additional regulations are to be adopted during
2002 to implement  minimum standards to verify customer  identity,  to encourage
cooperation  among financial  institutions,  federal banking  agencies,  and law
enforcement   authorities  regarding  possible  money  laundering  or  terrorist
activities,  to prohibit the anonymous use of  "concentration  accounts," and to
require all covered  financial  institutions to have in place a Bank Secrecy Act
compliance program.

The Company is  establishing  policies and procedures to ensure  compliance with
the IMLAFATA.  As of the date of this filing, the Company has not determined the
impact that IMLAFATA will have on the Company's operations.

Cross-Institution  Assessments.  Any insured depository institution owned by the
Company  can be assessed  for losses  incurred  by the FDIC in  connection  with
assistance  provided  to, or the  failure of, any other  depository  institution
owned by the Company.

Audit Requirements. The Bank is required to have an annual independent audit and
to prepare all  financial  statements  in  accordance  with  generally  accepted
accounting  principles.  The Bank is also required to have an independent  audit
committee comprised entirely of outside directors. Under National Association of
Securities Dealers (NASD) on-time certifications, the Company has certified that
the audit committee has adopted a formal written charter and meets the requisite
number of directors, independence and qualification standards.

Other Consumer  Protection Laws and  Regulations.  The bank regulatory  agencies
closely monitor an  institution's  compliance with consumer  protection laws and
regulations.  The  examination  and  enforcement  activities  conducted by these
agencies are intense,  and banks have been advised to focus on  compliance  with
consumer  protection  laws  and  their  implementing  regulations.  The  federal
Interagency  Task  Force  on Fair  Lending  has  issued a  policy  statement  on
discrimination  in home  mortgage  lending  which  describes  three methods that
federal   agencies  will  use  to  prove   discrimination:   overt  evidence  of
discrimination,  evidence of  disparate  treatment,  and  evidence of  disparate
impact. In addition to CRA and fair lending requirements, the Bank is subject to
numerous other federal  consumer  protection  statutes and  regulations.  Due to
heightened  regulatory  concern related to compliance  with consumer  protection
laws and regulations  generally,  the Bank may incur additional compliance costs
or be  required  to  expend  additional  funds  for  investments  in  the  local
communities it serves.

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  regularly  considers  bills designed to  substantially  reform

                                       12
<PAGE>

banking laws. It is not known whether any of these 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.

                                       13

<PAGE>

ITEM 2. PROPERTIES

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

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

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

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

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

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

ITEM 3. LEGAL PROCEEDINGS

        Not Applicable


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

        Not Applicable


                                       14
<PAGE>


                                     PART II

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

There is no  established  public  trading  market  for the  common  stock of the
Company. The Company's common stock is traded in the over-the-counter  market on
the  Over-the-Counter  Bulletin Board (OTCBB) under the symbol "FLLC" 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 3,  2003,  there were 1,203
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 2002 and 2001 and
is based on information obtained from the OTCBB.



                                          2002                   2001
 Bid Price of Common Shares        High         Low        High         Low

  First Quarter                 $  11.35       10.40       10.13        9.00
  Second Quarter                   12.50       11.00        9.87        9.12
  Third Quarter                    11.88       11.65       10.42        9.00
  Fourth Quarter                   12.65       11.71       11.15        9.90


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.

The Company has not  declared or paid any cash  dividends on its common stock in
its two most recent fiscal years.  The Company's  principal  source of funds for
dividend payments is dividends  received from the Bank. Future dividend payments
by the Bank,  if any,  will be  subject  to  regulatory  limitations,  earnings,
general economic conditions,  financial  condition,  capital  requirements,  and
other factors as may be appropriate in determining  dividend policy. The OCC has
authority  to  prohibit a bank from  engaging  in  business  practices  that are
considered to be unsafe or unsound.  Depending upon the financial condition of a
bank and upon other factors,  the OCC could assert that payments of dividends or
other  payments  by a bank  might be such an unsafe or unsound  practice.  Also,
under applicable  Federal laws a national bank must seek permission from the OCC
to pay a dividend if the total dividend payment in any calendar year exceeds the
net  profits of that year,  as  defined,  combined  with net profits for the two
preceding  years.  For legal  and  regulatory  restrictions  on the  payment  of
dividends see "Item I. Business - The Company" and "Supervision and Regulation."
For the amount  available for dividends at December 31, 2002, see Note 13 to the
notes to consolidated  financial statements filed with this report. No assurance
can be given that the Bank will pay dividends at any time.

                                       15
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>
            (in  thousands except per share amounts)
            Consolidated Statement of Income                      2002           2001           2000            1999          1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>            <C>            <C>            <C>
            Interest Income                                     $ 13,677         13,858         13,496         12,526         11,508

            Interest Expense                                       3,459          4,644          4,613          3,699          4,028
            Net Interest Income                                   10,218          9,214          8,883          8,827          7,480

            Provision for Loan Losses                                625            391            135          1,051            250
            Noninterest Income                                     4,703          3,828          2,690          2,461          1,878
            Noninterest Expense                                   12,486         11,226          9,855          8,803          7,712
            Net Income                                          $  1,355          1,207          1,283          1,159          1,052


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

            Basic Earnings                                      $    .82            .75            .81            .75            .69
            Diluted Earnings                                         .79            .73            .79            .72            .65
            Cash Dividends Declared                             $     --             --            .05            .20            .20


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

            Federal Funds Sold and Securities
               Purchased Under Resale Agreements                $ 19,634          6,129         10,115            100          4,800
            Investment Securities                                 33,125         41,015         29,560         36,096         45,647
            Loans held for sale                                    7,578          3,876          1,292            647          2,619
            Loans, net of loss reserve and
               deferred fees                                     154,090        135,430        110,793        108,947         88,459
            Total Assets                                         255,246        226,175        185,064        176,334        164,400
            Total Deposits                                       210,679        201,571        162,261        156,161        149,544
            Other Borrowings                                      19,885          4,000          4,588          4,300             --
            Total Stockholders' Equity                          $ 19,270         17,863         16,454         14,521         13,857
</TABLE>
                                       16

<PAGE>


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


Prospective Accounting Pronouncements

The  Financial  Accounting  Standards  Board (FASB)  issued  Statement  No. 143,
Accounting  for Asset  Retirement  Obligations  in August 2001.  This  Statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible  long-lived  assets and the associated  asset  retirement
costs.  As a result,  FASB  Statement  No. 143 applies to all entities that have
legal obligations  associated with the retirement of long-lived  tangible assets
that result from the acquisition, construction, development or normal use of the
asset. As used in this Statement,  a legal obligation results from existing law,
statute,  ordinance,  written or oral contract,  or by legal  construction  of a
contract under the doctrine of promissory estoppels.  Statement No. 143 requires
an  enterprise to record the fair value of an asset  retirement  obligation as a
liability in the period in which it incurs a legal  obligation  associated  with
the  retirement of a tangible  long-lived  asset.  Since the  requirement  is to
recognize the obligation  when incurred,  approaches  that have been used in the
past to accrue the asset retirement obligation over the life of the asset are no
longer acceptable.  Statement No. 143 also requires the enterprise to record the
contra to the initial  obligation  as an increase to the carrying  amount of the
related  long-lived asset (i.e.,  the associated asset retirement  costs) and to
depreciate that cost over the remaining  useful life of the asset. The liability
is  changed  at the end of each  period to reflect  the  passage of time  (i.e.,
accretion expense) and changes in the estimated future cash flows underlying the
initial fair value measurement.  Enterprises are required to adopt Statement No.
143  for  fiscal  years  beginning  after  June  15,  2002.  Early  adoption  is
encouraged.  The Company does not expect adoption of Statement No. 143 to have a
material impact to the consolidated financial statements of the Company.

In April 2002, FASB issued Statement Financial  Accounting  Standards (SFAS) No.
145.  Statement No. 145 rescinds SFAS No. 4, which requires all gains and losses
from extinguishment of debt to be aggregated and, if material,  classified as an
extraordinary  item, net of related income tax effect. As a result, the criteria
in Opinion No. 30 will now be used to classify those gains and losses.  SFAS No.
64 amended  SFAS No. 4, and is no longer  necessary  because SFAS No. 4 has been
rescinded. The accounting, disclosure and financial statements provision of SFAS
No. 145 are effective for financial  statements in fiscal years  beginning after
May 15, 2002. Any gain or loss on  extinguishment of debt that was classified as
an extraordinary item in prior periods presented that does not meet the criteria
in  Opinion  No.  30  for  classification  as an  extraordinary  item  shall  be
reclassified.  The implementation of Statement No. 145 is not expected to have a
material impact to the consolidated financial statements of the Company.

The  Financial  Accounting  Standards  Board  issued  FASB  Statement  No.  146,
Accounting for Costs  Associated with Exit or Disposal  Activities in June 2002.
Statement No. 146 requires the Company to recognize  costs  associated with exit
or  disposal  activities  when they are  incurred  rather  than at the date of a
commitment to an exit or disposal plan.  SFAS 146 replaces  Emerging Issues Task
Force  ("EITF")  Issue No. 94-3,  "Liability  Recognition  for Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs  Incurred  in a  Restructuring)."  The  provisions  of SFAS  146 are to be
applied  prospectively to exit or disposal  activities  initiated after December
31, 2002.

In October 2002, the FASB issued SFAS 147, which removes certain acquisitions of
financial  institutions  (other  than  transactions  between  two or more mutual
enterprises) from the scope of SFAS 72,  Accounting for Certain  Acquisitions of
Banking or Thrift  Institutions and FASB Interpretation 9, Applying APB Opinions
16 and 17 When a Savings  and Loan or a Similar  Institution  Is  Acquired  in a
Business  Combination  Accounted  for by the  Purchase  Method.  These  types of
transactions  are now  accounted  for under SFAS 141 and 142. In addition,  this
Statement  amends  SFAS  144,  Accounting  for the  Impairment  or  Disposal  of
Long-Lived  Assets,  to include  in its scope  long-term  customer  relationship
intangible  assets of financial  institutions.  The provisions of this Statement
were  effective   October  1,  2002,  with  earlier  adoption   permitted.   The
implementation of Statement No. 147 is not expected to have a material impact to
the consolidated financial statements of the Company.

In December 2002, the FASB issued SFAS 148, which provides  alternative  methods
of  transition  for a  voluntary  change  to the  fair  value  based  method  of
accounting for stock-based compensation.  In addition, this Statement amends the
disclosure  requirements  of SFAS 123 to require  prominent  disclosures in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results.  Finally,  this  Statement  amends APB  Opinion 28,  Interim  Financial
Reporting,  to require  disclosure  about  those  effects  in interim  financial
information.  This Statement is effective for fiscal and interim  periods ending
after  December 15, 2002.  Management  does not expect this  Statement to have a
material impact to the consolidated  financial statements.  See Note 1(n) to the
consolidated financial statements for stock based compensation disclosures.

                                       17
<PAGE>

In November 2002, the FASB issued FIN 45, which elaborates on the disclosures to
be made by a guarantor in its interim and annual financial  statements about its
obligations under certain  guarantees that it has issued. It also clarifies that
a guarantor  is required to  recognize,  at the  inception of the  guarantee,  a
liability  for the fair  value  of the  obligation  undertaken  in  issuing  the
guarantee.  The initial recognition and initial  measurement  provisions of this
Interpretation are applied  prospectively to guarantees issued or modified after
December 31, 2002. The adoption of these  recognition  provisions will result in
recording  liabilities  associated  with  certain  guarantees  provided  by  the
Company.  These  currently  include  standby  letters of credit  and  first-loss
guarantees   on   securitizations.   The   disclosure   requirements   of   this
Interpretation  are  effective  for  financial  statements  of interim or annual
periods  ending  after  December  15,  2002.  Management  does not  expect  this
Interpretation  to  have  a  material  impact  to  the  consolidated   financial
statements.

In January  2003,  the FASB issued FIN 46, which  clarifies the  application  of
Accounting Research Bulletin ("ARB") 51, consolidated  financial statements,  to
certain entities (called variable  interest  entities) in which equity investors
do not have the  characteristics  of a controlling  financial interest or do not
have sufficient equity at risk for the entity to finance its activities  without
additional  subordinated  financial  support from other parties.  The disclosure
requirements of this  Interpretation are effective for all financial  statements
issued  after  January 31, 2003.  The  consolidation  requirements  apply to all
variable interest  entities created after January 31, 2003. In addition,  public
companies  must  apply  the  consolidation  requirements  to  variable  interest
entities  that  existed  prior to February 1, 2003 and remain in existence as of
the  beginning  of annual or interim  periods  beginning  after  June 15,  2003.
Management is currently assessing the impact of FIN 46, and does not expect this
Interpretation  to  have  a  material  impact  to  the  consolidated   financial
statements.

Critical Accounting Policies and Estimates

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

The Company believes the following critical  accounting policies affect its more
significant  judgments and estimates used in the preparation of its consolidated
financial statements. The Company maintains allowances for loan losses resulting
from the customer's  inability to make required loan payments.  If the financial
conditions  of the  Company's  customers  were to  deteriorate,  resulting in an
impairment  of their  ability to make  payments,  additional  allowances  may be
required.  The  Company  invests in debt and equity  securities.  If the Company
believes these securities have experienced a decline in value that is other than
temporary,  an investment impairment charge is recorded.  Future adverse changes
in market conditions or poor operating  results of underlying  investments could
result  in  losses  or an  inability  to  recover  the  carrying  value  of  the
investments that may not be reflected in an investment's carrying value, thereby
requiring an impairment charge in the future. For a more complete  discussion of
the Company's  accounting  policies,  see Note 1 to the  consolidated  financial
statements.

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 41 through 66, as well as other information  presented throughout
this report.

                                       18
<PAGE>


Summary of Earnings Performance

-------------------------------------------------------------------------------
                                          For the Year Ended December 31:
                                    -------------------------------------------

                                           2002            2001            2000

Earnings (in thousands)             $     1,355           1,207           1,283
-------------------------------------------------------------------------------
Basic earnings per share            $       .82             .75             .81
Diluted earnings per share          $       .79             .73             .79
Return on average assets                  0.57%           0.59%           0.71%
Return on average equity                  7.30%           7.03%           8.74%
Dividend payout ratio                       --              --            5.88%
-------------------------------------------------------------------------------
Average equity to average assets          7.74%           8.34%           8.10%
-------------------------------------------------------------------------------

Net income  totaled  $1,355  thousand  for the year  ended  December  31,  2002,
resulting in an increase of $148 thousand,  or 12.3%, over the prior year. Basic
earnings  per share in 2002  were  $.82,  compared  to $.75 and $.81 in 2001 and
2000,  respectively.  During  2002,  the Company  experienced  increases in both
earning assets and deposits. As a result of interest income and interest expense
decreasing $181 thousand and $1,185 thousand, respectively, the Company realized
an increase  in net  interest  income to $10,218  thousand as compared to $9,214
thousand in 2001.  This represents an increase of $1,004 thousand or 10.9%. As a
result of increases in loans during 2002,  the Company  increased  the provision
for loan losses by $234 thousand as compared to 2001.  In addition,  the Company
experienced an $875 thousand increase in noninterest  income which was offset by
an  increase  of  $1,260  thousand  in  noninterest  expense.  Furthermore,  the
Company's provision for income taxes increased $237 thousand in 2002 as compared
to 2001.

During 2002, the Company's  total gross loans (total  portfolio loans plus loans
held for sale) increased 16.0%. While the Company experienced significant growth
in loans during the year, the lower interest rate environment  during 2002, when
compared  to 2001  reduced  the  overall  earnings  potential  generated  by the
increase  in the  Company's  primary  earning  asset.  As a further  benefit  to
interest income, the Company was successful in collecting interest totaling $242
thousand  and $423  thousand  on loans that had  previously  been on  nonaccrual
during  2002 and  2001,  respectively.  Interest  forgone  on  nonaccrual  loans
amounted to $364 thousand during 2002 compared to $310 thousand during 2001.

The lower  interest  rate  environment  during 2002,  as compared to 2001,  also
resulted in a decrease in the Company's total interest expense. The reduction in
interest  expense  occurred  primarily  as a result of a decrease in the overall
interest  rate paid for  deposits  combined  with a $14.3  million  reduction in
Certificates of Deposit.  The reduction in Certificates of Deposit resulted from
the Bank focusing its deposit development efforts on core deposit relationships.
Accordingly,  excluding  certificates of deposit, total deposits increased $23.5
million, or 17.8% during 2002 when compared to 2001.

The  Provision  for Loan Losses for the year ending  December  31, 2002 was $625
thousand,  an increase of $234 thousand over 2001's  provision of $391 thousand.
The  increase  in the  provision  was  primarily  related  to the  growth in the
Company's loans.

Noninterest income totaled $4,703 thousand for the year ending December 31, 2002
representing  an increase of $875  thousand,  or 22.9% over the prior year.  The
increase resulted primarily from gains on the sale of investment  securities and
loans,  increased  service charge  revenue,  which resulted from the increase in
total deposits,  increased mortgage lending activity and an increase in the cash
surrender value of life insurance.  Total  noninterest  expense increased $1,260
thousand,  or 11.2%  during  the year  primarily  as a result  of  additions  to
personnel and the upgrading of existing positions in addition to general overall
increases in the cost of operations incurred with strategic expansion projects.

                                       19
<PAGE>

Branch Expansion and Acquisitions

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

In  August  1998,  the  Bank  opened a  full-service  branch  in the Elk  Grove,
California  market.  The Elk Grove office is approximately 30 miles north of the
Bank's corporate headquarters in Lodi, California and it effectively expands the
Bank's trade area into South Sacramento County. In January 1998, the Bank opened
a loan  production  office in the  growing  market of  Folsom,  California.  The
location was  converted to a  full-service  branch in July 1999 and in July 2001
was  relocated to a new site in Folsom.  The Folsom office is  approximately  45
miles northeast of the Bank's  corporate  headquarters  in Lodi,  California and
effectively expanded the Bank's trade area into the greater Sacramento area.

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

                                       20
<PAGE>


Net Interest Income

The following  table provides a detailed  analysis of average earning assets and
liabilities,  net interest  spread and net  interest  margin for the years ended
December 31, 2002, 2001, and 2000, respectively:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                           For the Year Ended               For the Year Ended              For the Year Ended
                                            December 31, 2002                December 31, 2001               December 31, 2000
                                      (Dollar amounts in thousands)    (Dollar amounts in thousands)   (Dollar amounts in thousands)
                                   -------------------------------------------------------------------------------------------------
                                      Average    Income/               Average     Income/   Average     Income/
                                      Balance    Expenses     Yield    Balance    Expenses    Yield      Balance    Expense  Yield
                                      -------    --------     -----    -------    --------    -----      -------    -------  -----

<S>                                <C>             <C>       <C>       <C>          <C>       <C>        <C>         <C>     <C>
Earning Assets:

Investment securities (1)          $   34,076      1,602     4.70%     35,260       2,073     5.88%      34,690      2,214   6.38%

Federal funds sold and
securities purchased under
resale agreements                  $    9,464        158     1.67%     11,360         481     4.23%       5,090        329   6.46%

Loans (2)                          $  155,986     11,917     7.64%    123,600      11,304     9.15%     114,690     10,953   9.55%
                                      -------     ------     -----    -------      ------     -----     -------     ------   -----

Total Earning Assets               $  199,526     13,677     6.85%    170,220      13,858     8.14%     154,470     13,496   8.74%
                                      =======     ======     =====    =======      ======     =====     =======     ======   =====

Liabilities:

Noninterest bearing deposits       $   33,529         --        --     25,350          --        --      21,240         --      --

Savings, money market, & NOW
deposits                              112,727      1,296     1.15%     91,600       1,297     1.42%      83,970      1,350   1.61%

Time deposits                          62,026      1,880     3.03%     66,630       3,342     5.02%      53,020      2,801   5.28%

Other borrowings                        8,288        283     3.41%        120           5     4.17%       7,000        462   6.60%
                                      -------     ------     -----    -------      ------     -----     -------     ------   -----

Total Liabilities                  $  216,570      3,459     1.60%    183,700       4,644     2.53%     165,230      4,613   2.79%
                                      =======     ======     =====    =======      ======     =====     =======     ======   =====

Net Spread                                                   5.25%                            5.61%                          5.95%
                                                             =====                            =====                          =====
----------------------------------------------------------------------------------------------------------------------------------
                                      Earning     Income              Earning     Income                Earning    Income
                                      Assets    (Expense)    Yield    Assets     (Expense)   Yield      Assets    (Expense)  Yield
                                      ------    ---------    -----    ------     ---------   -----      ------    ---------  -----

Yield on average  earning assets   $  199,526     13,677     6.85%    170,220      13,858     8.14%     154,470     13,496   8.74%

Cost of funds for average
earning assets                        199,526     (3,459)   (1.73%)   170,220      (4,644)   (2.73%)    154,470     (4,613) (2.99%
                                                  ------     -----                  -----     -----                  -----   -----

Net Interest Margin                   199,526     10,218     5.12%    170,220       9,214     5.41%     154,470      8,883   5.75%
                                                  ======     =====                  =====     =====                  =====   =====
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Income on tax-exempt  securities  has not been adjusted to a tax  equivalent
basis.

(2) Loans held for sale and nonaccrual loans are included in the loan totals for
each year.

Net interest income increased  $1,004 thousand,  or 11% in 2002 after increasing
4% in 2001.  While the yield on average earning assets declined to 6.85% in 2002
as compared to 8.14% in 2001, the cost of funds for average  earning assets also
decreased  to 1.73% in 2002 from 2.73% in 2001.  The  increase  in net  interest
income in 2002 is  attributable  to an increase of 17% in average earning assets
combined  with a 14% increase in average  deposits,  which offset the decline in
net interest margin from 5.41% to 5.12% from 2001 to 2002.

During 2002, average loans, increased $32,386 thousand, or 26%, while investment
securities  and  federal  funds  sold  and  securities  purchased  under  resale
agreements  decreased  $1,184  thousand  and  $1,896  thousand,  or 3% and  17%,
respectively,  compared to 2001. Average deposits increased $24,702 thousand, or
13% during 2002 and other borrowings  increased $8,168 thousand,  primarily as a
result of a $5 million floating rate pooled trust preferred  securities offering
which closed March 26, 2002.

Net interest  margin  decreased 29 basis points in 2002 after  decreasing  by 34
basis points in 2001. This decrease in 2002 was the result of several key items:


-    Interest  forgone on  nonaccrual  loans during 2002 totaled $364  thousand.
     This  reduced  the yield on loans by 23 basis  points and the net  interest
     margin by 18 basis points.

         o     Interest   collected  on  loans  that  had  previously   been  on
               nonaccrual status totaled $242 thousand. This increased the yield
               on loans by 16 basis  points  and the net  interest  margin by 12
               basis points.

                                       21
<PAGE>

-    Changes in the mix of the  investment  portfolio  during 2002 resulted in a
     decrease of 118 basis  points in the average  yield  earned on  investments
     securities.

-    The general  decrease in interest  rates during 2002 resulted in a decrease
     of 256 basis points in the average  yield earned on federal  funds sold and
     securities purchased under resale agreements.

-    The general  decrease in interest  rates during 2002 resulted in a decrease
     of 199 basis points in the cost of average certificates of deposit.

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

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

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

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

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

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

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

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

                                       22

<PAGE>

The following table presents the monetary impact of the  aforementioned  changes
in earning asset and deposit volumes and yields for the two years ended December
31, 2002 and 2001.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                         2002 compared to 2001             2001 compared to 2000
                                            (in thousands)                     (in thousands)
                                            Change due to:                     Change due to:
Interest Income:               Volume       Rate        Total           Volume       Rate      Total
                         -----------------------------------------------------------------------------
<S>                         <C>               <C>          <C>              <C>       <C>        <C>
Investment securities       $    (70)       (401)        (471)            36        (177)      (141)

Federal funds sold and
securities purchased
under resale agreements          (80)       (243)        (323)           405        (253)       152

Loans                          2,962      (2,349)         613            851        (500)       351
                            --------      -------         ---          -----         ---        ---

Total interest income       $  2,812      (2,993)        (181)         1,292        (930)       362
                            ========      =======      =======         =====         ===        ===

Interest Expense:

Savings, money market, &
NOW accounts                $    384        (385)          (1)           111        (164)       (53)

Time deposits                   (231)     (1,231)      (1,462)           719        (178)       541

Other borrowings                 340         (62)         278           (454)         (3)      (457)
                                 ---          --          ---          =====         ---        ---

Total interest expense      $    493      (1,678)      (1,185)           376        (345)        31
                            ========      =======      =======         =====         ===        ===

Net interest income         $  2,319      (1,315)       1,004            916        (585)       331
                            ========      =======      =======         =====         ===        ===
------------------------------------------------------------------------------------------------------

</TABLE>

The volume variances for total interest income in 2002 compared to 2001 indicate
that the  increase in average  loans of 26% together  with  decreases in average
investment  securities  and federal funds sold and  securities  purchased  under
resale  agreements of 3% and 17%,  respectively,  combined for a net increase to
interest  income of $2,812  thousand.  However,  the  continued  decline  of the
interest rate  environment  during 2002 reduced interest income $2,993 thousand,
as compared to the prior year,  with $2,349  thousand of the decrease  resulting
from a 151 basis  point  decline  in the yield  earned on loans,  $401  thousand
decrease  resulting  from a 118 basis  points  decline  in the  yield  earned on
investment  securities and a $243 thousand  decrease  resulting from a 256 basis
points  decline  in the  yield  earned  on  federal  funds  sold and  securities
purchased under resale  agreements.  While average interest bearing  liabilities
increased 14% during 2002, the average rate paid on interest bearing liabilities
declined 100 basis points  resulting in a net decrease in total interest expense
of $1,462 thousand.  In addition,  during 2002, other borrowings (which includes
the  proceeds  from the  trust  preferred  securities)  increased  $8.2  million
resulting in an increase in total interest expense of $278 thousand.

The total  interest  income volume  variances for 2001 compared to 2000 indicate
that  increases in average loans,  investment  securities and federal funds sold
and  securities   purchased  under  resale   agreements  of  8%,  2%  and  123%,
respectively  combined to increase interest income by $1,292 thousand.  However,
the declining interest rate environment during 2001 reduced interest income $930
thousand,  as  compared to the prior year,  with $500  thousand of the  decrease
resulting  from a 40 basis  point  decline  in the yield  earned on loans,  $177
thousand decrease resulting from a 50 basis point decline in the yield earned on
investment  securities and a $113 thousand  decrease  resulting from a 223 basis
points  decrease  in the  yield  earned on  federal  funds  sold and  securities
purchased under resale agreements.  Additionally, while average interest bearing
liabilities increased 11% during 2001, the average rate paid on interest bearing
liabilities decreased 9% resulting in a net increase in total interest expense.

                                       23
<PAGE>


Allowance for Loan Losses

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

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
(in thousands)                                               2002       2001       2000       1999       1998

<S>                                                       <C>        <C>        <C>        <C>        <C>
Balance at beginning of period                            $ 2,668    $ 2,499    $ 2,580    $ 1,564    $ 1,313

Charge-offs:

  Commercial                                                  178        226        201         90         67

  Real estate                                                  62         --         --         --         25

  Consumer                                                     30         57         45         20         40
                                                          -------    -------    -------    -------    -------

  Total Charge-offs                                           270        283        246        110        132

Recoveries:

  Commercial                                                   26         21         15         68        112

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

  Consumer                                                      8         40         15          7         21
                                                          -------    -------    -------    -------    -------

  Total Recoveries                                             34         61         30         75        133
                                                          -------    -------    -------    -------    -------

Net charge-offs                                              (236)      (222)      (216)       (35)        (1)

Additions charged to operations                               625        391        135      1,051        250
                                                          -------    -------    -------    -------    -------

Balance at end of period                                    3,057      2,668      2,499      2,580      1,564
                                                          =======    =======    =======    =======    =======

Ratio of net charge-offs to average loans outstanding
                                                            (0.14%)    (0.16%)    (0.19%)    (0.03%)   (0.001%)
                                                          =======    =======    =======    =======    =======
-------------------------------------------------------------------------------------------------------------
</TABLE>

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

Net charge-offs  during 2002 totaled $236 thousand and represents an increase of
$14 thousand,  or 6%, over 2001. This activity was comprised of $270 thousand in
gross  charge-offs  combined  with $34  thousand in  recoveries  representing  a
decrease of 5% in gross charge-offs and a decrease of 44% in recoveries compared
to 2001. The decrease in both charge-offs and recoveries  during 2002 is related
to the reduction of nonaccrual loans. The Bank has not modified or significantly
compromised its underwriting  standards despite growing  competition  within the
industry.

The loan loss  provision  for 2002  totaled  $625  thousand  and  represents  an
increase of $234 thousand,  or 60%, over 2001. The provision increased primarily
in response to the  increases in loan growth and the  potential  for declines in
the economy.  During 2002,  average loans and gross loans  (including loans held
for sale)  increased  26% and 16%,  respectively  compared  to 2001.  Management
remained  concerned  throughout 2002 about declines in the national  economy and
the potential  for declines in the credit  quality of its borrowers as a result.
During 2002,  the Company  continued to eliminate  nonperforming  loans  without
incurring substantial charge-offs.

Net charge-offs  during 2001 totaled $222 thousand and represents an increase of
$6 thousand,  or 3%, over 2000.  This activity was comprised of $283 thousand in
gross  charge-offs  combined  with $61 thousand in  recoveries  representing  an
increase  of 15% in gross  charge-offs  and an  increase  of 103% in  recoveries
compared to 2000. The increase in charge-offs during 2001 is related to measures
taken by the Company to reduce the level of nonaccrual loans.

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

                                       24
<PAGE>

Noninterest Income

Noninterest  income  increased 23% and 42% in 2002 and 2001,  respectively.  The
primary  components of noninterest  income consist of: service charges,  SBA and
mortgage income,  and other noninterest  income.  The following table summarizes
the significant elements of service charge, SBA, mortgage and Farmer Mac revenue
for the three years ending 2002, 2001, and 2000:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
(in thousands)                                            2002             2001             2000
------------------------------------------------------------------------------------------------------
<S>                                                  <C>                    <C>              <C>
Periodic deposit account charges                     $     483              492              477
Returned item charges                                      849              624              561
Ancillary services charges                                  97               95               99
Other service charges                                      169              203              124
                                                     -------------------------------------------------
     Total service charge revenue                        1,598            1,414            1,261
                                                     =================================================

Gain on sale of SBA loans                                  331               95              114
SBA loan servicing revenue                                 206              223              224
                                                     -------------------------------------------------
     Total SBA revenue                                     537              318              338

Gain on sale of mortgage loans                             640              458              132
Mortgage loan servicing revenue                            221              127              123
                                                     -------------------------------------------------
     Total mortgage revenue                                861              585              255

Farmer Mac origination, sale and servicing                  34               29               31
                                                     -------------------------------------------------

     Total loan origination, sale and
       servicing revenue                                 1,432              932              624
------------------------------------------------------------------------------------------------------
</TABLE>

Service  charge  revenue  increased 13% in 2002 compared to 2001 and 12% in 2001
compared to 2000.  These increases are primarily the result of continued  growth
in demand deposits.  While average total deposits  increased 14% in 2002 and 16%
in 2001, average  noninterest-bearing  demand deposits increased 32% and 19% and
money market accounts  increased 78% and 6%, during 2002 and 2001 as compared to
2001 and 2000, respectively.

During 2002,  SBA revenue  increased 69% after  declining 6% and 12% during 2001
and 2000. The increase in 2002 was the result of the sale of $6,904 thousand SBA
7a loans.  The declines in 2001 and 2000 SBA revenue  resulted  primarily from a
decrease  in the  production  of SBA 7a and an  increase in the level of SBA 504
loans.  The Company  typically  sells the SBA 7a loans to the  secondary  market
whereas the SBA 504 loans are typically held in the Company's loan portfolio.

The Company  experienced  increased mortgage lending activity for both new loans
and  refinancing  of  existing  loans due to the  continued  decline in mortgage
lending  rates  during  2002.  The  increased  lending  activity  resulted in an
increase in the Company's  mortgage revenue totaling $276 thousand,  or 47% from
2002 to 2001 and $330 thousand,  or 129% in 2001 as compared to 2000. Farmer Mac
revenue increased 17% in 2002 as compared to 2001 after declining 7% during 2001
as compared to 2000.

The Company  realized gains on the sale of investment  securities  totaling $603
thousand, $267 thousand and $149 thousand in 2002, 2001 and 2000, respectively.

The Company  purchased  single-premium  life insurance  policies  written on the
lives of  certain  officers  and  directors  of the  Company  and the Bank.  The
increase  in the cash  surrender  value of these  policies  is included in other
noninterest  income and totaled $649  thousand,  $658 thousand and $458 thousand
during 2002, 2001 and 2000, respectively.

                                       25
<PAGE>


Noninterest Expenses

Noninterest  expenses  increased  11% in 2002  compared  to 2001 and 14% in 2001
compared to 2000. The increase in noninterest  expense during 2002 was primarily
a result of increases in the number of full-time equivalent employees,  the cost
of employee  benefits,  marketing and occupancy  expenditures.  During 2001, the
Company  experienced  increases in salaries and employee benefits as a result of
increases  in the  number  of  full  time  equivalent  employees  combined  with
increases  in  the  salaries  of a few  officer  positions  within  the  Company
resulting from upgrades to certain officers titles, duties and responsibilities.
During 2000, the company  incurred  expenses  associated  with the resolution of
non-performing loans.

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

Salaries and Employee Benefits

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
(in thousands except full time equivalents)                         2002       2001        2000
--------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>       <C>
Regular payroll, contract labor, and overtime                  $   4,423        4,054     3,338
Incentive compensation and profit sharing                            743          449       233
Payroll taxes and employment benefits                              1,146        1,177       935
                                                              ------------------------------------
     Total Salaries and Employee Benefits                      $   6,312        5,680     4,506
                                                              ====================================
Average number of full-time equivalent employees                     121        117         109
                                                              ------------------------------------
Regular payroll per full-time equivalent employee                  36.55      34.58       31.02
                                                              ------------------------------------
Incentive compensation to regular payroll                          16.8%      11.1%        5.6%
                                                              ------------------------------------
Payroll taxes and benefits per full-time equivalent employee        9.47      10.04        8.58
--------------------------------------------------------------------------------------------------
</TABLE>

The number of full-time  equivalent  employees  increased 3% in 2002 compared to
2001 and 7% in 2001  compared  to 2000.  Regular  payroll,  contract  labor  and
overtime increased 9% in 2002 compared to 2001 and 21% in 2001 compared to 2000.
Total salaries and benefits  expense  increased 11% in 2002 compared to 2001 and
26% in 2001  compared  to  2000.  The  average  regular  payroll  per  full-time
equivalent employee increased 6% in 2002 compared to 2001 and increased 11.5% in
2001 compared to 2000.

Incentive  compensation includes compensation to bonus awards to employees under
the Incentive  Compensation Plan,  contributions to the Employee Stock Ownership
Plan  and  matching  contributions  to the  401(k)  Stock  Ownership  Plan.  The
Incentive  Compensation Plan pays incentive  compensation to officers based upon
the   achievement   of  specific   performance   goals   within  their  area  of
responsibility combined with the achievement of company-wide  performance goals.
Contributions to the Employee Stock Ownership Plan are made at the discretion of
the board of directors based upon profitability.  Matching  contributions to the
401(k)  Stock  Ownership  Plan are  made at the  rate of 50% of the  first 4% of
compensation contributed by employees.

Payroll  taxes and employee  benefits per full-time  equivalent  decreased 6% in
2002 as compared  to 2001 and  increased  17% in 2001 as  compared to 2000.  The
decrease in 2002 as compared to 2001 is primarily  the result of a $162 thousand
reduction  in  the  supplemental   compensation  accrual  (see  Note  9  to  the
consolidated  financial  statements  for  further  information  relating  to the
Company's  supplemental  compensation  program).  Of that  amount,  $121,000  is
attributable to the forfeiture of an unvested post employment/retirement benefit
by a former executive officer of the Company. The increase from 2001 as compared
to 2000 is related  primarily  to a $132  thousand  and $293  thousand  increase
during 2001 and 2000,  respectively,  in the supplemental  compensation accrual,
combined with  increases in the  Company's  contribution  to the Employee  Stock
Ownership  Plan,  general  increases  in the cost of medical  and other  related
insurance benefits and education and training expenses.

                                       26
<PAGE>


Occupancy Expense

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

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(in thousands except square footage and cost per sq. ft.)        2002          2001         2000
-------------------------------------------------------------------------------------------------
<S>                                                            <C>           <C>          <C>
Depreciation                                                      405           347          335
Property taxes, insurance, and utilities                          267           245          213
Property maintenance                                              189           181          184
Net rental expense  (income)                                      167           177           93
                                                             ------------------------------------
     Total Occupancy                                            1,028           950          825
                                                             ====================================
Square footage of occupied and unoccupied space                45,708        45,708       42,945
                                                             ------------------------------------
Occupancy cost per square foot                                  22.49         20.78        19.21
                                                             ------------------------------------
Locations                                                           9             9            8
-------------------------------------------------------------------------------------------------
</TABLE>

Occupancy  expenses  increased  8% in  2002  compared  to  2001  and 15% in 2001
compared to 2000. The primary reasons for the increases in 2002 and 2001 are the
expansion  improvements  within existing and new locations combined with general
increases  in the  maintenance  of the existing  locations.  In January 2001 the
Company entered into a long term lease to relocate its existing Folsom branch to
a permanent  site.  In July 2001 the new branch opened for service and in August
2001,  the former  Folsom  site was closed.  In  addition,  in January  2001 the
Company  established a Small Business  Administration  loan production office in
Folsom, California.

Equipment Expense

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

           -----------------------------------------------------------
           in thousands)                       2002     2001     2000
           -----------------------------------------------------------
           epreciation                   $      750      684      506
           aintenance                           302      237      259
           ental expense                          7        8       16
                                        ------------------------------
               Total Equipment           $    1,059      929      781
           ----------------------------------------------------------

Equipment  expense  increased  14% in 2002 compared to 2001 and increased 19% in
2001  compared to 2000.  The  increases  in 2002 are related to the  purchase of
operating  equipment  and  in  2001  and  2000  are  primarily  attributable  to
investments made in the Company's  computer  hardware and software  systems.  In
addition,  as noted above, during 2001 the Company opened an SBA loan production
office in Folsom,  California  and  relocated its Folsom branch to a larger full
service facility.

                                       27

<PAGE>


Other Noninterest Expense

Other  noninterest  expense  increased  11% in 2002  as  compared  to  2001  and
decreased 2% in 2001 compared to 2000.  The following  table provides the detail
for each major segment of other noninterest expense:

--------------------------------------------------------------------------------
(in  thousands)                                          2002     2001    2000
--------------------------------------------------------------------------------
Third party data processing                           $   848      877     869
Marketing                                                 514      413     422
Professional fees                                         465      403     771
Director fees and retirement                              315      385     193
Telephone and postage                                     313      296     232
Office supplies                                           266      247     189
Intangible amortization                                   171      171     215
Other real estate owned losses and holding costs          103       83      94
Nonperforming loan costs                                   92       77     246
Other                                                   1,000      715     512
                                                     ---------------------------
     Total Other Noninterest Expense                  $ 4,087    3,667   3,743
--------------------------------------------------------------------------------

Third  party  data  processing  decreased  3%  during  2002.  As a result of the
statement  preparation and item processing  functions no longer being outsourced
as of May 2002, third party data processing expenses decreased $232 thousand, or
48%, when compared to 2001. At the same time,  third party  expenses  related to
the processing of the Company's debit card product  increased $106 thousand,  or
56% over 2001. As part of the Company's long term focus on growth and expansion,
marketing expenses increased 25%. Professional fees increased 15% during 2002 as
a result of the  Company  utilizing  a third  party firm to expand the  internal
audit function.

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

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

Income Taxes

The provision for income taxes as a percentage of pretax income for 2002,  2001,
and 2000 was 25%, 15%, and 19%,  respectively.  The effective rate is lower than
the  combined  marginal  rate for state and federal  taxes due  primarily to the
level of tax exempt  income  relative to total pre-tax  income.  The two primary
components of tax exempt income are income from tax exempt investment securities
and increases in the cash surrender value of life insurance.

Interest income on tax exempt investment securities totaled $168 thousand,  $241
thousand and $528 thousand and the increase in the cash surrender  value of life
insurance  increased  $649  thousand,  $658  thousand  and  $458  thousand,  the
combination  of which  represented  45%, 63% and 62% of pretax income during the
year  ended  December  31,  2002,  2001 and 2000,  respectively.  Note 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.

                                       28
<PAGE>

Balance Sheet Review

The following table presents average balance sheets for the years ended December
31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                  For the Year Ended     For the Year Ended    For the Year Ended
                                                                  December 31, 2002      December 31, 2001      December 31, 2000
                                                                    (in thousands)         (in thousands)        (in thousands)
                                                            ---------------------------------------------------------------------
                                                                  Amount     Percent      Amount    Percent   Amount    Percent
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>             <C>         <C>         <C>      <C>        <C>
Assets:

Cash & Due from banks                                        $    14,127       5.97%      11,310       5.59%    8,150      4.50%

Federal funds sold and securities purchased under resale
agreements                                                         9,464       4.00%      11,360       5.61%    5,090      2.81%

Investment securities                                             34,076      14.39%      35,260      17.42%   34,690     19.16%

Loans held for sale                                                4,686       1.98%       3,130       1.55%    1,144      0.63%

Loans (net of allowance for loan losses and deferred income)     149,469      63.12%     117,320      57.95%  110,346     60.93%

Premises and equipment, net                                        6,859       2.90%       6,800       3.35%    6,860      3.79%

Other assets                                                      18,104       7.64%      17,260       8.53%   14,810      8.18%
                                                             -----------     ------      -------     ------   -------    ------
Total Assets                                                 $   236,785     100.00%     202,440     100.00%  181,090    100.00%
                                                             ===========     ======      =======     ======   =======    ======

Liabilities & Stockholders' Equity:

Deposits                                                     $   208,283      87.96%     183,580      90.68%  158,230     87.37%

Short term borrowings                                              3,288       1.39%         120        .06%    7,000      3.87%

Other liabilities                                                  4,510       1.91%       1,730        .85%    1,190      0.66%

Stockholders' equity                                              20,704       8.74%      17,010       8.40%   14,670      8.10%
                                                             -----------     ------      -------     ------   -------    ------
Total Liabilities & Stockholders' Equity                     $   236,785     100.00%     202,440     100.00%  181,090    100.00%
                                                             ===========     ======      =======     ======   =======    ======
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Average  total  assets  increased  17% in 2002  compared to 2001 and 12% in 2001
compared to 2000.  Year-end  asset totals at December 31, 2002 reached  $255,246
thousand and represented an increase of 13% over December 31, 2001. The increase
in 2002 and 2001 is a function of deposit  growth  throughout  the Bank's branch
network, as average deposits increased 14% and 16%, respectively.

During 2002 average gross loans  increased  26%. This increase was funded by the
growth in deposits  combined  with a 17% and 3%  reduction in fed funds sold and
investment securities,  respectively. During 2001, average gross loans increased
8%,  average fed funds sold and  securities  purchased  under resale  agreements
increased 123% and average investment  securities increased 2% which were funded
primarily by the 16% increase in average deposits.

Average  other  assets at  December  31, 2002 and 2001  increased  5% and 17% as
compared  to  December  31,  2001 and  2000,  respectively.  The  increases  are
primarily  attributable  to  increases  in the  cash  surrender  value  of  life
insurance  of  $649  thousand  and  $2,658   thousand   during  2002  and  2001,
respectively.  The cash surrender value of life insurance  consists primarily of
the Bank's  contractual  rights under  single-premium  life  insurance  policies
written on the lives of certain  officers  and the  directors of the Company and
the Bank. The policies were purchased in order to indirectly offset  anticipated
costs  of  certain  benefits  payable  upon  the  retirement,  and the  death or
disability  of the  directors  and  officers  pursuant to deferred  compensation
agreements.  The cash  surrender  value  accumulates  tax-free  based  upon each
policy's  crediting rate which is adjusted by the insurance company on an annual
basis.

                                       29
<PAGE>


Investment Securities

The following table presents the investment portfolio at December 31, 2002, 2001
and 2000 by security type, maturity, and yield:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                 Book Value at December 31 (dollars in thousands):
                                                                2002                     2001                  2000
                                                                ----                     ----                  ----
                                                         Amount        Yield      Amount       Yield     Amount        Yield
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>          <C>         <C>        <C>          <C>

U.S. Agency Securities:

Within 1 year                                       $        --          --        3,501       6.46%      3,520        6.34%

After 1 year, within 5 years                              3,702        5.74%       8,099       5.66%      8,018        6.26%

After 5 years, within 10 years                               --          --           --         --         932        7.71%

After 10 years                                               --          --           --         --       1,500        6.85%
                                                   -----------------------------------------------------------------------------

Total U.S. Agency                                   $     3,702        5.74%      11,600       5.90%     13,970        6.46%

Collateralized Mortgage Obligations:

Within 1 year                                       $     4,255        3.40%       1,192       4.27%      4,121        6.09%

After 1 year, within 5 years                             20,860        3.85%      21,741       4.76%      1,975        7.09%

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

After 10 years                                               --          --          131       3.42%        131        8.31%
                                                   -----------------------------------------------------------------------------

Total Collateralized Mortgage Obligations           $    25,115        3.67%      23,064       4.72%      6,227        6.46%

Municipal Securities:

Within 1 year                                       $        --          --          100      10.24%      1,048        5.28%

After 1 year, within 5 years                                335        7.30%       2,133       6.86%      1,630        7.42%

After 5 years, within 10 years                              501        7.57%         476       7.44%      1,564        7.40%

After 10 years                                            2,094        8.21%       2,309       8.20%      3,750        8.42%
                                                   -----------------------------------------------------------------------------

Total Municipal Securities                          $     2,930        8.00%       5,018       7.60%      7,992        7.60%

Other Debt Securities:

Within 1 year                                       $        67        6.73%         202       7.41%        116       14.24%

After 1 year, within 5 years                                356        4.27%         194       6.33%        338        9.41%

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

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

Total Other Debt Securities                         $       423        4.66%         670       5.90%        754        8.15%

Federal Agency Stock                                        184        6.00%         126       6.00%        126        6.00%

Unrealized Holding (Loss) / Gain                            771          --          537         --         491          --
                                                   -----------------------------------------------------------------------------

Total                                               $    33,125        4.33%      41,015       5.35%     29,560        6.66%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The  investment  portfolio  decreased  $7,890 or 19%,  at  December  31, 2002 as
compared to December  31, 2001 and  increased  $11,455,  or 39%, at December 31,
2001 as compared to December 31, 2000. The decrease in the investment  portfolio
during  2002  occurred  as a result of loan  growth  outpacing  deposit  growth.
Conversely,  the increase in the investment  portfolio during 2001 occurred as a
result of deposit growth outpacing loan growth.  During 2002 and 2001,  proceeds
received from  prepayments  of mortgage  backed  investment  securities  totaled
$13,595  thousand and $8,833,  respectively  and  proceeds  from the maturity of
investment  securities  totaled  $3,600 and $9,548,  respectively.  During 2002,
proceeds from the sale of investment  securities  totaled  $23,487  thousand and
resulted in gains totaling $603 thousand. During 2001, proceeds from the sale of
investment  securities  totaled  $3,578  thousand and resulted in gains totaling
$267 thousand.

                                       30
<PAGE>


Loans

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

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                        Outstanding at December 31 (in thousands):
                                          2002             2001           2000            1999           1998
-----------------------------------------------------------------------------------------------------------------
<S>                                 <C>                 <C>             <C>             <C>            <C>
Commercial and other real estate    $  141,962          125,274         99,377          95,509         77,956

Real estate construction                20,489           13,703         12,124          13,919         11,743

Installment and other                    3,068            3,674          3,605           3,301          3,463
                                         -----            -----          -----           -----          -----

Total Gross Loans                   $  165,519          142,651        115,106         112,729         93,162
                                       =======          =======        =======         =======         ======
-----------------------------------------------------------------------------------------------------------------
</TABLE>

Gross loans outstanding as of December 31, 2002 and 2001 exceeded the comparable
prior year-end totals by 16% and 24%, respectively. The reduced rate environment
combined with increased business development efforts were the foundation for the
growth in both years.  With the  acquisition of the Wells Fargo Branches in 1997
combined with the entry into the Folsom and Elk Grove areas in 1998, the Company
entered  into  new  market  areas  that  substantially  enhanced  its  marketing
capabilities.

The most significant  segment of the loan portfolio is commercial  loans,  which
represented  86% and 88% of the total  portfolio  at December 31, 2002 and 2001,
respectively. Commercial loans include agricultural loans, working capital loans
to businesses in a number of industries,  and loans to finance  commercial  real
estate.  Agricultural  loans  represented  approximately  10 % and  13%  of  the
commercial  loan  portfolio  at  December  31,  2002  and  2001,   respectively.
Agricultural loans are diversified  throughout a number of agricultural business
segments,  including dairy, orchards, row crops, vineyards,  cattle and contract
harvesting.  Agricultural  lending risks are generally  related to the potential
for volatility of agricultural  commodity prices.  Commodity prices are affected
by government programs to subsidize certain  commodities,  weather,  and overall
supply and demand in wholesale  and  consumer  markets.  Excluding  agricultural
loans, the remaining  portfolio is principally  dependent upon the health of the
local economy and the related real estate market.

The maturity and repricing characteristics of the loan portfolio at December 31,
2002 are as follows:

--------------------------------------------------------------------------------
Due: (in thousands) (1)           Fixed Rate     Floating Rate         Total
                                  ----------     -------------         -----

In 1 year or less                 $   20,782            28,989        49,771

After 1 year through 5 years           9,783            10,306        20,089

After 5 years                          8,785            86,874        95,659
                                    --------            ------        ------

Total Loans                       $   39,350           126,169       165,519
                                   =========           =======       =======
--------------------------------------------------------------------------------
(1)  Scheduled  repayments  are reported in the  maturity  category in which the
payment is due.

Approximately  24% of the loan portfolio  carries a fixed rate of interest as of
December 31, 2002, while  approximately 42% of the portfolio matures within five
years.

                                       31

<PAGE>


Deposits

The following table summarizes  average deposit balances and rates for the years
ended December 31, 20021, 2001, and 2000:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                        For the Year Ended           For the Year Ended             For the Year Ended
(in thousands)                          December 31, 2002             December 31, 2001              December 31, 2000

            Type                      Average         Average         Average        Average        Average       Average
                                      Amount           Rate           Amount          Rate          Amount         Rate
--------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                                  <C>                            <C>
Demand - non-interest bearing     $    33,529             N/A          25,350            N/A          21,240          N/A

NOW accounts                           49,708           0.72%          47,600          1.01%          41,267        1.13%

Money market accounts                  26,827           1.66%          15,050          1.98%          14,194        2.25%

Savings                                36,192           1.36%          28,950          1.78%          28,509        1.97%

Time deposits                          62,026           3.03%          66,630          5.02%          53,020        5.28%
                                       ------           -----          ------          -----          ------        -----

Total Deposits                    $   208,282           1.52%         183,580          2.53%         158,230        2.62%
                                      =======           =====         =======          =====         =======        =====
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

Average  deposits  increased  approximately  13%  and  16%  in  2002  and  2001,
respectively.  Due to a decreasing  rate  environment  during 2002 and 2001, the
average rate  decreased 101 basis points and 9 basis points when  comparing 2002
to  2001  and  2001  to  2000,  respectively.  Account  growth  at all  branches
throughout  the  Company's  network  resulted in the deposit  growth in 2002 and
2001. The growth was the result of business  development  efforts in the lending
area as well as a continued  influx of bank customers  seeking a higher level of
customer  service than that  experienced at major  financial  institutions.  The
decrease in certificates of deposit resulted from management's decision to focus
on  increasing   core  deposits  rather  than  pay  higher  interest  rates  for
certificates  of  deposit.  During  2001,  with the  anticipated  growth  in the
Company's  loan  portfolio,  management  elected to increase  the ratio of total
certificates of deposit to total deposits. The growth in certificates of deposit
during 2001 was  consistent  with the budget  established  by management and the
ratio of  certificates  of deposit to total  deposits  as compared to the Bank's
peer group.

Certificates  of deposit  contain  regular  and  individual  retirement  account
balances.  There are no  brokered  certificates  of  deposit  in the  portfolio.
Certificates  of $100,000  or more  represent  approximately  39% and 36% of the
certificate  of deposit  portfolio at December 31, 2002 and 2001,  respectively.
The following table summarizes the maturities of those  certificates of $100,000
or more:

       -------------------------------------------------------------------------
       (in thousands)                                                  2002
                                                                       ----
       Three months or less                                        $  8,906

       Four months to six months                                      5,504

       Seven months to twelve months                                  4,410

       Over twelve months                                             2,687
                                                                    -------
       Total time deposits of $100,000 or more                     $ 21,507
       -------------------------------------------------------------------------

Short Term Borrowings

The Bank has two lines of credit with correspondent banks totaling $5 million at
December  31,  2002 and  2001.  The  lines of  credit  are  unsecured  and renew
annually.  At  December  31, 2002 and 2001 the Bank had  outstanding  borrowings
under these lines totaling $3 million and $4 million,  respectively. The maximum
amount  outstanding  was  $3  million  and  $4  million,   the  average  balance
outstanding was $61 thousand and $50 thousand and the weighted  average interest
rate was  2.46%  and 3.02% for the  years  ending  December  31,  2002 and 2001,
respectively.

At December 31, 2002 and 2001  securities  sold under  agreements  to repurchase
totaled  $11,885  thousand and $0  thousand,  respectively.  The maximum  amount
outstanding  was $11,885  thousand  and $4,588  thousand,  the  average  balance
outstanding  was $3,227  thousand  and $70  thousand  and the  weighted  average
interest  rate was 2.09% and 6.79% for the years  ending  December  31, 2002 and
2001, respectively. These agreements generally mature within 30 days.

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

                                       32
<PAGE>


Asset Quality

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

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

(in thousands except multiples and percentages)                           2002         2001         2000         1999         1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>           <C>          <C>          <C>            <C>
Nonaccrual loans                                                        $2,409        3,246        5,655        2,303          248


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



Total non-performing loans                                              $2,409        3,246        5,655        2,677          439
                                                                                      =====        =====        =====        =====


Allowance for loan losses                                               $3,057        2,668        2,499        2,580        1,564


Allowance for loan losses to non-performing loans                          127%          82%          44%          96%         356%

Total loan portfolio delinquency                                          2.38%        3.30%        5.14%        3.32%        1.40%

Allowance for loan losses to total gross loans                            1.85%        1.87%        2.17%        2.29%        1.69%

Other real estate owned                                                 $  329          809          405          129          129
------------------------------------------------------------------------------------------------------------------------------------
</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 $242 thousand,  $423 thousand, $224 thousand, $76 thousand, and $2
thousand in 2002,  2001,  2000,  1999, and 1998,  respectively.  Interest income
foregone  or  reversed  on these loans was  approximately  $364  thousand,  $310
thousand,  $542  thousand,  $76 thousand and $43 thousand in 2002,  2001,  2000,
1999, and 1998,  respectively.  At December 31, 2002, there were no individually
material or a material amount of loans in the aggregate for which management had
serious  doubts  as to the  borrower's  ability  to  comply  with  present  loan
repayment  terms and which may result in the subsequent  reporting of such loans
as nonaccrual.

Non-performing  loans  decreased  $837  thousand,  or 26%, in 2002 and decreased
$2,409 thousand in 2001while  increasing  $2,978 thousand and $2,238 thousand in
2000 and 1999,  respectively.  Portfolio  delinquency decreased to 2.38% in 2002
and to 3.30% in 2001  after  increasing  to 5.14%  and  3.32% in 2000 and  1999,
respectively.  The dollar amount of the allowance for loan losses increased $389
thousand during 2002 and $169 thousand  during 2001.  During 2000, the allowance
for loan losses  decreased $81 thousand after having  increased in the prior two
years.  The reasons for the increase in the allowance for loan losses in 2002 as
compared to 2001 is explained in the "Allowance for Loan Losses" section above.

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


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)        December 31, 2002   December 31, 2001  December 31, 2000   December 31, 1999    December 31, 1998
                             ------------------   -----------------  -----------------   -----------------    -----------------
                                         %                    %                   %                    %                      %
Loan Category                Amount    Loans      Amount    Loans     Amount    Loans     Amount     Loans     Amount       Loans
                                                                      ------
<S>                          <C>       <C>         <C>      <C>        <C>      <C>        <C>       <C>        <C>        <C>
Commercial and other real
estate                       $2,182    85.77%      2,122    87.82%     1,752    86.46%     1,943     84.72%     1,174      83.68%

Real estate construction        807    12.38%        466     9.61%       666    10.41%       560     12.35%       342      12.60%

Installment and other            68     1.85%         80     2.57%        81     3.13%        77      2.93%        48       3.72%
                                 --     -----         --     -----        --     -----        --      -----        --       -----
                             $3,057   100.00%      2,668   100.00%     2,499   100.00%     2,580    100.00%     1,564     100.00%
                              =====   =======      =====   ======     =====    =======     =====    =======     =====     =======
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Please also see "Allowance for Loan Losses."

                                       33
<PAGE>

Market Risk

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

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

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

The Company  utilizes the tabular  presentation  alternative  in complying  with
quantitative  and qualitative  disclosure  rules. The following tables summarize
the expected maturities,  principal repayment and fair values of other financial
instruments that are sensitive to changes in interest rates at December 31, 2002
and 2001.

<TABLE>
<CAPTION>
As of December 31, 2002:
---------------------------------------------------------------------------------------------------------------
                                                 Expected Maturity / Principal Repayment        Total      Fair
(in thousands)                                 2003    2004   2005   2006   2007 Thereafter   Balance     Value
---------------------------------------------------------------------------------------------------------------
<S>                                         <C>      <C>     <C>    <C>    <C>       <C>      <C>       <C>
Interest-Sensitive Assets:
Federal funds sold and securities
purchased under resale agreements           $19,634      --     --     --     --         --    19,634    19,634
Fixed rate investments (1)                    9,679  10,903  3,583  2,607    946      4,948    32,666   32,666
Floating rate investments (1)                    92      59     46     46     51        165       459      459
Fixed rate loans (2)                         20,782   2,300  3,247  2,165  2,071      8,785    39,350   39,198
Floating rate loans (2)                      28,989   3,316  2,383  3,449  1,158     86,874   126,169  125,164

Interest-Sensitive Liabilities:
NOW account deposits (3)                     20,233   3,369  3,369  3,369  3,369     16,873    50,582   50,993
Money market deposits (3)                    12,099   2,015  2,015  2,015  2,015     10,089    30,248   30,319
Savings deposits (3)                         15,839   2,637  2,637  2,637  2,637     13,210    39,597   40,177
Certificates of deposit                      49,200   4,842    881    357    299         --    55,579   55,881
Short term borrowings                        14,885      --     --     --     --      5,000    19,885   19,885

Interest-Sensitive Off-Balan Sheet
Items:
Commitments to lend                                                                            40,717      407
Standby letters of credit                                                                       1,038        1
---------------------------------------------------------------------------------------------------------------
</TABLE>
                                       34

<PAGE>


<TABLE>
<CAPTION>
As of December 31, 2001:
---------------------------------------------------------------------------------------------------------------------------------
                                                       Expected Maturity / Principal Repayment                 Total         Fair
(in thousands)                              2002    2003       2004        2005       2006   Thereafter      Balance        Value
---------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>         <C>        <C>         <C>        <C>          <C>         <C>          <C>
Interest-Sensitive Assets:
Federal funds sold and securities
purchased under resale agreements      $   6,129      --         --          --         --           --        6,129        6,129
Fixed rate investments (1)                10,908   8,342      6,476       4,339      4,214        6,128       40,407       40,407
Floating rate investments (1)                 90      76         63          51         40          288          608          608
Fixed rate loans (2)                      16,765   4,715      2,940       4,842      3,376        8,106       40,744       41,375
Floating rate loans (2)                   23,862   3,028      2,495         903      3,325       68,294      101,907       99,663

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

Interest-Sensitive Off-Balance Sheet Items:
Commitments to lend                           --      --         --          --         --           --       41,822          418
Standby letters of credit                     --      --         --          --         --           --          920            1
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Expected  maturities for investment  securities are based upon  anticipated
     prepayments as evidenced by historical prepayment patterns.

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

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

At December 31, 2002,  federal funds sold and securities  purchased under resale
agreements of $19,634  thousand with a yield of 1.19% and investment  securities
totaling $9,771 thousand with a weighted-average,  tax-equivalent yield of 3.43%
were  scheduled to mature  within one year.  In addition,  gross loans  totaling
$49,771 thousand with a weighted-average yield of 6.57% were scheduled to mature
within the same time frame. Overall, interest-earning assets scheduled to mature
within one year totaled $79,176 thousand with a weighted-average, tax-equivalent
yield of 4.85% at December 31, 2002.

With respect to  interest-bearing  liabilities,  based on historical  withdrawal
patterns,  NOW accounts,  money market and savings  deposits of $48,171 thousand
with a weighted-average  cost of 0.90% were scheduled to mature within one year.
Certificates of deposit totaling $49,200 thousand with a  weighted-average  cost
of 2.31% were  scheduled to mature in the same time frame.  In  addition,  short
term  borrowings  totaling  $14,885 with a  weighted-average  cost of 1.60% were
scheduled  to  mature  within  one  year.  Total  interest-bearing   liabilities
scheduled  to  mature  within  one  year  totaled   $112,256   thousand  with  a
weighted-average rate of 1.57%.

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

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

                                       35
<PAGE>


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

As of December 31, 2002:


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

Federal funds sold and
securities purchased under
resale agreements               $     19,634            --           --                --           --              --     19,634

Investment securities                  2,178         2,054        5,539            18,241        5,113              --     33,125

Loans (including loans held for
sale)                                 51,416        23,914       10,946            67,832       11,411              --    165,519

Noninterest earning assets and
allowance for loan losses                 --            --           --                --           --          36,968     36,968
                                --------------------------------------------------------------------------------------------------

Total Assets                    $     73,228        25,968       16,485            86,073       16,524          36,968    255,246
                                ==================================================================================================

Liabilities and Stockholders'
Equity

Savings, money market & NOW
deposits                        $    155,100            --           --                --           --              --    155,100

Time deposits                         21,651        12,816       14,733             6,379           --              --     55,579
                                                        --           --                --        5,000              --
Borrowings                            14,885                                                                               19,885

Other liabilities and
stockholders' equity                      --            --           --                --           --          24,682     24,682
                                --------------------------------------------------------------------------------------------------

Total Liabilities and
Stockholders' Equity            $    191,636        12,816       14,733             6,379        5,000          24,682    255,246
                                ==================================================================================================

Interest Rate Sensitivity Gap   $   (118,408)       13,152        1,752            79,694       11,524          12,286         --
                                ==================================================================================================

Cumulative Interest Rate
Sensitivity Gap                 $   (118,408)     (105,256)    (103,504)          (23,810)     (12,286)             --         --
--------------------------------==================================================================================================
</TABLE>

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

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

                                       36

<PAGE>


Liquidity

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

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

At December 31, 2002, liquidity was considered adequate,  and funds available in
the local deposit market  combined with scheduled  maturities and prepayments of
investment securities and borrowing facilities are considered sufficient to meet
both the short- and long-term  liquidity needs and commitments  (see Notes 7 and
16 to the consolidated  financial statements for further information).  Compared
to 2001  liquidity  increased  in  2002 as a  result  of the  Company  obtaining
short-term borrowings and selling securities under agreements to repurchase.

Capital Resources

Consolidated  capital  increased  $1,407  thousand,  or 7.9%,  during 2002.  The
increase was due primarily to net income of $1,355 thousand. Capital was further
increased  by $100  thousand as a result of an  increase  in the net  unrealized
holding gain on  available-for-sale  securities and $343 thousand as a result of
stock options  exercised.  Capital  decreased $391 thousand as a result of stock
repurchases. The consolidated capital to assets ratio decreased 45 basis points,
or 4.4%,  to 7.55% from 7.90%.  This  decrease is primarily due to the effect of
asset  growth  exceeding  the  growth in  capital.  During  2002,  total  assets
increased 13% while capital increased 8%.

At the February 27, 2002 regular Board of Directors Meeting,  the Board approved
a $5 million  participation in a floating rate pooled trust preferred securities
offering. The Company received the proceeds from the sale of the trust preferred
securities on March 26, 2002.

In April 2002,  the Board of  Directors  authorized a stock  repurchase  program
approving  the  repurchase  of up to $2 million of the  Company's  stock.  As of
December  31, 2002,  32,649  shares had been  repurchased  at an average cost of
$11.96 per share for a total of $391 thousand under this program.

The Bank's total  risk-based and leverage  capital ratios were 11.16% and 8.22%,
respectively,  at December 31, 2002 compared to 10.24% and 7.45%,  respectively,
at December  31, 2001.  In order to continue to  facilitate  the Bank's  growth,
during 2002 the Holding Company  contributed $2 million of the proceeds from the
trust  preferred  securities  into  the  Bank as  contributed  capital  which is
included  in  Tier 1  capital  for  regulatory  capital  adequacy  determination
purposes. The total risk-based and leverage capital ratios at December 31, 2002,
are in excess of the required regulatory  minimums of 10% and 5%,  respectively,
for well-capitalized institutions.

                                       37
<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a financial  institution,  the Company's  primary component of market risk is
interest rate volatility.  Fluctuation in interest rates will ultimately  impact
both the level of income and expense  recorded on a large  portion of the Bank's
assets and liabilities  and the market value of all interest  earning assets and
interest  bearing  liabilities,  other than those which  possess a short term to
maturity.  Since virtually all of the Company's interest bearing liabilities and
all of the Company's interest earning assets are located at the Bank,  virtually
all of the Company's  interest  rate risk exposure lies at the Bank level.  As a
result, all significant  interest rate risk management  procedures are performed
at the Bank  level.  Based  upon the nature of its  operations,  the Bank is not
subject to foreign  currency  exchange or commodity  price risk. The Bank's loan
portfolio,  concentrated  primarily  within Northern  California,  is subject to
risks  associated  with the local economy.  The Company does not own any trading
assets. See "Asset Quality" in item 7.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        See Item 15(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 April 22,
2003, 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.

ITEM 14. CONTROLS AND PROCEDURES

         Disclosure Controls and Procedures

         Within the 90 days prior to the filing date of this report,  we carried
out an  evaluation,  under the  supervision  and with the  participation  of our
management,  including our President and Chief  Executive  Officer and our Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of our
disclosure  controls  and  procedures  pursuant  to  Rule  13a-15(b)  under  the
Securities  Exchange  Act of  1934.  Based  on their  review  of our  disclosure
controls and  procedures,  the President and Chief  Executive  Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective in timely alerting them to material information relating to us that is
required to be included in our periodic SEC filings.

         Internal Controls and Procedures

         There were no  significant  changes in  internal  controls  or in other
factors that could significantly affect these controls subsequent to the date of
our  evaluation,  including any  corrective  actions with regard to  significant
deficiencies and material weaknesses.


                                       38

<PAGE>


                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a)    Financial Statements and Schedules            Page Reference

                     Independent Auditors' Report                    40

                     Consolidated Balance Sheets as of
                        December 31, 2002 and 2001                   41

                     Consolidated Statements of Income
                        Years Ended 2002, 2001, and 2000             42

                     Consolidated Statements of
                        Stockholders' Equity
                        and Comprehensive Income
                        Years Ended 2002, 2001, and 2000             43

                     Consolidated Statements of Cash Flows
                        Years Ended 2002, 2001, and 2000             44

                     Notes to Consolidated financial statements      45


(b)      Reports on Form 8-K

                 None

(c)      Exhibits

                 The  Exhibit  List  required by this Item is  incorporated  by
                 reference to the Exhibit Index which  precedes the exhibits to
                 this report.

         (d)     Financial Statement Schedules

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

* Management contract or compensatory plan or arrangement

                                       39
<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,  2002 and 2001,  and the related
consolidated statements of income, stockholders' equity and comprehensive income
and cash flows for each of the years in the three-year period ended December 31,
2002. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of First  Financial
Bancorp and  subsidiaries  as of December 31, 2002 and 2001,  and the results of
their  operations  and their cash flows for each of the years in the  three-year
period  ended  December 31,  2002,  in  conformity  with  accounting  principles
generally accepted in the United States of America.



                                                            /s/ KPMG LLP



Sacramento, California
February 21, 2003

                                       40
<PAGE>


                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES

                           Consolidated Balance Sheets
                      (in thousands, except share amounts)
                           December 31, 2002 and 2001


<TABLE>
<CAPTION>
Assets                                                                                 2002             2001
------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                   <C>
Cash and due from banks                                                         $    14,988           13,328
Federal funds sold and securities purchased
      under resale agreements                                                        19,634            6,129
Investment securities available-for-sale, at fair value
      (includes securities pledged to creditors with the right
      to sell or pledge of  $11,885 and $0, respectively)                            33,125           41,015
Loans held for sale                                                                   7,578            3,876
Loans, net of deferred loan fees and allowance for loan losses of
      $3,851 and $3,345 in 2002 and 2001, respectively                              154,090          135,430
Premises and equipment, net                                                           6,745            7,185
Accrued interest receivable                                                             772            1,265
Other assets                                                                         18,314           17,947
------------------------------------------------------------------------------------------------------------------
                                                                                $   255,246          226,175
==================================================================================================================



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

 Liabilities:
 Deposits:
      Noninterest bearing                                                       $    34,673            29,758
      Interest bearing                                                              176,006           171,813
-------------------------------------------------------------------------------------------------------------------
            Total deposits                                                          210,679           201,571


Accrued interest payable                                                                144               307
Short term borrowings                                                                14,885             4,000
Other liabilities                                                                     5,268             2,434
Obligated mandatorily redeemable capital
   securities of subsidiary trust                                                     5,000                --
-------------------------------------------------------------------------------------------------------------------
            Total liabilities                                                       235,976           208,312

Stockholders' equity:
Preferred stock -- no par value; authorized 1,000,000 shares;
   no shares issued and outstanding                                                      --                --
Common stock -- no par value; authorized 9,000,000 shares; issued and
   outstanding in 2002, 1,621,837 shares; in 2001, 1,622,300 shares                  10,143            10,191
Retained earnings                                                                     8,672             7,317
 Accumulated other comprehensive income, net                                            455               355
-------------------------------------------------------------------------------------------------------------------

            Total stockholders' equity                                               19,270            17,863
-------------------------------------------------------------------------------------------------------------------

            Commitments and contingencies                                       $   255,246           226,175
===================================================================================================================
</TABLE>

            See accompanying notes to consolidated financial statements.

                                       41
<PAGE>


                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                        Consolidated Statements of Income
                     (in thousands except per share amounts)
                  Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                             2002           2001           2000
--------------------------------------------------------------------------------------------------
<S>                                                      <C>               <C>            <C>
   Interest income:
         Loans, including fees                           $  11,917         11,304         10,953
         Interest on investment securities
            available for sale:
               Taxable                                       1,434          1,832          1,686
               Exempt from Federal taxes                       168            241            528
         Federal funds sold and securities
            purchased under resale agreements                  158            481            329
------------------------------------------------------------------------------------------------
               Total interest income                        13,677         13,858         13,496

   Interest expense:
         Deposit accounts                                    3,176          4,639          4,151
         Other borrowings                                      283              5            462
------------------------------------------------------------------------------------------------
               Total interest expense                        3,459          4,644          4,613
               Net interest income                          10,218          9,214          8,883
   Provision for loan losses                                   625            391            135
------------------------------------------------------------------------------------------------
               Net interest income after provision
                     for loan losses                         9,593          8,823          8,748

   Noninterest income:
         Service charges                                     1,598          1,414          1,261
         Gain on sale of investment securities
               available-for-sale                              603            267            149
         Gain on sale of other real estate owned                16            255             --
         Gain on sale of loans                               1,005            553            246
         Premiums and fees from SBA and
               mortgage operations                             426            379            378
         Increase in cash surrender value
               of life insurance                               649            658            458
         Other                                                 406            302            198
------------------------------------------------------------------------------------------------
               Total noninterest income                      4,703          3,828          2,690

   Noninterest expense:
         Salaries and employee benefits                      6,312          5,680          4,506
         Occupancy                                           1,028            950            825
         Equipment                                           1,059            929            781
         Other                                               4,087          3,667          3,743
------------------------------------------------------------------------------------------------
               Total noninterest expense                    12,486         11,226          9,855
------------------------------------------------------------------------------------------------
   Income before provision for income taxes                  1,810          1,425          1,583

   Provision for income taxes                                  455            218            300
------------------------------------------------------------------------------------------------
               Net income                                $   1,355          1,207          1,283
================================================================================================

   Earnings per share:
------------------------------------------------------------------------------------------------
         Basic                                           $     .82            .75            .81
================================================================================================
         Diluted                                         $     .79            .73            .79
   Dividends per share                                   $      --             --            .05
================================================================================================
</TABLE>

            See accompanying notes to consolidated financial statements.

                                       42
<PAGE>


                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
    Consolidated Statements of Stockholders' Equity and Comprehensive Income
                       (in thousands except share amounts)
                  Years Ended December 31, 2002, 2001 and 2000
<TABLE>
<CAPTION>
                                                                                                           Accumulated
                                                 Common         Common                                        Other
                                                  Stock          Stock     Comprehensive      Retained    Comprehensive
Description                                      Shares         Amounts        Income         Earnings  Income (Loss), net  Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>       <C>                 <C>            <C>         <C>
Balance at December 31, 1999                    1,433,734         8,433                         6,354          (266)       14,521
Comprehensive income:
   Net income                                                               $     1,283         1,283                       1,283
                                                                            -----------
   Other comprehensive income:
      Unrealized holding gain arising
         during the current period,
         net of tax effect of $459                                                  639
      Reclassification adjustment
         due to gains realized,
         net of tax effect of $61                                                   (88)
            Total other comprehensive
               income, net of                                               -----------
               tax effect of $398                                                   551                         551           551
                                                                            -----------
      Comprehensive income                                                  $     1,834
                                                                            ===========
Options exercised, including tax benefits          22,187           173                                                       173
Stock dividend                                     70,142           732                          (732)
Cash dividend                                                                                     (74)                        (74)
                                                -----------------------                      ------------------------------------
Balance at December 31, 2000                    1,526,063         9,338                         6,831           285        16,454
Comprehensive income:
   Net income                                                               $     1,207         1,207                       1,207
                                                                            -----------
   Other comprehensive income:
      Unrealized holding gain arising
         during the current period,
         net of tax effect of $133                                                  228
      Reclassification adjustment
         due to gains realized,
         net of tax effect of $109                                                 (158)
            Total other comprehensive
               income, net of                                               -----------
               tax effect of $24                                                     70                          70            70
                                                                            -----------
      Comprehensive income                                                  $     1,277
                                                                            ===========
Options exercised, including tax benefits          20,425           136                                                       136
Stock dividend                                     75,812           717                          (717)
Cash dividend                                                                                      (4)                         (4)
                                                -----------------------                      ------------------------------------
Balance at December 31, 2001                    1,622,300        10,191                         7,317           355        17,863
Comprehensive income:
   Net income                                                               $     1,355         1,355                       1,355
                                                                            -----------
   Other comprehensive income:
      Unrealized holding gain arising
         during the current period,
         net of tax effect of $381                                                  456
      Reclassification adjustment
         due to gains realized,
         net of tax effect of $247                                                 (356)
            Total other comprehensive
               income, net of                                               -----------
               tax effect of $134                                                   100                         100           100
                                                                            -----------
      Comprehensive income                                                  $     1,455
                                                                            ===========
Options exercised, including tax benefits          32,186           343                                                       343
Stock repurchase                                  (32,649)         (391)                                                     (391)
                                                ------------------------                     -------------------------------------
Balance at December 31, 2002                    1,621,837   $    10,143                         8,672           455        19,270
                                                =======================                      ====================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       43
<PAGE>


                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                 (in thousands)
                  Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                          2002             2001           2000
--------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                 <C>            <C>
Cash flows from operating activities:
      Net income                                                    $    1,355            1,207          1,283
      Adjustments to reconcile net income to net cash flows
      provided by operating activities:
            Increase (decrease) in deferred loan income                    117              155            (34)
            Depreciation and amortization                                1,778            1,366            826
            Provision for loan losses                                      625              391            135
            Gain on sale of available-for-sale securities                 (603)            (267)          (149)
            Gain on sale of loans                                       (1,005)            (553)          (246)
            Gain on sale of other real estate owned                        (16)            (255)            --
            Provision for deferred taxes                                  (338)            (401)           (46)
            Decrease in accrued interest receivable                        493              182             40
            (Decrease) increase in accrued interest payable               (163)              (9)            12
            Increase in cash surrender value of life insurance            (649)            (658)          (458)
            Decrease (increase) in other assets                            125             (685)          (258)
            Increase in other liabilities                                2,919            1,003            397
--------------------------------------------------------------------------------------------------------------
            Net cash provided by operating activities                    4,638            1,476          1,502

Cash flows from investing activities:
     Investment securities available-for-sale:
            Purchases                                                  (32,427)         (33,269)          (906)
            Proceeds from prepayments                                   13,595            8,833            821
            Proceeds from maturity                                       3,600            9,548          3,554
            Proceeds from sale                                          23,487            3,578          4,391
      Loans held for sale:
            Loans originated                                           (48,354)         (33,950)       (13,896)
            Proceeds from sale                                          45,657           31,919         13,821
      Increase in loans made to customers                              (19,492)         (26,269)        (2,676)
      Proceeds from the sale of other real estate                          296              937            160
      Purchases of bank premises, equipment and intangible assets         (695)          (1,210)          (743)
      Purchase of cash surrender value life insurance                       --           (2,000)          (900)
--------------------------------------------------------------------------------------------------------------
      Net cash (used in) provided by investing activities              (14,333)         (41,883)         3,626

Cash flows from financing activities:
      Net increase in deposits                                           9,108           39,310          6,100
      Proceeds from company obligated mandatorily
            redeemable securities of subsidiary trust                    5,000               --             --
      Increase (decrease) in short term borrowings                      10,885             (588)           288
      Proceeds from issuance of common stock                               258              122            173
      Payments for repurchase of common stock                             (391)              --             --
      Dividends paid                                                        --               (4)           (74)
--------------------------------------------------------------------------------------------------------------
      Net cash provided by financing activities                         24,860           38,840          6,487
--------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                    15,165           (1,567)        11,615
Cash and cash equivalents at beginning of year                          19,457           21,024          9,409
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                            $   34,622           19,457         21,024
==============================================================================================================

Supplemental Disclosures of Cash Flow Information:
      Cash paid during the year for:
            Interest                                                $    3,622            4,653          4,601
            Income taxes                                                 1,342              372            586
      Loans transferred to other real estate owned                          90            1,086            405
      Stock dividend                                                        --              717            732

</TABLE>
            See accompanying notes to consolidated financial statements.

                                       44
<PAGE>


                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 2002, 2001 and 2000


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

            (a)      Principles of Consolidation

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

            (b)      Investment Securities

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

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

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

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

            (c)      Loans

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

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

                                       45
<PAGE>

            (d)       Loan Origination Fees and Costs

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

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

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

            The Company recognizes a gain and a related asset for the fair value
            of the rights to service  loans for others when loans are sold.  The
            Company  measures the impairment of the servicing asset based on the
            difference  between the carrying  amount of the servicing  asset and
            its current fair value.  The  servicing  asset totaled $145 thousand
            and $79 thousand at December 31, 2002 and 2001, respectively.  As of
            December  31, 2002 and 2001,  there was no  impairment  in servicing
            asset.

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

            (f)      Allowance for Loan Losses

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

            (g)      Premises and Equipment

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

            Estimated useful lives are as follows:

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

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

                                       46

<PAGE>


            (h)      Intangible Assets

            In June 2001,  the Financial  Accounting  Standards  Board  ("FASB")
            issued SFAS 141, which addresses financial  accounting and reporting
            for business  combinations and supersedes APB Opinion 16 -- Business
            Combinations  ("APB 16"). This Statement  requires that all business
            combinations  be  accounted  for under the  purchase  method.  Also,
            intangible  assets that meet certain  criteria must be recognized as
            assets apart from  goodwill.  Finally,  it requires  disclosures  in
            addition to the disclosure requirements of APB 16. The provisions of
            this Statement  apply to all business  combinations  initiated after
            June 30, 2001.

            In July 2001, the FASB issued Statement No. 142,  Goodwill and Other
            Intangible  Assets.  Statement  No. 142 requires  that  goodwill and
            intangible   assets  with  indefinite  useful  lives  no  longer  be
            amortized,  but instead  tested for  impairment at least annually in
            accordance  with the provisions of Statement No. 142.  Statement No.
            142 also requires that intangible  assets with definite useful lives
            be amortized over their  respective  estimated useful lives to their
            estimated residual values, and reviewed for impairment in accordance
            with Statement No. 121,  Accounting for the Impairment of Long-Lived
            Assets and for Long-Lived Assets to Be Disposed Of.

            The Company  adopted the  provisions of Statement No. 142 on January
            1, 2002.  The adoption of Statement  No. 142 did not have a material
            impact  on the  financial  condition  or  operating  results  of the
            Company.  At December 31, 2002, the Company's  goodwill  totaled $13
            thousand,  net  of  accumulated  amortization  of $45  thousand  and
            intangible assets (consisting of core deposit premiums) totaled $329
            thousand,  net of accumulated  amortization of $1,646 thousand.  The
            Company  has ceased  amortizing  goodwill  in  accordance  with this
            standard. Intangible assets are amortized over 7 years.

            (i)      Other Real Estate Owned (OREO)

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

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

            (j)      Earnings Per Share

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

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

            (k)      Income Taxes

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

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

                                       47

<PAGE>


            (l)      Statements of Cash Flows

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

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

            On October 3, 2001, the Financial  Accounting Standards Board issued
            FASB Statement No. 144, Accounting for the Impairment or Disposal of
            Long-Lived  Assets,   which  addresses   financial   accounting  and
            reporting for the impairment or disposal of long-lived assets. While
            Statement No. 144 supersedes FASB Statement No. 121,  Accounting for
            the Impairment of Long-Lived  Assets and for Long-Lived Assets to Be
            Disposed Of, it retains many of the  fundamental  provisions of that
            Statement.  Statement No. 144 also  supersedes  the  accounting  and
            reporting provisions of APB Opinion No. 30, Reporting the Results of
            Operations--Reporting  the  Effects  of  Disposal  of a Segment of a
            Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring
            Events  and  Transactions,  for  the  disposal  of  a  segment  of a
            business.  However,  it  retains  the  requirement  in Opinion 30 to
            report separately discontinued operations and extends that reporting
            to a component  of an entity  that  either has been  disposed of (by
            sale, abandonment,  or in a distribution to owners) or is classified
            as held for sale. By broadening  the  presentation  of  discontinued
            operations  to  include  more  disposal  transactions,  the FASB has
            enhanced  management's  ability  to provide  information  that helps
            financial  statement  users to  assess  the  effects  of a  disposal
            transaction  on the  ongoing  operations  of an entity.  The Company
            adopted the  provisions  of  Statement  144 on January 1, 2002.  The
            adoption of Statement No. 144 did not have a material  impact on the
            Consolidated Financial Statements of the Company.

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

            (n)      Stock Based Compensation

            The Company's  stock option plan is more fully explained in Note 13.
            As  permitted by the  Financial  Accounting  Standards  Board (FASB)
            Statement   No.   123  (FAS   123),   Accounting   for   Stock-Based
            Compensation,  the  Company has  elected to  continue  applying  the
            intrinsic  value method of Accounting  Principles  Board Opinion 25,
            Accounting  for Stock Issued to  Employees,  in  accounting  for its
            stock option plan. As required by FASB Statement No. 148, Accounting
            for  Stock-Based   Compensation--Transition   and   Disclosure,   an
            amendment to FASB  Statement  123, pro forma net income and earnings
            per common share  information is provided  below,  as if the Company
            accounted  for its stock  option plan under the fair value method of
            FAS 123.
<TABLE>
<CAPTION>
            Year ending December 31,                                  2002       2001       2000
            ------------------------------------------------------------------------------------
<S>                                                              <C>            <C>        <C>
            Net income (in thousands)
                  As reported                                    $   1,355      1,207      1,283

                  Add: Stock based employee compensation
                  expense included in reported net income,
                  net of tax effects                                    52         --         --

                  Deduct:  Stock based employee compensation
                  determined  under fair value based method
                  for all awards, net of tax effects                  (40)       (50)       (25)
            ------------------------------------------------------------------------------------
                  Pro forma net income                               1,367      1,157      1,258
            ====================================================================================
</TABLE>


                                       48
<PAGE>


<TABLE>
<CAPTION>
            Year ending December 31,                                                2002        2001        2000
            ----------------------------------------------------------------------------------------------------
            <S>                                                                     <C>         <C>         <C>
            Earnings per share
            Basic net income per share
                  As reported                                                       0.82        0.75        0.81
                  Pro forma                                                         0.83        0.72        0.79
            Diluted net income per share
                  As reported                                                       0.79        0.73        0.79
                  Pro forma                                                         0.80        0.70        0.77
</TABLE>
            The fair  value of each  option  grant is  estimated  on the date of
            grant  using  the  Black-Scholes   option  pricing  model  with  the
            following weighted-average assumptions:
<TABLE>
<CAPTION>
                                                                                    2002        2001        2000
            ----------------------------------------------------------------------------------------------------
            <S>                                                                     <C>         <C>         <C>
            Dividend yield                                                           0.0%        0.0%        0.0%
            Expected life (in years)                                                 5.0         5.0         5.0
            Expected volatility                                                     18.4%       18.4%       18.4%
            Risk-free rate                                                           2.8%        4.5%        5.2%
            Weighted average grant date fair value of options granted              $1.52        1.88        2.12

</TABLE>

            (o)      Impact Of Recently Issued Accounting Standards

            The Financial Accounting Standards Board (FASB) issued Statement No.
            143,  Accounting  for Asset  Retirement  Obligations in August 2001.
            This  Statement  addresses  financial  accounting  and reporting for
            obligations  associated  with the retirement of tangible  long-lived
            assets and the associated asset retirement costs. As a result,  FASB
            Statement   No.  143  applies  to  all  entities   that  have  legal
            obligations  associated  with the retirement of long-lived  tangible
            assets that result from the acquisition,  construction,  development
            or  normal  use of the  asset.  As used in this  Statement,  a legal
            obligation results from existing law, statute, ordinance, written or
            oral  contract,  or by legal  construction  of a contract  under the
            doctrine of  promissory  estoppels.  Statement  No. 143  requires an
            enterprise  to  record  the  fair  value  of  an  asset   retirement
            obligation  as a liability  in the period in which it incurs a legal
            obligation  associated with the retirement of a tangible  long-lived
            asset.  Since the  requirement is to recognize the  obligation  when
            incurred,  approaches  that have been used in the past to accrue the
            asset retirement obligation over the life of the asset are no longer
            acceptable. Statement No. 143 also requires the enterprise to record
            the contra to the initial  obligation as an increase to the carrying
            amount of the related  long-lived  asset (i.e., the associated asset
            retirement  costs) and to  depreciate  that cost over the  remaining
            useful  life of the asset.  The  liability  is changed at the end of
            each period to reflect the passage of time (i.e., accretion expense)
            and  changes  in the  estimated  future  cash flows  underlying  the
            initial fair value  measurement.  Enterprises  are required to adopt
            Statement  No. 143 for fiscal years  beginning  after June 15, 2002.
            Early adoption is encouraged.  The Company does not expect  adoption
            of Statement No. 143 to have a material  impact to the  Consolidated
            Financial Statements of the Company.

            In April 2002, FASB issued Statement Financial  Accounting Standards
            (SFAS)  No.  145.  Statement  No.  145  rescinds  SFAS No. 4,  which
            requires  all gains and  losses  from  extinguishment  of debt to be
            aggregated and, if material,  classified as an  extraordinary  item,
            net of related  income tax  effect.  As a result,  the  criteria  in
            Opinion No. 30 will now be used to classify  those gains and losses.
            SFAS No. 64 amended SFAS No. 4, and is no longer  necessary  because
            SFAS  No. 4 has  been  rescinded.  The  accounting,  disclosure  and
            financial  statements  provision of SFAS No. 145 are  effective  for
            financial  statements in fiscal years  beginning after May 15, 2002.
            Any gain or loss on extinguishment of debt that was classified as an
            extraordinary item in prior periods presented that does not meet the
            criteria in Opinion No. 30 for  classification  as an  extraordinary
            item shall be reclassified.  The implementation of Statement No. 145
            is not  expected  to  have a  material  impact  to the  consolidated
            financial statements of the Company.

            The Financial  Accounting  Standards Board issued FASB Statement No.
            146,   Accounting  for  Costs   Associated  with  Exit  or  Disposal
            Activities  in June 2002.  Statement No. 146 requires the Company to
            recognize  costs  associated  with exit or disposal  activities when
            they are incurred rather than at the date of a commitment to an exit
            or  disposal  plan.  SFAS 146  replaces  Emerging  Issues Task Force
            ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
            Termination  Benefits and Other Costs to Exit an Activity (including
            Certain Costs Incurred in a Restructuring)."  The provisions of SFAS
            146 are to be applied  prospectively to exit or disposal  activities
            initiated after December 31, 2002.

                                       49

<PAGE>


            In October 2002,  the FASB issued SFAS 147,  which  removes  certain
            acquisitions  of  financial  institutions  (other than  transactions
            between two or more mutual  enterprises)  from the scope of SFAS 72,
            Accounting   for   Certain   Acquisitions   of   Banking  or  Thrift
            Institutions and FASB Interpretation 9, Applying APB Opinions 16 and
            17 When a Savings and Loan or a Similar Institution Is Acquired in a
            Business  Combination  Accounted for by the Purchase  Method.  These
            types of transactions  are now accounted for under SFAS 141 and 142.
            In addition,  this  Statement  amends SFAS 144,  Accounting  for the
            Impairment or Disposal of Long-Lived Assets, to include in its scope
            long-term  customer  relationship  intangible  assets  of  financial
            institutions.  The  provisions  of  this  Statement  were  effective
            October 1, 2002, with earlier adoption permitted. The implementation
            of Statement  No. 147 is not  expected to have a material  impact to
            the Consolidated Financial Statements of the Company.

            In  December   2002,  the  FASB  issued  SFAS  148,  which  provides
            alternative methods of transition for a voluntary change to the fair
            value based method of accounting for  stock-based  compensation.  In
            addition,  this Statement amends the disclosure requirements of SFAS
            123 to require  prominent  disclosures  in both  annual and  interim
            financial  statements about the method of accounting for stock-based
            employee  compensation and the effect of the method used on reported
            results.  Finally,  this  Statement  amends APB Opinion 28,  Interim
            Financial  Reporting,  to require  disclosure about those effects in
            interim  financial  information.  This  Statement is  effective  for
            fiscal  and  interim   periods   ending  after  December  15,  2002.
            Management  does not expect this Statement to have a material impact
            to the Consolidated Financial Statements.

            In November  2002,  the FASB issued FIN 45, which  elaborates on the
            disclosures  to be made by a  guarantor  in its  interim  and annual
            financial  statements about its obligations under certain guarantees
            that it has issued.  It also  clarifies that a guarantor is required
            to recognize, at the inception of the guarantee, a liability for the
            fair value of the  obligation  undertaken in issuing the  guarantee.
            The initial recognition and initial  measurement  provisions of this
            Interpretation  are applied  prospectively  to guarantees  issued or
            modified after December 31, 2002. The adoption of these  recognition
            provisions  will result in  recording  liabilities  associated  with
            certain guarantees provided by the Company.  These currently include
            standby   letters   of   credit   and   first-loss   guarantees   on
            securitizations.  The disclosure requirements of this Interpretation
            are effective for financial  statements of interim or annual periods
            ending  after  December 15,  2002.  Management  does not expect this
            Interpretation  to  have  a  material  impact  to  the  Consolidated
            Financial Statements.

            In  January  2003,  the FASB  issued  FIN 46,  which  clarifies  the
            application of Accounting Research Bulletin ("ARB") 51, Consolidated
            Financial Statements,  to certain entities (called variable interest
            entities) in which equity investors do not have the  characteristics
            of a controlling financial interest or do not have sufficient equity
            at risk for the entity to finance its activities  without additional
            subordinated  financial  support from other parties.  The disclosure
            requirements of this  Interpretation are effective for all financial
            statements   issued  after  January  31,  2003.  The   consolidation
            requirements  apply to all variable  interest entities created after
            January 31,  2003.  In  addition,  public  companies  must apply the
            consolidation   requirements  to  variable  interest  entities  that
            existed  prior to February 1, 2003 and remain in existence as of the
            beginning  of annual or  interim  periods  beginning  after June 15,
            2003.  Management  is currently  assessing the impact of FIN 46, and
            does not expect this Interpretation to have a material impact to the
            Consolidated Financial Statements.

            (p)      Reclassifications

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

                                       50
<PAGE>


(2)         Restricted Cash Balances

            The Bank is required to maintain  certain daily reserve  balances in
            accordance  with  Federal  Reserve  Board  requirements.   Aggregate
            reserves of $3,163  thousand and $3,819  thousand were  necessary to
            satisfy   these   requirements   at  December  31,  2002  and  2001,
            respectively.



(3)         Investment Securities

            Investment securities at December 31, 2002 and 2001 consisted of the
            following:
<TABLE>
<CAPTION>
                                                                              December 31,
                                                                                 2002
                                                            Estimated              Gross           Gross
                                                           Amortized           Unrealized      Unrealized       Market
              (in thousands)                                   Cost                 Gains          Losses         Value
           --------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                           <C>              <C>          <C>
            Available for Sale
            U.S. Agency securities                    $        3,702                146              --            3,848
            Municipal securities                               2,930                264              --            3,194
            Collateralized mortgage obligations               25,115                350               2           25,463
            Other debt securities                                423                 13              --              436
            Investment in Federal Agency stock                   184                 --              --              184
           --------------------------------------------------------------------------------------------------------------
            Total                                     $       32,354                773               2           33,125
             =============================================================================================================
                                                                              December 31,
                                                                                 2001
                                                            Estimated              Gross           Gross
                                                            Amortized           Unrealized      Unrealized       Market
              (in thousands)                                  Cost                 Gains          Losses         Value
           --------------------------------------------------------------------------------------------------------------
            Available for Sale
            U.S. Agency securities                    $       11,600                144              --           11,744
            Municipal securities                               5,018                256              --            5,274
            Collateralized mortgage obligations               23,064                143               4           23,203
            Other debt securities                                670                  1               3              668
            Investment in Federal Agency stock                   126                 --              --              126
           --------------------------------------------------------------------------------------------------------------
            Total                                     $       40,478                544               7           41,015
            =============================================================================================================

</TABLE>

            Investment  securities totaling $9,755 thousand and $13,806 thousand
            were pledged as collateral  to secure Local Agency  Deposits as well
            as  treasury,  tax and loan  accounts  with the  Federal  Reserve at
            December 31, 2002 and 2001, respectively.

            Proceeds from the sale of Available for Sale securities during 2002,
            2001 and 2000 were  $23,487  thousand,  $3,578  thousand  and $4,391
            thousand.  The Company  realized  gross gains totaling $603 thousand
            and $267 on the sale of  Available  for Sale  securities  during the
            year ended December 31, 2002 and 2001, respectively.

            Federal  Agency  dividends  paid to the Company  were $9 thousand in
            2002 and $7 thousand in 2001 and 2000.

                                       51

<PAGE>


            The amortized  cost and estimated  fair value of debt  securities at
            December 31, 2002, by  contractual  maturity,  or expected  maturity
            where applicable,  are shown below.  Expected maturities will differ
            from contractual  maturities  because certain securities provide the
            issuer with the right to call or prepay  obligations with or without
            call or prepayment penalties.

                                                            December 31, 2002
                                                          Amortized     Market
            (in thousands)                                  Cost        Value
            --------------------------------------------------------------------
            Due in one year or less                    $     4,322       4,356
            Due after one year through five years           25,253      25,770
            Due after five years through 10 years              501         556
            Due after 10 years                               2,094       2,259
            --------------------------------------------------------------------
                                                       $    32,170      32,941
            ====================================================================


(4)         Loans

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

            Outstanding loans consisted of the following at December 31:

            (in thousands)                                   2002         2001
            --------------------------------------------------------------------
            Commercial                                  $  127,111      115,402
            Real estate construction                        20,489       13,703
            Other real estate                                7,273        5,996
            Installment and other                            3,068        3,674
            --------------------------------------------------------------------
                                                           157,941      138,775

            Deferred loan fees and loan sale premiums         (794)        (677)
            Allowance for loan losses                       (3,057)      (2,668)
            --------------------------------------------------------------------
                                                        $  154,090      135,430
            ====================================================================


            SBA  and  mortgage  loans  serviced  by the  Bank  totaled  $102,743
            thousand,  $83,252  thousand  and $73,607  thousand at December  31,
            2002, 2001 and 2000, respectively.

            Changes in the allowance for loan losses were as follows:

            (in thousands)                           2002       2001      2000
            --------------------------------------------------------------------
            Balance, beginning of year         $    2,668      2,499     2,580
            Loans charged off                        (270)      (283)     (246)
            Recoveries                                 34         61        30
            Provision charged to operations           625        391       135
            --------------------------------------------------------------------
            Balance, end of year               $    3,057      2,668     2,499
            ====================================================================


            Nonaccrual loans totaled $2,409 thousand, $3,246 thousand and $5,655
            thousand at December 31, 2002, 2001 and 2000, respectively. Interest
            income, which would have been recorded on nonaccrual loans, was $364
            thousand,  $310 thousand and $542 thousand, in 2002, 2001, and 2000,
            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, 2002 and
            2001,  the Bank had  outstanding  balances  of $2,409  thousand  and
            $3,246 thousand in impaired loans which had valuation  allowances of
            $446  thousand  in 2002  and $464  thousand  in  2001.  The  average
            outstanding  balances of impaired loans for the years ended December
            31, 2002,  2001 and 2000 were $3,209  thousand,  $4,871 thousand and
            $5,847 thousand respectively,  on which $242 thousand, $423 thousand
            and $224 thousand, respectively, was recognized as interest income.

                                       52
<PAGE>

            At December 31, 2002 and 2001, the collateral  value method was used
            to measure impairment for all loans classified as impaired. Impaired
            loans at December 31, 2002 and 2001  consisted  solely of commercial
            loans.

(5)         Premises and Equipment

            Premises and equipment consisted of the following at December 31:

            (in thousands)                                     2002       2001
            --------------------------------------------------------------------
            Land                                       $        874        874
            Building                                          5,725      5,725
            Leasehold improvements                            2,103      1,952
            Furniture and equipment                           5,741      5,198
            --------------------------------------------------------------------
                                                             14,443     13,749
            --------------------------------------------------------------------
            Accumulated depreciation and amortization        (7,698)    (6,564)
            --------------------------------------------------------------------
                                                       $      6,745      7,185
            ====================================================================


            The Bank leases a portion of its building to unrelated parties under
            operating  leases which expire in various years.  The minimum future
            rentals to be received on  non-cancelable  leases as of December 31,
            20021 are summarized as follows:

            (in thousands)   Year Ending December 31,
            --------------------------------------------------------------------

                               2003                                    $     74
                               2004                                          23
                               2005                                          18
                               2006                                           8
                               2007                                           7
            --------------------------------------------------------------------
                               Total minimum future rentals            $    130
            ====================================================================


(6)         Other Assets

            Other assets  includes the cash  surrender  value of life  insurance
            totaling  $13,339 thousand and $12,690 thousand at December 31, 2002
            and 2001  respectively.  The cash surrender  value of life insurance
            consists   primarily   of  the  Bank's   contractual   rights  under
            single-premium  life  insurance  policies  written  on the  lives of
            certain  officers and the directors of the Company and the Bank. The
            policies,  for which the Bank is the beneficiary,  were purchased in
            order to indirectly  offset  anticipated  costs of certain  benefits
            payable  upon the  retirement,  and the death or  disability  of the
            directors and officers pursuant to deferred compensation agreements.
            The cash  surrender  value  accumulates  tax-free  based  upon  each
            policy's  crediting rate, which is adjusted by the insurance company
            on an annual basis.

            Other real estate  owned is also  included  in other  assets and was
            $329  thousand  and $809  thousand  at  December  31, 2002 and 2001,
            respectively.  There was no other real estate owned acquired through
            foreclosure as settlement for loans during 2002. During 2001, $1,086
            thousand was acquired  through  foreclosure as settlement for loans.
            These amounts represent non-cash transactions, and accordingly, have
            been excluded from the Consolidated Statements of Cash Flows.


(7)         Deposits

            The following is a summary of deposits at December 31:

            (in thousands)                         2002         2001
            --------------------------------------------------------------------
            Demand                           $   34,673       29,758
            NOW and Super NOW Accounts           50,582       48,928
            Money Market                         30,248       21,119
            Savings                              39,597       31,793
            Time, $100,000 and over              21,507       25,463
            Other Time                           34,072       44,510
            --------------------------------------------------------------------
                                             $  210,679      201,571
            ====================================================================

                                       53
<PAGE>


            Interest paid on time deposits in  denominations of $100 thousand or
            more was $660 thousand,  $1,069  thousand and $943 thousand in 2002,
            2001 and 2000, respectively.

            At December 31, 2002, the aggregate  maturities for time deposits is
            as follows:

            (in thousands)
            --------------------------------------------------------------------

            2003                 $              49,200
            2004                                 4,842
            2005                                   881
            2006                                   357
            2007                                   299
            --------------------------------------------------------------------
            Total                $              55,579
            ====================================================================


(8)         Operating Leases

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

            Year Ending December 31, (in thousands)           Lease Payments
            --------------------------------------------------------------------
            2003                                           $             225
            2004                                                         112
            2005                                                          84
            2006                                                          86
            2007                                                          89
            --------------------------------------------------------------------
                                                           $             596
            ====================================================================


            Total rental expense for operating  leases was $243  thousand,  $254
            thousand and $158 thousand in 2002, 2001 and 2000 respectively.

(9)         Supplemental Compensation Agreements

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

            The Plan is unsecured and unfunded and there are no Plan assets. The
            Company has  purchased  insurance on the lives of the  directors and
            executive officers in the Plan and intends to use the cash values of
            these  policies  as  a  funding  source  to  pay  the   supplemental
            compensation obligations.  (See Note 6 for information regarding the
            cash values of the life insurance).  The accrued pension  obligation
            was $1,243  thousand  and $948  thousand as of December 31, 2002 and
            2001,  respectively.  The Company  recognized expense related to the
            Plan during 2002 and 2001 totaling $295 thousand and $493  thousand,
            respectively.  The net periodic  benefits  cost of $275 thousand was
            all related to service cost.  The net periodic  cost was  determined
            using a discount rate of 7.25%.

                                       54

<PAGE>


(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, 2002 and 2001, financial  instruments whose contract
            amounts represent credit risk are as follows:

            (in thousands)                               2002           2001
            --------------------------------------------------------------------
                  Commitments to extend credit     $   40,717         41,822
            ====================================================================
                  Standby letters of credit        $    1,038            920
            ====================================================================

            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

            Other noninterest expense for the years 2002, 2001 and 2000 included
            the following significant items:

            (in thousands)                             2002     2001      2000
            --------------------------------------------------------------------
            Third party data processing expense   $     848      877       869
            Marketing                                   514      413       422
            Professional fees                           465      403       771
            Directors' fees and retirement              315      385       193
            Telephone and postage                       313      296       232
            Supplies                                    266      247       189
            Intangible amortization                     171      171       215
            Non-performing loan costs                    92       77       246
            Other                                     1,103      798       606
            --------------------------------------------------------------------
                  Total                           $   4,087    3,667     3,743
            ====================================================================


                                       55

<PAGE>


(12)        Income Taxes

            The  provision  for income  taxes for the years 2002,  2001 and 2000
            consisted of the following:


            2002  (in thousands)                   Federal    State      Total
            --------------------------------------------------------------------

            Current                            $       592      201       793
            Deferred, net                             (287)     (51)     (338)
            --------------------------------------------------------------------
                  Income tax expense           $       305      150       455
            ====================================================================

            2001  (in thousands)
            --------------------------------------------------------------------


            Current                            $       487      132       619
            Deferred, net                             (358)     (43)     (401)
            --------------------------------------------------------------------
                  Income tax expense           $       129       89       218
            ====================================================================

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

            2000  (in thousands)
            --------------------------------------------------------------------

            Current                            $       204      142       346
            Deferred, net                              (29)     (17)      (46)
            --------------------------------------------------------------------
                  Income tax expense           $       175      125       300
            ====================================================================


            Income  taxes  receivable  of $573  thousand  and $12  thousand  are
            included   in  other   assets  at   December   31,  2002  and  2001,
            respectively.

            A  reconciliation  of the statutory income tax rate to the effective
            income tax rate attributable to continuing operations of the Company
            is as follows:

                                                             2002   2001   2000
            --------------------------------------------------------------------
            Federal income tax expense, at statutory
              income tax rates                               34%    34%    34%
            State franchise tax expense, net of federal
              income tax benefits                             7%     7%     7%
            Tax-free interest income                        (15%)  (21%)  (20%)
            Change in the beginning of the year deferred
              tax asset valuation allowance                  (2%)    -      -
            Other                                             1%    (5%)   (2%)
            --------------------------------------------------------------------
                                                             25%    15%    19%
            ====================================================================


                                       56
<PAGE>


            The  tax  effects  of  temporary   differences  that  give  rise  to
            significant  portions of the  deferred  tax assets and  deferred tax
            liabilities at December 31, 2002 and 2001 are presented below.

<TABLE>
<CAPTION>
                  (dollars in thousands)                                                 2002           2001
            -------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                    <C>
                  Deferred tax assets:
                  Allowance for loan losses                                       $     1,129            912
                  Deferred loan income                                                    180            121
                  Accumulated depreciation                                                265            107
                  Accumulated Amortization                                                393            377
                  Deferred compensation                                                   557            448
                  Other                                                                   120            210
            -------------------------------------------------------------------------------------------------------
                        Total gross deferred tax assets                                 2,644          2,175
                        Less valuation allowance                                            -            (35)
            -------------------------------------------------------------------------------------------------------

                        Deferred tax assets, net of allowance                           2,644          2,140
            -------------------------------------------------------------------------------------------------------

                  Deferred tax liabilities:
                  Deferred loan origination costs                                        (387)          (247)
                  Unrealized gain on available-for-sale securities, net                  (316)          (182)
                  Other                                                                  (162)          (136)
            -------------------------------------------------------------------------------------------------------
                        Total gross deferred tax liabilities                             (865)          (565)
            -------------------------------------------------------------------------------------------------------
                        Net deferred tax asset                                    $     1,779          1,575
            =======================================================================================================
</TABLE>


            In assessing the  realizability  of deferred tax assets,  management
            considers  whether it is more likely  than not that some  portion or
            all of the deferred  tax assets will not be  realized.  The ultimate
            realization  of deferred tax assets is dependent upon the generation
            of future taxable income during the periods in which those temporary
            differences  become deductible.  Management  considers the scheduled
            reversal of  deferred  tax  liabilities,  projected  future  taxable
            income, and tax planning strategies in making this assessment. Based
            upon the level of  historical  taxable  income and  projections  for
            future  taxable  income over the periods for which the  deferred tax
            assets are  deductible,  management  believes it is more likely than
            not the  Company  will  realize  the  benefits  of these  deductible
            differences, net of the existing valuation allowance at December 31,
            2001. The valuation allowance was decreased by $35,000 in 2002.

                                       57


<PAGE>


(13)        Stockholders' Equity

            (a)      Stock Options

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


            Stock option plan activities are summarized as follows:

                                                                    Weighted
                                                                     Average
                                                Options          Exercise Price
                                                -------          --------------
            Balance, December 31, 1999          169,125           $     7.35
                  Options granted                68,775                 8.96
                  Options exercised             (22,187)                6.03
                  Options expired               (13,774)               10.82
            --------------------------------------------------------------------
            Balance, December 31, 2000          201,939                 7.82
                  Options granted                66,100                 9.50
                  Options exercised             (20,425)                5.95
                  Options expired               (10,448)                6.84
            --------------------------------------------------------------------
            Balance, December 31, 2001          237,166                 8.69
                  Options granted                63,500                11.75
                  Options exercised             (32,186)                8.02
                  Options expired                (5,583)                9.33
            --------------------------------------------------------------------
            Balance, December 31, 2002          262,897                 9.26
            ====================================================================

            At  December  31,  2002,  the  range  of  exercise  prices  for  all
            outstanding options ranged from $5.06 to $12.00. The following table
            provides   certain   information   with  respect  to  stock  options
            outstanding at December 31, 2002:

                                                   Weighted         Weighted
                                    Stock           Average          Average
            Range of               Options         Exercise        Remaining
            Exercise Prices      Outstanding         Price      Contractual Life
            --------------------------------------------------------------------
            Under $6.00               51,732     $    5.80           2.21
            $6.00 to $8.99            62,169          8.86           7.21
            $9.00 to $9.50            66,305          9.48           8.33
            Over $9.50                82,691         11.55           8.99
            --------------------------------------------------------------------
                                     262,897     $    9.26           7.07
            ====================================================================

            At  December  31,  2002 and  2001,  the  weighted-average  remaining
            contractual life of all outstanding  options was 7.07 years and 7.70
            years, respectively.  The number of options exercisable was 145,943,
            140,992,  and 122,928  and the  weighted-average  exercise  price of
            those options was $8.35, $8.12, and $7.64 at December 31, 2002, 2001
            and 2000, respectively.

            The following  table provides  certain  information  with respect to
            stock options exercisable at December 31, 2002:

                                                                        Weighted
                                                Stock                    Average
            Range of                           Options                  Exercise
            Exercise Prices                  Exercisable                  Price
            --------------------------------------------------------------------
            Under $6.00                         51,732                $    5.80
            $6.00 to $8.99                      38,565                     8.83
            $9.00 to $9.50                      27,593                     9.47
            Over $9.50                          28,053                    11.28
            --------------------------------------------------------------------
                                               145,943                $    8.35
            ====================================================================

            (b)      Employee Stock Ownership Plan

                                       58
<PAGE>

            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  2002,  2001  and  2000  totaled
            approximately  $ 191  thousand,  $ 171 thousand  and $156  thousand,
            respectively.

            Contributions to the plan are invested primarily in the Common Stock
            of First Financial  Bancorp and are allocated to participants on the
            basis of  salary  in the year of  allocation.  Benefits  become  20%
            vested after the third year of credited service,  with an additional
            20%  vesting  each year  thereafter  until 100%  vested  after seven
            years.  As of December 31, 2002,  the plan owned  167,918  shares of
            Company   Common  Stock.   Of  that  amount,   109,807  shares  were
            unallocated to participants at December 31, 2002.

            (c)      Dividends and Dividend Restrictions

            The  Company's  principal  source of funds for dividend  payments is
            dividends  received from the Bank.  Under  applicable  Federal laws,
            permission  to pay a  dividend  must  be  granted  to a bank  by the
            Comptroller  of the  Currency if the total  dividend  payment of any
            national  banking  association  in any calendar year exceeds the net
            profits of that year, as defined,  combined with net profits for the
            two preceding  years. At December 31, 2002, there were Bank retained
            earnings of $4,272 thousand free of this condition.

            (d)      Weighted Average Shares Outstanding

            Basic and diluted  earnings  per share for the years ended  December
            31, 2002, 2001, and 2000 were computed as follows:

<TABLE>
<CAPTION>
                                                    Income                     Shares             Per-Share
                                                  (numerator)              (denominator)            Amount
             2002                               (in thousands)
             -------------------------------------------------------- ------------------------- --------------
<S>                                                           <C>                    <C>                <C>
             Basic earnings per share                         $1,355                 1,646,314          $0.82
             Effect of dilutive stock options                      -                    63,244              -
                                             ------------------------ -------------------------
             Diluted earnings per share                       $1,355                 1,709,558          $0.79
                                             ======================== =========================


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


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

</TABLE>
                                       59
<PAGE>


            (e)      Preferred Stock Rights Plan

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

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


(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,  2002 and  2001,
            respectively,  such  borrowings  totaled $1,467  thousand and $1,403
            thousand, respectively. Deposits of related parties held by the Bank
            totaled  $397  thousand  and $ 463 thousand at December 31, 2002 and
            2001, respectively.

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

            (in thousands)                             2002             2001
            --------------------------------------------------------------------
            Balance, beginning of year         $      1,403            1,366
            Loans funded                                745              475
            Principal repayments                       (681)            (438)
            --------------------------------------------------------------------
            Balance, end of year               $      1,467            1,403
            ====================================================================


                                       60
<PAGE>


(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,  2002 and  2001,  and
            statements of income, and cash flows information for the years ended
            December 31, 2002, 2001, and 2000.

<TABLE>
<CAPTION>
            Balance Sheets: (in thousands)
            ------------------------------------------------------------------------------------------------------------------------
            Assets                                                                     2002                                2001
            ------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                                          <C>
            Cash in bank                                                       $      2,802                                 128
            Investment securities available-for-sale, at fair value                       6                                   6
            Premises and equipment, net                                                  60                                  60
            Investment in wholly-owned subsidiaries                                  20,999                              17,300
            Other assets                                                                558                                 369
            ------------------------------------------------------------------------------------------------------------------------
                                                                               $     24,425                              17,863
            ========================================================================================================================

            Liabilities and Stockholders' Equity
            ------------------------------------------------------------------------------------------------------------------------
            Note payable to subsidiary                                         $      5,155                                   -

            Stockholders' equity
            Common stock                                                             10,143                              10,191
            Retained earnings                                                         8,672                               7,317
            Accumulated other comprehensive income, net                                 455                                 355
            ------------------------------------------------------------------------------------------------------------------------
                  Total stockholders' equity                                         19,270                              17,863
            ------------------------------------------------------------------------------------------------------------------------
                                                                               $     24,425                              17,863
            ========================================================================================================================



            Statements of Income: (in thousands)                                       2002              2001              2000
            ------------------------------------------------------------------------------------------------------------------------
            Rent from subsidiary                                               $          6                 6                 6
            Interest expense - long term debt                                          (214)                -                 -
            Other expenses                                                             (203)             (213)             (150)
            Equity in income of subsidiaries                                          1,694             1,292             1,360
            Income tax benefit                                                           72               122                67
            ------------------------------------------------------------------------------------------------------------------------
                  Net income                                                   $      1,355             1,207             1,283
            ========================================================================================================================



            Statements of Cash Flows: (in thousands)                                   2002              2001              2000
            ------------------------------------------------------------------------------------------------------------------------
            Net Income                                                         $      1,355             1,207             1,283
            Adjustments to reconcile net income to net cash
                  flows (used in) provided by operating activities:
                        Depreciation and amortization                                     -                 -                 3
                        Provision for deferred taxes                                    (37)              (21)              (10)
                        (Increase) decrease in other assets                            (152)              (89)              122
                        Increase in equity of subsidiaries                           (3,599)           (1,307)           (1,367)
            ------------------------------------------------------------------------------------------------------------------------
                        Net cash (used in) provided by operating activities          (2,433)             (210)               31

            Cash flows from financing activities:
                  Proceeds from issuance of long term debt                            5,155                 -                 -
                  Proceeds from issuance of common stock                                343               136               173
                  Payments for repurchase of common stock                              (391)                -                 -
                  Dividends paid                                                          -                (4)              (74)
            ------------------------------------------------------------------------------------------------------------------------
                  Net cash provided by financing activities                           5,107               132                99
            ------------------------------------------------------------------------------------------------------------------------
            Net increase (decrease) in cash                                           2,674               (78)              130
            ------------------------------------------------------------------------------------------------------------------------
            Cash at beginning of year                                                   128               206                76
            ------------------------------------------------------------------------------------------------------------------------
            Cash at end of year                                                $      2,802               128               206
            ========================================================================================================================
</TABLE>
                                       61

<PAGE>


(16)        Short Term Borrowings

            The Bank has two lines of credit with  correspondent  banks totaling
            $5 million at December  31,  2002 and 2001.  The lines of credit are
            unsecured and renew annually. At December 31, 2002 and 2001 the Bank
            had outstanding borrowings under these lines totaling $3 million and
            $4 million,  respectively.  The maximum  amount  outstanding  was $3
            million and $4  million,  the average  balance  outstanding  was $61
            thousand and $50 thousand and the weighted average interest rate was
            2.46% and 3.02% for the years  ending  December  31,  2002 and 2001,
            respectively.

            At December 31, 2002 and 2001  securities  sold under  agreements to
            repurchase  totaled  $11,885  and  $0  thousand,  respectively.  The
            maximum amount outstanding was $11,885 thousand and $4,588 thousand,
            the average balance outstanding was $3,227 thousand and $70 thousand
            and the weighted  average  interest rate was 2.09% and 6.79% for the
            years  ending  December  31,  2002  and  2001,  respectively.  These
            agreements generally mature within 30 days.


(17)        Obligated  Mandatorily  Redeemable  Capital Securities of Subsidiary
            Trust

            On March 26, 2002, First Financial (CA) Statutory Trust I (Trust), a
            Connecticut   statutory   business  trust  and  100%-owned   finance
            subsidiary of First Financial Bancorp, issued $5 million in floating
            rate  Cumulative  Trust  Preferred  Securities   (Securities).   The
            securities  have an  initial  interest  rate of 5.59% and  mature on
            March 26, 2032,  but prior  redemption  is permitted  under  certain
            circumstances,  such as changes in tax or regulatory  capital rules.
            The  principal  asset of the Trust is a $5.2 million  floating  rate
            subordinated  debenture of the Company.  The subordinated  debenture
            bears an initial  interest rate of 5.59% and matures March 26, 2032,
            subject  to prior  redemption  under  certain  circumstances.  First
            Financial Bancorp owns all of the common securities of the Trust.

            The Securities,  the assets of the Trust, and the common  securities
            issued by the Trust are  redeemable  in whole or in part on or after
            March 26, 2007, or at any time in whole,  but not in part,  from the
            date  of  issuance  upon  the  occurrence  of  certain  events.  The
            Securities  are  included in Tier 1 capital for  regulatory  capital
            adequacy determination purposes, subject to certain limitations. The
            obligations  of the  Company  with  respect to the  issuance  of the
            Securities  constitute  a full and  unconditional  guarantee  by the
            Company of the Trust's obligation with respect to the Securities.

            Subject to certain exceptions and limitations, the Company may, from
            time to time, defer subordinated debenture interest payments,  which
            would result in a deferral of  distribution  payments on the related
            Securities  and, with certain  exceptions,  prevent the Company from
            declaring or paying cash distributions on the Company's common stock
            or debt securities that rank junior to the subordinated debenture.

(18)        Regulatory Matters

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

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

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

                                       62
<PAGE>

            Management  believes,  as of December 31, 2002,  that the Bank meets
            all capital  adequacy  requirements  to which it is  subject.  As of
            December 31, 2002, 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.

            The Bank's actual capital amounts and ratios as of December 31, 2002
            are as follows:

<TABLE>
<CAPTION>
                                                                                                            To Be Well Capitalized
                                                                                       For Capital          Under Prompt Corrective
                                                           Actual                   Adequacy Purposes          Action Provisions
            (dollars in thousands)                         Amount         Ratio   Amount          Ratio     Amount          Ratio
            ------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>           <C>          <C>           <C>           <C>
            Total Risk-based Capital
            (to Risk Weighted Assets)                  $       22,506   11.16%        16,127      >8.0%          20,159       >10.0%

            Tier I Capital (to Risk Weighted Assets)   $       19,979    9.91%         8,064      >4.0%          12,095        >6.0%

            Tier I Capital  (to Average Assets)        $       19,979    8.22%         9,722      >4.0%          12,153        >5.0%



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

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

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

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

(19)        Fair Values of Financial Instruments

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

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

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

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

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

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

                                       63

<PAGE>


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

            Other  borrowings:  Other borrowings  consist of the Trust Preferred
            Securities.  The fair  value of the Trust  Preferred  Securities  is
            estimated by the contractual  cash flows using the current  interest
            rate at which  similar  borrowing  for the same  remaining  maturity
            could be made.

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

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

            The estimated fair values of the Company's financial  instruments at
            December 31, 2002 are approximately as follows:

<TABLE>
<CAPTION>
                                                                                                           2002
                                                                                              Carrying             Fair
            (in thousands)                                                                     Amount              Value
            --------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                             <C>
                  Financial assets:
                        Cash and due from banks and federal funds sold and
                              securities purchased under resale agreements         $             34,622            34,622
                        Investment securities                                                    33,125            33,125
                        Loans held for sale                                                       7,578             7,600
                        Loans, net                                                              154,090           156,762

                  Financial liabilities:
                        Deposits:
                              Demand                                                             34,673            34,673
                              Now and Super Now accounts                                         50,582            50,993
                              Money Market                                                       30,248            30,319
                              Savings                                                            39,597            40,177
                              Time                                                               55,579            55,881
                              -------------------------------------------------------------------------------------------
                              Total deposits                                                    210,679           212,043
                        Short term borrowings                                                    14,885            14,885
                        Other Borrowings                                                          5,000             5,000
</TABLE>

<TABLE>
<CAPTION>
                                                                     Contract                  Carrying             Fair
            (in thousands)                                            Amount                    Amount              Value
            --------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                                                       <C>
                  Unrecognized financial instruments:
                        Commitments to extend credit         $            40,717                                       407
                        Standby letters of credit                          1,038                                         1
</TABLE>
                                       64

<PAGE>


<TABLE>
<CAPTION>
                                                                                                         2001
                                                                                             Carrying            Fair
            (in thousands)                                                                    Amount             Value
            ------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                             <C>
                  Financial assets:
                        Cash and due from banks and federal funds sold and
                              securities purchased under resale agreements       $             19,457            19,457

                        Investment securities                                                  41,015            41,015

                        Loans held for sale                                                     3,876             3,900

                        Loans, net                                                            135,430           137,138


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

                        Short term borrowings                                                   4,000             4,000
</TABLE>

<TABLE>
<CAPTION>

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

(20)        Legal Proceedings

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


(21)        Derivative Financial Instruments

            As of  December  31, 2002 and 2001,  the Company has no  off-balance
            sheet  derivatives.  The Company held  $25,463  thousand and $23,203
            thousand in collateralized  mortgage  obligations as of December 31,
            2002  and  2001,  respectively.  These  investments  are held in the
            available for sale portfolio.

                                       65

<PAGE>


(22)        Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
            ----------------------------------------------------------------------------------------------------------------------
            (in thousands, except per share data and
            price range of common stock)                     March 31,            June 30,      September 30,        December 31,
            ----------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                            <C>                <C>                 <C>
            2002

            Interest income                           $          3,149               3,590              3,539               3,399
            Net interest income                                  2,149               2,625              2,740               2,704
            Provision for loan losses                              195                 181                162                  87
            Noninterest income                                   1,225                 915              1,418               1,145
            Noninterest expense                                  2,843               3,163              3,080               3,400
            Income before taxes                                    336                 196                916                 362
            Net income                                             281                 197                612                 265
            Basic earnings per share                               .17                 .12                .37                 .16
            Diluted earnings per share                             .17                 .12                .36                 .15
            Dividends paid per share                                 -                   -                  -
            Price range, common stock                      11.35-10.40         12.50-11.00        11.88-11.65         12.65-11.71
            ----------------------------------------------------------------------------------------------------------------------
            2001

            Interest income                           $          3,310               3,383              3,563               3,602
            Net interest income                                  2,204               2,153             2,377                2,480
            Provision for loan losses                              190                   -                 55                 146
            Noninterest income                                     953                 758              1,030               1,087
            Noninterest expense                                  2,665               2,782              2,933               2,846
            Income before taxes                                    302                 129                419                 575
            Net income                                             255                 153                322                 477
            Basic earnings per share                               .15                 .10                .20                 .30
            Diluted earnings per share                             .15                 .09                .19                 .30
            Dividends paid per share                                 -                   -                  -                   -
            Price range, common stock                     10.13 - 9.00         9.87 - 9.12       10.42 - 9.00        11.15 - 9.90
            ----------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       66

<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 .

                                          FIRST FINANCIAL BANCORP


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

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

<TABLE>
<CAPTION>
                                                            Capacity                                       Date
                                                            --------                                       ----
<S>                                              <C>                                                   <C>
     /s/ BENJAMIN R. GOEHRING                    Director and Chairman of the Board                    March 21, 2003
-------------------------------------------
Benjamin R. Goehring


     /s/ WELDON D. SCHUMACHER                    Director and Vice Chairman of the Board               March 21, 2003
--------------------------------------------
Weldon D. Schumacher


     /s/ ANGELO J. ANAGNOS                       Director                                              March 21, 2003
--------------------------------------------
Angelo J. Anagnos


     /s/ STEVE M. COLDANI                        Director                                              March 21, 2003
--------------------------------------------
Steve M. Coldani


     /s/ DAVID M. PHILIPP                        Director                                              March 21, 2003
--------------------------------------------
David M. Philipp


     /s/ ROBERT H. MILLER, III                   Director                                              March 21, 2003
--------------------------------------------
Robert H. Miller, III


     /s/ KEVIN VAN STEENBERGE                    Director                                              March 21, 2003
--------------------------------------------
Kevin Van Steenberge


     /s/ LEON J. ZIMMERMAN                       Director, President and                               March 21, 2003
--------------------------------------------     Chief Executive Officer
Leon J. Zimmerman                                (Principal Executive Officer)


     /s/ ROBERT H. DANEKE                        Director, Executive Vice President and                March 21, 2003
--------------------------------------------     Chief Credit Officer
Robert H. Daneke


     /s/ ALLEN R. CHRISTENSON                    Senior Vice President,                                March 21, 2003
---------------------------------------------    Chief Financial Officer and Secretary
Allen R. Christenson                             (Principal Financial and Accounting Officer)

</TABLE>

                                       67
<PAGE>


                                CERTIFICATION OF
                             CHIEF EXECUTIVE OFFICER

I, Leon Zimmerman, certify that:

1. I have reviewed this annual report on Form 10-K of First Financial Bancorp;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         (a) designed  such  disclosure  controls and  procedures to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

         (b) evaluated the effectiveness of the registrant's disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

         (c)  presented  in  this  annual  report  our  conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed,  based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
the registrant's board of directors:

         (a) all significant deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

         (b) any fraud,  whether or not material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

                                   /s/  Leon Zimmerman
                                   -------------------------------------
                                   Leon Zimmerman
                                   President and Chief Executive Officer
                                   (Principal Executive Officer)

Dated:  March 21, 2003


                                       68
<PAGE>


                                CERTIFICATION OF
                             CHIEF FINANCIAL OFFICER


I, Allen R. Christenson, certify that:

1. I have reviewed this annual report on Form 10-K of First Financial Bancorp;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with a respect to the period covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         (a) designed  such  disclosure  controls and  procedures to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

         (b) evaluated the effectiveness of the registrant's disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

         (c)  presented  in  this  annual  report  our  conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
the registrant's board of directors:

         (a) all significant deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

         (b) any fraud,  whether or not material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

6. I have indicated in this annual report whether or not there were  significant
changes in internal controls or in other factors that could significantly affect
internal  controls  subsequent  to the  date  of  our  most  recent  evaluation,
including any  corrective  actions with regard to significant  deficiencies  and
material weaknesses.

                                 /s/  Allen R. Christenson
                                 -----------------------------------------------
                                 Allen R. Christenson
                                 Chief Financial Officer
                                 (Principal Financial and Accounting Officer)

Dated:  March 21, 2003

                                       69
<PAGE>


                                INDEX TO EXHIBITS

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

     1         Placement  Agreement dated March 14, 2002 for the First Financial
               Bancorp  5,000  Floating  Rate  Capital  Securities  (Liquidation
               Amount $1,000.00 per Capital Security)

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

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

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

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

     4(c)      Amended and Restated  Declaration  of Trust dated as of March 26,
               2002  by and  Among  State  Street  Bank  and  Trust  Company  of
               Connecticut,  National  Association,  As  institutional  Trustee,
               First Financial  Bancorp,  As Sponsor,  and Benjamin R. Goehring,
               Weldon D. Schumacher And Leon J. Zimmerman As Administrators

     4(d)      Guarantee  Agreement  dated as of March 26,  2002 by and  between
               First  Financial  Bancorp and State Street Bank and Trust Company
               of Connecticut, National Association

     4(e)      Indenture  of  dated  as of March  26,  2002 of  First  Financial
               Bancorp  as Issuer  and State  Street  Bank and Trust  Company of
               Connecticut,   National   Association,   as   Trustee   for   the
               registrant's   Floating  Rate  Junior   Subordinated   Deferrable
               Interest Debentures due 2032

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

     10(b)*    Amendment to First  Financial  Bancorp 1991 Director Stock Option
               Plan,  filed  as  Exhibit  4.3  to the  Company's  Post-Effective
               Amendment No. 1 to Form S-8 Registration Statement  (Registration
               No.  33-40954),  filed as Exhibit 10 to the  Company's  Quarterly
               Report on Form 10-Q for the  period  ended  March  31,  1995,  is
               hereby incorporated by reference.

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

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

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

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

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

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<PAGE>

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

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

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

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

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

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

     10(n)*    Form of Life  Insurance  Endorsement  Method  Split  Dollar  Plan
               Agreement,  effective  as of April 3, 1998,  as executed  between
               Bank of Lodi,  N.A.  and each of Angelo J.  Anagnos,  Raymond  H.
               Coldani,  Bozant Katzakian and Frank M. Sasaki,  filed as Exhibit
               10(q) to the  Company's  Quarterly  Report  on Form  10-Q for the
               quarter  ended  September  30, 1998,  is hereby  incorporated  by
               reference.

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

     11        Statement re  computation  of earnings per share is  incorporated
               herein  by  reference  to Notes  1(j) 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,  100 percent of the capital stock of Western
               Auxiliary  Corporation  and 100 percent of the  capital  stock of
               First Financial (CA) Statutory Trust I.

     23        Consent of KPMG LLP, independent auditors

     99.1      Certification of Registrant's Chief Executive Officer Pursuant To
               18 U.S.C. Section 1350

     99.2      Certification of Registrant's Chief Financial Officer Pursuant To
               18 U.S.C. Section 1350

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